Applying SaaS in the multi-tiered ERP strategy

Research we have conducted over the past five years indicate both an increase in the willingness of large enterprises to consider SaaS, and a corresponding decrease in the willingness to consider ERP offered in the traditional on-premise model.

Recently, a new trend has emerged: Best-in-Class organisations are more likely to adopt multi-tiered strategies for ERP deployments across the enterprise.

In a multi-tiered ERP strategy, one standard ERP implementation is applied to the corporate headquarters or parent office, while additional ERP solutions, offering different functionality or configurations, are implemented at other locations.

The parent office may use an on-premise solution (administrative ERP), while deploying SaaS ERP to address the needs of new business units quickly (operational ERP).

By integrating SaaS ERP into a multi-tiered strategy, CIOs can give new business units the functionality they need, faster, while saving the organisation the costs of more robust ERP software.

ERP was originally viewed as a one-size-fits-all solution, supporting multiple business units in an enterprise.

However, Aberdeen’s research report: ERP in Manufacturing 2011: Defining the ERP Strategy shows that top performing organisations are more likely to have standards for multiple ERP implementations within business units across the enterprise (Figure 1).

Recently, there has been much industry discussion about how to manage multiple ERP implementations.

Best-in-Class companies are 53 per cent more likely than all others to have a standard ERP strategy.

Furthermore, Best-in-Class companies are over two and a half times as likely as all others to have a multi-tiered ERP strategy.

Best-in-Class companies recognise that one size does not fit all. For example, an ERP solution that enables a thorough and accurate global financial rollup may not be suitable for managing the needs of a specific manufacturing operation.

A one-size-fits-all strategy may also lead to localisation and compliance issues, making a multi-tiered ERP strategy attractive for organisations with geographically distributed facilities or subsidiaries.

The proof of the benefits of a multi-tiered strategy can be found in the data.

Our findings indicate that organisations using a multi-tiered ERP strategy outperform those with a single-tier approach in the number of days it takes to close the books for a month, day’s sales outstanding, inventory accuracy, time to decision, and growth in operating margins over the past two years.

Organisations with a multi-tiered ERP strategy are often in the acquisition mode, or starting new subsidiaries.

Since new business units need ERP capabilities as quickly as possible, SaaS ERP is an attractive deployment model.

Preliminary results from our 2011 ERP Benchmark survey find that the average time from installation to the first go-live milestone is 11.1 months for on-premise ERP, compared to nearly 6.7 months for SaaS ERP solutions.

The faster deployment time for SaaS ERP is an advantage for organisations attempting to enter new markets.

Other advantages to using SaaS in a multi-tiered ERP strategy are implied by the reasons that organizations are considering SaaS ERP (Figure 2).

Not surprisingly, lower cost of ownership rises to the top of the list. Launching a business unit or integrating a new subsidiary is expensive.

A SaaS solution minimises start-up expenditures by removing up-front infrastructure costs, and is unaffected by IT resource costs.

Respondents also believe SaaS ERP is easier to implement. These reasons support the belief that a SaaS ERP solution makes sense in a multi-tiered ERP strategy.

In light of increasingly sophisticated cyber-attacks like StuxNet and Night Dragon, the thought of using SaaS for critical solutions like ERP makes some executives anxious about security.

Two thirds (67 per cent) of respondents indicated they were worried about the security of SaaS ERP, including fear of leaking internal financial data, losing customer data to competitors, and of data corruption.

While these are valid concerns, Our research revealed that, on average, on-premise ERP solutions had 11 incidents of data loss or data exposure within a 12-month period, compared to six incidents for cloud-based solutions.

Based on research data, on-premise solutions appear to be less, not more secure.

Growing organisations should carefully consider SaaS ERP as part of their multi-tiered strategy, if they can find a SaaS solution with the functionality and integration abilities they require.

By using SaaS in a multi-tiered strategy, top performing organisations can improve their efficiency and visibility across business units, securely, while keeping costs low.

Nick Castellina is research analyst, ERP at Aberdeen Group