Why outsource? Because there are operational tasks that distract attention from the core business, since they require numerous resources, especially: people and working capital. Moreover, a specialized provider can do the job with higher quality, more innovation, or with lower costs, given the economies of scale, optimization, etc.
There are two possible ways to outsource: by people’s tasks (out-tasking) or by the results of a service results of a service outsourcing, the client hires a service that is results-oriented, and not focused on people or devices.
A well-defined service must be straightforward, based on the desired results, and ideally with a single supervisor. It should also be well delimited, with a simple interface between client and provider. And it must be manageable, with a limited number of relevant, clear and easy to measure KPI’s.
The digital economy tends to convert EVERYTHING into a service, not only in the IT area. However, in this field a service-based management is especially convenient.
Throughout our 15 years’ experience we have seen that there are plenty of good reasons to outsource SAP® solutions:
- To focus on the business processes that SAP solutions support and not on the technology or SAP functional consulting.
- To make the most of value contributions from specialized companies because it is not possible to have so many specialists in-house.
- In order to keep pace with the innovation and complexity of SAP solutions, for it is difficult even to us.
- To obtain a better quality of service: 7×24 services, with geographical coverage, languages, etc., besides having a specialized staff available whose demand may be variable at different times of the year.
- To have better control over service costs. With this scheme, costs are disclosed, not hidden, allowing for a better management.
- There might also be tax benefits by replacing Capex for Opex.
Why is SAP outsourcing so widespread?
- SAP requires expertise in infrastructure, operation, functional support, etc.
- SAP specifies best practices and methodologies for everything (implementation, migration, operation, DB management, safety management, etc.) that ensure good results.
- These practices must be integrated in a service model and cannot be put in place overnight.
- SAP has a certification for every platform: Hosting, Cloud, Mobile, AMS, HANA, etc. These certifications require time, investment, training, etc.
- SAP has an extensive partner ecosystem. Historically the company has paid much attention to this. When outsourcing, you don’t have to rely on one partner only.
Which SAP services can be outsourced?
Several of the service’s layers that an organization requires to really leverage its investment in this platform may be outsourced.
- Data center: housing/colocation.
- Infrastructure: classic hosting or IaaS (AWS or Azure).
- Managed Platforms: SAP Hosting (on premises) or PaaS: SAP HANA Enterprise Cloud, SAP HANA Cloud Platform.
- Application Managed Services (AMS).
- Comprehensive services that include licenses and initial implementation, support and maintenance during the complete lifecycle.
- Different SAP solutions.
- Outsourcing services do not include functional support, functional enhancements, functional consulting and projects.
Once the client makes the decision to outsource, a good SLA is key. The SLA is a document that defines the service level agreement and is part of the contract, for its noncompliance may result in fines.
The SLA defines two types of metrics (or KPIs):
- Utilization metrics: number of users, database size, etc.
- Service level metrics: service uptime, dialogue response time, etc.
The metrics (KPIs) must be meaningful to the client, not to the provider. They should not be technical metrics, such as CPU usage, disk space, and so forth.
Another element to consider are the business KPIs and how these translate into SAP services KPIs. These include the maximum application downtime, in normal and disaster scenarios. Maximum incident and requests service response times must also be defined.
Utilization KPImetrics must make sense to and be controllable by the client.
Best practices when deciding on SAP outsourcing:
- Manage IT services with ITIL – ITSM philosophy. Manage outcomes, and not infrastructure, people, and the like.
- SLA-based management oriented towards goals and outcomes. Goals must be related to the business and associated with continuity, investment protection, safety, innovation, user experience, etc.
- Define comprehensive services: as complete a stack as possible, with a single manager.
- Easily managed services: with a straightforward SLA and key KPIs, cross-cutting, global, and not by service components.
- Standard ITSM processes: incident management, problem management, request management, change management.
- Focus on management and automated processes, which can be intensively supported by tools.
The advantages of taking into consideration these good practices are:
- An easy call for proposals: simplicity, for the goals or problems to be solved are established, and not the solution. The procurer does not need to be an expert (he must only know the “WHAT”) and the provider must be the expert (who must know the “HOW”). This way, the process requires less questions that are easier to answer.
- It is easier for the client to compare different proposals, since they do not need to be “standardized”. Services cannot be “commoditized”; each proponent may submit a different solution. This way, the client may assess each proponent’s knowledge and experience, and take into consideration which one offers the best results (outcome + quality, cost, duration, etc.).
- As a result, you obtain an uncomplicated contract, easy to understand, to agree on, and to manage throughout the lifecycle of the service.
Suggestions when formulating the administrative terms
- Put into effect a Request for Proposals, and not a “reverse auction”.
- Meet with the providers before releasing the terms and send them a draft copy, instead of only communicating with them in the Q&A cycle.
- Try to answer the questions instead of saying “refer to the bases” when it is complex or not clear.
- Write a draft agreement and negotiate those clauses which may artificially raise the solution’s cost, instead of establishing draconian clauses and disproportionate penalties.
Suggestions when formulating the technical terms
- Submit the problem and not the solution, for the problem has different solutions; therefore, it is implicit that different proposals and prices will be compared. When you specify a solution, identical proposals are expected and the cheapest one will be selected, which will hardly be best alternative.
- Ask for KPIs based on results, ideally business KPIs, instead of specifying solutions to achieve the desired results, since these solutions may not necessarily be optimal to solve the problem.
And finally, here is a list of outsourcing problematic cases to avoid, where it is not easy to determine who responds for the SLA:
- Management only or infrastructure only.
- Shared management: by system or environment.
- Shared hosting: acceptable only when temporary.
- “Inverted” subcontracts: a generalist (integrator) subcontracts a specialist.
In summary: SAP systems are especially suitable for outsourcing since SAP provides extensive practices and tools. There are service models developed, standardized and in operation, with low implementation costs and minimal risks. In addition, there is enough experience available.
With a right SAP outsourcing model, the client obtains multiple advantages:
- Better quality of service, with those results that the business needs.
- Lower costs and risks.
- Simplicity in the tendering process, contract and service management.
Article by Gilda Valderrama, Novis Bulletin editor.
If you would like to learn more about these concepts, we invite to view the webinar “Advice for the selection of SAP outsourcing”, by Alex Bórquez, presales consultant at Novis.
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