November 19th, 2009

Dreamforce post#2: Chatter, Events, REA and the Future of Management

Posted by Brian Sommer @ 9:17 am

Categories: Current Affairs, ERP, Future of Application Software, SaaS and Beyond, Software Events, Software Vendors, The Applications Market, Think About IT, software, software. applications

Tags: Salesforce.com Inc., Event, Worker, Dennis Howlett, Sales Force Management, Social Networking, Sales, Online Communications, Marketing, Advertising & Promotion

I got chatted up yesterday - so should you

Salesforce.com announced its Chatter capability today. In essence, they’ve married instant communication services like Twitter, social networks like Facebook and data/events from corporate IT systems like SAP, Oracle and Salesforce.com into one integrated application/platform.

Users of Salesforce’s applications will find Chatter a native capability soon. I’ve got a slew of opinions re: this service and here are the positives:

- It’s great to see an application vendor innovate. The fact that people are enthused, engaged and pondering the possibilities of such a solution is something I wish we saw more of in other vendor’s conferences. Dennis Howlett tells me Epicor has created something similar and SAP may have experimented in this area, too.

- Chatter can bring to a business person’s attention all manner of important business events. The ability of the software to pass along key business events emanating out of application systems and databases is particularly welcome. Proponents of REA (Realtime Event Accounting model) will be especially delighted to see this time of technology become available.

On the concern’s side, I worry about these issues:

- Data Overload and Worker Productivity – I’m just not convinced that every worker needs or would benefit from this fountain of information streaming at them non-stop. Sometimes, my best work comes when I step away from all of the distractions and interruptions and concentrate on the task at hand. I don’t want truck drivers reading Facebook updates while on the road. I’m also not convinced that all posts/feeds are valuable. The challenge for the Salesforce.com team will be to develop sophisticated filtering and prioritization tools to make chatter smarter. If Chatter doesn’t improve worker productivity and create value for the enterprise, it could end up getting blocked on corporate networks like some social networking technologies.

- Synthesis – Speaking for myself, I’ve come to loathe certain bulletin boards, IM users, etc. because they do not write effectively. They incorrectly assume that I can somehow read their mind and determine the context of their messages. Equally frustrating is their self-centered view that I have read everything they’ve ever written and remember it. Their communications assume so much context is already present that their newest missives are incomprehensible. I need context and I need someone or a program to structure and synthesize dozens or hundreds of communications to something short, succinct and relevant.

- Conversation vs. Knowledge – Conversation is a luxury. It’s something I do with close colleagues, friends, family and clients. Knowledge is what I need to do my job well. Chatter certainly fills the conversation component well but businesses may need something that converts, filters and/or structures conversation into knowledge. That’s the real challenge and opportunity this kind of technology could bring in time.

- Quality of content - Not all content that is presented to a user of Chatter will be valuable or will be something that the receiver can assist. Yes, users can choose which people they want to Chatter with but still the quality issue will remain. What we’re willing to read in our own time is not what we should be reading during work hours.

Let’s return to the idea of events for a moment. Events in business systems can be internal or external occurrences or data points that warrant a worker’s/executive’s attention. Here are some examples:

- the Federal Reserve moves up the Fed Funds Rate by a full percentage point. This may mean that a company’s cost of capital is going to go up real soon. If it does, a company would want to re-examine its capital expenditure plans, its inventory levels, etc.

- the price of key commodity (e.g., wheat, copper, etc.) goes up/down by 20% in one day’s trading. Should someone in Purchasing, Procurement, Sales, etc. be notified as the company may want to lock in lower prices now or raise prices of finished goods?

- A key customer or supplier has just announced they are in financial difficulty or getting acquired.

- The engineer in your firm with 116 patents to her name has just notified HR that she’s going to go part-time and then go on early retirement.

Business people make decisions based on a number of internal and external events. When certain (not all) changes occur in one’s business environment, some reactions are necessary. Some events create strategic opportunities for the firm but only when they can be acted upon quickly and decisively. This, I believe, is the real opportunity for Chatter. Chatter can turn a moribund, middle-of-the-road firm into a real competitive juggernaut. When Chatter gets event processing fully incorporated into its solution, businesses and management science are in for a real change. For the first time, we could start to see companies managed in real-time.

