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Business Solutions with SAP

How the SAP Consulting Peter Principle Works

September 12th, 2011 by
SAP Peter Principle

SAP Peter Principle

Most of us working in business for any period of time have heard of the “Peter Principle.”  It was “formulated by Dr. Laurence J. Peter and Raymond Hull in their 1968 book The Peter Principle, a humorous treatise which also introduced the ‘salutary science of Hierarchiology’ …” [FN1]  While the exact quote is a little different, it has come to mean that people tend to rise to their level of incompetence in organizations built on hierarchies.

As an important caveat before getting into this topic, I have known many really hard working folks who have risen through the ranks the “old-fashioned” way –, through hard work and “paying their dues.”

My Experiences with the SAP Consulting Hierarchy

After over 20 years in IT, and over 20 SAP projects, I have seen the Peter Principle again and again.  It’s the nature of how the IT consulting world works.  It is frustrating, and it is enough to drive the competent, diligent, and most talented consultants absolutely crazy.

The “Peter Principle” happens in the consulting world because this is what organizations who implement SAP demand of their implementation vendors.  Sure, that sounds counter-intuitive and crazy, but unfortunately it is a sad reality.

You might be asking yourself right now, IS HE CRAZY?  Maybe a little, but on this point, let me assure you, it is quite true and in a moment you will see exactly how it happens and why.

Enter the Crazy World of Consulting – Why Consulting Incompetence is Rewarded

Once inexperienced, incompetent, or “less than optimal” consultants get onto your SAP, ERP, or other IT project, you are now set up for seeing the “Peter Principle” in effect.  On your implementation or upgrade project an inexperienced or incompetent consultant will ultimately make a mess, however it won’t be seen right away.  There may be signs along the way, but only deep experience will recognize this unless it is blatantly obvious.  There is always some reasonable sounding explanation, or some gibberish, or some babble that is pronounced with confidence but you don’t really understand it. Or, they have become polished and provide entirely rational and reasonable explanations, whether true or not.  After all, they are the “expert” you hired so they must know what they are talking about, right?  Nonsense!

First Sign of the SAP Peter Principle

“Blah, blah, blah”  I have no idea what you just said but just so I don’t look stupid I’m not going to challenge it.

As I’ve written on many occasions, part of the key skills and experience a good consultant or business analyst MUST possess is the ability to take the complex and make it simple.  ANYONE can take something complicated and keep it complicated, or worse still, make it more complicated, or, worst of all, make it a mess.  It takes experience and competence to take the complex and simplify it.  But all that “technical babble” and jargon sounds so convincing, so educated, so, foreign.  It’s a foreign language that you don’t completely understand and these incompetents know it.  Unscrupulous consultants know if they can make something up and sound as though they know what they are talking about you will believe them –, you hired them for their expertise.  They can game you to increase scope, or extending project timelines, or busting your budget and they do this because they are personable and manipulative.

How Can You Identify the SAP Con Artists?

Accountability, Responsibility, and Quality.  The cons avoid accountability or direct responsibility.  On a project where they are discovered they must be nearly forced to have clear accountability for delivery.  They must be pressed into doing what I call “due diligence” around a solution to make sure it will work correctly.

If you catch it early enough you can keep these incompetents from being rewarded for blowing your budget, causing project delays, and creating even MORE complicated and convoluted processes than you had BEFORE you did your SAP implementation.

How Customers Provide Perverse Rewards for Incompetence

The incompetent consultant’s area seems to have users who struggle with problems / issues / bugs that need the most fixing and the most attention.  By this time many companies have invested so much time and effort with the incompetent consultant that they don’t see any other options but to continue with this fraud.  The incompetent consultant is needed badly to support the mess they make for some time after you go live.

One way you can tell you have been manipulated or gamed during the project is by the quality, completeness, and accuracy of the solution the consultant delivers at go-live. 

From a consulting firm’s perspective, the incompetent consultant puts in lots of extra billable hours, helps them get extensions and budget increases, and needs to have lots of extra consulting support.  They are always behind, and no matter how hard “they try”, they always have another excuse for why the problems they cause really aren’t their fault–, it’s always someone else.

