Over the years, IT organizations have sought different strategies to help corporations meet the financial control and reporting needs of both headquarters and subsidiaries. Considering that multinational corporations operate an average of 187 subsidiaries, the challenge has often been daunting.
One popular option has been the two-tier approach. In this model, two different enterprise resource planning (ERP) systems are deployed to meet the needs of the two different layers of the organization. One of these systems most often serves as the "global backbone," carrying out administrative processes such as financials, human resources and procurement for headquarters and the regional head offices—things which can be standardized organization-wide. A second ERP solution is used to support the local needs of smaller subsidiaries.
Subsidiaries are attracted to this plan because it promises the flexibility to implement features and capabilities that support specific processes for sales, marketing, or local manufacturing and distribution. However, the head office often sacrifices insight and control, incurs higher costs to support two separate systems, and has to deal with reporting and consolidation headaches at the end of every financial period.
Another problem is that two-tier architecture typically include more than a couple of solutions. Nearly half (49%) of multinational companies have six or more different finance systems, and 58% have six or more reporting systems.
Two-tier strategies have other shortcomings. Mixing piecemeal best-of-breed solutions increases complexity and costs. Different models for different parts of the business, geographical requirements, or cultural preferences often create barriers to change and standardization. And the speed at which an on-premise system can be deployed often causes long delays in getting usable solutions.
Until recently, implementing a single ERP system was not a viable option for most multinationals. First, rolling out on-premises ERP to smaller subsidiaries can be expensive and is difficult to achieve in a reasonable time frame. Second, some large ERP systems don’t have the flexibility to support the business requirements of subsidiaries that operate in different countries or more narrow industry segments. Even many cloud-based ERP vendors advocate the two-tier approach; they are unable to provide a single cloud instance for the entire enterprise because their offerings lack the scalability to support high transaction volumes, and fall short of global requirements.
Today, however, implementing a single ERP system across an entire enterprise is no longer the expensive, subsidiary-constricting option that it used to be. Indeed, thanks to the presence of scalable, global cloud ERP from Oracle, companies can benefit from a single, robust solution that can scale to meet the widest range of business requirements. For example, Oracle ERP Cloud can:
The flexibility to innovate is especially important for subsidiaries because corporations often count on their creativity to drive business. With cloud-based ERP, users have access to any number of colleagues sharing smart ideas and giving feedback on how to better optimize systems. And with the cloud, regular updates can be implemented to benefit the business in months, rather than the years it often can take to upgrade on-premises ERP systems.
We have a lot of “personal” experience with ERP in the cloud. Oracle began its own migration to Oracle ERP Cloud with its Indian subsidiary. Head office gained better insight, transparency and reporting into the subsidiary, while the Indian offices gained the flexibility to operate effectively and adapt to regional market conditions.
Our experience with Oracle ERP Cloud is that companies don’t have to choose between implementing a solution that meets the needs of both headquarters and subsidiaries. They can have both. To get more details, I invite you to read our paper, “Moving Beyond Multi-Tiered ERP.”