Riding the New ERP Consulting Wave

Customer dissatisfaction is catching up to third-party ERP consultants and forcing the tides to change

From the dawn of the ERP market in 1992, third-party enterprise application consultants have played an intricate role in the market’s development. Depending on your perspective, this industry either blossomed or bloated with the growth and broad market appeal of ERP applications. In many ways, SAP’s ability to shift the Big Six consulting firms’ focus from custom application development to package software implementation paved the way for SAP’s initial success among large global corporations. Although SAP’s tactics helped fuel the ERP market, the success and blistering growth of the Big Six spawned the third-party consulting ecosystem around the top ERP players. Today, more than 200 professional services firms, with practices around one or several ERP applications, support the ERP market in the United States. All these companies are vying for a slice of the pie, which AMR Research estimates exceeded $26 billion in 1998. Their contributions often determine the success and failure of implementations; consequently, they demand a multiple of the initial software cost in return for their services.

Throughout ERP’s short consulting history, there has been a general dissatisfaction with the cost, length, and end results of the projects. Customer demand has already forced a dramatic shift in ERP implementations from long, expensive, custom endeavors that concentrate on process reengineering to rapid, more cost-effective, industry-specific, and template-driven services.

Consulting and implementation services buyers remain generally dissatisfied, however. Their dissatisfaction stems from the reality that the industry and product expertise and insight—demonstrated during the consulting firms’ sales cycle—rarely translate to the tools and people responsible for the execution of the implementation. Customers are now demanding that ERP consulting firms make the necessary investments in the tools and services that embody their cumulative experience to ensure a more consistent product and result.

The problem is that, by definition, a consulting engagement is a custom set of services designed for the needs of a particular customer. And just as companies have been dissatisfied with the end product of custom software developments, they are equally dissatisfied with custom consulting engagements. The problem with these engagements is the consulting firm approaches each new implementation as if it were its first, so users and their well-paid consultants spend a lot of time building documentation, reports, forms, testing scripts, process definitions, procedures, and training material. This endless, low-value process drains an implementation team’s motivation and resolve, causing the team to lose sight of initial business objectives and settle on a “let’s just get the software up and running” mentality. Although the consultants are not the only ones to blame, they hold the keys to changing the tools and process to improve the result.

Consulting Services for the Next Wave

As the ERP market has boomed in the last five years, the demand for qualified consulting resources greatly outweighed the available supply, so the leading consulting firms, such as the Big Six, and IBM Global Services, were not forced to innovate to succeed. The only requirement for success was to hire and train a vast stable of consulting resources. However, with the only barrier to entry being qualified consulting resources, hundreds of third-party consulting firms have jumped into the market to capitalize on demand for ERP services.

These firms, which have risen out of the middle market or added ERP consulting to complement their technical system integration businesses, have innovated and offered competitively priced alternatives to the established leaders. Over time, these challengers have matured their talent and qualifications to a point that, in many cases, they are on par with the more established players.

Greater competition and a general lack of differentiation is driving the leading enterprise application consulting firms to invest in a new wave of service offerings that react to the needs of the market and create value for their services. Without these new product offerings, the consulting market will be forced to compete on price and people. And because no firm has a lock on all the good people, companies will compete more aggressively on price. These new investments fall into four major categories and in each case the offering is protection against commodity pricing:

Content is king. Providing a good team of people at a fair price is not enough. Firms need to develop content that wraps an application with knowledge about practices, process definitions, and how to best use the system in the customer’s industry or business environment. The content is the proof of experience and knowledge of a particular market or industry, but instead of being trapped in the consultants’ heads, it is built into the methodology, configuration, system selection, and process definitions. Users should begin to expect ERP consulting firms to provide content immediately.

Net-change implementation. For too long, consulting firms approached each implementation as if it were their first time. Users spend a significant amount of time and money building documentation, reports, process definitions, testing scripts, training material, and forms. Net-change implementations prepackage the busywork inherent in every implementation, thus eliminating the expensive, but repeatable, portion of the implementation. More important than the cost savings, this prepackaging of tools and content allows customers to concentrate on the much more important business benefits. Although it is still inconsistent among ERP products and industries, several of the major consulting firms have developed some powerful net-change offerings, and users should begin to expect support for the concepts.

Pre-assembled and pre-integrated industry solutions. Assembling and integrating complete industry applications is the future of the market. However, application architecture, supporting technology, and standards don’t yet support the vision.

Most ERP vendors are aggressively pursuing a component-based architecture but are still several years from anything substantial. However, that has not stopped some visionary consulting firms from pursuing a vertical assembly strategy by combining a base ERP application with some best-of-breed, bolt-on applications, as well as adding some proprietary or third-party, industry-specific functionality. You will see these solutions running in a multimillion dollar solution center, but before you buy the showroom demo model, understand what out-of-the-box integration comes with the application suite, as well as the consultants’ ongoing integration maintenance strategy. In general, the technology and standards are not ready and the leaders are 18 to 24 months from delivering a true integrated system that simplifies the integration nightmare.

A return of the turnkey model. Several major consulting firms have announced reseller relationships with ERP and other application and technology vendors, marking the possible return of the turnkey systems. Obviously, users would prefer to have one company bear responsibility for the quality of the many systems and applications they buy each year. Do you remember the simpler days when you could go to IBM or DEC for everything, and there was only one company to call when the inevitable problems arose? Unfortunately, the sophistication, variation, and complexity of today’s computing environment make it impossible for any one vendor to have all the resources to support any one environment.

To pull off a contemporary turnkey offering, the next generation turnkey suppliers must make extremely strict partnership decisions to limit the variations in environments, making the service more practical. Up to now, the visionaries have made the commitment to sell turnkey systems but they’ve yet to make the investment to build the required infrastructure to support the complex computing environments of the day.

The Good News

The good news is the level of value you can attain from the consulting firms is on the rise, so the firms can get back to selling value instead of bodies. In the meantime, until these services are available, I recommend that companies evaluating third-party ERP consulting teams to support their project invest their time evaluating the fit and comfort of the individuals proposed to the team — not methodologies or aggregated experience of the companies. It is the talent and experience of the individuals assigned to your project team that make the difference in the project’s success.

Guest columnist Rod Johnson is a senior analyst for enterprise application strategies at AMR Research Inc. His primary focus is on researching products and vendor strategies in the ERP market. Johnson also writes for AMR Research’s Alert. You can reach him at rjohnson@amrresearch.com .