When implementing S/4HANA projects, companies that adopt a multi-vendor delivery model need to consider the inherent challenges of holding multiple vendors accountable before deciding on a management approach. Having an extra “cook in the kitchen” always increases the complexity of managing a project, and companies can either opt to assume this risk themselves, or they can ask their lead Systems Integrator (SI) to manage third parties as sub-contractors. There are tradeoffs with either model, but ultimately, it all comes down to balancing accountability and risk.
Having a Third Party Subcontract to Your Lead SI
If you decide to ask a third party to subcontract to your lead SI, there are a couple of implications to consider. First, unless there is an established relationship already in place between the two providers, one or both parties may balk at this request. This doesn’t mean that subcontracting isn’t feasible, but if this is the first time the two companies have entered into this type of arrangement, you need to be prepared for some bumps in the road as the two providers figure out how to work together. In particular:
- You want to get contractual guarantees from your lead SI to be accountable even if they have to step in and do the work of the third party.
- You should consider carrying some additional contingency in your budget…just in case things don’t work out.
Second, assuming the parties are willing to enter into a sub-contracting relationship, your SI is going to charge you 10-20% more for third-party services than if you contracted with each company independently. Therefore, to guarantee transparency and avoid paying too high of a premium, it’s usually a good idea to get your best offer from the third party first, and to sort out the contractual relationships second.
When Does Subcontracting Through Your Lead SI Make Sense?
Given the de facto higher costs of subcontracting through your lead SI, it might be tempting to simply manage any third parties yourself; however, underestimating the amount of overhead and discipline required to keep everyone aligned will eventually make you wish you’d opted for subcontracting instead. Before taking on this additional responsibility, companies need to honestly assess their capabilities and existing relationships:
- Do you already have an established relationship with the third party? If the answer is “no”, then you’ll have an additional contract to set up and manage. This process can be complex and time consuming when there are no dependencies between providers, but when you also need to ensure that multiple contracts are aligned to common outcomes, SLAs, and assumptions, remember that each potential point of failure is likely to trigger others.
- What kind of work will the third party be responsible for? Leveraging your existing AMS provider to help with testing and support is probably a safer bet than assuming your AMS provider will be able to dovetail with and supplement your SIs development team (presumably at a lower cost). The key consideration is whether there is an opportunity to “hand off” an activity. For instance, companies have successfully engaged directly with third parties for the following services:
- Data migration
- Training development / Delivery
- Working with your AMS provider for:
- Integration & regression testing
- Interim state support
- Performance testing
- Legacy development
- Transports / landscape management
Conversely, if the third party is going to function more like an extension of the lead SIs team, then adopting common standards and processes is vital. In other words, the more tightly integrated the two vendors need to be in order to function effectively, the more dependencies that will exist and subsequently need to be managed. Subcontracting can make a lot of sense in these scenarios because putting yourself in the middle of that relationship shifts all of the execution risk to your company and sets you up for change orders on two fronts.
- How mature is your organization’s PMO? Having a box on your company’s org chart does not mean that your PMO is prepared to tackle the complexities of a large, transformational program, let alone one with multiple vendors to hold accountable. So even if the services being provided meet the criteria of a “hand off”, make sure your PMO has the discipline, experience, and tools to hold everyone accountable.
Furthermore, if your company doesn’t have an existing standard for detailed status reporting, you’ll have to align on one that all parties will be required to abide by. This is not the same thing as having a corporate template for executive readouts; rather, this is a common standard for project reporting at a team level that ensures you are getting the right information in a consistent format from all teams. Otherwise, if you leave it up to each SI to report their own information, you will end up with multiple reporting formats that tend to obscure cross-functional problems and issues, rather than surface them.
Finally, if you ultimately decide to directly manage third parties yourself, you should still ask your lead SI to serve as master conductor for the program. By making the SI accountable for integrated project planning and delivery tracking, you create shared responsibility and accountability for project success, which likewise shares the risk. Serving as master conductor ensures that your lead SI has visibility to all developing risks and issues, as well as the subsequent responsibility to help mitigate them before resorting to a change order.
The Bottom Line
Managing multiple vendors on your ERP transformation can quickly become a Herculean task without the right guardrails and the right team, because even if you get everything right from a contractual standpoint, you won’t be able to avoid change orders if your PMO fails to function at a high level. The importance of disciplined program governance, scope control, risk and issue management, and delivery management is only heightened in multi-vendor projects, but for those companies that are able to strike the right balance, the rewards can far outweigh the risks.