Over the last few weeks, we have helped two companies navigate a common challenge: whether or not to adopt their parent company’s tier I ERP system.
Tier I ERP systems traditionally refer to products such as SAP S/4HANA and Oracle Cloud ERP. Some might say that Microsoft Dynamics 365 and/or Infor CloudSuite should be considered among the Tier I options in the market. Tier I products generally refer to those that can scale for larger organizations.
ERP Case Studies of Tier I ERP Systems at Parent Companies
One of the companies we are working with is a Canadian mining and construction services company. Their parent company is a large European mining company running on SAP. While the parent company was a good fit for S/4HANA, we ultimately recommended that the smaller subsidiary adopt Microsoft Dynamics 365 instead. Our analysis included a technology-agnostic comparison of SAP S/4HANA vs. Microsoft Dynamics 365 to help them arrive at this decision.
The other example is a consumer products company owned by another large and very well-known consumer product company. The parent company is in the process of implementing SAP S/4HANA, but the $200M subsidiary isn’t convinced that it is the right fit for them. This company has asked for our opinion on how to navigate the conflicting priorities between them and the parent company.
Why the Tier I vs. Tier II ERP decision is so common
The recent merger and acquisition activity in recent years has created an interesting conundrum. On one hand, a parent company is typically looking to drive efficiencies, scale, and standardization. On the other, its various business units – especially if they operate as independent businesses – are more likely to value flexibility, ease of implementation, and lower total cost of ownership.
This often creates a conflict. So, what is the right answer as you consider your options among the top ERP systems? Here are a few questions that will drive your decision and help make your case to your parent company:
Are you going to remain an independently operated business unit going forward?
The operating model that got you to your current level of success may not be the same one that gets you to the next level of growth. It is important to decide if you are going to further integrate into the parent company or remain independent in the future. Of course, your parent company may have a strong opinion on this question as well.
What is the vision for our business unit in the future?
Today’s business processes and requirements may not be the same ones that help you scale for future growth. It is important to focus on your future state operational needs. Otherwise, you run the risk of paving the cow paths and simply automating your already sub-optimal business processes.
How much growth do you expect to see in the next several years?
Your expected growth rate can have a significant impact on which path is the best for you. The larger you expect to be in the short-term, the more likely it is that a Tier I ERP system will be a better fit. The more you want to retain flexibility and an entrepreneurial spirit, the more likely you are to consider alternate Tier II ERP systems.
What does the business case and ROI analysis tell us?
This philosophical debate is simply conjecture without a tangible business case and return on investment (ROI) analysis. Your decision should largely be based on quantitative costs and benefits. A Tier I ERP system may cost more, but it may also deliver more business value. It is important to quantify both sides of the equation to determine the best path for your organization.
How will we implement our preferred solution going forward?
It also helps to determine your implementation strategy and plan as part of your evaluation process. This will help you assess how the parent company’s preferred solution may (or may not) fit with your time, cost, and resource expectations.
Independent ERP consultants can help
An independent third-party such as Third Stage Consulting Group can help provide a credible outside perspective. It may also help counter internal biases that often permeate bigger parent companies and may not align with your strategic vision going forward.
Feel free to contact me to bounce around ideas on this or other digital transformation topics. I’m happy to help!