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What is the Impact of the Downturn on SAP Consulting? Tim Shearer of B2B Workforce Shares his View
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For the first time in many years, it feels like the factors that determine our economic fate are largely beyond our control. This may or may not be true, but the feeling is nonetheless unsettling. The same is true for SAP professionals. All of us are concerned about how the turmoil in the financial markets might affect our livelihoods. When SAP announced that its third quarter earnings would be under estimates, this was one more sign of the severity of what we are facing. SAP is not usually significantly impacted by a sluggish economy, but that's not the case this time around. The latest announcement that SAP is revoking its earnings outlook only continues this trend. SAP of course is not alone in this circumstance, but if the economic waters rock SAP's stable boat, we had best be paying attention. In my own quest to understand these market changes, I've been reading widely, looking for context from those with a deeper knowledge of market cycles than myself. While helping B2B Workforce with their October ERP Consultant Newsletter. I was struck by President Tim Shearer's letter to ERP Consultants. Tim has a deep background in business and technology consulting, and I thought his explanation of these conditions was an insightful one. He also has an optimistic take on the future of ERP consulting through this crisis - one which is grounded in facts about current market conditions. I am not usually swayed by optimistic viewpoints, but in this case, I was impressed by the knowledge of market cycles that informed Tim's position, and I wanted to share it with the SAP online community.
In his letter, Tim started by summarizing the conditions we are facing: "The current economic environment is unprecedented in recent history. The credit crisis, with all of its associated causes, has impacted business around the world. The current freeze in the commercial paper market (short term, usually 1-30 day corporate loans) is the cog in the road to recovery. Once the current economic environment improves, and it will, either due to the Fed's commitment to be the lender to these corporations, or banks doing as they have for 40 years, the near term crunch will evaporate."
Tim had strong words for those who claim we are heading for another ‘Great Depression': "The so-called ‘$700B Bail Out,' which is actually a purchase of illiquid securities, will also pump cash reserves back into banks. This is not a ‘will the crisis go away,' but a ‘when will it be resolved' situation. There are a lot of chicken littles calling out that this is the beginning of the Great Depression II. History tells us 2008 is very different from 1929. Herbert Hoover, who was the President at the time, and his advisors took the attitude that the economic problems were cyclical and would correct themselves. Contrast this with our government leadership, from the President, to the Federal Reserve, to a hesitant but ultimately accommodating Congress, where action is being taken to deal with the root causes of the problem. These remedies take time to work, but they will ultimately work."
As for the near-panic that some folks are feeling lately, such as when they go online and check on their 401Ks, Tim explained how such fears eventually give way to more rational approaches: "Manias eventually turn to panic, which turns to economic contraction, rapid and broad reaching, which turns to irrational fears, which turns to bold people thinking rationally entering into the market, which becomes a recovery with the masses following the bold. This has been true since the Tulip Mania in Holland in 1637, to the irrational expansion of stock market values in the 1920's, to the tech boom of the late 1990's, to the housing boom of this decade. Humans are rational beings and ration ultimately prevails."
One of the distinctions about this downturn is how it is impacting the capital spending that in turn impacts the IT spending that drives SAP investments. No one knows for sure how long it will take for capital spending to loosen up again and push ERP projects forward. But Tim had a good point about this topic as well - ERP is not a indulgence you cut permanently out of your spending: "Who knows how long it will take for business to shake off the caution that this turmoil has created? Capital projects could be affected as long as capital is tight or concern about spending capital is present. But there are a few things to know. First, ERP apps are pervasive in business today and this base requires the use of SAP consultants. Second, while projects may be deferred, the underlying business reason to take on application software replacement or enhancement does not go away."
