Before we established our position as the world’s leading independent ERP consultants, there were literally no options in the market for organizations that wanted agnostic and unbiased help with their ERP software initiatives. When I first came up with the idea for an independent ERP consulting firm back in the 1990s while I was working at one of the Big 5 consulting firms, my employer was not-so-coincidentally always recommending SAP to our clients. This was how we supported our SAP consulting practice, which was the cash cow in our organization at the time.
I assumed that the approach we took at the time was unique to us and that surely most other ERP consultants were in fact looking out for their clients’ best interests. As my career progressed and as I worked with and for other consulting firms over the next decade, I realized that very few industry players were agnostic and not aligned with one or more of the ERP software vendors. In fact, after ten years in the industry, I could not name a single consultant or consulting firm that wasn’t somehow aligned with the various ERP vendors. The money to be made from referring multi-million dollar software sales to clients was simply too big to pass up.
This was the main reason why I started Panorama in 2005 and our uniquely independent business model is a key reason why we exist and why we have been so successful over the last several years. It probably would have been a lot easier to start a system integrator or VAR being fed leads from a software vendor but I chose the path of greater resistance because it was (and still is) so necessary in the marketplace. While some consultants have tried to replicate our marketing message by saying they are independent, the unfortunate reality is that most are still making money in ways that are in direct conflict with companies that are hiring them.
Misaligned incentives and the ways consultants get paid are not always obvious to buyers of ERP consulting services, so here are three tips to understand whether your consulting provider truly is looking out for your best interests or whether they are seeking to maximize their paychecks at your expense:
1. Ask the question: Does your ERP consultant make money on software? When hiring an ERP consultant to help with your ERP selection or implementation, it is important to know how they are making their money. Nearly 100% of consultants make their money by selling software and ERP vendors heavily incentivize them to peddle their specific products. Of the few that don’t make money on the software, a majority make money from vendors in other ways. Case in point: the large research and analyst firms make a majority of their services revenue from software vendors. Another pitfall to watch for: the ERP consultants that charge based on how much savings they negotiate on your behalf. This is a rigged approach that is easily gamed by ERP vendors.
2. Recognize that a majority of ERP consultants have financial incentives that aren’t aligned with your goals. Whether it’s the small manufacturing ERP consulting firm that works in tandem with ERP vendors to show large negotiation savings as a way to increase the hidden costs of their services, or whether it’s lowballing the implementation estimate to sell ERP software, it’s important to recognize that a majority of consultants have outside financial influences that are not aligned with your interests. We rarely compete on cost and we’re typically not the low-cost provider to our clients but it’s always interesting to see the prospective clients we lose to consultants who are able to offer services at a lower cost because they are making money from vendors behind the scenes. When evaluating the cost of your ERP consultant, be sure to ask yourself which is more important: to get the lowest-cost offering or pay slightly more knowing that your provider is truly independent and doesn’t have conflicting financial priorities. (Hint: one of those two options will cost you considerably less in the long-term).
3. Understand why independence is important throughout the entire ERP implementation lifecycle. Independence is not just important during software selection. While this is important criteria for selection consultants, independence helps ensure that you are implementing in a way that makes sense for your organization – not what is going to generate more software sales for your consultants. For example, we have seen several instances where our clients’ former consultants were trying to unreasonably accelerate implementation, not because it made sense to the client but because it helped the ERP vendor sell more software licenses as more end-users went live on the new system. With such competing priorities and clear financial incentives, it is nearly impossible for your ERP consultant to represent your interests over theirs.
While we don’t want to suggest that all ERP consultants and vendors are malicious, we do want to recognize the realities of the ERP software industry. After all, the relatively high failure rate of ERP implementations is no coincidence to the perverse incentives of most ERP consultants. The good news is that – even though they are extremely rare – there are independent ERP consultants out there that are truly agnostic and able to represent you, the client.
Learn more by downloading our Guide to Choosing an ERP Implementation Partner.