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.

1. • Cognizant 20-20 Insights
Two-Tier ERP: Enabling the Future-Ready
Global Enterprise with Better Innovation,
Customer Experience and Agility
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.
Executive Summary were the high operating costs of existing systems,
a lack of industry-specific ERP functionality,
To achieve their goals of global efficiency, cost
excessive upgrade costs and too little innovation
reduction and regulatory compliance, forward-
from existing ERP vendors. Saugatuck Technol-
thinking enterprises are pursuing uniform,
ogy’s 2012 Cloud Business Solution Survey,2
consistent processes and shared services. At the
meanwhile, predicts that through 2016, “hybrid”
same time, they cannot afford to compromise the
cloud deployments, such as two-tier ERP, will
flexibility, agility or speed they need to respond to
become the enterprise platform of choice, with
today’s ever-changing and unpredictable business
at least three-quarters of new enterprise IT
environment.
spending involving hybrid or cloud platforms.
To meet these seemingly conflicting needs, a
A two-tier ERP approach can provide the ideal
growing number of companies are migrating
combination of global processes, lower costs,
from a single-instance ERP system to a two-tier
flexible deployment, agile customization and ease
strategy that combines the stability of on-premise
of use. Such an approach is useful, for example,
ERP with the agility of cloud ERP (i.e., multi-tenant
for quickly providing ERP capabilities to a newly
ERP delivered in a SaaS model) to create a hybrid
acquired or growing business, a spin-off or the
environment. On-premise ERP systems function
entire enterprise during an ERP transition. This
as “systems of record,” or “a single source of
fulfills the needs of enterprises that must protect
the truth” for corporate data, while cloud ERP
existing ERP investments while obtaining signifi-
systems act as “systems of engagement,” which
cant new value via cloud ERP extensions.
are more interaction-focused and geared toward
serving customers, employees and partners.
Business Drivers
For example, nearly half the respondents cited in a ERP systems have formed the information
February 2011 report from Constellation Research1 backbone for many organizations since the mid-
were considering a two-tier ERP strategy, a to late-1990s, when they were deployed to cope
27-point increase from 2009. Among the drivers with issues such as the Y2K transition, increased
cognizant 20-20 insights | january 2013

2. regulation and the adoption of the euro. Since would also overwhelm the skills and infrastruc-
then, however, rapidly changing business and ture of the local business unit, which needs ready-
technology landscapes have highlighted the flex- to-deploy, simple and flexible systems that are
ibility limitations of on-premise ERP. also robust, cost-effective and able to deliver the
same results as on-premise ERP systems.
Over time, organizations realized that big-bang
implementations of ERP systems are sometimes As global enterprises expand through mergers
ineffective. This is especially true when they need and acquisitions, they face the daunting task of
to customize ERP instances for consolidating and supporting disparate ERP or
Today’s ERP must local needs, which increases homegrown systems across business units in
the cost of routine operations, different geographies. With today’s relentless
improve an IT upgrades and maintenance. pressure to slash costs and meet ever-changing
organization’s These added costs are a business challenges, no organization can afford
alignment with the greater burden today, as years of merging, cleansing and synchronizing
the economic downturn has data among multiple on-premise ERP systems or
business rather than forced organizations to do configuring each instance to local needs. When
force the business more with less, pushing them organizations are unable to consolidate to a
to fit its processes to improve and optimize single ERP system, a two-tier ERP solution can be
existing on-premise systems. a cost-effective, agile solution.
into a portfolio of As a result, organizations find
applications. the two-tier ERP approach to The Role of Two-Tier ERP
be a compelling strategy to Single-instance ERP systems are overly expensive
meet their requirements. and take too long to deploy to keep pace with
changing business models, competitive pressures,
Modern enterprises must swiftly capitalize on regulatory needs and global customer demands.
opportunities in emerging markets to stay com- As single-instance on-premise ERP systems
petitive, introducing new products or services age, managing and tracking required changes
either internally or by acquiring other companies. poses significant challenges to business and IT
Either approach requires a rollout of new operations. Unmanaged change requires the IT
processing capabilities and seamlessly integrat- team to create quick-fix patches and/or deploy
ing them with corporate ERP systems. Deploying point solutions to plug potential gaps. All this
a complex, large-scale ERP solution would not adds to the very chaos that organizations seek to
only be more expensive than necessary, but it avoid by adopting ERP. Even after deploying the
Changing Axis of Innovation Leads To New-Age ERP
Key Drivers Shift to System of Emergence of Multi-Tier
Engagement Ecosystem
• Agility
Business • Innovation Customers
• Efficiency
Employees System of Partners Running Core On-Premise Application
Engagement
• Collaboration
Technology • Digitization Running
• Insights Cloud ERP
Application Asia Division HQ
System of
• Reinvent business Record
Organization functions
• Engage people
Security Structure UAE Japan China
Subsidiary Subsidiary Subsidiary
Database Running Cloud ERP Application
Figure 1
cognizant 20-20 insights 2

