One of the first steps in an effective ERP selection process is to determine the type of enterprise system you’re looking for. There are lots of buzzwords out there – Tier I, Tier II, SaaS, the cloud, best of breed, and various others. What does this all mean and how do you make sense of it all? And more importantly, which is the right type of ERP system for you?

The answer is: it depends (my favorite answer as a consultant, by the way). It depends on a number of criteria, including initial versus ongoing costs, functionality of potential ERP systems relative to your business requirements, and your organization’s want or need to manage its own IT infrastructure. Short-term vs. longer-term costs are another important consideration. However, the complexities of this decision can be more simply narrowed down to two main variables: complexity and control.

Control. As outlined in the above table, companies with a higher need to control their IT infrastructures because they view business technology as a competitive advantage are more likely to find that traditional on-premise ERP systems meet their business needs. These types of systems provide the flexibility and control that such organizations are looking for.

On the other hand, some companies view the IT function as a non-competitive nuisance. They want to outsource it and get it out of the four walls of their organizations. For these types of companies, Software as a Service (SaaS) or hosted ERP solutions often make more sense.

Complexity. The second key variable is complexity. Companies have varying levels of global presence, supply chain sophistication, diversified products, and customer interfaces that provide competitive advantages over their peers. Companies with higher levels of complexity and sophistication are more likely to consider Tier I ERP systems, either on premise or hosted off-site (in the cloud).

Conversely, smaller and less complex organizations are more likely to look at smaller niche solutions from Tier II or SaaS ERP vendors. These companies don’t necessarily need software with huge levels of scale or broad and sophisticated functionality, so they are not as likely to consider Tier I solutions.

Every company is different and has different business needs, so it is important to understand which types of ERP systems will work best in your situation. This simple roadmap will help determine how to best address your enterprise software needs.


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