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A few weeks back I posted a blog on LinkedIn which attempted to demystify a lot of the confusion around why SAP projects tend to deliver less than favorable results when the implementation partner is chosen using price as the primary selection criteria.  What I did not expect was how much response the blog would get.  After an overwhelming number of comments, shares, and general feedback I’ve decided to share the article here on the SCN as well.  The original article can be found here: The High Cost of Low-Cost SAP Providers | Harrison Holland | LinkedIn in the event that you would like to participate in the ongoing discussions about this topic.  The SCN is the premier forum for SAP-centered discussions, therefore it seems only fitting to post this blog here as well – I would love to capture feedback from this audience!

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Anyone who’s spent even a brief time in the SAP industry is aware that there are a variety of low-cost providers (LCPs) available.  Like their more expensive competitors, these firms offer both custom development and system maintenance services.  These firms are attractive because they claim to be able to deliver the same results their big-name counterparts, but with consultants who bill at a significantly lower rate.  For certain types of work, these firms can indeed get you the same results at a cheaper price, and we’ll describe those situations in a future post.  However, most of the time, you’re going to get very poor results and you’ll have to hire a more expensive firm to come in and clean up the mess.  As my dad says, “Buy cheap, buy twice.”

To understand why low-cost providers are often a poor choice, it’s necessary to understand how these firms function.  Typically, they place their most impressive talents in customer facing roles, especially during the sales process.  Since the LCP representatives that the customers see are just as good as the representatives from the premium providers, many customers assume that the people they don’t see are also just as good, and choose the firm that costs less.

Sadly, that’s not the case.  Cheap providers can offer cheap bill rates because they are paying their consultants next to nothing.  As you would expect, that means their staff is composed of new trainees and bottom-barrel talents, as anyone who acquires valuable skills quickly leaves for a more lucrative opportunity.  This is bad for the overall talent level working on your project, but it’s even worse for continuity.  The on-site guys aren’t going to repeat the four-week knowledge transfer you gave at the start of the process to every new hire.  That would cost a lot of money, and in any case, the new hire probably won’t be around much longer than the guy he replaced.  As a result, most of the people doing work on your project have virtually no understanding of the larger context their work is supposed to fit into.

So how does this play out in actual projects?  If the work is for new development, you will have to do a huge amount of micro-managing.  Most of the individual actions in any implementation are simple enough that even a new trainee can do them, but because nobody doing the work has a coherent view of the vision that each action exists to realize, you have to tell them EXACTLY what you want to be sure of getting it.  Naturally, there is no way to do this for the thousands and thousands of individual tasks that need to be done.  What will happen instead is that a large chunk of the tasks will be completed in a way that technically meets the requirements but doesn’t advance the project.  You will repeatedly bring a up new issues with the LCP’s on-site team, you will repeatedly hear every possible variation of “Hey, we just did what you told us to” and you will repeatedly have to pay for re-work.  The low-cost provider may indeed be a lot cheaper per hour, but because the process involves so much micromanagement, re-work, and delays, it’s often cheaper in total to hire a premium provider.

What about normal system troubleshooting?  Since the issues are generally smaller in size and the scope is more easily comprehensible, isn’t this a good area to save money by retaining the services of a low-cost provider?  Not really.  Remember, the same situation of low skill and high turnover apply.  In the case of maintenance, this means that the consultants aren’t familiar with the system they are supposed to be maintaining, which is a big problem when you are dealing with something as huge, complex, and interdependent as an SAP setup.

So what happens?  When something breaks, the LCP’s tactic is to stall.  They will respond to tickets, ask you lots of questions, generate detailed requests – anything to provide a plausible explanation for why they can’t start fixing it yet.  Sometimes, they will use the delay to hire world-class outsiders themselves, who then come in and resolve the issue for them.  They’ve calculated the likelihood that they’ll have to deal with a major breakdown and baked that cost into the retainer fees they’re charging you. In other cases, they just try to run out the clock, hoping that the mounting costs of having your broken business systems becomes so great that you hire an outsider yourself to clean up the mess.  In either case, you’re getting essentially nothing for the fees you’re paying them.  Experts are eventually going to have to come in and clean up the mess.  You’re better off hiring those experts yourself.

You might expect that these abusive practices would generate lawsuits.  Indeed, many clients specifically choose LCPs with a large US presence so that they have someone to sue in these cases.  Unfortunately, the threat of litigation doesn’t protect these clients from abuse in the way they think it will.  First, lawsuits take years.  You don’t have that kind of time if you’re losing six figures a day because you can’t fulfill orders.  Second, even if you do sue, it’s tough to win against these firms.  They’re well aware of the danger legal action poses to them, so they are extremely good at seeding their contracts with hidden outs and clauses.  Even in the most flagrant situations, you’re going to have a very difficult time proving they are actually in violation of their contract terms.  As usual, everybody loses except the lawyers.

If low-cost providers perform so poorly, how do they stay in business?  It’s the same reason people continue to fall for Internet scams.  The people who hire these firms really, really want the claim – world-class results at super low prices – to be true.  They either fail to give the LCPs claim the appropriate degree of scrutiny or convince themselves that their own project management skills are up to the challenge.  There’s also a happier reason.  There actually are tasks that are a good fit for these firms, tasks in which their weaknesses are less relevant.  In these cases, you actually can save money by using a low-cost provider, and we’ll describe these scenarios in our next post!

Low cost providers are cheap for a reason.  A combination of inexperience, high turnover, language barriers, and exquisite skill at deflecting blame makes these firms a poor choice for complicated SAP projects.

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2 Comments

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  1. Trond Stroemme

    Very true. I would add “cultural differences” to the list of reasons. Low-cost in itself does not necessarily mean low quality and un-dedicated employees, but in regions where consultants skip mindlessly from one employer to the next every 3 months, sustainability and quality suffers as a consequence. This is maybe the biggest issue.

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