Research: businesses adapt ERP to tackle diverse demands

Organisations are plugging in secondary systems to increase agility and local control

E, R and P. To many in IT these letters spell trouble. More than any other flavour of enterprise IT, enterprise resource planning suites exemplify 1990s-era technology - huge in ambition and scale, fiendishly complex in implementation, and requiring deep organisational change in order to operate as intended.

ERP systems have not always enjoyed the best of reputations. Whole careers have risen and fallen in the time it takes to get one of these beasts onto its feet, with organisations sometimes bankrupting themselves in the process. Meanwhile, a whole branch of consultancy has arisen to take advantage of this situation.

Small wonder then, that once an enterprise has its ERP system up and running there is often little appetite for replacing it for many years afterwards. Even though price-tags and timescales may be have come down in recent years, average investments for a Tier 1 ERP suite are still counted in the millions of pounds, with typical implementation timescales running at over one year. And that's before considering all the preliminary work and planning required.

Of course, organisations would not put themselves through the agonies of installing ERP were it not for the benefits promised. These are significant: a seamless view of the entire organisation and its supply chain, promoting transparency and compliance and providing a template for more efficient business processes, communications and data management.

But, like all centralised systems, in these very strengths lie ERP's weaknesses. For large, highly dispersed organisations, whatever control IT gives to the head office it takes away from branch offices and subsidiaries in the shape of limiting flexibility, customisation and the scope for innovation.

Central concerns

Financial hard times have led to a number of consequences for enterprise ERP. The most obvious is that there is less money around to renew, refresh or extend existing systems. A second consequence is that the sort of large organisations that typically uses ERP is having to innovate to survive, by moving into new markets or new territories (such as the BRIC nations). Both of these eventualities put strain on the centralised ERP system that may have been designed with entirely different circumstances in mind. The downturn has also made firms acutely aware of the dangers of vendor lock-in, creating a drive to diversify.

Computing surveyed 90 IT decision makers at large organisations that are running ERP. Sixty-three of these confirmed that they run a centralised enterprise-wide ERP system, among which the vast majority deployed solutions by SAP (49 per cent) or Oracle (33 per cent), with Microsoft Dynamics, Epicor and others making up the remainder.

Among Oracle and SAP users in this admittedly small sample, 35 and 45 per cent, respectively, said they suffer from vendor lock-in, with 39 and 25 per cent unsure (figure 1). Presumably the high proportion of "don't knows" is down to the fact that in large organisations the IT department is often not directly involved in procurement negotiations.

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Question asked of those with an enterprise wide ERP system, all of which had more than 1,000 employees; 23 were Oracle users, 33 SAP users.

This lock-in did not necessarily translate into a problem, with roughly one-third of those identified as locked in saying their ERP vendor is flexible and supportive. However, 51 per cent professed "mixed feelings: they listen to us, but nothing changes and we dance to their tune," and 20 per cent complained that vendors are insensitive to their needs.

Asked whether, in an ideal world, they would change vendors and why, this inflexibility became apparent again, with 22 per cent saying "We have to run the business to suit the application". Oracle came out rather worse in this regard (figure 2), but it should be noted that the sample is small and so the results should be treated with caution.

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Question asked of those with an enterprise wide ERP system, all of which had more than 1,000 employees; 23 were Oracle users, 33 SAP users.

Plug in not rip out

Much as some would like to, ripping and replacing their ERP is not a realistic option for most. Instead, analysts have noticed an increasing interest in two-tier ERP.

Research: businesses adapt ERP to tackle diverse demands

Organisations are plugging in secondary systems to increase agility and local control

For highly distributed organisations, maintaining the enterprise-wide system at corporate level while allowing subsidiaries, branches and new acquisitions to address their specific requirements – such as sales, marketing, field services or local manufacturing – via a secondary system makes a lot of sense. Both the time taken to get up and running and the cost will almost certainly be reduced, while local compliance, finance and language needs can easily be accommodated by the local system. Corporate ERP suites are sometimes too complex to integrate seamlessly with existing applications in subsidiaries or acquisitions, and adding a more modern second tier may also be the answer to this problem.

ERP systems designed for SMEs, such as the SaaS-based SAP Business ByDesign, are being adopted by satellite organisations of large companies, plugging into the central corporate solution. Other examples are cloud-based or cloud-enabled versions of Microsoft Dynamics and Oracle Accelerate solutions developed by that company’s partner network.

Provided integration can be taken care of, there is no need to stick with the core vendor. Organisations are adopting systems by third party vendors, with Netsuite, QAD, Epicor and Sage being among the most popular.

Others are bringing on board solutions to handle specific functions, such as CRM and HCM, turning to Salesforce.com or Workday to fulfil these tasks while the central ERP runs the core financials.

Accommodating diversity

The two-tier approach makes most sense in those organisations in which a traditional ERP suite is most limiting: that is very large multinationals with many subsidiaries. Among the typical use cases are:

• organisations with subsidiaries operating in different sectors or with different lines of business;

• organisations with subsidiaries in different countries, which require support for different tax codes, languages and currencies;

• companies needing to bring new acquisitions quickly into the corporate fold;

• branches where there are few IT staff;

• firms with satellites that need to be able to innovate, change and act quickly or that have very specific data needs.

This strategy may also be useful where firms are trying to gradually wind down a legacy system – perhaps because of a lack of skills or funds to maintain it, or because it is running on obsolete hardware or operating systems such as AIX. It can help firms wring a few extra years of useful life out of these legacy systems while at the same time adding new functionality.

Obviously there are dangers inherent in two-tier ERP, most prominently that the whole point of the solution could be undermined by running multiple systems, each sitting on its own silo of data. Essential to the approach, therefore, is a proper master data management strategy and integration to ensure that all changes made at local level get propagated up to the core system.

Other areas of enterprise IT have been moving away from monolithic solutions, with marketing teams able to purchase a cloud-based CRM system on a pay-as-you-go basis, for example. While not all aspects of ERP will be well suited to this model, two-tier ERP with a main central suite and securely integrated to specialist subsystems fits in with this general trend.

@ComputingJohn