NetSuite Espouses a Hybrid Cloud in Its Two-tier ERP Approach

With the global expansion and growth with new subsidiaries, new acquisitions, and new international markets, large enterprises can no longer maintain and manage their businesses using only their corporate on-premise ERP system. Read this TEC Report and see how NetSuite has espoused a hybrid cloud to provide a two-tier ERP approach that brings the near real-time global visibility and business efficiency that these customers demand.
Though both Oracle and NetSuite fall under the ownership, in large part, of Larry Ellison, the two enterprise resource planning (ERP) and customer relationship management (CRM) providers continue to have a rather friendly, but not close, relationship. After all, Oracle combines cloud and traditional on-premise options for ERP/CRM for large and midsize enterprises, while NetSuite has been a purecloud ERP/CRM provider mainly for divisions of large enterprises and midsized organizations. (The latter vendor targeted small enterprises in the early years since its inception in 1998, but has recently unofficially abandoned that space in favor of Intuit and Sage incumbents. NetSuite’s party line is that it continues to service companies of all sizes and that it in fact continues to serve as an effective replacement for numerous Sage and Intuit customers. But, much better profit margins and lower costs of sale are with larger customers.) NetSuite’s chief executive officer (CEO) Zach Nelson (and Ellison’s protégée while at Oracle) has been quite vocal (and sometimes even harsh) in his criticism of what he calls “oldschool competitors with antiquated client/server ERP systems.” While not alluding to (and antagonizing) Oracle in these jabs, it is what goes unsaid and implied by association that makes us believe that Oracle also belongs to Nelson's so-called “outmoded” group.

Today, more than 12,000 companies and subsidiaries use NetSuite to run their mission-critical business processes globally in the cloud. A growing list of enterprise companies deploy NetSuite for global business management at the subsidiary level while maintaining their corporate tier-one ERP instance. During the past few Oracle Open World (OOW) and Dreamforce conferences in San Francisco (each with more than 50,000 attendees), NetSuite would organize a low-key cocktail reception at a nearby hotel for media and analysts to remind them of its relevance and success in the market.


NetSuite in the Hybrid Cloud

It was thus interesting to see NetSuite as an exhibitor (and Nelson as a keynote presenter) at the recently held OOW 2012 conference. NetSuite’s newly espoused and promoted value proposition is for companies to run their subsidiaries with NetSuite’s cloud ERP while preserving their headquarters’ (HQ’s) (hefty) onpremise ERP investments. Though a large ERP system has typically served these organizations well centrally, global expansion and growth with new subsidiaries, new acquisitions, and new international markets has at times been fraught with local idiosyncrasies.

Large corporations therefore need to integrate these new entities with their corporate-level ERP system—but can they do so rapidly and affordably, and achieve the required near real-time global visibility and efficiency that their business demands? NetSuite’s answer to this sometimes conundrum is a two-tier ERP model powered by NetSuite on a subsidiary level. NetSuite claims that the two-tier ERP model lets companies preserve their on-premise ERP investments, while equipping global subsidiaries with an agile, flexible cloud-based ERP/financials system. This arrangement gives HQ the real-time visibility it needs, at a lower price. However, if you talk to a big ERP vendor such as Oracle, it will point to numerous customers with a single global instance of Oracle E-Business Suite smoothly running subsidiaries and acquisitions across geographies, as well as Oracle JD Edwards EnterpriseOne implemented on the second tier when the need arises.


What Is a Two-Tier ERP Setup?

A one-size-fits-all ERP system that can cater to both corporate HQ and diverse divisions has long been coveted by both corporations and tier-one ERP vendors (see TEC ’s article on this topic way back when in 2001). Yet, in spite of all of the recent developments and enhancements in the ERP space, this corporate-wide standardized ERP deployment is sometimes hard to achieve satisfactorily (and can be very expensive), though it should be noted that vendors have made huge leaps forward in this respect through rapid implementation tools like Oracle’s Business Accelerators program. NetSuite claims that a single ERP configuration for corporate and country-/industry-specific needs is not always feasible. However, to be fair, it can be said that two-tier is not always feasible either. Successful two-tier implementation assumes strong broadband connectivity and country-specific capability (language, financial requirement). Imagine a fabrication plant in Malaysia feeding a first-assembly (subassembly) plant in Thailand, which in turn feeds the final product assembly in Japan, while embedded software comes from India. Each division or plant has different manufacturing needs and countryspecific regulations.

NetSuite claims that a two-tier ERP approach is often more cost effective and agile, as it enables subsidiaries to tailor their “second” ERP system to their own special needs and support their local accounting and regulatory requirements, although single-tier ERP vendors such as Oracle may also have this capability. There are three character sets in the above example—Thai, English, and Kanji— but how many second-tier vendors can support these? Thus many corporations have standardized on SAP and Oracle worldwide. Still, in many other cases, a twotier ERP setup also ensures that a remote subsidiary doesn't end up with a heavier and harder-to-maintain on-premise ERP deployment, although ERP vendors point out other options they offer include Public Cloud (SaaS), Partner Private Cloud, and Partner Private Cloud with Managed Services. In NetSuite’s cloud ERP example as the “second” ERP system, we can see the following touted benefits. ERP vendors claim they can equally support all of these advantages:

  • Easy integration with corporate ERP systems—in the last NetSuite ERP release, so-called SuiteCloud Connectors to Oracle E-Business Suite are provided by renowned NetSuite partners such as IBM Cast Iron, Informatica, Dell Boomi, Celigo, and Pervasive Software.
  • Cloud deployment precludes the need to put an information technology (IT) department in place, onsite.
  • Accelerated entry into emerging markets and products.
  • Ability for quick deployment supports mergers and acquisitions, divestitures, and joint ventures.
  • Customized to individual go-to-market needs.
  • Ability to support elastic growth.

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