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Enabling the modern business through IT

How Cloud ERP can Help Meet Rapidly Evolving Business Needs.

Overview

As the pace of innovation accelerates, customer needs change and industries converge, many companies are finding it challenging for their information technology to support the rapidly changing needs of the business. Unfortunately, many organizations are faced with managing highly complex and inflexible legacy IT systems as a result of mergers, restructuring, tactical investment decisions, and changing business priorities.

This complexity creates pressure on IT to lower cost through simplification and automation. At the same time, as businesses emerge from a period of focusing mainly on cost management to focusing much more on growth, the requirements of IT to support growth and innovation are substantially different. For these and many other reasons, pressure is mounting for IT to find ways to support modern business innovation and agility.

Is this a strategic dilemma your company faces? If so, you may find this paper, written by Accenture and NetSuite, helpful as it explores characteristics of the modern company that IT must support, scenarios in which two-tier ERP may be a good fit and the benefits companies can anticipate from a two-tier ERP strategy.

The Approach

The cloud opens up exciting new possibilities for CIOs and CFOs to think differently about their IT infrastructure, and how they can increase flexibility and agility in support of the modern, innovative business. One such opportunity is two-tier ERP, which can both enable business growth and optimize costs. A departure from the traditional ERP consolidation strategy, it is an extension strategy that enables organizations to create the agility required to add new business models, integrate acquisitions and support innovation.

As companies evaluate their options for meeting business needs, experience shows that in situations where a two-tier ERP strategy is a good fit, it can significantly reduce capital and operational costs, enable greater agility and speed up acceptance by end-users while providing the flexibility to support growth and innovation. Some common questions CIOs and CFO’s face when they are considering a two-tier strategy include:

  • What does the company gain by moving to the cloud?

  • Is the enterprise ready for SaaS? Why now?

  • Where might SaaS be a good fit?

  • What are different deployment options for cloud ERP?

  • How does the organization get started?

What's Next?

A two-tier” ERP strategy is one in which the company runs a traditional global ERP system at the group level or for the existing business in combination with separate SaaS ERP solutions at the subsidiary or new business unit level. The two-tier strategy enables the company to shift how it approaches business model integration, preventing it from needing to consolidate new and different entities into one solution while still enabling consolidated financial reporting. The result is a “hub and spoke” ERP model.

Two-tier ERP gives companies the flexibility to preserve the IT infrastructure supporting the core business while having a separate cloud ERP innovation platform when business needs are different such as for new business models, pricing strategies, distribution methods and other innovations. Acquisitions and joint ventures are also prime “spoke” targets along with startup businesses. Implementing all the “spokes” on the same two-tier system brings standardization at the subsidiary level and cost and operational advantages because it is easier and cheaper to link, coordinate and govern the various local ERP instances.

As companies evaluate their options for meeting business needs, experience shows that in situations where a two-tier ERP strategy is a good fit, it can significantly reduce capital and operational costs, enable greater agility and speed up acceptance by end-users while providing the flexibility to support growth and innovation.

Analysis

Accenture High Performance IT research shows that 67 percent of CIOs want to position IT as a strategic asset that will help the business grow through the use of innovative technology, products or processes. Unfortunately, many IT operating models that were built around cost management cannot sufficiently support the agility, change and innovation needed for a growth-oriented agenda. Adding to the challenge, uncertainty about future growth is forcing many businesses to hedge their bets about where and how to invest. Many are following a strategy of making small investments to execute trials and pilots with the expectation that they will have to respond rapidly to unanticipated market or customer shifts and quickly shut down experiments that don’t work.

There is no one-size-fits-all approach to building the IT infrastructure to support the modern company. Only with a clear view of business requirements can the CIO make the right technology choices to address legacy complexity and inflexibility. Therefore, the most effective approach is to start not with IT itself, but with business needs and then plan for change, making IT decisions on a 6 to 12 month horizon instead of a traditional 5 to 10 year horizon. Any program to renew the IT environment must take into account the business’s evolving strategy—or it will miss the opportunity to “future proof” by creating systems able to support growth now and in the future.

Recommendations

The need for agile technology to support business innovation is now a boardroom discussion as businesses take a strategic look at how technology is shaping their company’s future. Many CIOs are being asked to help enable business innovation. If it’s taking too long for IT to be ready to support a new product launch or pricing model, or to enter a new market, technology is a roadblock. Leading performers in many industries have adopted the cloud to realize the competitive advantage it offers as well as gain the speed to pursue new growth opportunities.

The most effective place for CIOs to start is by partnering with the business to understand needs and evolving business strategy and then re-considering how IT services are structured. The incorporation of a cloud-based two-tier ERP strategy into a company’s approach provides the benefit of optimizing costs for growth and gives the business the flexible technology it needs to operate new businesses and new markets. It is a lower cost, agile solution to support the modern business.