Research reveals tier 1 ERP solutions 340% more expensive than tier 2 solutions

International corporations need to consider adopting a two-tiered approach to ERP solutions if they are going to successfully see real cost benefits and improved systems, in months rather than years. Independent research commissioned by Scala Business Solutions uncovers a huge disparity between the excessive cost of deploying only a tier 1 ERP system* globally compared with the lower costs of a globally integrated two-tier strategy.

The survey, undertaken by Dennis Keeling, business software analyst, identified that the key to lower costs was the ability to drive standardisation into the roll-out with a company-wide implementation template coupled with built-in localisations rather than ad hoc customisations.

Keeling said: "The typical implementation cost can vary from organisation to organisation, depending on their roll-out policy. However, my research shows the typical implementation cost of a tier 1 system such as SAP can cost between EUR15K to EUR30K per seat for the complete deployment including hardware, software, consultancy and training. In comparison, a tier 2 system such as Scala's can cost from EUR2K - EUR8K per seat." This cost differential equals up to 340%.

The research was designed to gain a greater understanding of the costs associated with implementing an ERP system and the strategies enterprises should undertake to cost-effectively implement an ERP solution that meets the needs and requirements of business on a global basis.

The research establishes that tier 1 systems can cope with the complex needs of centralised functions and huge number of users, but were not ideally suited to handling the less complex needs or localisation requirements of a branch or sales office in remote countries. Combined with the total cost of implementation and on-going support of tier 1 systems versus the ability to keep local costs firmly in control by using local implementation partners with a ter 2 system, this provides a strong case for a two-tiered strategy.

"Corporations that initially approached ERP as a single-tier strategy just haven't implemented a one-size fits all solution," said David Topping, Senior Vice President, Marketing at Scala Business Solutions. "The survey shows that organisations which have adopted a two-tiered strategy have successfully managed to implement their tier 2 products quickly, even in the most remote countries. At the same time they still achieved the control and standardisation they originally aimed for with a single tier solution."

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The main reasons for this dual strategy were:

* High cost of implementation of Tier 1 solutions due to their complexity.
* High cost of deployment and support of tier 1 solutions.
* Lack of availability of technical infrastructure in many emerging markets.
* Stand-alone tier 2 solutions are more suitable than a centralised solution for the medium-sized, smaller operation.
* Localised Tier 2 solutions are easier to implement in some countries than configuring a centralised tier 1 solution.
* Standardising on two vendors allow effective application integration in a centralised strategy.

"With the negative awareness of failed projects, expensive implementations and customer dissatisfaction with only tier 1 solutions, we were keen to prove that a new strategic approach to ERP could successfully deliver on the ERP dream of integrated IT systems," said Topping. "The results of this research endorse the decision of a two-tiered ERP approach that can undertake business processes both centrally and locally, while providing a compelling total cost of ownership justification."

Shamik Sinha, CEO of Scala Africa, notes that owing to the size and complexity of tier 1 solutions, tier 2 products have the additional advantage of being more appropriate to African businesses, particularly in the light of the cost savings revealed by Keeling's research. "By and large, businesses in Africa are finding it more and more difficult to justify a return on investment for a tier 1 solution such as SAP," he says. Sinha notes that Scala has proven its success with its feature-rich ERP solutions as a cost-effective alternative to tier 1 solutions repeatedly in Africa with over 300 successful sites throughout the continent.

Furthermore, he says, many large international corporations have SAP implementations running at their head offices, but have medium to small offices in other centres, sometimes around the globe. "To deploy these solutions to regional offices is simply not a cost-effective method of achieving enterprise-wide ERP. Scala solutions are proven to operate seamlessly with SAP to deliver appropriate ERP functionality at the right price," he concludes.