3. on-premise ERP system, the core IT team is so reduce costs and quickly add new capabilities,
busy mending and tweaking that they have little while giving users personalized content and con-
or no bandwidth to roll out the system to new sub- sumer-like ease of use.
sidiaries, divisions or processes.
Cloud ERP uses this new computing paradigm to
A two-tier ERP approach helps organizations provide almost all the capabilities of on-premise
swiftly deploy and integrate new processing capa- ERP systems, but in a consumption-based model
bilities at subsidiaries or smaller business units that is considerably less expensive, easier and
that can be seamlessly integrated into the core faster to deploy (and downsize) than on-premise
on-premise ERP backbone. This approach sig- ERP. Cloud ERP eliminates upfront Cap-Ex costs
nificantly reduces the time and cost required to and drives better user adoption and value with
implement, support and maintain ERP capabilities. easier-to-use interfaces.
Two-tier ERP does not replace on-premise ERP but By enabling easier collaboration and information
instead complements it with more agile, flexible access, cloud ERP facilitates the rapid piloting
and lower-cost cloud-based ERP. On-premise ERP of ideas, easily scalable solutions and faster,
still provides the standardization and consistency lower-cost expansion into new markets. It also
for back-office systems of record for processes provides customer service via digital channels
such as make-to-deliver and record-to-report and makes it easy and less expensive to support
that are vital for efficient operations, regulatory local language, tax code, currency or regulatory
and legal compliance, and consistent quality requirements.
(see Figure 1).
Cloud ERP provides differentiated front-office
In short, embracing cloud ERP while maintaining “systems of engagement” for functions such as
existing on-premise enterprise applications can “procure to pay” or “hire to retire.” This creates
help organizations do the following: value by providing superior user experiences and
delivering customized information or process
• Penetrate new markets and geographies, while flows that support local business needs in areas
retaining business agility and flexibility, as well such as sales, marketing or customer service.
as lower total cost of ownership and adopt
standard processes. How Two-Tier ERP Helps the Bottom Line
• Quickly link newly acquired businesses into — A two-tier ERP strategy can help companies
or separate divested business from — existing overcome key technology challenges, such as:
ERP systems.
• Application modernization (i.e., end-of-life
• Increase focus on core business processes by ERP migration): Enterprises considering an
keeping them on-premise while enabling mar- application modernization strategy can use
ket-facing processes via cloud ERP. two-tier ERP to continue operating efficiently
while adapting to rapidly changing business
• Shift spend over time from Cap-Ex to Op-Ex. needs.
Cloud ERP: Best Option for Two-Tier ERP • Application rationalization: Organizations
Today’s ERP must improve an IT organization’s can deploy on-premise ERP to support core
alignment with the business rather than force corporate functions while deploying cloud ERP
the business to fit its processes into a portfolio for market-facing functionalities.
of applications. IT organizations need to innovate
and implement flexible systems to support and
• New application requirements: Cloud ERP
can complement on-premise ERP with next-
automate new processing capabilities for business generation disruptive technologies, such as
agility. Such systems should facilitate global Web services and process integration libraries,
visibility, process efficiency and standardization. to enable applications that operate anytime,
anywhere.
Even as businesses face these new and urgent
challenges, innovative technologies have created • Cost reduction: Cloud ERP shifts responsibility
new ERP delivery channels that help meet those from the customer to the vendor for upgrades,
needs. Since ERP systems were first deployed, patches and other functions. Cloud ERP also
organizations have increasingly turned to virtu- reduces total cost of ownership by eliminat-
alization. This entails a services approach to IT ing the need to purchase servers, storage and
delivery and the use of cloud-based systems to network capability for on-premise systems.
cognizant 20-20 insights 3

