The role of consultants in ERP/PM implementations
by Harvey A. Levine, Contributing Editor
I KEEP GETTING sucked into the subject of Enterprise Resource Planning applications and the impact of the ERP explosion on our projects community. I featured the concept of ERP integration with PM tools in the April 1998 PM Network and in the October issue followed up with a discussion of several actual implementation projects.
In researching those articles, I was continually made aware that these implementations did not just consist of the acquisition or licensing of the software but also required significant involvement by consultants. What also hit home was both the overall duration and cost of these installations and the size of the consulting portion relative to the software portion. A recent article reported: “Such programs are not cheap. Installing a full-fledged enterprise-software system can often cost a Fortune 500 company $30 million in license fees and $200 million in consulting fees and can take three years or more” (see Fortune, 7 Dec. 98, pg. 103).
Software acquisition or licensing is but a small part of the cost of ERP/PM systems. The larger segment, by far, is consulting. But this may also be the key to successful system design and implementation.
There are some interesting issues buried in this revelation, which I will get to later in this article. There definitely is a bit of a backlash to these high consulting costs and long implementation times, as well as a limited market for such large solutions. And there has been a response to this by the entire industry. But first, I want to cover the role of consultants in ERP implementations.
Among the responses I received to the April 1998 column was one from Dwight Harry. Dwight is responsible for Oracle Applications consulting for KPMG Consulting, in Dallas, Texas. I imposed upon him for an interview on the subject; the results of which appear below.
Harvey A. Levine (firstname.lastname@example.org), principal, The Project Knowledge Group, Saratoga Springs, N.Y., provides training and consulting services to users and developers of project management software. He is also a past chairman of the Project Management Institute. Comments on this column should be sent to email@example.com.
Q. What is the role of the consultant in selecting PM and ERP tools?
The consultant's role during selection is to define process frameworks for the client and identify application vendors to fill functional gaps.
Q. What is the role of the consultant in implementing these tools?
The consultant develops standards for application-to-application interfaces, insulates the client from technology upgrades and integrates the system management and application environments. Also, the consultant warranty's performance to ensure an equitable long-term relationship.
Q. What is the role of the consultant in integrating the PM and ERP tools to each other and to other tools?
The consultant's role is typically aligned around eight tracks of delivery: program management; business process fitness; vertical market knowledge; technology infrastructure capabilities; geographic agreement; organizational change management capabilities; implementation tools; and software product knowledge.
Oracle Cost Comparisons for 1997
Exhibit 1. Here are the 1997 cost comparisons for Oracle. These are the Gartner Group's estimates according to their ERP Vendor Guide for Oracle.
Q. What is the range of costs for the consulting effort? What percent of the total system cost is this?
According to Gartner Group's ERP Vendor Guide for Oracle, cost comparisons for 1997 for Oracle were [those estimates shown in Exhibit 1].
Q. What is the range of the costs for a total PM/ERP system? For each component? Include all life-cycle costs.
The implementation for a total PM/ERP system will fall within the [Exhibit 1] guidelines.
Q. Can you describe some applications?
The financial applications usually included on the ERP side are General Ledger for financial reporting, Purchasing for commitments, Accounts Payable for supplier invoices, Assets for capitalization, Receivables for invoicing, and Projects for cost/revenue/billing. More complex solutions can include Manufacturing applications such as Inventory for miscellaneous issues, and Order Entry for sales orders.
Q. Does the third-party consultant always get involved before the tool selection?
Not always. At the client's request we will provide application tool selection (Package Selection) services.
Q. What are the relative advantages/disadvantages of using a third-party consultant (such as yourself) instead of the vendor's consultant (such as Oracle's) for the implementation of the tools?
The main differentiation is overall business process knowledge versus product knowledge. An accounting firm, such as KPMG, can provide audit, tax, and consulting expertise for a total enterprise solution end-to-end.
Q. Have you (or your firm) been involved in any PM/ERP integrations?
Yes, recently we integrated ABT Project Workbench with Oracle Projects for a financial services client. This client used ABT Project Workbench for their internal software development projects. Actual hours were entered into PW by both internal and external employees. These actual hours were interfaced to Oracle Projects, cost distributed and measured against budget.
