Management Update: Selecting the Right ERP II Service Partner Is a Critical Success Factor

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1 IGG P. Phelan Article 23 October 2002 Management Update: Selecting the Right ERP II Service Partner Is a Critical Success Factor Service partner relationships will grow to enable more holistic business process integration, trading partner collaboration and real-time processing. Enterprises should raise the bar for enterprise resource planning (ERP) II service partner qualifications. Enterprise executives are interested in enterprise resource planning (ERP) II solutions that minimize risk and achieve good returns on investment. Service partner relationships will grow to enable more holistic business process integration, trading partner collaboration and real-time processing. Gartner discusses why enterprises should raise the bar for ERP II service partner qualifications. Moving From ERP to ERP II Enterprises are becoming more virtual, and the pressures on them to operate in real time, or close to it, are increasing. To support that evolution, the market is migrating from ERP solutions to ERP II. ERP II is an application and deployment strategy that is expanding from ERP functions to achieve integration of an enterprise s key domain-specific internal and external collaborative, operational and financial processes. As enterprises deploy those processes and supporting applications, enabling them to participate in the virtual enterprise, they should look to external service providers (ESPs) to supply more than just experienced deployment teams. Assistance with business and application strategies and best practices guidance for traditional and real-time operations are two key areas in which strong skills will be needed. Increasing Reliance on Service Partners Enterprises will increase their reliance on service partners to assist with the extension of business processes from the enterprise to key customers, suppliers and partners, as well as to provide advice on restructuring processes to add value to the enterprise or to make strategic contributions. Service partners that offer such a broad set of expertise will be far more valuable to the enterprise (and more difficult to find) than traditional systems integrators (SIs) that offer cookie cutter approaches to rapidly implementing software products. The need to provide more than just package integration will stretch the traditional SIs ability to provide increased level of services. Even the largest SIs offer few consultants with business process expertise that spans the enterprise from the front lines to the board room to the enterprise s trading partners. When assessing service providers capabilities, enterprises must weigh the trade-offs Gartner Entire contents 2002 Gartner, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 between breadth and depth. Enterprises should expect to engage multiple service partners, complicating the overall service partner management effort. Through 2006, enterprises needs for high-end ERP II services will increase, but service partner resources with the critical business advisory skills will be scarce, costly, and, in many cases, undeliverable at the skill or experience levels promised (0.7 probability). Short Supply of Qualified Consultants High-end consultants with heavy industry, best-practices expertise and strong strategic planning skills are in short supply. During the ERP craze of the late 1990s, the need for services centered heavily on package selection and implementation, with a great deal of demand for experience implementing in the customer s industry segment. For most business areas and packages, the skills were fairly easy to build over a short period of time. Where particular expertise was lacking, the service partner might deal with the customer to use the consultant at a reduced rate for a few weeks while it came up to speed. Combined with the common consulting revenue model of leveraging numerous less-experienced consultants under a more experienced manager, the result is a pool of consultants with less than 10 years of experience, mostly in the area of package integration. Consultants with collaborative mind sets, methods and tools; deep experience in a broad range of industry areas; heavy business process expertise; and ability to offer alternative deployment models are rare. Those critical skills are in short supply for ERP II projects, with approximately 10 percent of the staff having enough seasoning to provide high-end advisory services. Revise Skill Requirements and Evaluation Criteria Most of those resources are assigned to internal management roles, with minimal availability and little desire for full-time consulting engagements. That means the enterprise will be challenged to locate truly high-end resources that are willing to engage for any length of time. Likewise, the cost of engaging will be higher than traditional SI rates, because those resources will be at the top end of the salary range. Enterprises planning an ERP II project should revise service partner skill requirements and evaluation criteria to reflect the critical skills needed for ERP II. Adjust the project budget to anticipate premium prices for the high-end resources. Building up the supply of high-end consultants will take several years. ERP II service partners will be hard pressed to rapidly increase their average consultant experience level, because the high-end skills cannot be acquired by attending a class or by working on a few projects. Years of practical experience, including vertical industry expertise, go into growing high-end consultant resources. The current staffing mix of most service partners is bottom-heavy, with the majority of the consultants having low to moderate experience in the high-end skill areas. Adapting this model to include a higher percentage of senior-level resources, with the bulk of the staff in the middle-to-senior experience level, will require a large influx of senior-level resources from other consultancies and the industry. Moreover, it could necessitate a movement of service partner management staff back into project roles (see Figure 2).