4. Corporate strategies, as well as organization and In the “defining” stage, we help organizations
operating models, all play a role in determining understand what constitutes the cloud solution
when, and how, to adopt a two-tier ERP model. that best meets their specific requirements.
Additionally, we assess the readiness of the
Constellation Research cites a large Japanese organization’s systems, people and processes.
manufacturer that experienced improved capa- In the “delivering” stage, our application devel-
bilities for localization and handling of multiple opment and delivery professionals use best-in-
currencies and languages using cloud ERP appli- class technologies to help them compete in their
cations, at half the cost of on-premise solutions. markets, and to achieve effective synchroniza-
“Going to country-specific deployments resulted tion of master data and maintenance of financial
in faster deployment times, quicker updates and operational control at a group level. After
to regulatory and legislative changes and 17% successful delivery, our line-of-business experts
reduced IT help desk costs,” says the Brazil continue to innovate and help our clients achieve
country manager of a Japanese entertainment measurable gains in speed, quality and efficiency,
subsidiary.3 with the help of our experienced cloud business
process consultants.
Driving Two-Tier ERP
In our work with clients worldwide, we have found Getting Started
the best ERP standardization model is not neces- Since the best two-tier ERP strategy is geared
sarily the least complex or even the one with the toward the needs of a specific business, companies
lowest total cost. The best model, rather, is the should begin by evaluating:
one that fits an organization’s specific structure
and the critical market challenges it faces. • Where their existing ERP implementations are
succeeding — as well as failing — to help capture
We have developed a three-dimensional approach market share, revenue and margins.
that focuses on platforms, people and processes • Which of the functions provided by existing ERP
to meet the needs of companies in nearly every systems are systems of record (or core ERP) vs.
industry (see Figure 2). The approach also enables systems of engagement (or cloud ERP).
organizations to deliver functions and services
required by employees and business partners. • Which of their local business units have custom
requirements that are too difficult or expensive
We deliver these ERP solutions by leveraging our
to meet with the core ERP system and might be
cloud applications portfolio and our define-deliv-
better served by cloud ERP.
er-innovate (DDI) methodology.
Two-Tier ERP: A Representative Approach
Inputs Work Steps Outcomes
Current and future
1. Set business priorities/goals High-level requirements set
business strategy
and high-level requirements
Existing ERP landscape 2. Determine scope Two-tier vs. single ERP
platform options
3. Confirm assumptions
Existing subsidiaries’ ERP 4. Identify two-tier ERP High-level evaluation process
and other applications options and baseline and criteria for cloud ERP selection
costs
Interview key stakeholders Approach/recommendations
5. Develop a high-level and roadmap
business case
Executive leadership
expectations 6. Finalize recommendation of
two-tier ERP architecture, as
Assess cloud ERP well as high-level deployment
vendor landscape and change management plan
Figure 2
cognizant 20-20 insights 4

5. • Whether cloud ERP is the right fit for a small Answering questions like these is the first step
off-site division or a remote manufacturing toward deciding whether a two-tier ERP can
unit without the budget and skills required to help an organization meet its business needs
support a traditional ERP deployment. through a hybrid on-premise and cloud ERP com-
bination. A detailed analysis should follow, which
• Whether cloud ERP is a cost-effective route
should include interviews with key stakeholders,
for adding enterprise systems capabilities for
an evaluation of the cost of various cloud ERP
a business unit slated to be spun off or newly
options and criteria to assess the move-forward
acquired or whether it is a temporary solution
ERP selection process.
amid an upgrade of a core system.
Footnotes
1
R. “Ray” Wang, “ERP Optimization Strategies For Organizations Seeking Innovation, Cost Savings, And
Renewal,” Constellation Research, Feb. 28, 2011.
2
Bruce Guptill, Alex Bakker, Charlie Burns, Mike West, Bill McNee, “2012 Cloud Business Solution Survey:
Summary Data Report,” Saugatuck Technology, March 21, 2012.
3
R. “Ray” Wang, “Best Practices: The Case for Two-Tier ERP Deployments,” Constellation Research,
Feb. 28, 2011.
About the Author
Munish Gupta is Cognizant’s Global Markets Leader for the Cloud Solution business. He has over 19
years of cross-industry experience selling and delivering global business transformation programs
using leading on-premise and cloud enterprise application packages. Munish has assisted Fortune 500
senior C-level clients in improving business operations, revenue growth and cost optimization through
innovative enterprise architecture models, including the hybrid cloud ERP strategy and enablement
across process value chains. He can be reached at Munish.Gupta@cognizant.com.
cognizant 20-20 insights 5

6. About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-
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