A 2-tier ERP system allows large organizations with multiple subsidiaries or divisions to implement standardized ERP functions at the corporate level while also allowing customized ERP systems at the local division level. This approach provides benefits like reduced costs, improved ability to meet local business requirements, and increased flexibility compared to a single centralized ERP system. Analysts have observed growing adoption of 2-tier ERP systems as companies look to better support business expansion and maximize efficiencies.

1. How 2-Tier ERP can benefit your business

2. However, the conventional, single-tier ERP
approach can have its limitations.
Particularly in global organisations with a
multi-jurisdictional presence, it is impossible to
assume that one size fits all.
Each branch of your company may be subject
to different external conditions - in terms of
regulation, tax or currency for example
- which affect the way it operates on a day-to-
day basis.
The cultural differences between different
nations may create a need for different
approaches to resource planning, which
account for regional variations.
The same applies to different divisions within
companies, even those with a solely domestic
presence. In many instances, the respective
business models of sister companies are quite
different, meaning a different ERP system is
required for each.
A Tier 1 ERP approach may be needed at
the company’s headquarters, focusing on
information used across the organisation -
such as financial and administrative data.
But underneath this, it may be beneficial
to have a second layer of ERP, which is
more focused on the specific needs of each
subsidiary or division.
Business decision makers can benefit greatly from the integration of external and internal
management data, ensuring key information is available where and when they need it.
In this respect, enterprise resource planning (ERP) offers significant benefits to companies -
it draws on the knowledge obtained by individual arms of a business in a bid to deliver universal
truths.
Access to relevant, timely information is vital in terms of making insightful, rational decisions at
corporate level. It helps ensure the broader business strategy is grounded in evidence, while
minimising the risk of strategic errors. Information regarding key variables - such as budgets,
sales volumes and external market activity - helps put your decisions into an appropriate context.
Problems with traditional ERP approaches

3. According to a study conducted by
Constellation Research, 48 per cent of
organisations were considering adopting
a 2-tier approach to ERP in 2011, in a bid
to ensure the flow of accurate and relevant
information across their operations. This figure
was up from 32 per cent in 2010 and 21 per
cent in 2009 - demonstrating a clear shift
in opinion since the start of the downturn.
With companies under pressure to maximise
efficiencies in a difficult economic climate, a
stronger economic case for this dual planning
approach has emerged.
Constellation Research noted that in many
cases, organisations are being faced with
business requirements that their existing ERP
systems “can no longer address”.
“Stuck in the past century, these single-tier
systems are expensive to run, difficult to
upgrade and impossible to modify for today’s
fast-changing requirements,” said Ray Wang,
principal analyst and chief executive at the
firm.
He noted that 2-tier ERP has emerged as
a strategy “to enable legacy optimisation
while invigorating the organisation’s existing
ERP systems”. Mr Wang claimed that 2-tier
ERP strategies “will reduce costs, meet new
business requirements and provide better
business value”.
More firms are embracing 2-tier ERP
The need for a tailored approach
Decision makers need real-time access to
information and common workflows - as
facilitated by Tier 1 ERP - but they must also
be able to account for individual quirks.
A tailored approach to ERP allows firms
to work with greater flexibility and agility,
responding to location, jurisdiction, time zone
or sector-specific demands as and when they
arise.
A 2-tier ERP approach allows divisions
to focus specifically on their core area of
expertise - whether a region or industry
segment - while still benefitting from
membership of a larger organisation.
Essentially, the data and qualitative information
used to frame decision making is more
relevant to the daily operations of firms in
practice.
Tier 1 ERP accounts for the processes which
need to be standardised to allow multinational
corporations to function as a cohesive unit.
These include human resources, financials and
HR - areas in which shared knowledge adds
value to each function.
Tier-2 ERP focuses on specific needs - for
instance how sales and marketing should
operate in a particular region to deliver
maximum return on investment.
As an example, insight drawn from the ERP
system could indicate that employees are
more productive via online channels than in-
store, or on the phone.
This reality could differ from division to
division, region to region - making a tailored
approach all the more important.

4. In terms of the technology solutions used to
implement ERP, a 2-tier approach should allow
firms to achieve efficiencies without impacting
on service levels.
By committing to a 2-tier approach to ERP,
you are able to maintain systems more
effectively and also carry out upgrades as and
when appropriate. For example, should a new
software update be released, you do not need
to wait for head office to act - the deployment
process can begin straight away within your
own division.
Rolling out single-tier ERP to a subsidiary may
require significant capital expenditure, as well
as a lengthy implementation process.
Neither is desirable in a constrained economic
environment. With single-tier ERP, this process
also needs to be managed centrally, limiting
the influence of the divisional leaders - despite
their branch-specific knowledge and expertise.
Where 2-tier ERP is concerned, you have
greater scope to guide and oversee the
implementation - ensuring technology
decisions deliver tangible benefits for your
own staff.
In many cases, a divisional organisation may
opt for a simpler, more flexible ERP system
which focuses solely on its core functions. For
instance, the retail arm of a business could
use 2-tier ERP to deliver reporting solutions
which manage inventory and predict customer
demand.
It could also invest in integrated solutions
designed to ensure consistency in customer
support and the consumer experience.
Alternatively, the manufacturing division
could introduce inventory solutions which
reflect resource levels and output, or perhaps
logistics solutions which enable it to deal with
distributors, suppliers and consumers more
effectively.
Reducing IT costs using 2-tier ERP
Stuck in the past century,
these single-tier systems are
expensive to run, difficult to upgrade
and impossible to modify for today’s
fast-changing requirements.
Ray Wang,
Principal analyst and chief executive
at the firm
“ “

5. Nick Castellina, an analyst at the Aberdeen
Group, expects the number of businesses
embracing 2-tier ERP to increase as they look
to expand into new territories.
He noted that many firms adopting this
approach have entered a growth phase, and
are actively looking at ways of optimising
business processes while expanding.
Mr Castellina said that in many cases,
businesses are turning to multi-tiered ERP
strategies in order to get new sites up and
running as quickly as possible.
“They are deploying an ERP that includes only
the functionality that site needs to speed up
the implementation process,” he noted.
“This is why the corporate standard is often
called the administrative ERP, with the lower-
tiered model being called operational.”
Financial savings
A localised ERP approach can help you
reduce implementation costs, cut maintenance
spending, and make upgrades and
modifications more affordable.
Increased simplicity
Adding a second tier is likely to be easier/less
time consuming for your organisation than
customising corporate-level ERP.
Improved compliance
You can design ERP systems to account for
the legal/regulatory requirements of particular
jurisdictions, or cultural differences.
Strategic gains
The information provided by ERP systems
is more likely to be relevant, enabling you
and your employees to make more insightful
decisions.
Greater flexibility
You have greater scope for customisation,
both pre- and post-deployment, meaning your
organisation is more agile and better prepared to
capitalise on growth opportunities as they arise.
Legacy optimisation
You can continue to use useful elements of
the corporate- wide ERP system, reducing the
scale/cost of your Tier-2 development project.
2-tier ERP can help businesses expand
Advantages of the 2-tier approach

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