Taking the Temperature of the SAP Market

It’s not easy to write about the SAP consulting market these days. All the economic rules have changed, and no one knows what lies ahead. Of course, this dilemma is not unique to the SAP world. This weekend, I was reading an in-depth expose on the collapse of Wall Street, and one of the key points was “throw out your model” – all the approaches to assessing the market need to be reworked.

But for now, we proceed. In addition to my own writing on SAP, I’ve been looking for other perspectives to see if what I’m seeing jives with other market participants. In this blog entry, I’ll share a few of the most interesting pieces I have seen on the state of SAP consulting since the economy shifted so dramatically.

Before we hone in on SAP consulting specifically, it’s good to get a view of the ERP marketplace in general. One good piece on the ERP market outlook for 2009 is by ZDNet’s Joshua Greenbaum. On October 30, 2008, Greenbaum posted a piece called “More optimistic views on the future of enterprise software,” where he made a case for ERP in 2009 which I thought was very credible and not head-in-the-clouds.

Along with some harsh criticism of industries that, in Greenbaum’s view, had some hard knocks coming to them, Greenbaum shared his view that the technology sector is sturdier, having already been through a major Darwinian correction in the last dotcom crash:

“One of the great effects of the dotcom bust was a winnowing of a lot of junk and jive and untenable business models and companies from the technology sector. What emerged from that disaster was a core set of big companies – IBM, Microsoft, SAP, Oracle, and a few others – and a core conviction, held by start-ups and multi-billion behemoths, that we’ll never make those mistakes again. And hence my new optimistic perspective on life in the current recession.”

Greenbaum is confident that the pressure that was placed on ERP vendors during the post-dotcom era has required them to create products that deliver real value. As a result, there should be a floor underneath the fallout in the enterprise software market.

For an SAP-specific perspective on the downturn, another ZDNet blogger, Dennis Howlett posted a piece on October 28, 2008, entitled “SAP scraps year end guidance: why I’m not worried. Yet.” In the piece, Howlett put SAP’s decision to pull its fourth quarter earnings into a “do not panic” context. He pointed out a few signs of SAP’s continued market strength, including its lack of massive layoffs to date:

“During the [analyst briefing] call, SAP said it has taken measures to reduce cost by some €200 million in the current quarter largely made up of the widely publicized hiring freeze and elimination of non-customer facing travel. While this seems like a large number it is only around 10% of expected cost. That suggests SAP is more confident about where it stands on margin. It compares sharply with reductions seen among the Silicon Valley startups where workforce reductions alone are being reported at 20-30%.”

Now, to be fair to Greenbaum and Howlett, they published these pieces before some more bad news arrived in the tech sector, including Intel’s fourth quarter forecast (down ten percent) and Sun’s announcement last Friday that it would be cutting more than 5,000 jobs – something which triggered a pretty dour summary of tech layoffs from the Wall Street Journal Business Technology blog. However, neither Howlett nor Greenbaum have retracted their posts, so we’ll take them at their word for now. At any rate, I take Howlett’s view on SAP’s market position seriously because he is not afraid to hold SAP’s feet to the fire, nor would he be shy about letting readers know the sky is falling if indeed he believed that to be the case.

So if SAP seems better positioned than most companies to get through this period, what of SAP consultants? What should they be focusing on? I have not seen many pieces on this topic that I did not have a direct hand in, but one that I really liked was written by Vijay Vijayasankar in his SAP Community Network blog entry on November 7, 2008, entitled, “Road ahead for SAP consultants.”

In this blog entry, Vijayasankar shared the SAP project areas that he thinks will have the most action during this downturn, based on his own observations and those of fellow consultants he has talked with. He provides ten different project areas that may be fruitful during this recession, along with a short annotation for each. The areas he lists include: the continuing needs of support projects, the requirements of large scale SAP iniatives that are already underway, as well as web-based SAP project extensions. I was struck by his anecdote in this section:

“No one is cutting down big time on web-based projects. One guy gave me an example where his client laid off employees, but continued a web-based CRM project with increased budgets. While I hate to see people losing jobs, I guess I can see the company's logic in moving more and more stuff online and automated.”

In terms of recommended SAP skills in the downturn, some of Vijay’s skills tips include CRM, BI, security, and industry-specific SAP skills. I made a few of my own comments to Vijay’s blog entry. I talked about the importance of ERP 6.0 experience, because the individuals (and firms) that have this experience are in a better position to advise customers on migration paths and also to relay SAP’s latest efforts to improve the user interface and experience. I also made a distinction about Vijay’s recommendation to look out for support project activity:

“Yes, support projects can be a good place to make a living till new projects pick up. But you have to be careful also, because even if you are fortunate enough to be drawing a decent paycheck, some ‘support’ projects get into that dreaded ‘maintenance mode’ where you really aren’t adding to your skills. And in SAP, when you aren't adding to your skills, you're often falling behind. On the other hand, some support projects are more forward-thinking, such as those that are using SAP’s new RunSAP post-go-live methodology. Others are doing strategic extensions into other systems or customer bases, or even merging an acquired company. We should see some of this merger and acquisition need in this economy.”

Another useful perspective on SAP consulting in a downturn comes from Ray Kelly, Vice President of B2B Workforce. I thought his take on this was interesting enough to warrant a full article on “The New Rules of SAP Consulting,” which I wrote for SearchSAP.com. In that piece, Ray explained the source of the rate pressures many SAP consultants are experiencing:

“When you look back 10 or 12 months ago, consultants might have received a false hope, for lack of a better word. Yes, they got engagements extended, but no new engagements were started at the level of 2006 and the first half of 2007, which in turn has created an additional supply of available consultants which is now putting some pressure on rates.” But Ray’s focus was not on the doom-and-gloom. Rather, he had some very specific suggestions for consultants who wanted to remain marketable. I summarized his viewpoint as follows:

“According to Kelly, no matter what the ERP package is, the needs are the same: value-added enhancements to the ERP core. Whether those enhancements involve analytics, SOA-based product extensions, or supply chain optimization, the common skills needs are the same: exposure to the latest versions of the core SAP ERP releases, and, ideally, skills in a hot new tool or add-on product.”

Finally, I did my own blog posting on “How Should SAP Consultants Respond to the Down Market” for JonERP.com. My own recommendations jived with the themes I have touched on already. I also pointed out that with fewer projects being greenlighted, there is a trickle-down effect that makes it very difficult for those trying to break into the SAP field. But for those senior consultants who are up to speed with the latest releases of SAP, and more importantly, who know how to translate that functionality into measurable business results, there is still work to be found. One point I made fit in well with Vijay’s blog. I said that customer acquisition and retention remains crucial, and that should inform your skills approach:

“Interestingly enough, Web 2.0 type skills may be the one area of new skills that remains relevant even in this down period. That’s because having the edge on customer experience and web site user-friendliness and interactivity is more important now than ever. This is about putting yourself in your customers’ (or employers’) shoes, and viewing the market from their vantage point. The more you can contribute to either spending efficiencies or revenue stabilization, the more valuable you are - in any market.”

Of course, by the time I post this blog entry, the market will have probably shifted again. But I hope that the views I have summarized here provide a pretty good framework for how to approach the SAP market in a down economy. We can only hope that the larger economic issues we are facing will find their floor soon, and that we can soon focus more confidently on prosperity and rather than survival.