These consultants stay on long after go-live to ensure that their questionable solutions are supported by the same person who made the mess to begin with.  This is what customers insist on because by the time go-live happens they are “stuck” with the mess and “stuck” with the “con”sultant who made the mess.

Incompetent consultants tend to be VERY personable most of the time, and ingratiate themselves with the customer / client so that there is no question that they are working SO hard, and doing such a GREAT job.  It could never be their fault.

How SAP Consulting Vendors Reward and Promote the Peter Principle

For the consulting vendor, billing hours go up, staffing and utilization numbers are high, additional “backfill” support is needed and more people are staffed.  From their metrics and possible compensation incentives the incompetent consultant is doing a great job!  On the other hand the highly experienced, competent, and diligent consultants “work themselves out of a job.”  The competent consultants tend to have fewer go-live support issues, they usually have more engaged, involved, and knowledgeable users.  And they are just plain better prepared.  They are not “needed” as you go-live and you, as the customer, get rid of them to cut the blown budget wherever you can.

In a partner oriented firm the incompetent consultant is headed for being a manager, senior manager, managing partner, etc.  The incompetent consultant has great utilization, helps to get more staff on projects, and is always busy.

In the consulting companies incompetence is rewarded and incentivized by the consulting firms.  The most competent and diligent consultants are passed over for career enhancement precisely because of their competence – they may finish projects earlier than their incompetent peers and may be “on the bench” more frequently.

The more skilled the incompetent consultant is at being personable, at presenting a compelling case for why they are doing such a great job but you need more resources, the better positioned they are for higher level promotions.  After all, in consulting firms, senior level positions are focused on getting billable resources out and billing.  The more experienced and capable at this the better positioned you are for partner or senior management.

Stay tuned next week – details on how to spot them and then ferret them out…

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Overcome SAP-ERP System Integrator Sales Tactics 7

June 20th, 2011 by
Business software negotiations - licenses and maintenace

Business software negotiations

As we get close to wrapping up this series we will take a short look at ERP and business software licensing.  There are a lot of things to consider here and a number of strategies you can use in negotiating your licenses.

One thing to keep in mind here is that there are two revenue streams for the software provider.  The first is the license sale and the second is the maintenance agreement.

ERP – SAP – Business Software Licensing Negotiations

One negotiating tip I learned a long time ago is to always, always, always ask for more than you really need or want.  And I don’t mean in the form of the number of licenses or the amount of maintenance.  What I mean are the concessions you want the vendor to provide.  These are your negotiation “bargaining chips.”

It is always easier to give something up than it is to take something back so if you start from a position where you have several “throw away” items you will find yourself with a decent bargaining position.

  • Software is licensed, not purchased.
  • Determine “End Game” strategy for licensing
    • This Starts “Hard” Negotiations
    • Time is on Your Side – end of fiscal year and end of quarter negotiations are best because of pressure to meet sales goals
    • Use a “give and take” approach, or a “good cop, bad cop” approach on the vendor(s)
    • Carefully evaluate their sales approach
      • Telegraph to the vendor your willingness to “walk away” from the deal if the right agreement cannot be reached
  • What are the different payment terms?
  • Consider “tiered” licensing options
    • License “stage” commitments – # of initial licenses for developers / system users during setup, and then additional # of users at actual go-live only to be paid for when the system goes live.
    • Ask vendors for interest free licensing options
  • Down payment requirements?
  • How are software modifications addressed in the license?
  • Sticker shock?

ERP – SAP – Business Software Maintenance Negotiations

Software maintenance fees can be a real challenge to negotiate.  This is one area where many software providers have a number of tactics they use to maximize your long-term payments to them.  One large vendor will just about give their software away, and even entice you with a one or two year, low maintenance fee agreement, and then “let you have it” just as the business and software have started to stabilize.  Right at the peak of your dependency on them they will suddenly balloon maintenance fees into the stratosphere.

