Large, well-established “tier 1” SAP service providers have advantages over their smaller, lesser-known “tier 2" counterparts in terms of name recognition and sheer number of SAP implementation resources they can draw from.
Indeed, many find comfort in going with a known commodity, and that can make it easier on selling the project to those with their hands on the purse strings, according to Liz Herbert, principal analyst with Cambridge, Mass.-based Forrester Research Inc.
But that doesn’t mean they’re always the way to go, Herbert said. Smaller firms can offer things larger providers can’t. For example, smaller firms can often be as much as 10% cheaper on average. They can also be more flexible when it comes to pricing plans. Tier 2 SAP service providers are loosely defined as having fewer than 2,000 SAP practitioners and more than 200 million in SAP services revenues, she said.
“The important thing is to be open-minded to considering providers beyond those 15 or 20 that [companies] might hear about that are the global, largest multinational ones,” according to Herbert.
“Sometimes our clients just want to work with tier-2s just because they can get more attention, better pricing, better flexibility,” Herbert said. “But in other cases, they also are the best source of niche, sometimes industry-specific, skills.”
Four key areas to consider
In a new report entitled Market Overview: Tier Two SAP Services Providers, Herbert outlines the key areas to consider when evaluating smaller SAP service providers:
- Industry expertise: Not only do savvy customers look for industry specialization to begin with, but in many cases, the market also demands industry-specific add-ons for SAP, such as Vendavo for pricing in the retail market. Customers should look for providers with in-depth industry experience.
- Understanding of local needs: SAP clients often need consultants who know the needs of the local markets that the firms operate in, including tax and legal requirements. But that can also include an understanding of the way business is typically done, according to Herbert. For example, if a company is deploying SAP CRM, a provider with local experience can help tailor the application for certain business norms in that country, such as for door-to-door sales.
- Service-line specialization: While many multinational partners like Accenture, CSC, IBM and Tata Consultancy Services offer a range of services that cover the entire SAP life cycle, including process consulting, technology implementation and support, smaller, tier 2 vendors typically focus on one or two elements, according to Forrester. Companies looking at one of these smaller partners should pick one that specializes in the area they need help with.
- Functional knowledge: While many of the larger service providers often provide expertise around core SAP modules, smaller vendors can provide harder-to-find assistance with newer areas, such as CRM and analytics, including HANA, mobility and Sybase, and environmental health and safety (EHS).
Specialization is why Banner Pharmacaps Inc., a specialty pharmaceutical company based in High Point, N.C., went with the midsize service provider Clarkston Consulting.
Banner was looking to replace four disparate ERP systems with SAP ERP, and that included deploying a number of modules ranging from production planning and materials management to finance and warehouse management. A radio frequency module for help in automating the warehouse management processes was also added into the mix.
Banner never seriously considered any of the big service providers, according to Bill Bissinger, the company’s chief information officer. That’s because large firms want to build a new set of business processes from the ground up during an implementation, he said. Instead, Banner wanted to go with a firm that specialized in the pharmaceutical industry and could help them avoid re-creating the wheel by going with established drug industry best practices.
Banner was also looking for a firm that was a good cultural fit, as well as one that could get the system up and running quickly, using implementation accelerators and methodologies wherever possible. The company believed that keeping things moving along would prevent the project from getting bogged down with scope creep.
“I wanted to have world-class project methodologies,” Bissinger said.
The project took about a year and a half, from planning to eventually going live. Clarkston employees took a vested interest in the short-term and long-term success of the project, and the two sides melded together as Bissinger hoped.
“The team eventually lost sight of who worked for who,” he said.