The life sciences industry is undergoing an evolution. Organizations are moving beyond their core competencies to develop global businesses that offer comprehensive, customer-centric solutions.
Mergers and Acquisitions
Life science organizations are acquiring businesses that offer complementary yet disparate products at a tremendous rate. According to the 2018 EY M&A Firepower Report, merger and acquisition (M&A) activities in 2018 totaled US $198 billion, with over 40% of life science executives surveyed planning on more deals in 2019. The focus of these M&A deals will be on small-to-medium sized acquisitions vs. mega-mergers with product-focused innovations as one of the major drivers.
Often, these disparate organizations operate very differently from those of the parent organization. Parent organizations must be cognizant of the nuances attributed to operating in new markets and potential risks that can disrupt the business. For instance, a pharmaceutical organization will be subject to different regulatory and compliance requirements as well as manufacturing and distribution processes.
In order to avoid missing out on the competitive advantages attributed to these strategic acquisitions, organizations are tailoring their system strategy to meet the goals of the business strategy. Increased competition, rapidly expiring patents, or changing and declining reimbursements are driving life science companies to depend on methods that support speed to market as well as the flexibility to meet the changing commercial and regulatory requirements. In order to achieve the goal of speed to market, these businesses are looking to quickly implement cost-effective solutions while avoiding disruption to the business.
One Size ERP does not Fit All
Traditionally, organizations have attempted to align on the implementation of a single-tier, mega-suite ERP solution. Many organizations soon realized that attempting to manipulate a Tier-1 ERP to meet the requirements of diverse business lines can prove to be slow to implement, costly to design and support and ineffective. Determining the ERP that best meets the business is more than the notion that one size fits all.
Organizations trying to roll out the mega-suite ERP to smaller businesses, comprised of a smaller user base, disparate processes and differing regulatory requirements, soon find that they must implement alternative and supporting applications to support the business. This negates much of the benefit supposedly realized through a single-tier ERP. These “Shadow IT” solutions are difficult to support and pose a significant risk. This becomes even more challenging as organizations embark on several acquisitions within a short period of time. Pursuing this “mega-suite ERP” approach often results in a nest of multiple bridge systems, and the pace of deployment and maintenance of a heavy ERP system often can’t keep up with the pace of expansion, acquisition, or innovation in these fast-growing sections of their company.
Benefits of a Two-tier ERP
Many life science companies are seeing the benefit of the two-tier ERP strategy. In a two-tier ERP strategy, the corporate parent keeps their existing tier-one ERP system at the headquarters while allowing divisions or business units to select a second ERP system that better meets their local needs. The tier-one headquarters ERP system acts as the global standard for running processes that must be standardized across all divisions, such as financials or human resources. The second-tier ERP system provides the flexibility required to support the specific needs of subsidiaries or business lines and is focused on supporting their specific needs such as manufacturing or quality processes at an efficient pace for implementation while remaining more cost-effective.
As life science organizations adopt this strategy to transform their business, business leaders must act prudently to identify companies they can partner with (or acquire) that provide a competitive advantage. These same leaders are finding out that their existing strategy of ERP system standardization is costly, slow, and poses substantial risk. The two-tier ERP strategy has given the life sciences industry the flexibility to keep up with a rapidly changing global business.