The Credit Crisis: a Threat or an Opportunity?

SAP has been performing well this year having made some significant in-roads (e.g. UK core banking business). However, like many other firms, the German vendor has begun to feel the effects of the financial turmoil in Q3 2008. Earlier this week, SAP reported its third-quarter results, posting a 5% decline in earnings and withholding its revenue forecast for the year due to the uncertainty of the economic climate.

The collapse and bailout of banks have snapped businesses out of the denial and the optimistic views they held on the UK economy earlier this year. This has resulted in frozen IT budgets in Q4 2008 in a state of panic, and many expect this not to change until the new year when we expect a clearer picture of where the economy is heading.

This will inevitably impact SAP's pursuit in winning new business in the short-term, particularly as software products tend to be one of the first areas to be effected by tightened IT budgets in certain parts of the business where organisations feel they can "make do" with existing solutions for a little while longer. In addition, SAP's pursuit in reaching out beyond its traditional customer base, namely the financial services sector and the SMB segment, will see slower progress. Nevertheless, PAC holds its expectation that the SAP project services market will continue to see good growth rates, primarily stemming from its existing customer base in the enterprise segment, as initiatives such as ERP upgrades continue, and as large customers look to optimize IT systems and gain more value from existing investments.

As mentioned in my earlier post, SAP has made some good progress in the banking sector prior to the events surrounding the bail out / nationalisation of some major banks. With more regulatory changes expected in this industry, and with SAP's increasing vertical expertise, there will no doubt be some opportunities that will arise from this ordeal. Although, competition will be intense as this is an obvious market opportunity identified by a number of software and IT services players, including both the Indian offshore vendors and the "Western Incs". SAP's strong ecosystem will play a crucial role in this area.

On the other hand, the current state of the market will be most challenging for SMBs that will face financial difficulties as they do not usually have access to a large pool of resources as do the larger enterprises. Hence, sharp cuts in IT budgets will hinder SAP's growth strategy in this market for at least the next 12 months. The challenges being encountered by SMBs do not limit themselves to end-user organisations, but will also include the smaller specialist and niche IT vendors, that are at risk of being squeezed out the the marketplace during the economic downturn.

SAP and its ecosystem have the choice to actively take advantage of the downturn to grab new opportunities, in financial services for instance, or to simply focus on riding out the wave and focus on core competencies in the large enterprise segment, or both! While the core competency route is a safe bet, some cannot help but think that the financial services route would be hard to miss - although being a more risky path!

PAC Featured in SAP Business ByDesign Release

SAP just announced some new content partners around the SAP Business ByDesign solution, most notably, ADP for payroll and some HR functionality.

Here is a quote from Hassan Hosseini part of PAC's SAP Services Research team in Germany:

"By continuously expanding its partner network with solutions that not only deliver added value for medium-sized companies but also enable them to run their business more cost-effectively, the SAP Business ByDesign offering is becoming more and more attractive. SAP is sticking to its strategy of adding complementary content partners such as ADP, which is not only important for its long-term success, but essential."

SAP Remains the Hot Spot in the German Project Services Market

Despite a worsening economic climate, we expect German organizations to increase their project services investment during the next few years, with business around SAP applications as a major growth driver due to the change to the new SAP ERP release as well as to the increasing significance of Enterprise SOA.

We recently scaled down our growth forecast for the overall project services market in Germany, due to the increasingly harsh economic environment. Taking into account the banking sector crisis, rising energy costs and the impact of the strong Euro on export-oriented German manufacturers, so we expect the project services market in Germany to grow at a CAGR of 5.2% between 2008-2012 (based on mid-September 2008 estimates (1)).

However, we believe that it is unlikely to see the sort of slowdown that occurred following the last IT industry crisis at the start of the decade due to fundamental changes in the market. The crash of 2001 dealt a particularly hard blow to the IT world, as end users had previously shown an almost blind, uncoordinated propensity to invest within a heterogeneous IT landscape, supported by successive one-time situations (Euro introduction, millennium change and finally the dreams of the e-business hype). Following the market decline, IT budgets were cut substantially and as a consequence, the companies’ investment behavior was curbed. Since 2004, numerous projects have been launched again. However, these are much more constructive, pragmatic and well-coordinated projects. At the same time, the process of awarding contracts to external service providers has developed away from a time and material basis towards a fixed-price basis. Users can therefore shift risk to the provider; IT service providers prefer this type of project due to the long-term contracts, which reduces market volatility.

