As companies of all sizes expand their businesses to grow faster and achieve strategic advantages in their industry, they are increasing their investments across the globe to take advantage of growth opportunities. They are also acquiring smaller companies to gain access to new technologies, products or markets. Such activities increase the number of subsidiaries within their corporate hierarchy – international and local sales/distribution offices, small operating divisions, emerging businesses, planned divestitures, customer service units and joint ventures.
Along with increased global investment comes an increased need for application solutions that can help support and manage this expanding subsidiary ecosystem. The IT solutions at these subsidiaries have to:
- Support the current business requirements in an efficient manner, while implementing best practices and standards
- Ensure flexibility to adapt to the changing market conditions
- Be scalable to support future growth
- Provide operational visibility and compliance transparency to the Headquarters (HQ)
- Support intra-company transactions such as buying and selling between corporate/subsidiaries
- Leverage shared services such as centralized purchasing
- Supply data to corporate for financial consolidation and reporting
Many companies are finding that it does not make business sense to implement the HQ ERP system at all their subsidiaries because of many reasons – a) IT resources and budget available at the subsidiary are significantly less than what it would take to deploy and support a corporate ERP system at small subsidiaries b) As new subsidiaries are added, the window of time required for implementation is lot less than what a HQ ERP system would take c) The subsidiaries need systems to drive standards adoption, while the HQ systems are designed to support complex business scenarios and one-off customization. As a result of these conflicting requirements, many companies are turning to a different ERP system for their subsidiaries. When HQ and its subsidiaries have different ERP systems by choice, it is called a two-tier ERP model.
An increasing number of SAP’s Fortune 1000 customers are choosing a two-tier ERP model and selecting cloud-based SAP Business ByDesign as their subsidiary system. The SAP Business ByDesign is a comprehensive and functionally rich system, but is also well integrated with the HQ SAP ERP system. So it meets both the subsidiaries’ and HQ’s functional requirements listed above. In addition, it is less expensive, quick to deploy, faster to adopt, easier to change and simpler to manage. SAFECHEM, a subsidiary of The Dow Chemical Company, needed to start its North America operations with very limited time and funds. Installing the parent company’s existing SAP ERP software would have been time consuming and costly. SAFECHEM opted for a two-tier ERP model and selected SAP Business ByDesign. “The solution is one we feel we can successfully deploy to other future subsidiary businesses”, said Dennis Stahl, Financial Systems Architect, Dow Chemical Company.