I also discussed these issues with Linda Hartl, manager, Management Consulting Services, at PricewaterhouseCoopers LLP in Vancouver, Calif. PwC has been involved in a major transportation program in British Columbia, the Rapid Transit Project 2000 Ltd. They are using Primavera Project Planner (P3) and Oracle Projects and Oracle Financials to support essential tasks such as project planning and scheduling, accounting, and supply chain management. Integration of these tools was accomplished via Primavera's PEAK integration utility and Oracle's Activity Management Gateway (see April 1998 Software Forum for discussion of these integration facilities).
Describing the consultant's role in this enterprise, Hartl offered the following:
“During the systems selection phase of the project, strategic consultants work very closely with the client. Understanding the client's business process and industry is critical. Since an important strength in an ERP solution is the extendibility, the consultant must also remain current in their understanding of the ERP systems, including related best-in-class third-party packages, and specific advantages particular to their industry. Consultants involved in the software selection phase of the project pride themselves on being vendor-neutral.
“PwC's approach to systems evaluation is anchored in the development of close working relationships with our clients. Each study is designed to ensure that client expectations are fully addressed. Our goal is to balance the rigour and independence required as evaluators with the flexibility required to provide our clients with evaluation studies that outline actionable recommendations.
“We regularly conduct evaluations and assessments that are based on a structured approach and methodologies. Our team members are experienced interviewers who know how to ask critical questions and focus in quickly on the most relevant issues. In addition, we use proven approaches when conducting evaluations, comparative assessments, benchmarking studies, and strategic planning activities.
“Sharing the client's vision ensures the successful implementation of the ERP. The consultant must have an understanding of the client's processes, data, organization, and technology. Combining the experience of the client, the industry, and the ERP package is the key role of the implementor.
“The integration team must include specialists from the process side, the data side, the system side, and the organization side. The consultant facilitates the team in implementing the integrated vision of the organization. The key to integrating systems is understanding the data model, where data is stored, how information fits together, how data from multiple sources comes together to form one logical record.”
PwC and KPMG are examples of the larger consulting firms. For instance, PwC says that they are able to “draw on the talents of 146,000 people in 148 countries.” The perception that bigger is better is strongly contested (naturally) by one of the smaller consulting firms. When asked to comment on the large dollars being spent on consultants for ERP implementations, we secured this reply from Randy Egger about his firm, Project Partners, LLC.
“Our company is based on the belief that consultants should be experts who advise clients and assist them when they really need it. We empower our customers to help themselves. There are two inherent problems with the large consulting firms: they maintain a stable of semi-knowledgeable people who get a lot of their experience on the customer's dime, and they maximize their revenue and profits by telling their customers that their software implementation won't be successful unless they hire on-site consultants for an extended period of time. This on-site man-age-the-whole-thing approach guarantees the big firms follow-on work, because the client's staff is not trained to diagnose and solve problems themselves. In contrast, our hand-picked experts teach clients to help themselves, advising them on complicated areas and offering best practices tips—in a way, we give away trade secrets on every engagement. We hire only experts with many years of experience, so our consultants take fewer hours to complete the tasks the client needs addressed.
We believe this provides our clients with a significant benefit because the fewer hours they have to focus on their business software, the more productive they will be generating their own business revenue.”
Condensing the essence of the comments from consultants Harry Hertl and Egger would come to this:
Consultants must be experts.
Consultants must have superior knowledge of the ERP tools to be employed.
Consultants must be aware of third-party extensions and be neutral in their selection of such.
The good consultant transfers knowledge to the client.
Reader Service Number 5093
Consultants must have process knowledge and understand the client's business.
The consultant is part of the implementation team.
In many cases, the implementation of an ERP system represents more than just a new tool or system, but rather the opportunity to reengineer key business practices and to benefit from the adoption of recognized best business practices.
Are there other solutions to the big-bucks-for-consultants dilemma? Are there ERP/PM solutions for smaller companies? Does it have to take so long to implement? Please read on.
