Sector as a Service #3 – Elastic Business
The cloud enables a new generation of powerful software-as-a-service solutions that are simple to use, easy to implement and don’t require massive capital investments upfront. Consider these solutions to quickly start up new subsidiaries or seamlessly integrate newly acquired business units. Use cloud integration services to connect these solutions to your central ERP or homegrown applications. This way, you can provide flexibility, elasticity and an excellent degree of customization to your subsidiaries and ‘satellite’ business units, without a painful modification of your central systems.
The most common scenarios where we see a need for business elasticity with SaaS ERP solutions such as NetSuite result from mergers, acquisitions, divestitures, joint ventures, expansion into new geographies or markets, launch of new products or service offerings, a shift in business model for a part of the business, a rapidly growing business or a rapidly declining business.
Most of our clients struggle with the high cost of ownership in their established ERP landscape. Since the late ’90s the mantra was ‘single-instance’ ERP, which seemed like the right idea. With the support and endorsement of large software vendors and analysts it became the gold standard to aspire to.
So while in theory it makes sense for every subsidiary, division and geographic region to run on the same ERP system, there have been many more failures than successes. Most organizations end up with large sections of their enterprise (overseas subsidiaries, acquired business units, new divisions) that have never deployed the ‘standard’ system and continue to run on something else. And clearly, each ‘something else’ drives its own need for attention to maintenance and upgrade.
Even companies that achieved true global standardization at one point in time have often watched their application landscape devolve into multiple systems as the pace of deployment and maintenance of a heavy, on-premise system couldn’t keep up with the pace of expansion, acquisition or innovation in the enterprise. While there are many reasons for the failure of traditional, single-instance ERP, they typically fall into the main categories of too much cost, too much time, too much risk and an inability to keep up with the rest of the organization.
To address these challenges, our recommendation to many of our customers is to design and develop a strategy of two-tier cloud ERP that balances the cost of ownership, the need for agility as well as the requirement of the overall enterprise architecture. When done right, this helps organizations to gain the global visibility, standardization and efficiency originally sought after with large-scale ERP, but without the complexity, excessive cost and slow deployment.
Two-tier cloud ERP is about designing a platform that can be deployed quickly and cost effectively outside headquarters. This platform will provide the visibility and standardization hoped for in single-instance ERP but will also be agile and cost effective enough to be deployed even in the furthest reaches of the organization.
The idea is to achieve most of the major benefits of the single-instance ERP—standard processes, consistent definitions, streamlined financial consolidation and better business visibility across the organization—but without the outsized cost and risk and while still ensuring the business can adapt to change going forward. It’s about closing the gap between what finance needs and what IT can deliver effectively with the resources they have at their disposal.
In short, two-tier cloud ERP means running one ERP system for corporate, such as SAP or Oracle, and adopting another (cloud-based) ERP solution for everywhere else that’s lighter weight and easier to deploy and customize to local needs. The two-tier strategy should provide a standard, template-based deployment for subsidiaries while reducing the overall number and variety of distinct systems throughout the organization.
By using a two-tier approach, an enterprise ideally should be able to whittle down its distinct ERP solutions to two or three instances. For CFOs and controllers, this means a dramatically simpler financial consolidation process: fewer individual feeds, fewer systems to track, and more effective financial and management reporting overall.
Competitive pressures, globalization, a changing regulatory environment and market volatility mean that organizations need to be more agile and to step up the level of transparency and visibility across and into the business. Of course, the laser focus on spending also means that companies need to achieve these goals while dedicating a flat or declining portion of their resources to the IT core landscape.
The impact of adopting a two-tier strategy can be substantial. We recommend the use of cloud computing as an enabler for two-tier cloud ERP because it gives our clients the ability to roll out standardized ERP to each subsidiary quickly and without overtaxing the IT organization. It also means that corporate can easily access divisional and subsidiary reports through the web—making the organization more transparent and timely. By using a two-tier cloud ERP approach, companies can save millions in infrastructure and software costs compared to using an on-premise deployment, and achieve in months what would otherwise take years to complete.
Many companies worry that they will be forced to take out-of-the-box functionality with SaaS and will not be able to meet their unique business needs. However, pure ‘multi-tenancy’ SaaS solutions often feature an advanced development platform that can be used to extend to the needs of the business unit. This cost of extension is trivial as the platform is designed to upgrade these extensions through centrally managed upgrades: it’s a big plus of typical multi-tenancy SaaS.
We see a compelling and growing need in the market for two-tier cloud ERP. This need is especially prevalent with companies that are large and complex with high activity levels of acquisitions, mergers and divestitures, as well as companies that are innovating with emerging products and markets and want a testing ground to monitor and measure the success of these new ventures. These companies should streamline their subsidiaries, acquired companies, divestitures and emerging countries/products on two-tier cloud ERP as a standard, integrating it with their enterprise SAP or Oracle corporate instance.
A stable, robust core with infinite elasticity and flexibility: we believe it’s the future of the enterprise application landscape.
This contribution by Mary Niemann
Part of Capgemini's TechnoVision 2014 update series. See the overview here.