SAP Consulting Trends 2010 Part Two: How Service Delivery Models are Changing

I kicked off the year with an entry on SAP consulting trends – but that post was only part of the story. In that first post, I outlined the SAP trends to watch in 2010, but for service providers (and those who work for them), there’s a bigger concern: SAP consulting models are under pressure. Companies are looking for different services than consulting firms are used to providing.

The SAP consulting world is suffering from a trickle down effect. Because there are fewer mega-projects to fuel demand, all the consulting players, from “Tier One” entities on down, are seeking new ways to engage their consultants. Essentially, SAP users want smaller, more focused projects, staffed by senior-level talent. Consultancies built on large scale initiatives have no choice but to reinvent or contract. Those “welcome wagon” projects where large consultancies rolled out truckloads of junior SAP consultants are in the rearview now.

As demand for SAP talent narrows, smaller “supplier firms” that based their success on supplying Tier One firms (“staff augmentation”) are really feeling the squeeze. Tier Ones are better able to staff projects from their own bench. However, those boutique firms that anticipated these trends and built a narrower focus around industry specialization or functional specialties have been able to weather these changes better. Often, this means cutting out intermediate brokerage “layers” and working directly with end customers, leading to cheaper bill rates and better value on all sides. But there are more innovations on the horizon.

Here are a few trends to watch in 2010, and some examples of firms (or individuals) who are pushing new approaches into the market.

1. “Spot consulting” and “A la carte” projects. Vivido Labs, founded by ex SAP CEO of North America Greg Tomb, has developed an “Expert Services” division built around “only pay what you need” expert consulting delivery. Companies who need a particular SAP expert for post go-live enhancements can procure that resource for an hour, a day, or whatever they require. The service can be provided on site or remotely. For more information on Vivido Labs, check out the podcast I did on “The Evolution of SAP Consulting” with Greg Tomb.

2. “Cutting out the Layers” and Reverse Auction models. Under the leadership of Mark Koenig, ERP-Consulting.com has rolled out a “reverse auction” model where SAP hiring managers can put out bids for services. Consultants who are pre-screened by ERP-Consulting.com bid directly (and openly) for project openings. Initially, I was concerned about the model because I didn’t think consultants would enjoy a “race to the bottom” auction process.

But as it turns out, consultants like the model so far, for a couple of reasons. First, it is extremely transparent, without the murkiness of most job application processes. Second, companies don’t necessarily hire the cheapest resource in the bidding, but the most appropriate one. Third, and most importantly, because the contractors hired through the ERP-Consulting auction are billed to the customer with only a modest surcharge, the consultants get a superior rate despite the auction format.

That’s because of the many layers that are cut out of the transaction – an advantage not lost on the hiring managers who are able to procure senior SAP talent at lower rates. When I asked Koenig how ERP-Consulting.com was getting around the logjam of approved vendors that most companies have put in place, he told me that they are taking their reverse auction directly to CIOs and getting a warm reception. For more on the impact of these kinds of approaches, check out my ERP Lounge podcast on “Cutting out the SAP Consulting Layers.”

3. Remote/“cloud-based” consulting and help desks. Staffing help desks, which can be seasonal in demand, can get expensive. Paying for help desk services on demand has a logic that cumulusIQ and partner ERP Consulting Exchange are hoping to capitalize on with their “SAP Helpdesk in the Cloud” offering. The helpdesk, based on cumulusIQ’s KaaS (Knowledge as a Service”) platform and staffed by ERP Consulting Exchange’s expert SAP consultants, is intended to provide SAP help on demand, scaling to a company’s needs.

cumulusIQ CEO Monty Kalsi explained why this model is different than the classic SAP consulting model: “"In a typical arrangement, you sign a contract to receive help from a dedicate resource hardwired to your account during certain hours. That dedicated resource is expensive and inherently non-scalable, since normally there would only be one person helping you at any one time. In our model, consultants are cloud-based, meaning they are available to engage over the Internet as needed wherever demand happens to be.”

4. Fixed cost and remote SAP technical services. “Fixed cost” is not a new concept in SAP consulting anymore, but the notion of conducting an entire project remotely (from the technical side) is. Yet these approaches are gaining traction. Firms like group:basis have been able to complete entire SAP ERP 6.0 technical upgrades without a need for on-site Basis consultants. I talked with Wade Walla, owner of group:basis, about this. He maintains that he can do an entire SAP upgrade without a single on-site Basis specialist. I still believe that in less experienced hands, not having an on-site Basis guru is a mistake, but the point remains: remote systems management is becoming a proven specialty for some firms. They are able to offer rates that are significantly lower as a result.

5. “Gain share” and value-based SAP consulting. For years, Michael Doane, author of the new SAP Green Book: Thrive After Go-Live, has been preaching the virtues of “value-based consulting models.” I have had extended conversations with Michael about one approach in particular, which he calls “gain share,” where service firms charge less upfront in exchange for a bigger payoff down the line if agreed-upon KPIs are met.As Michael puts it, consulting firms do their best work when they have real “skin in the game.”

When I had Michael as my guest for an ERP Lounge podcast on "The Impact of the Cloud on SAP Consulting," he told me that the gain share model is only used on about five percent of projects right now. He said that companies aren’t sure how to measure and track the gains properly. That said, I expect the firm that develops the best “gain share” model will have the most success with larger scale SAP projects in the future.

Finally, a note on CRM – in part one of this series, a reader asked me where CRM fits on the technology list. My quick response is that while SAP CRM is definitely a growth area for 2010, the reason it didn’t make my list is that I see CRM as an area where “on demand” or SaaS products are having a big impact on buying decisions. SAP CRM will still be a factor in 2010, but as Peter Russo has alluded to, SAP’s own CRM on demand product does not seem to have a clear place in the product line. It’s this kind of fuzziness that will hold SAP CRM back from being on the list of top SAP consulting growth areas for 2010. And yes, I have a podcast on that topic too – a special feature on SAP CRM consulting featuring two SAP Mentors which should be live on JonERP.com within the week.

Five years from now, the SAP consulting market will be radically different from the one we see today. It goes without saying that the firms (and individuals) who anticipate these trends – but who don’t risk their shirts prematurely – will be the ones to prosper.

Disclosure – none of the firms cited as examples in this article are JonERP (or PAC) consulting clients.