The risks of the “one size fits all” approach to large multi-company business management solution deployments were highlighted in the January article. It flagged the fact that there was a more cost-effective, rapid and lower-risk approach that is gathering pace within the ERP industry. This article explains the principles behind the “hub & spoke” approach to multi-company/multi-country implementations.
The attraction of the single entity system is easy to understand. Executives are generally looking for a single solution to integrate their entire business operations, processes and technologies, to provide them with one version of the truth. That approach may work with large manufacturing plants making a limited range of similar product ranges and operating with reasonable lead times. However, it usually fails dismally where the business model in each subsidiary is subtly different. In the fresh food sector, the differences can be quite marked while having to operate under extreme time and margin pressures.
The important thing is that the delivery of accurate reliable business information is more important than forcing standardised processes as dictated by the system. The principle behind the hub & spoke approach is that the core system is designed to meet the needs of the head office (the hub) while the different operational needs of the subsidiary (the spoke) are taken into account when deploying the system. While this requires some careful thought at the design stage, the payoff can be considerable.
Design starts with the reporting requirements of both the group and subsidiaries. From this, the chart of accounts is constructed. This is the General Ledger template for companies operating throughout the group. However, where overseas companies are concerned, it may need some changes imposed to comply with the country’s legal and fiscal requirements. During this stage, at operational level, there may be some benefits in having common descriptions for products sold and purchased. Also, exploring how customer information is captured for group consolidation purposes could pay longer term dividends.
The advantages are already being seen by many multi-company conglomerates. Having a group-built system at the core means the reporting needs of the head office are catered for from day one. Head office can also easily dial in to the subsidiary system to carry out audit checks. As information from the subsidiaries is consolidated, data mining facilities provide vital management trend info across the group.
As the subsidiaries are involved in the design of their operational systems, the management buy-in is far greater than that of an imposed system. The flexibility of the chosen subsidiary platform means they can react quickly to customer demands without compromising the group solution. And if the group wishes to divest of a subsidiary, the unit can buy a software license and continue with minimal disruption. -
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