ERP users are giving up on the “single global instance” holy grail and implementing different systems at the enterprise and divisional levels.

By Jeff Moad

Remember when the “single global instance” was the holy grail of ERP deployments for large enterprises? Not so long ago, many large, global enterprises had a goal of implementing a single ERP package across all of their operations, from corporate headquarters to far-flung subsidiaries and divisions.

The argument was that, with all parts of the business running on the same ERP system—indeed, a single instance of the same ERP system—integration problems would disappear, and visibility would dramatically improve as everyone, from the CEO to a plant manager in Malaysia, would be working with the same master data.

While some determined enterprises managed to achieve the single global instance, today I hear far fewer manufacturing executives targeting this as their ERP strategy. Why? Cost, upgrade, and change management challenges proved too difficult for most to overcome. The large, full-featured ERP suites deployed at corporate headquarters often turned out to be overkill for subsidiaries and divisions. And upgrading a global ERP implementation proved costly and time-consuming.

But the change management challenges were perhaps the most difficult to overcome. For many global companies, coordinating the migration of all their subsidiaries and divisions to the same ERP platform was like trying to juggle one-handed in a windstorm.

Today, two-tier ERP strategies are much more common. I hear from more and more manufacturing companies that are leaving their existing enterprise ERP systems in place while implementing less expensive, less complex, tier-two ERP systems in subsidiaries and divisions. These division-level systems are integrated with the enterprise ERP backbone and, in many cases, support specific vertical industry business processes as well as or better than the enterprise ERP system.

This is supported by a survey published this week by Constellation Research Inc. (http://www.constellationrg.com/).  The analyst firm said that 48% of organizations it surveyed are planning a two-tier ERP strategy. That compares with 21% saying they planned a two-tier strategy just two years ago.

Three factors are driving two-tier strategies, the survey found. Existing systems are deemed too expensive to be deployed at the subsidiary or division level; they often lack industry-specific functionality required by subsidiaries; and upgrading single-instance deployments is too difficult and too expensive.

Enabling this surge of interest in two-tier strategies have been important enhancements in second-tier ERP projects. Many products not called SAP or Oracle now support multiple languages and multiple currencies, and many allow for local accounting standards while also supporting the roll-up financial data to the enterprise level.

Also enabling two-tier strategies have been improvements in integration, business process management, and master data management technologies. Tools that use Web services and even reside in the cloud have taken much of the headache and cost out of integration. This week, for example, software-as-a-service ERP provider NetSuite announced a partnership with integration and master data management tools vendor Informatica. The two companies will jointly develop and market a version of Informatica Cloud—a cloud-based tool—that integrates NetSuite OneWorld with enterprise ERP systems such as SAP’s Business Suite and Oracle EBS.

Boomi, Pervasive Software, and Cast Iron (an IBM company) offer similar cloud-based integration tools.

This trend toward two-tier ERP will benefit second-tier ERP vendors such as Epicor, Infor, Lawson, and QAD that have survived, continued to enhance their products, and deliver deep vertical industry functionality.

Increasingly you’ll even see SAP and Oracle target the two-tier trend. SAP is already talking about its Business ByDesign SaaS ERP product as an alternative for subsidiaries and divisions of larger companies, not just for small enterprises.