When and How a Two-Tier ERP Can Be the Right Strategy Choice

The holy grail of business efficiency is having data from across your business and managing all operations—from paying bills to managing customer relationships and monitoring the supply chain—in one place. Centralizing a wide swath of operational functions and all companywide data gives leaders deep insights that can drive future strategies and growth and helps automate processes and workflows.

The good news is that the technology that will help you realise this vision exists: ERP systems. And the right ERP will provide the scalability and flexibility to adapt to new processes, new products and services, and new global markets as companies grow. For many companies, however, growth pushes longstanding, legacy ERP systems to their limits. Businesses with complex, highly customised, and often on-premises ERP systems frequently face a dilemma as they grow, especially when entering new global markets. Extending a monolithic legacy ERP system to new business units in different regions of the world can be a complicated and arduous process, slowing the business down at a time when leaders want to capitalize on current opportunities.

For companies in this situation, a two-tier ERP approach can be the right strategy. By using two distinct but connected ERP systems—the existing system for the parent company and a nimble, full-featured, and cloud-based system for various business units or subsidiaries. Done right, such a strategy can address the need to move quickly to seize growth opportunities and to give both parent company and subsidiaries top-tier ERP functionality. While not every company will find this model appropriate, its balance of centralised control and local autonomy can be a game-changer under the right circumstances. This guide explores how two-tier ERP systems work and how to recognize when this approach is a good option for your business

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How Two-Tier ERP Works

A two-tier ERP system lets large organisations standardise and manage their operations across two tightly connected ERP systems that suit the varying needs of both the parent organisation and its subsidiaries, regional offices, or business units. In a two-tier system, the “Tier 1 ERP” is often a legacy, on-premises system that has been in place for a long time, has been tailored to the exact needs of corporate headquarters to handle complex, largescale processes, such as financial consolidation, procurement, and HR. The new “Tier 2 ERP” that you add, on the other hand, is more flexible and easier to implement. It can meet the unique needs of subsidiaries, often in different geographic locations, without heavy customisation. Thus it can also be deployed by distinct business units with different business models and processes, such as manufacturing divisions requiring specialised inventory management or sales units needing advanced CRM tools. The Tier 2 ERP system also helps subsidiaries address local compliance, language, and market-specific processes without the weight of a system that may be over-engineered for their needs. Cloud-based ERP solutions often make ideal Tier 2 systems because of their flexibility, scalability, and cost-effectiveness.

The two systems must be tightly integrated to realize the potential value of a two-tier approach. With that in place, the Tier 1 system can pull in data from the Tier 2 system to create a single source of accurate data for the entire enterprise. Note that while we’ll refer to the Tier 1 ERP as the legacy system and Tier 2 as the new system for subsidiaries or business units throughout this guide, don’t think of Tier 2 as a stripped down or bare-bones ERP. You’ll likely want a Tier 2 system with many of the high-level capabilities—from multicurrency to financial automation to sophisticated supply chain management—that your legacy system has.

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