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Two-Tier ERP for the new business

Microsoft has recently announced announced a new connector that accelerates two-tier enterprise resource planning (ERP) deployments between Microsoft Dynamics AX and SAP Business Suite. Check the press release here.


This new connector enables IT organizations to use Microsoft Dynamics AX across subsidiaries, divisions or branch entities to facilitate cost-effective business process integration and easily connect with SAP installations at the corporate headquarters location.

This connector will enable common business process integration scenarios for headquarters and subsidiary locations across - 

  1. Financial consolidation.
  2. Intercompany supply chain integration.
  3. Plant automation.

The strategy has been in place for some time and we had seen traction for "Hub & Spoke" implementations where the "Hub" was a Tier-1 ERP with one of the Microsoft Dynamics Products being used in the "Spokes" to provide a "Flexible, Scalable, Nimble, Compliant, Lower TCO,  Simple and Adaptable" system.

The reason is simple -

  • Head Quarters systems are too complex or customized to meet needs of smaller subsidiaries / local units (called 'Local Entity').
  • HQ grow inorganically and need to bring new entity into the overall business landscape; the model helps in maintaining a 'loose' technology link while ensuring a 'strong' business tie.
  • Sometimes the business line and operations are specific to the Local Entity and it does not make sense to build each of these into the HQ system
  • The vertical flavour needed in a Local Entity may not be needed in same manner across all entities while the reporting needs might be common
  • The local entity may not have a stable business model, leading to a need for a 'flexible' solution that can grow and adapt as the business undergoes change
  • The need for managing local tax, regulatory, and market requirements are better handled in a Local Entity seperately without affecting global business
  • Needless to say the TCO is lower with greater local control and accountability.

This sure is a new area opening up new solution architecture for the enterprise...


Recent data surveys of next gen IT leaders in Q3 2009 and Q1 2010 show a 10% increase among organizations considering a Two-Tier ERP apps strategy.
Key drivers behind moving to a Two-Tier ERP approach sytem from
• Purpose built or industry requirements
• Existing systems too expensive
• Upgrade too expensive
• Need to innovate
• Regulatory compliance
• Geographic requirements
• Existing systems too rigid.
Purpose Built Capabilities And Cost Savings Drive Push For Two-Tier Apps Strategies but, Users Should Consider Scenarios Based On Business Models And Geographic Needs:
1. Different business models. Organizations with very different lines of businesses often consider hub and spoke implementations. The drive to standardize on a single ERP system makes little sense when one subsidiary delivers services and the other manufactures goods.
2. Country specific deployments. Deploying a full scale ERP solution makes little sense for new subsidiaries when options exist at lower operating costs and higher ROI.
3. Phased modernization efforts. Organizations looking to upgrade and modernize their systems may keep some legacy systems in place as they upgrade to more modern systems. For example to keep their financials systems and update their retail systems with a more modern, web services based, SOA architected product.

In view of the these developments The products like Ax2009 Has Great potential going forward since the product by design itself is mature enough ( as It has in Built Apllication Integration Framework ) to handle bi directional Integrations across desperate systems

Thanks Pankaj for your insights. For the visitors of the blog; i would like to add that the details around this survey done by "R Wang & Insider Associates, LLC" are available at -

Pankaj, thanks for your insights. I wanted to add to these insights based on my experience. I have observed that companies which have grown through acquisition or were decentralized at one time typically end up with multiple legacy ERP solutions at regional subsidiaries. Many of these solutions are either old or no longer fully meet the business requirements. Since these systems are old, the cost of keeping these solutions running is high – not only from IT perspective but also from ensuring that these solutions continue to enable compliance with increasing number of regulations. In addition, many of these legacy solutions are difficult to change, creating an opportunity cost for the company who wants to change business processes at these subsidiaries in an increasing competitive world. As a result, these solutions need to be replaced. However replacing these solutions with the corporate ERP system can be overwhelming at these small subsidiaries from process overload and implementation cost perspective.

Deploying a two-tier ERP approach, where the regional solution comes from a different vendor is also not ideal, since it will lead to high integration costs - both at initial implementation, as well as on an ongoing basis in the future. Any out-of-the-box integration offered by the vendor of subsidiary system is almost always very limited (only certain information is passed between them), point-to-point (so it is certified to work across only certain combination of versions, thereby driving forced upgrade of corporate system if you upgrade a subsidiary system and vice versa) and only at the data level (not at the process level, since there is no contextual understanding between the two systems as to what aspect of the business process is completed in corporate system and what is completed at subsidiary level). As a result, additional integration projects (and costs) are almost always required, creating hidden costs and additional work for your already constrained IT organization. So how can organizations replace their legacy solutions without overwhelming the regional subsidiaries with a corporate solution and without having to incur ongoing integration costs?

There is a third option, if you have SAP ERP as your corporate system. I would recommend you check out SAP’s offerings for small and mid-sized organizations - SAP All-in-One or SAP Business One or SAP Business ByDesign as a potential system for your subsidiary. They connect with SAP Business Suite (corporate system) in a hub/spoke model. These systems are priced very competitively, have fast deployment packages, rich functionality and lots of industry-specific extensions. These solutions are also designed to co-exist with corporate SAP solution (SAP Business Suite) and support sliding degrees of centralization/decentralization models – so both data and process level integration is out-of-the-box. Backward compatibility requirements for a new release enable a new version of subsidiary application to work with current and previous versions of SAP Business Suite and vice versa, thereby preventing a forced upgrade. By choosing these solutions, you will not only get a subsidiary solution that is specific to your business needs, industry requirements and budget, but you will also get out-of-the-box process AND data integration that is supported across newer versions. Check out these products at

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