A few weeks ago I was in San Francisco for a few days for NetSuite’s SuiteWorld conference [Disclosure: NetSuite funded my travel and accommodation to attend]. One of the announcements at SuiteWorld was that of CTO Evan Goldberg who talked about “Multi Book Accounting”, as my colleague Phil Wainewright explains;

[multi book accounting is] for multinational businesses whose operations have to report under varying accounting rules. The underlying set of figures is the same, but the reporting rules about how to present the results can vary from one country to another. Keeping a separate set of books for each accounting regime avoids messy manual corrections and updates.

Essentially it’s a further nod by NetSuite to the notion of two tier ERP, the idea that organizations can continue to use their existing ERP systems at a corporate level, but enable individual business units to innovate with secondary solutions. It’s a smart idea and one which is a natural fit for NetSuite that had traditionally had a hard time selling into the largest corporates who were generally seen as invested in one or other of the large ERP vendors. At the event NetSuite was keen to tell attendees about the case studies of large corporates who have moved to NetSuite for individual business units, all tied to traditional ERP solutions at the corporate level.

It seems to me that the move to two tier ERP closely mimics the approach towards cloud computing in other parts of businesses. I’ve long admitted that, while cloud is a compelling proposition for organizations, the chances of seeing solutions that have been running on mainframes for the past few decades being migrated to cloud is remote at best. There’s a surprisingly high number of mission critical applications running on very old hardware. This stuff is unlikely to move but rather organizations are using cloud for greenfields opportunities and workloads.

For the same reason the largest organizations that are running their corporate ERP on SAP, Oracle or whomever are very unlikely to change anything at this level – what they will begin to do however is to look at their systems their existing, or new, business units use, and make some buying decisions there that take into account the flexibility, agility and other benefits that cloud solutions bring. This is a compelling message but one which has only really started to be told. I was interested to read an analysis by Ray Wang over at Constellation Group in which over Nearly half of respondents claimed they were considering a two tier ERP strategy. While this leaves a huge number of organizations not considering the approach, when you consider the relative nascence of the entire two-tier notion, the number considering a move is testimony to its value – especially for an organization with business units who are in highly competitive and changeable situations.

In his report Wang made some recommendations for organizations looking at a two-tier strategy;

  • Multi-multi-multi. Organizations in global environments require multi-lingual, multi-currency, and multi-org capabilities. Last-mile solutions should be delivered at the local level.
  • Local accounting standards support at the sub level. Sub-level support should include roll-up to the appropriate currency at a global level to reduce the number of country specific instances.
  • Industry specific and last-mile solutions. Consider the cost of configuration in the Tier 1 system versus the Tier 2 system to meet business requirements. Many Tier 2 systems enable cost effective two-tier deployments.

All of which closely align with what NetSuite is offering – the ability to be multi-currency out of the bag, the ability to support local financial year-ends and the ability to be highly industry specific all play directly to NetSuite’s core competencies and not those of the large vendors. Which brings us to one of my key medium-term predictions – that of an outright acquisition of NetSuite by Oracle. First a little context here – Larry Ellison is already a major shareholder in the company, owning more than 50% of it. Bear in mind that Ellison’s presence (if not in person) was all over the SuiteWorld event – from his picture on the keynote slide decks, to the private analyst soiree that we enjoyed at one of Ellison’s homes. When he wants to flick the switch on this deal – Ellison has every ability to do so.

As I suggested to a number of people I spoke with at SuiteWorld – if Oracle was to acquire NetSuite today, it would just annoy people – NetSuite customers would be anxious about the impacts that would have on their new, flexible approach towards ERP while Oracle customers wouldn’t see any validity in the deal since two-tier is a foreign concept to them. But the world is changing, as two-tier becomes the accepted norm, both Oracle and NetSuite customers and stakeholders will understand the great fit here and the deal will look natural to the majority. An acquisition in the medium term is a natural fit, and if it happens, then next time I have diner at Ellison’s house, he might just be there in person.

 

Ben Kepes

Ben Kepes is a technology evangelist, an investor, a commentator and a business adviser. Ben covers the convergence of technology, mobile, ubiquity and agility, all enabled by the Cloud. His areas of interest extend to enterprise software, software integration, financial/accounting software, platforms and infrastructure as well as articulating technology simply for everyday users.

2 Comments
  • We see a lot of two tier at Xero where a central organization might run NAV or Great Plains or even SAP but the regional nodes all run Xero – saving them a boatload of money.

    We have seen integrators using the Xero API to consolidate the regional financials back into the top tier.

    It’s a very neat match of the big and small ends of town. SaaS is providing a cost effective EDI endpoint for not just small companies but the leaves of large and complex entities.

    Plunket is a good example: http://www.xero.com/non-profit/

    Rod

  • Dexter Barnett |

    It seems to be a good strategy, however, I don’t have too much background info about this. Your article made me interested and I might look it up again.

Leave a Reply

Your email address will not be published. Required fields are marked *