3 Figure 2 Traditional Consultant vs. ERP II Consultant Staffing Models Traditional Consultant Consultant Staffing Model for ERP II Strategy Process/Industry Expertise Source: Gartner Research Package Configuration Many Difficulties Locating senior resources willing to take a hands-on role on a project team will be difficult, and compensating them will squeeze the vendor s margins. In addition, as service vendors become public enterprises, a big unknown is how well they will be able to remain profitable while maintaining a supply of consultants that matches fluctuations in market demand. The need to supply senior resources means less traditional leveraging of junior staff, which consultancies can keep on board longer during tough times. Because locating, hiring and retaining senior staff is typically long and costly, a lag in matching supply to demand is almost assured. Many service partners will phase their investments in strategic high-end resources to minimize profit margin shrinkage. They will continue to leverage less-experienced consultants, trying to buy time while they increase their average consultant experience level. When evaluating service partners, protect against inexperienced resources in critical project roles by closely examining the background and experience of the team members proposed for the high-end skill areas. Assess whether their experience is sufficient to provide the breadth of enterprise coverage and degree of expertise necessary to address the complex business issues over and above package integration. Spend more time interviewing and screening consultant candidates to ensure that their knowledge levels match their work history descriptions. What Should Enterprises Do?

4 What does this mean to enterprises contemplating large enterprise projects in the next five years? In much the same way that unsuspecting enterprises implementing ERP paid the price for developing the SIs packages and industry expertise (as consultants learned on the job), ERP II service partners will count on enterprises absorbing some of the learning-curve costs, while they develop their consulting pools. The risk of project failure from using this strategy will be significant, because the learning curve expands beyond the life of a single project. Inappropriate advice from an underexperienced expert can have more widespread negative results than a bad ERP decision, because the enterprise s business partners will be affected by an ERP II project. Enterprises must insist on high-end consultants for those portions of the project requiring the critical business advisory skills and experience (vs. deep technical skills). Raise the bar for service partner requirements when evaluating the proposed team members for the high-end roles to ensure that experience and skills are available in sufficient quantities. Enterprises must budget for higher fees for these resources, because it will cost service partners more to provide higher-end resources. One Option: Reduce the Scope This advice is a start, but what does the enterprise do if it can t locate resources with the high-end skills, or is unwilling or unable to pay over the top prices? That will depend on the amount of risk that will be added to the project from not having the skills on the team, as well as the enterprise s willingness to proceed knowing it is at risk. If the negative effects of failure outweigh the urgency to implement the solution, delay the project until appropriate resources can be found. Recruit permanent employees or immerse internal employees in the business for intense education on process and the industry. These strategies have a longer time to fruition, but provide more control over specific skills, cost less than using external resources and (if you can retain the experienced personnel) have a longer-term benefit to the enterprise. Another option is to move ahead with a reduced scope so that risk is lower and more manageable. As enterprises deploy ERP II and its supporting applications, they should look to ESPs to supply more than just experienced deployment teams (help with business and application strategies and best practices guidance for traditional and real-time operations will also be needed) The need to provide more than just package integration will stretch SIs ability to provide increased levels of service Customers should employ high-end consultants for the portions of projects that require critical business advisory skills and experience (as opposed to deep technical skills) Bottom Line Acquiring the right service partners will be a critical success factor as enterprises move toward more holistic business process integration, collaboration with trading partners and real-time processing.

5 The ability to address enterprisewide processes, provide deep vertical expertise, offer alternative deployment models and work in a collaborative environment will not be optional. Enterprises that venture into ERP II projects during the next five years will find limited availability of the high-end strategic advisory skills. Expand requirements beyond the traditional SI skills raise the bar for service partner qualifications and increase efforts to ensure that proposed resources are up to the challenge. Written by Edward Younker, Research Products Analytical source: Pat Phelan, Gartner Research For related Inside Gartner articles, see: Management Update: How to Implement a Successful ERP II Project, 25 September 2002