Thoughts on SAP Outsourcing, Part 1 – the evolution

As always, this is just my personal opinion and not that of my present or past employers. I need to do this in a few installments – starting with how outsourcing of SAP evolved in front of my eyes, and then some common problems, easy and difficult solutions and a reality check .

As many of you know, I grew up in India, finished my education there and came to US more than a decade ago. Pretty much from the time I stepped out of college, I have been an SAP consultant. I have worked in and managed both consulting engagements – or “development projects”, and outsourcing engagements – or “maintenance” projects. And I am fairly sure I have seen a big part of the evolution of SAP from R/3 till today. Similarly I have watched outsourcing of SAP services from close quarters for a good while. I have seen this from India and also from outside India (Europe and North America). While I don’t claim to be an expert, at least I am pretty familiar with the landscape. I just want to share a few observations on this topic – hoping someone will find value.

In the mid-late 90′s many Indian companies were already doing quite a bit of outsourcing work for US/European/Japanese companies. But for the most part – they were not in SAP. They did this in other technologies, and infrastructure services. Towards late-90s’s this got a big push with the Y2K challenge. Companies developed a factory model to tackle the Y2K factoring. And then the light bulb went on – why not do this with SAP work and build some serious scale?

Infrastructure was the big issue to begin with. I remember sitting in India copying ABAP code to text files and emailing to colleagues in US to test, since the dial up connection would die if I tried to compile or execute on a server in US. A phone call from India to US was about 100 rupees a minute and was not a cost effective mode to communicate. But since projects all had plenty of time built into it – and since offshore was cheaper – it was not a big deal at the time. Funny enough, looking back – all of it looks a lot worse than how people felt at the time :)

There was no real structure to the whole process in the beginning. We used to get emails with a rough idea of what needed to be developed (Hey you, check VA03 with Sales order number 1234, and build me a data load program..cheers, your best buddy in US) . We did what we could, and some one fixed it onsite. Essentially, we were just doing 50-75% of work, and quality was not always very good. Again, for the cost – this was more than acceptable as a productivity improvement. As I remember everything was at time and materials basis from a contracting perspective when we started.

This was improved pretty quickly, and a more structured process evolved with better written specs being sent from project site to offshore site. Also, since timezones, accents and all started to come in the way – we started having a role of “onsite-offshore co-ordinator” in most projects. It is a very stressful job, and they get beat up by all parties. I remember a colleague telling me over beer that “Man, i feel like everyone’s bitch” . But things started to scale big time.

And as time progressed, the notion that functional modules are too complex to outsource quickly disappeared. And from the initial days of “someone who needs to clarify specs to developers and do offshore PM work” , the role changed to “experts who have deep expertise in business, who can do part of blueprinting remotely”. Another big reason for the jump was that many Indian clients started implementing SAP and this helped increase experience and talent immensely. Another big improvement was that by early 2000s, many consultants from India had returned after projects in US and Europe. These folks added a lot of new skills and experience to the team. Conversely, their colleagues at client sites got a better appreciation for how their colleagues in offshore locations worked. So naturally, communication improved big time.

As the model became more mature, the outsourcing companies could do better estimations and repeat business predictably. Contracts started becoming more of a fixed price, and managed to SLAs, instead of hours. It is not that offshore part of the equation alone improved – the onsite teams by now figured out what can be outsourced, and how to communicate effectively. Of course clients always have wanted quality – so more strict processes came in, including CMM type formal ones. Many layers of QA were established so that final version seen by the customer was much better.

However as time progressed, training did not always keep up. So you will still see many programmers not familiar with OO ABAP, or WebDynpro or SOA. Same is true for functional side of the house too. As demand shot up – companies started hiring like crazy in India. And many SAP training centers opened – several of them really bad, and very expensive. These schools focus heavily on canned technical training. Once the big outsourcing firms hire them, they have to get trained a second time in consulting skills, software design etc., and often in the core technical skills too.

There were some (unintended) side effects too.

One side effect that happened was that due to the large demand, companies started promoting people faster. Folks with 2 years experience became leads and with 4 years some became project managers. Some did well and many did not. It went to a stage that if you hired a 4 year experienced programmer, that person rarely wanted to code any more. To some extent, I think this problem still stays that way . Of course there are many exceptions too.

When hiring happens in bulk, inevitably the quality suffers. I have seen this to also have a long term damage aspect. When a poor skilled person is hired, and then promoted because of the need to grow the business quickly – there is a big chance that since person will hire even more poorly skilled employees. I am not just talking about SAP skills – I mean the soft skills and leadership aspects too. Mediocrity breeds like rats at the scales hiring happens. Companies realized this at some point, and started course corrections – but it will take some time to weed out people who are not equipped to do this work.

Yet another side effect was that offshore talent started having two distinct flavors – one with a strong focus on projects, and another on production support. General impression is that the project side of the house is the lucky lot, and the other side usually feel they don’t get the same training and exposure. This is an awkward scenario – project developers are used to all kinds of innovations to get the project to go live with good quality. And production support gang is used to making sure SLAs are met for every problem that is thrown at them. There are mature processes that govern both sides, and it all works fine. But the moment you put a project guy on support, or a support lady on projects – you can generally expect a “fish out of water” feeling to prevail. It is a pretty sharp divide, and something that people not working offshore often realize or acknowledge.