The SAP environment in Germany has benefited in the last two years from the exceptional demand arising from SAP ERP upgrade projects. According to our estimation, more than 60% of SAP customers in Germany have already undertaken an upgrade. However, most of the SAP user companies have so far only implemented a purely technical upgrade to the new SAP release. Only in a second step do these companies focus on the far more complex and more cost-intensive functional and/or strategic upgrade projects. We believe that this dynamism in the market cannot be maintained at the current pace due to the lackluster economy. I expect that a part of the planned large-volume strategic SAP projects will only be implemented to a reduced scope or be further deferred.

A further major growth driver in the SAP environment is the rising importance of Enterprise SOA. As the current SOA projects are often merely running as prototypes or test projects, they still have a relatively low project volume in Germany. We are confident that in the near future the need for SOA projects also on the basis of NetWeaver will further increase and that the present low-volume projects will give way to large projects with the corresponding project volumes.

Besides upgrade and SOA projects, I expect horizontal topics like portals, financials and HCM as well as verticals such as the health care sector, retail or discrete manufacturing to be able to realize very attractive growth rates in the SAP consulting market.

According to PAC, SAP services will remain among the most important growth drivers for the German project services market. It is therefore still worthwhile for service companies to invest in the market. However, the companies will focus their investments on certain segments, among others, or on the extension of expertise and on the general qualification of the SAP consultants.

(1) During the past four weeks, the economic situation has strongly worsened, which will have a considerable impact on the IT market. However, the current situation is so instable and volatile that we prefer to wait to set up a new, serious scenario. But it is becoming apparent that some sub-segments will plummet in the coming year.

A View on the State of the SAP Freelancers Market

Later this month, PAC will be releasing a brand new report entitled “The Worldwide SAP Skills Market.” In this post, I wanted to give my view on the state of the SAP freelancer, which in many ways will show market weakness well before IT services suppliers. While some of these themes may be included when the final report is issued, loyal “Feeding the SAP Ecosystem” readers will get a sneak preview into a few highlights from my findings in this blog entry.

I have been analyzing the SAP freelancing market in the United States since 1995. But the economic shifts we are all enduring have called into question all market assumptions, whether it be about freelancers or the largest SAP customers or even SAP itself. So I began my research with a number of fresh inquiries to determine how freelancers were faring in this uncertain marketplace.

Here’s a few key things I learned:
- Even in today’s unpredictable economy, senior SAP freelancers who combine deep SAP project experience with ERP 6.0/NetWeaver skills exposure are still in demand.
- Those consultants who are “junior” level in experience (less than three years) are having a difficult time finding new projects - unless they have special experience in an ERP 6.0 capability.
- Consultants who are rolling off projects on older versions of SAP (4.6c) are having trouble finding new engagements.
- Aspiring SAP consultants who do not have project experience but who may be certified in SAP are having a very difficult time finding a project opportunity.

These seem to be fairly straightforward conclusions. So what are the market forces that created this circumstance?
First, there are fewer new SAP projects being green-lighted. This is putting a damper on the overall demand for SAP talent. The result is less “trickle down” opportunities for junior consultants.
Second, the need for freelancers is currently coming from existing SAP projects who need a subject matter expert to proceed with a key project that is already underway. Some projects are indeed continuing, perhaps because the funding is from a budget that has already been allocated, or the industry in question is less impacted by the downturn. This type of consulting need often comes from more mature SAP shops that have plenty of employees with solid SAP skills, but who lack the bells and whistles of newer NetWeaver and ERP 6.0 experience. This is driving the continuing need for senior SAP freelancing talent, which I often call the “SAP Subject Matter Expert.”

You’ll also notice when I mentioned skills in demand that I didn’t mention Enterprise SOA, and there’s no mention of NetWeaver BPM or Business Process Expert skills either. That’s because we can expect a temporary slowdown in actual project ramp-ups involving these emerging skills and technologies.

Of course, the tricky thing for the SAP freelancer is that holding off on innovation can backfire. Just because companies are in a cautious mood does not mean that SAP freelancers themselves should be cautious. I tell freelancers that in times like these, you need to balance ruthless practicality with a visionary approach. Be ruthless about acquiring the skills that SAP projects need now, but be visionary enough to realize that the business drivers that dictated a need for a BPM-driven strategy are not going away.

Momentum for eSOA is going to pick up again, and companies are going to need freelancers with those skills. SAP services firms who are smart enough to provide their consultants with both practical SAP upgrade experience and business process training are going to be the big winners when SAP consulting activity kicks into higher gear again. Firms that focus only on meeting present day SAP needs are going to miss the bus when eSOA-related activity picks up again.

In the meantime, I am always telling SAP freelancers to move to the edges of the enterprise, in “value added” roles that allow companies to better serve their customers and suppliers. That’s one piece of advice that all of us in the SAP services market can adhere to, and it will pay off, in good times and in these times.