Tim's perspective is a credible juxtaposition to some of the doom-and-gloom pronouncements I have seen. Of course, understanding broader trends is just part of the issue. Our other job is to adjust our own professional approach to fit these market conditions. For tips on that, as well as specific SAP skills that are still in demand in a downturn, Tim pointed readers towards a piece I did for the B2B Workforce Newsletter, "The New Rules of ERP Consulting," that featured practical ERP consulting suggestions from B2B Workforce Vice President Ray Kelly. Ray gets into some interesting issues in the piece, such as how much rate flexibility consultants should have and which SAP skills they should be focusing on.
I wrote my own piece on "SAP Consulting in Down Markets" for JonERP.com, and one thing I emphasized was the importance of remaining innovative in a downturn. This is not the time for a "deer in the headlights" response. I read a really nice piece on SAP BPX just the other day by Bernhard Escherich, which made a similar argument. Bernhard's point was that now more than ever, we should take the opportunity to help SAP customers innovate. In some cases, the latest BPX and Web 2.0 approaches may actually be more affordable than the more traditional approaches to business management that have been put in a temporary spending freeze. Another very useful piece that responds to the latest SAP earnings pullback is from SAP Mentor Dennis Howlett on his ZDNet blog, entitled "SAP scraps year end guidance. Why I'm not worried. Yet." For a view on the corporate drive towards innovation during a tough economy, I also enjoyed Gavin Heaton's SAP BPX blog entry on "Redoubling Your Focus on Innovation."
I should also note that SAP, despite implementing some cost cutting measures of its own, is also continuing to spend around technology innovation. Looking back, I feel that the original blog stories that assumed SAP was halting all tech spending were too hastily written, and I regret Tweeting on one of them myself. This blog entry from the Wall Street Journal offered SAP's follow up clarification on technical spending and innovation.
As for the individual SAP professional, we can all be on the lookout for how we can add value for SAP users in "bottom up" ways that do not require heavy investment. In some ways, that conversation is just beginning, and I'll do my best to share any specific tactics or SAP skills that I come across that are effective in this economy as we go forward, and I hope others do the same. We need to hear about these "lean times success stories" and start drawing out the common themes. In the meantime, I think it helps to have an overall market context to inform our own initiatives.
Thanks to Tim Shearer for sharing his comments in this blog entry.
Jon Reed
is an independent analyst, SAP Mentor, and the driving force behind JonERP.com - he blogs, Tweets and podcasts on SAP market trends.
I look forward to your comments.
Comment on this weblog
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- HR will remain a growth area
2008-10-31 01:21:29 Bernhard Escherich
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[Reply]
Hi Jon,
thanks for sharing the thought provoking information and also for your kind feedback to my blog.
In the current debatte one area seems to be underestimated (not from you as you mentioned it in another blog) from my point of view: HR. Even in in times when businesses cut hirings back the underlying demographic shift remains intact. The amount of qualified workers will decrease. Therfore the high demand for qualified HR consultants for talent management will remain intact. Moreover even today companies are in a strong need to readjust their workforce planning. Therefore such projects are great example how enterprises could now benefit from their existing investments.
Best regards,
Bernhard- HR will remain a growth area
2008-10-31 03:08:27 Jon Reed Business Card [Reply]
Bernhard,
Thanks for the feedback, glad you liked the piece and I was glad to link to your good blog entry also!
I totally agree with you about the importance of Talent Management, as a general category and certainly in terms of SAP specific functionality also. Some of these strategic aspects of HR/HCM have never been more important. You bring to light a very important point as well: for quite some time now, even before the credit collapse, SAP consulting has been divided between oversaturated skill areas and "hot" skill areas.
The new economic developments don't really change that, though some of the skills in demand have certainly shifted and obviously the overall demand for consultants has been affected somewhat. The point being that once we get over the initial shock of the downturn and how prospects have changed, we need to get on with your type of thinking, which is: which SAP skill sets and project needs will continue to be sought after during this period we are in now?
I will be doing research on this and will report back what I learn, but I would love to hear SAP community input on this as well!
- Jon Reed -
- more consolidation = more work
2008-10-30 20:40:39 Vijay Vijayasankar Business Card [Reply]
Here is my theory.
