The Failings of Single-Instance ERP
Cost. For a large company, the cost of deploying Oracle or SAP enterprise-wide will run in the millions or tens of millions of dollars.The problem comes when the headquarters installation is finished and the first few major subsidiaries have been brought online.With the core complete, the economics become decreasingly justifiable as you move toward the edges of the organization. At each location there will be hardware and software to be purchased and deployed, an IT team to be dispatched, and a new span on that Golden Gate Bridge needs its own permanent paint crew. Another million dollars just to bring the Singapore subsidiary online? Somehow that cost/benefit doesnt seem as compelling as it did in the earlier stages of the project.
Time. Single-instance ERP deployments take an enormous amount of time. Global rollouts taking years and years and straddling the tenure of multiple finance and IT personnel are the rule rather than the exception. Again, momentum can fall off significantly the further you get from headquarters or the largest subsidiaries. And each new subsidiary, division, or process added means that the core IT team will be spending a larger and larger portion of its time caring for and feeding the accounting software
systems already installed and have less and less capacity to apply to rolling out to new subsidiaries, divisions, or processes. Then the general manager of one of those far-flung subsidiaries says, Yes, theyre going to roll it out here as well but Ive seen the rollout calendar, and Im scheduled to get it in 2019. I need something now.
Risk. Cost and time add up to risk. These massive deployments often overshoot on time and cost and subsequently crumple under their own weight. Part of the company may end up live, but that may be where the deployment fizzles and proceeds no further. Because these deployments have been so disruptive, so risky, and simply so much harder than imagined at the outset, companies hesitate to deploy more broadly.
Agility. Worst of all for the single-tier strategy is that, during the years-long global deployment project, neither the world nor the business has stood still. New companies have been acquired or divested, new products and processes have been introduced, and new regulatory and business accounting software requirements have been enacted. Because these systems take so long and cost so much to deploy, theyve been completely unable to keep pace with the changing environment. The unmanaged change results in patching systems and processes with a variety of point solutions, stand-alone ERP systems, manual processes, and, in general exactly the kind of chaos everyone was trying to avoid with this single-tier strategy in the first place. What does all that mean to the organization? Fundamentally, its a failure to achieve those gains that were the original vision of the strategy, namely global visibility, process efficiency, and standardization. The handoffs between those disparate systems also are challenging. Processing orders across subsidiaries, reconciling intercompany charges, and consolidating the books at month-end are complicated when theres no standardization. Clumsy manual handoffs of information across systems are not only inefficient, but they create opportunities for the introduction of errors and erode confidence in the integrity of the process. Finally, executing change in this environment can be an enormous challenge. More complex changes, such as rolling out a new process because of a change in Generally Accepted Accounting Principles (GAAP), can consume huge amounts of time and resources that are far out of proportion to the real magnitude of the change.
This is the common reality finance faces today. Given the current situation, it makes sense to develop a new strategic approach that will move organizations toward the global standardization and transparency originally envisioned and promised by ERP much more quickly and effectively than the one-system strategy has done. Thats where two-tier ERP comes in.