PAC's Tobias Ortwein Featured in SAP Insider

PAC's own Tobias Ortwein, who is a SVP and a regular contributor to our SAP Services research, has just been featured in a special edition of SAP Insider for SAP Services EMEA, including his article entitled "The EMEA Market for IT Services — Is There Really Only One?"

Here is an excerpt:

"To successfully address a client’s unique
IT needs, a service provider must recognize the nuances
that the client’s location and IT maturity level bring to
bear. Otherwise, they’ll lack the expertise to
identify the kinds of IT services their clients need."

Tobias goes on the compare and contrast the mature IT markets of Western Europe with the emerging, more dynamic ones within Eastern Europe. Very interesting insights, I strongly recommend subscribing and/or checking out the recent issue!

SAP Webinar now Posted Online

Just a quick note:

Our SAP Services Webinar is now available for download (slides + voice) on:

www.pac-online.com/sap

Registration on the PAC website is required...

SAP Business Process Experts: A Harder Look at the “BPX Skills Revolution”

In my first PAC blog entry, I posted a review of SAP TechEd 2008 in Las Vegas. One of the main things I noted was SAP’s emphasis on BPM (Business Process Management), and NetWeaver BPM specifically. I also wrote the following: “A ‘business process centric approach,’ complete with new modeling tools, is going to require a different kind of SAP professional.” So what does that really mean?

The “SAP Business Process Expert” is an important topic in the SAP ecosystem. However, it’s fair to ask some sharp questions. First: what is the exact nature of this skill set? Second: how soon will this skill set be needed? Third, and perhaps most importantly, does the Business Process Expert (BPX) skill set still carry some traction in a down economy?

Let’s start with the last question since we’re all somewhat distracted by the ticker tape of bad economic news that’s interrupting our workdays. It’s undeniable that economic slowdowns of this magnitude slow down the rate of innovation on ERP projects. We could make the argument that this type of market is fertile ground for innovative business models, but common sense tells us most companies will not go that route. Certainly when it comes to major new ERP projects, we shouldn’t expect many big announcements in the weeks to come.

But for those who have a stake in SAP project excellence, it’s never too early to identify and cultivate BPX skills. For consultants, these skills can make the difference between landing projects and sitting on the pine. For service firms, cultivation of BPX skills means a well-rounded team that is highly adept at bringing the business and IT agendas of its clients together.

Returning to our first question on what skills constitute a BPXer, that too is a question that is open to a healthy, ongoing debate. With SAP announcing its “BPM for BPXers” certification and laying out the other four tracks of the eventual five track BPX certification, some consensus is building around what a “true BPXer” is. But we are right to ask which of these skills have the most relevance to our clients or organizations. On Tuesday, September 30th, I presented a webcast for ASUG’s Business Process Expert series where I reviewed my own definition of a BPXer and explained why I thought the skill set had relevance.

My own research has solidified into these characteristics of the “SAP Business Process Expert”:

• - Mastery of modeling tools (IDS’ Aris/Enterprise Modeling applications, NetWeaver BPM, Visual Composer, Intalio (open source BPM), even Visio (currently very common, though not a next-generation modeling tool)
• - "Web 2.0” skills (collaborative process definition and development)
• - Focused industry know-how (as opposed hopping from industry to industry)
•  - Knowledge of the end-to-end business processes that rely upon your IT/SAP skills to be properly enabled
• - Ability to work as the “liaison” or “missing link” with functional and/or technical teams from the opposite side of the aisle
• - Change management skills (process-driven approach usually means organizational changes)
• - Project management skills and methodology know-how (lean manufacturing methodologies, Six Sigma, project management certifications, SAP implementation methods, including new business process methodologies)
  

If you explore SAP’s official BPX certification wiki, you’ll see that SAP’s definition of a BPXer is a bit different than mine. That’s largely because my definition assumes a high level of SAP application competency. SAP, on the other hand, cannot assume SAP competency during the certification process, so that must be accounted for and evaluated. My list consists of skills that are not really SAP specific. Indeed, you could wrap the same skills around an Oracle consultant and achieve a similar end.

“Web 2.0 skills” may eventually mean mastery of SAP’s own Web 2.0 applications, but since the only Web 2.0 advancements in actual SAP applications are on the CRM side, for now, what we’re talking about when we say “Web 2.0” on this list is not how to kill time on Facebook, but how to help companies with real “Enterprise 2.0” projects with bottom line benefits, such as the creation and management of a project-based wiki that significantly reduces the tedious email loops of the participants.

Most of the skills on this list overlap into the admittedly maddening “soft skills” landscape. We are seeing the emergence of talent management systems that are providing better ways of evaluating and tracking the development of such skills, but admittedly, it can be a little fuzzy to talk in terms of soft skills competencies. We know that consultants who can “get along” on project sites have better careers, but getting someone from “soft skills point A” to “soft skills point B” is not always so simple. The BPXer needs to take soft skills to another level beyond schmoozing. It’s also clear that the skills I just listed currently mean nothing to SAP hiring managers unless they are built around core SAP competencies.

