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Two-Tier ERP: Enabling the Future-Ready Global Enterprise with Better Innovation, Customer Experience and Agility

Two-Tier ERP: Enabling the Future-Ready Global Enterprise with Better Innovation, Customer Experience and Agility

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Published by Cognizant
Organizations that embrace two-tier ERP strategies are better positioned
to both navigate volatile global business conditions and acquire or divest operations that generate operational efficiency and growth.
Organizations that embrace two-tier ERP strategies are better positioned
to both navigate volatile global business conditions and acquire or divest operations that generate operational efficiency and growth.

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Published by: Cognizant on Sep 29, 2013
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Two-Tier ERP: Enabling the Future-ReadyGlobal Enterprise with Better Innovation,Customer Experience and Agility
Organizations that embrace two-tier ERP strategies are better positionedto both navigate volatile global business conditions and acquire or divestoperations that generate operational efciency and growth.
Executive Summary
To achieve their goals o global eciency, costreduction and regulatory compliance, orward-thinking enterprises are pursuing uniorm,consistent processes and shared services. At thesame time, they cannot aord to compromise thefexibility, agility or speed they need to respond totoday’s ever-changing and unpredictable businessenvironment.To meet these seemingly conficting needs, agrowing number o companies are migratingrom a single-instance ERP system to a two-tierstrategy that combines the stability o on-premiseERP with the agility o cloud ERP (i.e., multi-tenantERP delivered in a SaaS model) to create a hybridenvironment. On-premise ERP systems unctionas “systems o record,” or “a single source othe truth” or corporate data, while cloud ERPsystems act as “systems o engagement,” whichare more interaction-ocused and geared towardserving customers, employees and partners.For example, nearly hal the respondents cited in aFebruary 2011 report rom Constellation Research
were considering a two-tier ERP strategy, a27-point increase rom 2009. Among the driverswere the high operating costs o existing systems,a lack o industry-specic ERP unctionality,excessive upgrade costs and too little innovationrom existing ERP vendors. Saugatuck Technol-ogy’s 2012 Cloud Business Solution Survey,
 meanwhile, predicts that through 2016, “hybrid”cloud deployments, such as two-tier ERP, willbecome the enterprise platorm o choice, withat least three-quarters o new enterprise ITspending involving hybrid or cloud platorms.A two-tier ERP approach can provide the idealcombination o global processes, lower costs,fexible deployment, agile customization and easeo use. Such an approach is useul, or example,or quickly providing ERP capabilities to a newlyacquired or growing business, a spin-o or theentire enterprise during an ERP transition. Thisullls the needs o enterprises that must protectexisting ERP investments while obtaining signi-cant new value via cloud ERP extensions.
Business Drivers
ERP systems have ormed the inormationbackbone or many organizations since the mid-to late-1990s, when they were deployed to copewith issues such as the Y2K transition, increased
Cognizant 20-20 Insights
cognizant 20-20 insights|january 2013
cognizant 20-20 insights
regulation and the adoption o the euro. Sincethen, however, rapidly changing business andtechnology landscapes have highlighted the fex-ibility limitations o on-premise ERP.Over time, organizations realized that big-bangimplementations o ERP systems are sometimesineective. This is especially true when they needto customize ERP instances orlocal needs, which increasesthe cost o routine operations,upgrades and maintenance.These added costs are agreater burden today, asthe economic downturn hasorced organizations to domore with less, pushing themto improve and optimizeexisting on-premise systems.As a result, organizations ndthe two-tier ERP approach tobe a compelling strategy tomeet their requirements.Modern enterprises must switly capitalize onopportunities in emerging markets to stay com-petitive, introducing new products or serviceseither internally or by acquiring other companies.Either approach requires a rollout o newprocessing capabilities and seamlessly integrat-ing them with corporate ERP systems. Deployinga complex, large-scale ERP solution would notonly be more expensive than necessary, but itwould also overwhelm the skills and inrastruc-ture o the local business unit, which needs ready-to-deploy, simple and fexible systems that arealso robust, cost-eective and able to deliver thesame results as on-premise ERP systems.As global enterprises expand through mergersand acquisitions, they ace the daunting task oconsolidating and supporting disparate ERP orhomegrown systems across business units indierent geographies. With today’s relentlesspressure to slash costs and meet ever-changingbusiness challenges, no organization can aordyears o merging, cleansing and synchronizingdata among multiple on-premise ERP systems orconguring each instance to local needs. Whenorganizations are unable to consolidate to asingle ERP system, a two-tier ERP solution can bea cost-eective, agile solution.
The Role o Two-Tier ERP