Resistance in the ERP Market: Crisis or Opportunity? I keep coming across news items regarding a pullback in the ERP market. I was shocked by a 67 percent loss in the value of PeopleSoft stock during 1998. I also see several product strategy changes, by SAP, PeopleSoft, Oracle and JD Edwards, where they are bringing out express versions of their products. The following paragraph appeared in an analyst's report on PeopleSoft:
“The traditional market for ERP software is maturing and the industry is at a crossroads. Over the past several years, vendors have aggressively harvested the opportunity to sell core business application suites to large corporations, mostly manufacturers, given the manufacturing heritage of most ERP vendors. In this market, we continue to see substantial growth opportunity within existing accounts, yet the low-hanging fruit is gone. Y2K and global economic factors are also weighing heavily as some customers delay large projects amidst the uncertainty. As a result, the spectacular growth generated by leading vendors is slowing and a number of second-tier vendors have imploded. The bottom line is that the era of 60 percent growth for the large ERP market leaders has passed.”
Here are some of the issues. Apparently, the industry is fully aware of these issues and has recently developed a widespread response.
Issue 1. Resistance to Costs and Time to Deploy:
Software licensing costs are high
Consulting costs can reach 10 times the software licensing cost
Time to map software to business rules is too long.
Issue 2. Current Offerings Attractive Only to Large Corporations:
Typically over 1,000 employees and over $500M revenue
Traditional market shrinking (already harvested)
Too pricey for small and mid-sized corporations.
The Industry is responding with Packaged Solutions:
SAP's Accelerated SAP (see Fortune magazine, 7 Dec. 98)
PeopleSoft's new Momentum Business Applications Division (reduced time-to-market)
JD Edwards’ ActivEra (extensions to OneWorld) (see PC Week, 21 Dec. 98)
Oracle's Fast Forward program.
Combining the experience of the client, the industry, and the ERP package is the key role of the implementor.
I discussed the issues with Laurent Pacalin and Mark Vito of Oracle and Dwight Harry of KPMG. They acknowledged that the issues were generally accurate, but that they are viewed as more of an opportunity than a crisis. The objective is to bring ERP solutions to a larger user base. However, for the smaller firms (under $250M in revenue) it might be too much to expect them to undertake investing in a full-blown ERP application. Many of these firms do not have highly sophisticated business practices and may wish to use the expertise and guidance that is built into packaged ERP solutions rather than try to design their own custom system. They also may be apprehensive about getting too involved with consultants for such a long period (up to three years for the typical fullblown ERP implementation). There is additional concern about cash flow and timely return on investment.
The Oracle Fast Forward solution comes in two levels. The base, Rapid Preconfigured Model (RPM), includes software, support, consulting (for configuration, testing and pilot implementation) and education services, but does not allow customization. The intermediate-level Fast Forward supports some customization and tailoring of product and support. While consulting support is directly available from Oracle, over two dozen Oracle Service Providers can also provide such services. KPMG's Dwight Harry notes that KPMG has developed a Rapid Return on Investment program for the middle market, using an industry-best-practice benchmark approach.
For firms willing to accept the methodologies and process flows built into the packaged systems, these mid-range solutions can put a preconfigured ERP system, based on industry best practices, into operation in just a few months. Pacalin, vice president of Mid-Market Business Solutions at Oracle, reports implementations in as little as five weeks, for as little as $300,000, including support, training and consulting.
JD Edwards’ approach, via their ActivEra architecture, places the emphasis more on flexibility, rather than pre-configuration. ActivEra is supposed to allow their customers to react to business changes after the solution has been implemented. SAP's Accelerated SAP relies primarily on a streamlined implementation process to achieve time and cost benefits.
Palmtop Update. In my October 1998 column, I predicted the coming of new applications for palm computers. Such an application was announced in January by Primavera Systems and Strata Systems. Designed to run on the Palm Computing platform, the latest version of Strata System's Punch List project tracking software will include an interface to Primavera's SureTrak Project Manager (which can also be interfaced with Primavera's P3). Seamless bi-directional sharing of data is supported. For instance, the task list can be brought over from SureTrak to Punch List. Contractors can walk the job site, entering task status into a palm computing device. Then the progress data can be sent back to Sure-Trak and P3. I wish that I had had such a tool on some of the telco projects that I was working on in the early ’80s, when I was still tied to a mainframe.
PM Network April 1999