I think businesses will consolidate as much as they can, buy other businesses and so on. This would mean they will need someone to help consolidate the business processes and IT systems. So consultants should be in demand.
I am debating in my mind who exactly will profit from this - will companies give more work to big established companies, or will it help smaller companies who can deliver value for lesser money or will it help the independents?
- more consolidation = more work
2008-10-30 23:32:03 Jon Reed Business Card [Reply]
Vijay,
Interesting theory. I'll do some more research on this angle and if I find more useful info I will let you know. I would tend to agree that one byproduct of such an economy is mergers and acquisitions. Certainly we have seen that on the banking side. In terms of who benefits from such mergers on a software side, tends to depend on which software the new entity is standardized on. But SAP has certainly proven its mettle as a good platform for such consolidations.
My experience has been that larger Tier Ones and Systems Integrators with a M & A track record get the lion's share of the consulting work involved with these projects. I'm not sure if there is much of an opening for smaller companies here due to the legal scrutiny of such processes which tends to revert back to "trusted big name syndrome," whether that's the best reason to choose a firm to help or not. As for whether the work will go to independents, we know that services firms will do their utmost to give this work to internal full time employees first to avoid layoffs or big benches. But SAP independents who have valuable subject matter expertise pertaining to such situations or who have, say, ERP 6.0 upgrade experience that is needed in such an initiative, might find a stream of work from this.
I'm just hypothesizing here, if you have other thoughts on it feel free. I'll chime in again if I can get you any more specifics on this.
- Jon Reed -- can SOA save SAP consultant's bacon now?
2008-10-31 16:26:21 Vijay Vijayasankar Business Card [Reply]
Hey Jon, I am also leaning towards the idea that big tier 1 players will profit the most (nice feeling, since I work for one).
Since SOA is touted by a lot of people to be "the" thing to save companies, I informally asked a few people in my network on how they think SOA will pan out. Their answers were all over the map.
One guy said SOA absolutely is the answer, and that his clients have been taking to it in a big way. Another guy said SOA might be the answer, but his clients feel it is too risky to try anything different till the bad phase passes over. He added that some of his clients were in a state of remorse that they didnt start when things were good. Yet another friend, who manages a huge big support team spread across 3 countries - and who has been involved with SAP for 15 years or so, say that SOA will not be a differentiator at all. His client, a big SAP shop evidently, not only doesn't want to do anything on SOA - they not even want to implement any new functionality from SAP in any of the modules till they are confident of the economy.
None of these guys work for clients in financial sector though. I am trying to see what my friends running the show in that sector feel.
But the one question that sent me thinking was from a non-SAP colleague. She asked "If SOA will save the bacon, why is no one mentioning it in the TV and airport commercials in a big way".
So I am where i started - no wiser, but now I have something to mull over the weekend.
- can SOA save SAP consultant's bacon now?
2008-11-01 06:47:48 Jon Reed Business Card [Reply]
Vijay -
Interesting stuff on SOA. I really appreciate you gathering this info and sharing it.
I can tell you what I think though I reserve the right to save my opinion. :) I think the use of SOA will be a little bit limited until the worst of the downturn/credit freeze is over. However, I think we will see some targeted uses of SOA in areas where companies are trying to innovate in their "edge applications" - connecting to customers and suppliers in user-friendly ways.
Overall, my feeling is that SOA is going to have some of the same problems as other best-of-breed solutions. Integrating SOA with many applications, even with universal "open" standards, will not be easy. However, SOA for a company that standardizes on an internal platform for the most part, such as a company that is heavily invested in SAP - I see that working out a little better.
Of course, truly effective use of SOA involves the latest SAP versioning and NetWeaver stack, ESR, etc, so the big question will be how many companies get aggressive about using ESR and setting up governance strategies for SOA as well. Time will tell.
This is a meaty topic, I could keep writing and writing and maybe no more clarity would come anyhow. :)
But you are right, this is a trend to keep an eye on whether it pans out fully or not.
- Jon Reed -
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