One Size Does Not Fit All – Making the Case for Two-Tier ERP

In my 15+ years in the ERP business, the one question CIO’s of enterprise companies keep asking me is “Do you have one solution that will fit all the varied requirements of my organization that can be deployed centrally in a single instance???” I understand that behind this question are two underlying needs working against each other. One is the goal to rid the organization of the plethora of applications deployed in a patchwork fashion across the organization to meet these varying needs-a trend Gartner refers to as Applications Overhaul. Second is the need to enable the business to be agile-able to grow by entering new countries, managing acquisitions and creating new business lines to meet ever changing market demands. Lucky for me, I have the solution these CIOs seek-implementing a two-tier ERP strategy.

Admittedly, most enterprise organizations have deployed either SAP or Oracle to manage their financial reporting. This is what we (and Gartner) call administrative ERP, or the First Tier application; it manages financials, centralized procurement and human resources processes that cross the enterprise and this has allowed companies to close their books and file fully auditable reports to meet compliance requirements in a timely fashion. This gives enterprises the transparency they require as well as the ability to analyze their financial performance. But when it comes to generating revenue (rather than just counting it) and the key business processes run by the majority of the workforce to deliver differentiated products and services to customers, centralizing on an administrative ERP instance has proven much more challenging. Let’s face it, in this day and age, new products come and go faster than you can implement one of these monolith applications-in the meantime, what are you using to manage product development, manufacturing, distribution and sales? This is why a lot of large companies find themselves in the predicament where they have an overabundance of different applications spinning up to manage these market differentiating processes across their organization.

What’s so bad about having different groups spin up apps they need to get their work done? First of all, there is no longer a single version of the truth. Have you ever had everyone walk into a planning meeting each armed with different reports showing varied results across the org? One band aid companies have used to solve for this is doubling down on middleware, which can also mean doubling down on costs and resources needed to manage that technology. And if your resources are spending their time managing integrations and data redundancy, how is the agility of the organization being affected? What if there were ways to guarantee visibility across the enterprise while at the same time increasing the agility of your organization? What if you could strike the right balance between process standardization and process entrepreneurship? And what if the ability to implement a solution like this at the second tier actually promised a rapid return on your IT investment?

At Microsoft we are helping enterprises align their business and IT goals by implementing a Two-Tier ERP strategy. This strategy allows our customers to keep their current administrative ERP as their ‘System of Record’ relying on it for what it is good at: consistency, unit-to-unit comparisons, consolidation and global visibility. At the second tier, these organizations are deploying Microsoft Dynamics AX as their operational ERP or ‘System of Differentiation’ allowing them to drive standardization and business agility, while delivering higher value. The following image illustrates this strategy:

Why is Microsoft Dynamics AX the obvious choice for your Operational ERP?

Microsoft Dynamics AX has been designed to deliver on the promises of standardization, agility and value:

  • Standardizationmeans you can:
    • Establishing consistent processes and best practices with same solution. Microsoft Dynamics AX is an industry ready and global solution that can be deployed according to your governance model whether centralized, decentralized or federated. This allows you to implement core configurations quickly and easily integrate with your administrative ERP.
    • Focus on innovation in your business. Deploying the same application across your organization with the flexibility to support different industries, and unique processes for different businesses allows you to focus on business value vs. integrating disparate business applications.
    • Consolidate resources. Become your own Center Of Excellence and leverage all your existing competencies on Microsoft technologies and to roll out and reuse functionality across multiple locations, industries, lines of business, departments, and more…
  • Business agilityallows you to meet diverse needs without making compromises:
    • Microsoft Dynamics AX can scale from just a few users to thousands. Because your business entities probably vary in size, this allows you to easily deploy the same core model across your organization while keeping TCO low.
    • Meet your industry specific business requirements. Microsoft Dynamics AX delivers a rich industry foundation with functionality to support retail, distribution, manufacturing, professional services and public sector needs. There is also a rich ecosystem of partner built vertical applications to help you meet your unique industry needs.
    • Manage growth and change and easily adapts business processes to meet the unique requirements of your distributed operations. Flexible implementation and adaptation to dynamic business operations is enhanced by the easy-to-use Configurable (graphical) Workflow, Financial Dimensions, Organizational Model, and Concept of Models in Dynamics AX 2012.
    • Global support. Microsoft Dynamics AX allows you to reach more geographies with 37 country localizations in 40 languages. It also limits your liability by providing compliance capabilities to help you comply with local regulations and corporate policies across these geographies.
  • Higher value, get more by spending less:
    • Microsoft Dynamics AX is easy to use, driving higher adoption. Because it works like and with Microsoft Office and other Microsoft software, training costs a reduced. It is also RoleTailored allowing users to focus on the work related to their jobs, with relevant KPIs, business insight and workflows.
    • Optimize IT investments. Take advantage of pervasive interoperability across Microsoft products, including Microsoft BizTalk® Server, Microsoft SharePoint® technologies, Microsoft SQL Server®, Windows Workflow Foundation, Microsoft Office Communications Server, and Microsoft Office Project® Server giving your solution more power.
    • Lower your TCO and accelerate your time to value by deploying a cost-effective, scalable solution that meets the unique needs of your smaller entities. Microsoft Dynamics AX is a perfect fit for newly acquired businesses, business units or departments, geographies, or divisions that cannot be efficiently managed by Administrative ERP.

Würth — a leading European distributor of mounters and fasteners with more than 3 million customers, and 400 subsidiaries in 84 countries. They were looking to streamline order processing and fulfillment by deploying Microsoft Dynamics AX. As a result they improved their order processing efficiency by 50% and gained visibility across the entire company.

Telstra Media Classifieds – Australia’s largest locally owned listings and online shopping site, where businesses and private individuals buy and sell a range of household and automotive goods. As they were moving onto the online business, they were looking at a consolidation their billing system onto Microsoft Dynamics AX and eliminating some legacy systems and manual data transfer processes, and reduce the costly double-checking of customer invoices. They simplified their infrastructure and also simplified their process gaining 75% of efficiency.

How do we know it works? Because we’re eating our own dogfood. Microsoft is using this Two-Tier approach in our internal efforts to reduce IT costs with a solution that meets the diverse requirements of selling music on the web, designing games, producing DVDs (Office and Windows 7), producing XBOX hardware, operating retail stores, selling software through VARs, and managing travel expenses… Today there are 15 ERP projects running Microsoft Dynamics AX and the result is millions of dollars of savings!

Have you considered giving this strategy a try? Please share your stories!

Rudy Dillenseger
Sr Global Product Manager