Single-instance ERP systems are overly expensiveand take too long to deploy to keep pace withchanging business models, competitive pressures,regulatory needs and global customer demands.As single-instance on-premise ERP systemsage, managing and tracking required changesposes signicant challenges to business and IToperations. Unmanaged change requires the ITteam to create quick-x patches and/or deploypoint solutions to plug potential gaps. All thisadds to the very chaos that organizations seek toavoid by adopting ERP. Even ater deploying the
Today’s ERP mustimprove an ITorganization’salignment with thebusiness rather thanorce the businessto ft its processesinto a portolio oapplications.
Business Technology OrganizationDatabaseStructureSecurity
Key Drivers
Running Core On-Premise ApplicationEmployeesCustomersPartners
Asia Division HQ
RunningCloud ERPApplicationRunning Cloud ERP Application
System ofEngagement
Reinvent businessfunctions
Engage people
Shift to System ofEngagementEmergence of Multi-TierEcosystem
System ofRecord
Figure 1
Changing Axis o Innovation Leads To New-Age ERP
cognizant 20-20 insights
on-premise ERP system, the core IT team is sobusy mending and tweaking that they have littleor no bandwidth to roll out the system to new sub-sidiaries, divisions or processes.A two-tier ERP approach helps organizationsswitly deploy and integrate new processing capa-bilities at subsidiaries or smaller business unitsthat can be seamlessly integrated into the coreon-premise ERP backbone. This approach sig-nicantly reduces the time and cost required toimplement, support and maintain ERP capabilities.Two-tier ERP does not replace on-premise ERP butinstead complements it with more agile, fexibleand lower-cost cloud-based ERP. On-premise ERPstill provides the standardization and consistencyor back-oce systems o record or processessuch as make-to-deliver and record-to-reportthat are vital or ecient operations, regulatoryand legal compliance, and consistent quality(see Figure 1).In short, embracing cloud ERP while maintainingexisting on-premise enterprise applications canhelp organizations do the ollowing:
Penetrate new markets and geographies, whileretaining business agility and fexibility, as wellas lower total cost o ownership and adoptstandard processes.
Quickly link newly acquired businesses into —or separate divested business rom — existingERP systems.
Increase ocus on core business processes bykeeping them on-premise while enabling mar-ket-acing processes via cloud ERP.
Shit spend over time rom Cap-Ex to Op-Ex.
Cloud ERP: Best Option or Two-Tier ERP
Today’s ERP must improve an IT organization’salignment with the business rather than orcethe business to t its processes into a portolioo applications. IT organizations need to innovateand implement fexible systems to support andautomate new processing capabilities or businessagility. Such systems should acilitate globalvisibility, process eciency and standardization.Even as businesses ace these new and urgentchallenges, innovative technologies have creatednew ERP delivery channels that help meet thoseneeds. Since ERP systems were rst deployed,organizations have increasingly turned to virtu-alization. This entails a services approach to ITdelivery and the use o cloud-based systems toreduce costs and quickly add new capabilities,while giving users personalized content and con-sumer-like ease o use.Cloud ERP uses this new computing paradigm toprovide almost all the capabilities o on-premiseERP systems, but in a consumption-based modelthat is considerably less expensive, easier andaster to deploy (and downsize) than on-premiseERP. Cloud ERP eliminates upront Cap-Ex costsand drives better user adoption and value witheasier-to-use interaces.By enabling easier collaboration and inormationaccess, cloud ERP acilitates the rapid pilotingo ideas, easily scalable solutions and aster,lower-cost expansion into new markets. It alsoprovides customer service via digital channelsand makes it easy and less expensive to supportlocal language, tax code, currency or regulatoryrequirements.Cloud ERP provides dierentiated ront-oce“systems o engagement” or unctions such as“procure to pay” or “hire to retire.” This createsvalue by providing superior user experiences anddelivering customized inormation or processfows that support local business needs in areassuch as sales, marketing or customer service.
How Two-Tier ERP Helps the Bottom Line
A two-tier ERP strategy can help companiesovercome key technology challenges, such as:
Application modernization (i.e., end-of-lifeERP migration):
Enterprises considering anapplication modernization strategy can usetwo-tier ERP to continue operating ecientlywhile adapting to rapidly changing businessneeds.
Application rationalization:
Organizationscan deploy on-premise ERP to support corecorporate unctions while deploying cloud ERPor market-acing unctionalities.
New application requirements:
Cloud ERPcan complement on-premise ERP with next-generation disruptive technologies, such asWeb services and process integration libraries,to enable applications that operate anytime,anywhere.
Cost reduction:
Cloud ERP shits responsibilityrom the customer to the vendor or upgrades,patches and other unctions. Cloud ERP alsoreduces total cost o ownership by eliminat-ing the need to purchase servers, storage andnetwork capability or on-premise systems.

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