  • How much is the annual maintenance fee?
    • What are the maintenance options?
    • What if you go off maintenance?
    • Is technical support included?
    • What kinds of technical support and how frequent (Phone, e-mail, fax, online messages, etc.)?
  • Negotiate any maintenance percentage of the software at the price you purchase it for, not at the list price.
  • Link fee increases to standardized economic indicators like the Employee Cost Index (ECI), Consumer Price Index (CPI), Factory Orders Report, Purchasing Managers Index (PMI), etc.  If you expect an inflation spike or economic downturn the PMI or Factory Orders would likely provide the best hedge here.
  • Lock in the rate for the entire duration of the contract to avoid “shock increases” as time goes on.
  • Require free license upgrades to any new version(s) of software as part of your maintenance.
  • What about Source Code?
  • Even after you make the final software selection decision, consider license negotiations with both of the top finalists to use as “buy down” leverage against the real selection
    • Try to negotiate contract language with caps or limits on how much or how quickly fees can increase.
    • Every publicly traded software vendor has strong market incentives at the end of their quarter to make any deal they can to increase revenue (often times regardless of the margins) so be patient!
      • At quarter ends the larger software vendors may resist cutting maintenance percentages but may be much more inclined to provide great deals on licensing.  As long as the maintenance is tied to the negotiated license cost then this is the same as getting a maintenance discount.
    • Seriously consider hiring a professional consultant who specializes in software negotiations.

    Final Thoughts on SAP – ERP – Business Software Negotiations

    Make sure your contract agreement does not contain “penalty” language if you decide to discontinue and then renew maintenance.  For example some contracts include provisions that if you stop maintenance and then re-start you will have to pay some amount of “make up” maintenance for the period you discontinued.

    Probably the most important component of your negotiation strategy is patience.  You ALWAYS have the option of walking away and pressing for serious concessions if the vendor wants your business.  Believe me, you CAN wait them out.  Be willing to wait as long as it takes to get the terms that are right for you but it is also important to be reasonable and fair. In the end everything is negotiable.

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    Using SAP Solution Composer for SAP Scope – Process Alignment

    February 28th, 2011 by
    SAP Solution Composer

    SAP Solution Composer

    If you haven’t noticed by now I’ve always been a proponent of using the tools and resources SAP already provides. After all, why should you pay for developing things SAP has already invested in?

    Because of SAP’s huge installed base lots of customers before you have tried these tools and SAP has adjusted, changed, corrected, or modified them to improve their use and functionality. On top of that, if you manage to discover a defect or bug, as an SAP customer you can check OSS Notes to see if there is a fix. If a fix doesn’t exist you can open your own note to report the bug and get it fixed. Support for SAP tools is included in your maintenance fees.

    One of those early solution prototyping tools I am particularly fond of is the SAP Solution Composer [FN1]. It has a number of benefits and I have defined a number of ways to use it in other posts:

    The SAP Solution Composer tool provides a number benefits to help you quickly map processes and solutions:

    • It will map SAP’s software solutions to your business from a business process perspective.
    • It is free to anyone considering an SAP implementation and you do not already have to be an SAP customer.
    • You can publish a “Solution Composer” type PowerPoint scope presentation to mid-level and higher management to ensure their concerns are addressed.
    • It helps with “expectation setting” to reduce surprises that might come up later.
    • Creating process lists for starting some of the critical change management discussions
    • It provides a common language platform for communicating about process options and process change.
    • It comes with several business objectives, metrics, and other information to help you determine which areas of your business to focus on.
    • The SAP Solution Composer tool contains standard and customizable KPIs, business objectives, and other areas of business focus for evaluation.

    Together with IDES [FN2] SAP’s Solution Composer provides a great Enterprise Architecture jump start for those who may not have 10, 20, or more years of experience. At least with SAP solutions the complex Enterprise Architecture software options are readily available.

    ===============

    [FN1] Information on the Solution Composer tool, and its use can be found here:
    http://www.sap.com/solutions/businessmaps/composer/index.epx

    [FN2] See the previous post on:
    Global SAP Instance Consolidations
    http://www.r3now.com/global-sap-instance-consolidations




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