Seeking to keep IT spending down, many midmarket companies are keeping SAP applications in maintenance mode, foregoing upgrades or product enhancements. But simply supporting applications in maintenance mode can be costly in and of itself.
In this podcast, Mike Kerrigan of Laurus Technologies, discusses his thoughts on the seven hidden costs of SAP support, and lends advice on tasks that can be outsourced for cost savings. Kerrigan is the vice president of business applications at the Chicago-based service provider, and implemented one of the first midmarket SAP systems in 1994.
|Hidden costs of SAP support|
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Editor's note: The following Q/A is a partial transcript based on the podcast with Mike Kerrigan. Please contact email@example.com with any questions.SearchSAP.com: What are the big support issues for your midmarket customers, and are there support challenges that are unique to your market?
Mike Kerrigan: I believe that the biggest challenge in the middle market is, one, affording talented SAP people to sit in these particular IT shops, i.e., retention problems that mean, as soon as something new comes along, and somebody can implement newer versions of the software, they seem to leave the middle market companies and head to the bigger projects. So I think the concern for the middle market person is, "How do I maintain SAP, keep it running, and at the same time, what is the cost structure for those people I have in house?"
SearchSAP.com: What are the seven hidden costs of SAP support?
Mike Kerrigan: The first one is one I always bring up as the start-up thing I call "water cooler creep." And basically this can happen in big companies, but more so in smaller companies that are more connected to IT. It's when people walk around the building or they have a relationship. Little projects will start on the side, and this will lead back to the entire concept of: What do those people on the SAP support engine have to do eight hours a day? Oftentimes, they may not have things to do. If they're not upgrading, and there are no new projects, they'll be talking to the business about things like, "Can we fix something? Do you need a new report? Do you need a new query?" And so these "water cooler projects" start off that might not be approved by management and could affect things going forward because nobody really knows about them.
The second one that I always bring up is upgrades. And I think what people will find over the course of time, specifically in the middle market, is justifying those upgrades. Unfortunately, in the consulting realm, when somebody talks about upgrading -- for example, let's say [SAP R/3] 4.6C to [SAP ECC] 6.0 -- your people inside the shop don't know ECC 6.0. So the first thing they do is go to consultants. The consultants then do a proposal that says, "OK, you're going to need all these consultants, it's going to be X amount of money." And I think the middle market company instantly backs off, saying, "I really can't justify that upgrade." Again, the upgrade without functionality being added to it should be technical. And if it's a technical upgrade, all you're concerned about is whether, once you've pored over that software, things are going to break.
The third one is maintaining employee training and certification. I think that this is one of the bigger hidden costs, and I think people realize it. When you look at the total picture, you've got things like ASUG meetings to keep abreast of what's going on, and there's the potential for perks when a company can go to Sapphire. As I talked about [upgrading from R/3] 4.6 to [ECC] 6.0, any kind of new products, like you want to get into CRM or supply chain management -- the people in your current staff need to be trained, and that training is expensive. You have to look at, "how much training am I going to do? How much does that cost to get me where I'm going?" Versus using an outside support mechanism that actually has that knowledge already in place.
SearchSAP.com: What else should folks be considering here?
Mike Kerrigan: As for No. 4, I'll go back to my first comment -- we all know that if you're not implementing, you don't have big projects on the table, and you don't have any upgrade in the near future, you're truly in maintenance mode. At that point, I think it's very difficult, even for the financial people and IT management, to look at what the productivity levels are in there. If the system is working, and we configured it right and the data is in there right, then you kind of question what that entire support staff has to do every day. And then the biggest question is: If they are busy every day, then you have a bigger issue to talk about, because SAP should not be operating that way.
What I believe happens is the IT support staff for SAP starts putting one leg back in the business. And they do a lot of business functions to keep themselves busy, and thereby the super users start to disappear over time.
SearchSAP.com: What about the fifth issue?