So that brings us back to our second question: how long will it take for these skills to be a factor on project sites? The first hurdle any SAP professional must overcome is still the technical skills hurdle. BPX skills have done nothing to change that, at least not yet. Most times, the “first pass” evaluating an SAP consultant happens on paper, via the resume, and currently, BPX skills do not come across all that effectively on paper.

Yes, there are ways to quantify change management or team building experience, but for the most part, a resume does not get across a true BPX skill set. The only real exception is depth of industry experience, something that does flow nicely from position to position on a resume. But aside from “Enterprise Architect,” very few BPX-oriented job titles have gained enough legitimacy inside organizations to be noted as formal job titles on resumes.

Where BPX skills come more into play is during the interview phase of the placement process. Whether it’s a personal interview or a more routine phone screen, BPX skills matter. However vague they might seem, “soft skills” can make the difference between the consultant that lands the project and the one that stays at home. After all, with companies being able to outsource many positions to cheaper labor globally, why bother with premium rates for an on-site consultant that is not a good cultural and personal fit with the project? This is where BPXers of all nationalities currently excel.

But we’re not yet in a phase where BPX skills can stand on their own merits. The SAP skills in greatest demand today are those pertaining to ERP 6.0 upgrade work, as well as the NetWeaver stack that drives those upgrades. Core NetWeaver components like BI, Portals, and increasingly, MDM and PI, are also in demand. Unless a consultant can tie their “BPX” skills to these sought after SAP skill sets, they aren’t going to be in the game.

An SAP consultant who only has 4.6c experience, for example, can certainly work on their BPX skills and increase their marketability, but they aren’t going to get ahead of those with ERP 6.0 experience just because they have white board skills. When NetWeaver BPM hits general release next year, this old version/new version experience will become even more dramatic, as you won’t be able to get actual project experience in NetWeaver BPM without being on an upgraded SAP installation.

I remain convinced that BPX is a skills evolution rather than the dramatic overnight shift some have foretold. The economic slowdown simply reinforces my sentiment that these changes will happen gradually and in line with the adoption and success of BPM in general, and NetWeaver BPM in particular.

Perhaps someday, BPX job titles like “SAP Process Expert” will be prevalent on job boards and on resumes as well. But I just searched 82,000 jobs on Dice.com for the “SAP Process Expert” job title and got seven hits. That’s not enough openings for any of us to conscientiously cheerlead aspiring BPXers to drop what they are currently doing to pay the bills. Compare those Dice results with 90 dedicated openings for something as new as SAP MDM, and that gives you some idea of the acceptance curve BPX job titles still have to move through.

SAP BPX is much more than one job role. I’d go further: BPX skills can benefit all SAP professionals, regardless of role. That said, I do believe the ultimate success of the SAP BPX skill set depends upon widespread adoption of next-generation modeling tools like NetWeaver BPM. That should eventually happen, but in this early adoption phase, there is plenty of time to put the hype aside and remember that the best SAP skills approach is a practical one: acquire the skills your next client is looking for.

In case you missed it!

Very happy with the turn out for our SAP Services webinar... no official tally just yet, but looks like we broke some PAC records! ;-)

I think something that all participants found very interesting is our take on how the ongoing financial crisis has impacted overall Project Services, as well as SAP Consulting Services.

The chart above illustrates the difference in our "old" (from June 2008) and "new" (from October 2008) growth forecasts.

What is clear is that the SAP Consulting Services (CS) business is not immune to the financial crisis. Even if SAP was smaller (relatively) in the banking sector, they still were present, and the impact on IT from this crisis will spread well beyond just the banking sector and into the wider economy.

At the same time, we also see the SAP CS business as more stable compared to overall Project Services, since it is based on strong license revenue growth of the past few years, many sectors are actually forced to modernized during tough times, and with lower valuations we expect more consolidation and M&A projects, which may be a negative for SAP, but benefits SAP CS suppliers!

It should be noted that these figures are a snapshot from today, and if there is a further deterioration of the markets beyond what we reasonably expect, growth rates can be forecasted downward again... in any case, the SAP CS business looks like a good place to be!

Don't Miss our Free Webinar on SAP Services Today at 11am ET

At 11am ET today, PAC will be hosting a free webinar on the SAP Services market, sharing our views and analysis from all major regions on this $28 billion market!

Come one... come all!

Register here:

https://www.pac-online.com/pictures/PACOnline/Mailing/0908/webinar/PAC_Webinar_SAP.html