Hub-and-Spoke ERP Strategy to Take Flight?

It's worked for the airline industry, and it might just work for your global company: An examination of Forrester's latest ERP implementation and integration approach.

The hub-and-spoke model has been a staple of the airline industry since the 1980s. A centralized airline locale (the hub) provides an anchor where a wide range of its passengers, flying out of myriad airports (the spokes), can connect to the rest of the country or world.

The strategy generates efficiencies, route standardization and cost savings for commercial carriers where direct, point-to-point routes are not feasible. (Of course, for the traveler it creates epic congestion—think: Atlanta International Airport...but that's another story.)

Hub-and-spoke isn't just for airlines, either. For companies with one headquarters and a handful of global business facilities, a hub-and-spoke-type approach might be a way to better manage the application sprawl and silos inherent in their enterprise ERP systems.

That's the idea explored in a new Forrester Research report, titled It's Time to Clarify Your Global ERP Strategy, by George Lawrie. (The concept's not brand new: See this McKinsey Quarterly article in 1994.)

The nuanced hub-and-spoke strategy is not a corporate cry for one set of homogeneous ERP applications, though that is an option some companies do follow. For example, a 2010 Forrester survey of 59 global ERP user companies found that roughly half standardized on a single instance of an app, regardless of the complexity or size of business unit.

The hub-and-spoke strategy offered by Forrester is a more enlightened IT policy that takes into account several truisms: first, for the majority of organizations, a gaggle of heterogeneous apps still comprise most portfolios; second, that it's difficult to standardize on one ERP package globally and keep every instance on the same release (and keep costs in check); third, far-flung business units typically know how to operate best when it comes to ERP-related business activities (managing customer invoicing, HR and payroll, and the intricacies of local regulations, etc.); and fourth, foisting a "corporate ERP solution" on said business units may, in fact, damage their ability to compete against native businesses.

In addition, Forrester's Lawrie points out IT-specific challenges with a single-instance strategy that reaches deep into global locales: latency in network connectivity, and application development and customization resolution issues between HQ and global offices.

Forrester offers three types of models that companies can follow:

  • Hub only. In this model, companies impose a single instance of a single application on all business units, regardless of geography and business complexity.
  • Hub-and-standard-spoke solution. Companies impose on their spoke business units a single application, regardless of geography and business unit complexity.
  • Hub-and-a-choice-of-spoke solution. Companies allow a constrained choice of applications to their simpler spoke business units, providing sufficient options to suit all styles of business but constraining choices for ease of support and vendor management.

Naturally, ERP integration is a core piece of the strategy: It's critical to know which Tier One and Tier Two ERP applications play nicely with other, and how on-premise versus cloud-computing offerings will sync with the company's overall architectural strategy.

It's interesting to note how the traditional on-premise ERP vendors in the report (SAP, Oracle, Microsoft) have products that can play both the hub or spoke role, depending on the customer and its needs.

Of course, a hub-and-spoke ERP strategy won't be a great fit for every company. (The same thing can be said for airlines, too: Just look at the success of Southwest, which has no mammoth hub.) And as such, Lawrie provides corporate examples of which ERP strategy is most appropriate for each business's operating model.

Lawrie cautions that while many enterprises have been on a "multiyear mission to simplify their ERP landscapes," they've discovered that a strategy of extreme standardization—at the expense of local systems autonomy—isn't always the best plan.

"Some have found that the simplest ERP landscape," he writes, "may not be the best to support their global business strategies."

Thomas Wailgum covers Enterprise Software, Data Management and Personal Productivity Apps for CIO.com. Follow him on Twitter @twailgum. Follow everything from CIO.com on Twitter @CIOonline. E-mail Thomas at twailgum@cio.com.

Copyright © 2010 IDG Communications, Inc.

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