Mike Kerrigan: Productivity of generalists I bring up a lot -- and this has really come to me more as an eye-opening thing over the last couple of years. Two or three years ago, when I was going around the world, I didn't see solution architects, data architects, all these new titles, lead people. So at the end of the day, I think the middle market will always follow big companies as they have to have somewhere to go with their career.
And so at some point in time, you're possibly doubling-up staff that you had in the beginning because now somebody's been promoted to Solution Architect who is looking over the entire enterprise, when in fact a middle-market company might not need that. So I see a lot of titles growing up, which obviously comes with the pay. When in fact I think . . . all of that can be outsourced again when you only need people on a one-week basis or to make certain committee meetings to say, "OK, what is our future? Is there a better way to do it?" And those consultants are out there, and you can get them very easily.
SearchSAP.com: For those people currently on your staff, if you're thinking of giving them the title of Solution Architect, is there another place for them that might be more valuable?
Mike Kerrigan: Usually in project management, it's not so much the value thing. I think it really comes down to the size of your company, what you're actually in. And again I go back to the maintenance mode; these people need a career path. But at the same time, what true value does that add? I can't say that for everybody, I'm just saying that if I'm in maintenance mode, it's very hard to justify that I have all these titles in the building. And, going back to productivity, what could they actually do for me every day that's going to drive value?
SearchSAP.com: So what is the sixth hidden cost?
Mike Kerrigan: No. 6, what I talk about is the retention and recruitment cost. I think a lot of times people don't put that in their budget. Some people might, but it's really looking at what your turnover is. And once you turn these people over, do you need to find outside recruiting firms? To find the right people, to find the talent that you need, depending on what your situation is, has become more difficult over time. And obviously we have the issues of a lot of people being over here on H1, the language barriers. You go through an entire process. And what's the cost? A lot of people look at retention of a recruiting cost, but what's the internal cost of going through all these interviews -- all those resumes trying to find somebody? Is that one of those areas that can have constant change, or again, can we out-task that to somebody in more of a help-desk function?
SearchSAP.com: And what is the seventh hidden cost?
Mike Kerrigan: Seven is always interesting to me, and I'm sure a lot of people will realize what I'm saying is that what I've seen, over time -- and this goes back to retention and everything else -- is that in these cities or geographical regions, once in a while a big project starts.
In a particular city such as Chicago or Minneapolis or L.A. or Atlanta, any one of these, SAP will sell them one of those big projects. The way it is today, it's much easier for those big companies to search in those cities for people that have been doing SAP for a while, who're actually inside or full-time employees of those middle-market companies, and really start stealing them.
That goes back to No. 6. If you think about the internal IT staff as supporting SAP, and if I go back to the point that you're in maintenance mode and don't really have any projects on the horizon, and somebody comes to them and says, "You can implement new [SAP ECC] 6.0 functionality in a big rollout project globally for the next three or four years," they're going to jump. So you always run into that cost problem.
SearchSAP.com: How do you start to think about which issues to out-task? What are some ways to get started?
Mike Kerrigan: I think you really look at the critical factors of your business. Finance is a good example, because there's always stuff going on in finance -- reporting requirements, if you're public or non-public, stocks requirements -- so that person can be critical in your organization. Sales and Distribution is an interesting part, because you're always changing pricing. So you kind of go down the modules and say, "If we're in maintenance mode and we're stable, which particular areas, whether attrition happens or I can't find people, is it a good point to out-task to a Tier 3 provider?"
Specifically, if you get into the technical realm, if the systems are running from a Basis perspective, people are just monitoring the system, or even ABAP programming, which you can have on-demand when you need it -- these are all good examples of places you need to identify and say, "Can I get the cost savings? Can I go to an on-demand model?" This I actually call Flex and Surge, meaning it's flexible, it's cost-effective, but it can surge whenever you need it, based on a new project or maybe during the course of an upgrade.
This was first published in February 2010