So when a person who is really good at solving high priority bugs gets assigned to a project as a developer, the instinct usually is to find the solution that solves the problem in the least amount of time. And this is what a lot of times leads to the perception that these people are not good. They are actually quite good – their leaders are not smart enough to coach them in the right path. The exact opposite is true in reverse. A person used to project work will go to maintenance work, and will pull hjs hair out. However, the instinct is to rewrite everything when a bug is reported, rather than get it fixed within SLA time and get the business back up and running. It needs good management skills to coach and align these people to suit the current assignment – and it is an area where many managers fail miserably, usually because they don’t understand these nuances.

These days – it is not uncommon for projects and production support to work out of several different countries working around the timezones. Infrastructure is far better – high speed networks are the norm, cell phones are common, visualization tools and video conferencing help remote blueprinting etc. But as I talk to friends who started in SAP with me but chose to stay back in India, it appears that the processes we put in to counter the poor infrastructure etc are all pretty much untouched till today. As I will explain in a later post, this is not an unnecessary overhead as it first appears.

This is the relatively bright side of the story. But outsourcing generally has a bad ring to it if you ask around consultants and clients. Next time, I will try to explain my thoughts on how it “successfully” earned the bad reputation.

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15 thoughts on “Thoughts on SAP Outsourcing, Part 1 – the evolution

  1. Good observations, sort of brings Nostalgic memories. The Social, Economic and political aspects should be considered as well. The free trade agreement, growing middle class and ambitions to fly west all contributed to this as well. Keep this blog going, I have my own thoughts on the issues and will hold on till your next blog.

    • Absolutely, KK – it is a complex scenario, and I am not a skilled enough writer to cover all the aspects in a way that makes sense to folks who have not lived through it directly. Nevertheless, I am going to make an effort.

  2. Hi Vijay,

    First of all I’d like to say that Outsourcing and offshoring of SAP Resource today is both necessary and unavoidable. Your insights are very interesting and I totally respect your viewpoint. As you know from our previous talks, my perception in some areas is different.

    As a SAP freelance consultant who in some areas competes with outsourcers I think that they generally have improved their game quite a bit. However, they started from a very, very low ground.

    All of my clients have some of their SAP support and/or development work outsourced now. Either directly or via their SAP Consulting partner. And I can’t blame them.

    What I do tell my clients though is that they should check very carefully what to outsource and what not. I always use an analogy for this. Imagine you have to connect your house to mains gas or water. The utility company who digs the trenches and brings the mains pipe into your street or in front of your house is the Outsourcing partner, who is experienced in large scale, standardised rollout. Big bandwidth. For the last bit of distance, however, you want to consider either using a well-skilled, in-house, motivated team or freelance resource.

    Why? There are simply jobs that require face-to-face analysis, quick reaction (rather than time zones) and a person that speaks your language (and I mean that literally). One of the main problems I always encounter -and you eluded to this when talking about staff not wanting to code anymore after 4 or so years- is language skills. Many of my clients struggle to understand the developer or consultant on the other end. High fluctuation at the outsourcer’s end makes this even worse. Many of my clients want the closer, personal realtionship I keep with them.

    One last issue I see is of a cultural nature. It’s the power or saying “No”. Many offshore conulting companies I’ve dealt with over the years promise all and everything, but soon come to realise that things are not as easy as they seemed initially. Once again, that’s where a smaller freelance consulting outlet can be better. I’m trying to tell my clients how it is, keeping it real and even sometimes give them some home truths (in a nice way!).

    Looking forward to your follow-up posts on this, Vijay!


    • They did start from relatively low ground for mostly economic reasons. Say you charge GBP100 an hour and outsourcing person costs GBP 20 an hour. If the outsourcing person can do 70% of the routine work, and you do 30% that needs client interaction etc – it is still cheaper for the client than paying you for 100% of the effort at GBP 100 an hour.

      As I was planning to explain in my next post, running an outsourcing model purely in a staff augmentation model is not the most effective today. There are more effective ways to do this, As soon as I get a breather, I will post the next installment.

      Many thanks for commenting, M – and looking fwd to meeting you again in Madrid next week.


  3. Good read Vijay! Love the perspective!

    I, as probably many others, have seen many of the woes of outsourcing. And in particular this coming from India, Malaysia, and Philippines. While it’s not anecdotal to something in the water from those particular regions, I think it is (as you’ve said) anecdotal to places that tend to hire up extremely quickly and are forced to promote even faster. In my opinion these have been some major hot spots. Additionally, as the language barrier begin to lower I think China is on the horizon. The biggest fallacy in all of this is that many businesses think that by having two cheap resources will produce more than just one equally expensive resource. There is a complete disregard for communication overheard, management, training, skills, etc…in other words the concept of the “The Mythical Man Month”. On the flip side there are also very many “bad people” who charge out at very expensive routes. People are naturally much more inclined to make the safe bet (“But outsourcing company said I get 3 guys for the price of one…surely one has to be good right?”) than have to deal with the buyer’s remorse of having 1 poor expensive resource who underperforms.