November 18th, 2009

A Tale of Two Software Worlds: Old ERP vs. SaaS

Posted by Brian Sommer @ 11:20 am

Categories: Current Affairs, ERP, Financial Software, Future of Application Software, HR, Implementing Technology, Selling & Marketing Software, Software Development, Software Marketing, Software Vendors, The Application Software Buyer, The Applications Market, Think About IT, software

Tags: Software, Software-as-a-service, Solution, Customer, ERP, Survivors, Software As A Service (SaaS), Managed Hosting, Cloud Computing, Emerging Technologies

Watching the train wreck as SaaS continues its assault on the on-premise software world

Charles Dickens began his famous book “A Tale of Two Cities” with this opening statement:

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going to direct to heaven, we were all going direct the other way, “

This week, I’m in Silicon Valley. Yesterday, a colleague, Dr. Katherine Jones, and I visited with executives from WorkDay, Taleo, Ariba and Financial Force (the Salesforce.com and Unit4/Agresso joint venture). Today, I’m at Salesforce.com’s Dreamforce event. These visits have confirmed for me what CIOs have already indicated to me: SaaS (software as a service) has really moved mainstream. Big ERP (enterprise resource planning) vendors that cannot, will not or are unable to offer these solutions are in trouble. Yet, to hear it from the old school crowd, these firms are:

- still vetting the SaaS space as they aren’t sure it’s for real
- saying that their customers aren’t asking for SaaS
- having trouble retro-fitting their old-premise solution to a SaaS environment
- do not know how to make a solution multi-tenant despite spending hundreds of millions of dollars in research and development
- etc.

LET THEM EAT CAKE

Or in this case “let them pay 25% maintenance that generates 90+% margin for us”. The arrogance, indifference or lack of empathy old school vendors have for their customers is appalling. They behave with the imperious attitude of the royalists of yore. But, like the old royalists, they did not recognize that the world around them was changing. Instead, the royalists found themselves increasingly on the other end of a pitchfork, ax or guillotine. The end of an era is coming and vendors can choose to embrace or fight it. But will the fighters win?

In the executive meetings yesterday, Katherine and I heard, consistently, these sentiments:

- Interest in SaaS products is growing rapidly. Vendors find they are challenged by internal concerns (e.g., how to accommodate their sales professionals’ commission problems as these companies are shifting from on-premise to SaaS sales) not market acceptance. Nonetheless, the smart firms don’t let their internal issues impede what their customers want. These vendors are sorting out the issues and moving forward.

- Marketing SaaS products is not a problem for SaaS vendors but successfully implementing the customers they are winning is. SaaS vendors are almost universally focused on building solid customer references as they know that reputation really matters in a space where a few minutes of service disruption could kill one’s brand.
- Market interest in SaaS products is expanding. Once, where customers would entertain some HR or CRM apps running on the cloud, Finance applications are now being seen as very viable solutions to use.

Katherine and I asked these vendors about the software products they are replacing. No surprise here: they are uninstalling old school products – many of the products being replaced were implemented to alleviate Y2K (year 2000) issues. Those aging products, many of which were implemented in the mid-to-late 1990s, are the ones being booted to the curb. More on this in a subsequent post.

Why are the old products falling away? Vendors told us that their customers and prospects are looking to SaaS as:

- The TCO of existing solutions is out of whack. Ever higher maintenance costs were frequently identified as major customer pain point and a driver of SaaS sales.

- Customers don’t like being stuck on older releases because they can’t justify the commitment of funds, time, third parties, etc. to implement upgrades.

- They have run out of time waiting for their old ERP, HR, or Finance software vendor to get on the SaaS bandwagon or deliver long-promised SaaS products.

One SaaS vendor executive described the ‘transition points’ that trigger the initial contact with their firm. These include, but are not limited to:

- The prior old school vendor requires a re-implementation of the product to utilize a new release.
- The old school vendor requires its customers to re-license an application as it is being re-platformed or re-badged.
- The customer is experiencing declining fortunes yet the old school vendor’s license fees and maintenance amounts will not change to reflect the new economic reality.
- The customer is outgrowing the old solution. The number of customers that are now global is huge and growing yet some solutions do not scale in size, functionality or global reach.
- Etc.

CIOs are adding to the market interest as they are choosing to use SaaS applications whenever some of their servers are due for retirement/replacement. CIOs realize that they would like to avoid new capital expenditures, want to have software that always remains current, use software that doesn’t cost them anything to upgrade, use software that frees up their IT staff to work on more strategic matters, etc.

Vendor after vendor reaffirmed for Katherine and me that customers are realizing 50% TCO savings over older on-premise products. (Salesforce did so this morning, too).

Now look at what’s going on at Salesforce.com’s Dreamforce event. 19,000 people registered for this event. The main auditorium of 10,000 was filled and an overflow room of 3,000 people was filled, too. In this economy, such a large number of people don’t go to a show, miss work and incur travel costs unless they’re serious about the subject.

