- April 8, 2020
- Chip Hanna
- Reading Time: 4 minutes
In light of the unknown impact the pandemic will have on all businesses, transformational SAP projects are now under immense scrutiny to justify the commitment of funds and resources. IT leaders are being pressured to determine the overall viability of these SAP initiatives and what opportunities, if any, exist to reduce cost or commitments while still trying to deliver the program’s original ROI.
These four strategies for addressing inflight transformation projects with your systems integrators (SIs) provides the path forward for maintaining project momentum and delivering value to your business in these uncertain economic times.
1. Establish a High Degree of Mutual Transparency
In the current environment, providing your SAP SI vendor with a clear view of your revised SAP program priorities, your organizational focus, and your risk mitigation strategies sets the stage for revisiting your current engagement’s commercial structure. Clearly communicating the expectations your leadership set to reduce or eliminate expenditures enables you to have a direct and credible discussion about the viability of a given project.
Developing thoughtful and consistent messaging for your SI on the criteria required to continue the SAP program communicates a willingness to engage in a dialogue on how or if an engagement continues. In exchange for such a discussion, you should require your SI partner to be equally transparent as to what directives they’ve been given from their leadership regarding flexibility on costs and rates, minimum staffing levels or hours to retain resources, or incentives to keep you from terminating the engagement.
By establishing this level of transparency, you should be able to quickly determine if your SI is willing to commit to a higher degree of commercial collaboration on your SAP project, but also if they are willing to invest in the relationship, which can benefit both parties in the future.
2. Confirm the Competitiveness of Your Financial and Commercial Terms
If there are elements of your commercial relationships with your SIs which have been a point of contention or have not been tested in the market, now is the time to address them. While some SIs may view this as unjustly opportunistic, if you have established a degree of transparency regarding your organization’s expectations on diligence to validate program viability, you can position this step as a requirement to move an SAP program to the “keep” vs. “cut” list, as it relates to the commercial underpinnings of an engagement.
An informed customer can develop a credible strategy to address and improve all elements of their commercial relationship (such as rates, risk sharing structures, etc.) in order to reduce the financial risk profile of the engagement.
3. Seek to Use Creative Financial Structures
A commercially competitive set of terms, while providing a level of comfort from a diligence perspective, is only effective in these uncertain times if aligned to a financial model that mirrors the fiscal realities of your business. Cash flow concerns, OPEX/CAPEX reductions or constraints should all be on the table in your SI discussions.
Despite the representations of some SI companies, their order books are not full, their 2020 outlooks are no longer valid, and in some cases, their future viability is in question. With those factors (and your own internal constraints) in mind, you have the room to explore non-traditional financial models to keep your program moving.
These non-traditional models may be as simple as your SI providing no charge services for your SAP project (e.g., Phase 0 activities) to maintain project momentum and as a carrot to allow your SI to stay in the loop on the overall program status. It could also protect their position as the provider of choice. In addition, you can seek to backload the cost of an engagement to the next fiscal year and push out the majority of the cost. Using this method, you would only pay what is required to cover an SI’s minimum expenses.
Alternatively, a non-traditional approach may be as complex as deferring payment until realization of business benefits to your organization where your SI obtains a portion of profits, revenue, etc., until their engagement costs are covered. This strategy can be particularly compelling if the SI had a role in developing the program ROI.
4. Don’t Compromise on Quality or Accountability
Though obtaining concessions on rates or negotiating favorable financial terms are important to cost containment, they are of little value if your SI is not fully committed to delivering value to your program. Decreasing the margin of an engagement or reducing or extending payments should not provide your SI with a basis to seek a reduction in their accountability or quality of delivery.
These elements of low cost, high value, and SI accountability are not mutually exclusive. It will, therefore, be important that you establish or maintain your SI’s accountability through appropriate risk sharing terms (e.g., hold backs or forfeitures), aligning payments to major program milestones (e.g., completion of UAT), as well as ensuring your SI maintains the same level of skill and capability of the resources they assigned to your engagement.
All organizations and SIs are in uncharted territory and there’s no playbook or boundaries to limit your imagination on how best to keep your SAP project going and address your internal financial constraints. Now is the time to use this uncertainty not only to free yourself from existing challenges with your SI vendors but to also improve the financial and commercial terms that govern your relationships.
In an upcoming blog, I’ll be discussing MaxAttention and approaches to address potential value erosion given current challenges to planned SAP transformation projects. As SAP has positioned and continues to position MaxAttention as a key enabler for customers success, many organizations will need to address their existing MaxAttention commitments and find ways to be sure those investments are maximized as organizations scrutinize every expenditure . Stay tuned!
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