    My company has our outsourcing efforts in Romania currently. While there are obviously some differences (culture, language, etc) our clients generally have seen it as a success. That’s not to say that it doesn’t go wrong, because it’s all about the individuals you hire. But there are many people in our office who come in at a fraction of the cost of a UK/EU/US equivalent and produce 10 times more than the typical UK/EU/US hire.

  4. Many thanks for sharing your thoughts here, Mike.

    I am not surprised that these 3 countries were called out – since they do most of the SAP outsourcing work these days. What does not get sufficient headlines is the fact that there are several successful outsourcing situations too coming out of the same countries.

    Consultants in west have almost always worked for a rate/hour model, and the better ones make more $$ every hour. This is NOT the model outsourcing works best in. If you try to look at outsourcing strictly as “5 Indians working from Mumbai for the price of one Englishman from London” – it seldom works. That is how outsourcing started, but that is not how it works best anymore. Now the more efficient model is to base it on outcomes – and drive by SLAs rather than hours worked. I actually think quality of work by consultants who work on a hourly rate will also increase manifold if they are held to a fixed price for a guaranteed outcome.

    Will I see you at Madrid ?


    • “and drive by SLAs rather than hours worked.” – Are you alluding to the fact that most outsourcing should be support and not project work? I find in both situations the following usually happens — the outsourced group asks for detailed step by step instructions on how to do something. For the amount of time I would spend to put the step by step instructions I could have just done it myself.

      “I actually think quality of work by consultants who work on a hourly rate will also increase manifold if they are held to a fixed price for a guaranteed outcome.” – Tough call. Our company is small and specialist, so I have more confidence in a fixed price contract. However it’s a pain when forces outside your control affect your project. Especially in big projects where multiple projects, politics, etc all creep into your project, it becomes an absolute nightmare.

      Ya, didn’t realize you were making it over! Tweet me up when you are there and we can meet!

  5. I wasn’t planning to comment again until your next post, but…

    “I actually think quality of work by consultants who work on a hourly rate will also increase manifold if they are held to a fixed price for a guaranteed outcome.”

    Problem is that a “quaranteed outcome” has to be defined and agreed, which is time consuming and can be a vague science. Very often in SAP Land we’re dealing with known unknowns and unknown unknowns – not always easy to quantify. The fixed deal estimates have become better, agreed, but still leave a lot to be desired.

    I tend to work more with prototypes and product iterations, which work better for me, but my work is usually on a lower scale than that of an outsourcer.


    • You hit that nail on the head, Michael.

      A big part of frustration that comes out of outsourcing is due to the way contracts are framed, and what is communicated to stakeholders.

      Often, Stakeholders by default believe they have an hourly paid consultant , or that they have 24X7 support- even when outsourcing agreement is done for 8 hrs a day for 5 days. So when that problem occurs outside the boundaries of the contract, they might not get the support they would have got if the consultant was sitting next door, or a cell phone call away.

      Or the contract will be for production support, and what the customer really wants is re-engineering a process.

      Everyone gets frustrated on both sides as more such incidents happen

  6. Hi Vijay
    Very thought provoking and quite nostalgic, having come thru the Y2K and ERP offshoring evolutionary dats. Based in the AP region , one of the things that I think, that is impacting the outsourcing model in the current countries is that there is quite some high quality and challenging work available in the region now which means that quite a few of the people who would earlier be involved in outsourcing may now be more interested in doing the higher value consulting work within the region , rather than working on the offshore projects, specially as the economics of doing that work is improving in the region. China I think today is at a similar stage in terms of resourcing and skillsets as India was about 5-6 years earlier with the difference that there are a large number of local projects being executed , so it will be interesting to see how that impacts the outsourcing market .

    • Quite true, Sandeep. Smart companies will rotate people across these roles – between projects and support work, to develop a well rounded consultant.
      China is catching up quite fast, and so are other countries like Vietnam, Brazil etc.

  7. Yes particularly because of the fact that large Indian SI’s depsite significant setups havent really penetrated the local implementation market. A, pretty amazed at the growth numbers some of the implementation cos. there are going thru in a very condensed time frame ,although the same issues on people growing too fast are going to come thru there as well. The difference is that , its happening at the local client level rather than at the offshoring level so far.Vietnam still has some issues around language but you are right, they are catching up rapidly.

    • yup – infact I was quite surprised that many large Indian companies did their SAP implementations with SIs that are not primarily India based.
      As technology improves and network bandwidth becomes cheaper and stronger, some of these language challenges will subside.
      Hopefully other countries can advance faster by learning from what India went through, rather than reinvent the wheel

  8. Pingback: interesting conversation on SAP Outsourcing | Pixelbase

  9. Pingback: Weekly Outsourcing Headlines - ITO, BPO, Cloud, Healthcare | 3FORWARD

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