A crowd of 19,000 people is a lot. Maybe only two or three application software vendors could deliver that kind of crowd. And some of those are struggling to do so as the lack of innovation, the lack of timely delivery of product, the high cost of these passé solutions, etc. makes market interest in these products fade.

Will SaaS displace on-premise solutions? Not entirely. But significant market share losses could start showing up in the next 24 months. Latecomers to SaaS will find their existing customers and new prospects to be especially leery of their solutions. Why? It’s taken Salesforce.com a decade to perfect their platform, their reliability, their sandboxes, etc. Untested SaaS environments will be viewed as risky propositions. CFOs, Controllers, CEOs, etc. will prefer to go with solutions from vendors with a solid track record and credentials in SaaS and the cloud. Newbies will have a really tough time.

Dickens opened his book with the best/worst dichotomies not just to get a reader’s attention but to point out that everyone in France at that time, royalists and peasant, had starkly different opinions of the current situation. Some royalists thought good times were still ahead while others correctly saw the sea change coming. Ditto for the peasants.

Survivors are the ones who correctly assess the market situation. Casualties are the ones who live in denial or in some unrealistic but idealized view of the world. Old school, on-premise vendors are in trouble. Of that I have no doubt. What amazes me is the level of denial still present in some of those firms. Pain is coming to those firms soon.

October 28th, 2009

Cloud-to-Cloud Integration - Another Big ERP Challenge!

Posted by Brian Sommer @ 11:36 am

Categories: Current Affairs, ERP, Future of Application Software, Implementing Technology, Oracle, PSA - Professional Services Automation, Professional Services, SAP, SaaS and Beyond, Software Vendors, The Applications Market, Think About IT, software. applications

Tags: Solution, NetSuite Inc., ERP, Integration, Maintenance Revenue, Brian Sommer

If Your ERP Provider can’t to multi-tenancy, How can they do this????

This week’s been interesting so far. SAP announced earnings this week and the figures aren’t a cause for celebration. In contrast, NetSuite’s OpenAir group has been conducting their annual user conference in Boston with a pretty good-sized crowd of attendees. The company’s leaders have made a couple of big announcements at the show but one of these announcements has some subtleties that should really rattle old school, on-premise ERP vendors.

OpenAir announced their Open Connect capability. Essentially, this permits their SRP (services resource planning) solution to connect, out of the box, with solutions from Salesforce.com, NetSuite, SAP and Oracle. So what, you may ask. Isn’t that what modern platform products (i.e., products built upon services oriented architectures (SOA)) are supposed to do? Yes, but in this case, the delivery models they are connecting to are both on-premise and cloud based. Also, some of these connections will be to products that are multi-tenant (and hence changing/updating/improving daily) while others are not. Open Connect, therefore, must provide not only 1-time integration between two systems at the time of systems implementation but also continuous integration between systems that get continual updates.

Let’s look at this further. Some of the connections NetSuite is now making are cloud solutions (e.g., Salesforce.com, NetSuite or OpenAir products) connecting to on-premise products. That’s a bit more challenging than the old-fashioned integration of two on-premise applications together. Those static ‘interfaces’ were gold to systems integrators. Those ‘interfaces’ consumed a lot of implementation time and, once set and tested, were hoped to last the life of the application. They rarely did as one application or another would get an upgrade that changed the interface needs.

Those interfaces were expensive to do and subjected a company to a lot of risk if they didn’t perform perfectly. These interfaces are probably the number one reason a lot of companies do not apply upgrades, new releases and enhanced functions of older on-premise products. These product enhancements are too costly to implement given the miniscule benefits they’ll throw off. This then causes software users to defer upgrades and get locked into an older version of the product. The on-premise world begets a world of old apps that users can’t justify upgrading.

Cloud-based applications don’t suffer this problem especially if the applications were designed to be multi-tenant. Multi-tenant apps let a vendor (not the customer) apply upgrades and enhancements simultaneously to all customers. Customers don’t have to pay anything to receive the immediate benefit of the enhanced functionality. Cloud-based apps have this – on-premise apps do not. This is a huge deal for CIOs as they are ones who must get the budget to do application software upgrades. Without an upgrade budget, applications do not get upgrades. Without this extra customer expenditure, on-premise solutions get stuck in time. Customers, logically, decide to defer some of these upgrades and instead rely on a stable, proven, low-risk and unchanging application. On-premise vendors then find themselves knee deep in customers who do not want the latest release or version of the product. These customers then wonder why they are paying maintenance for a product they don’t intend to change. This scenario puts on-premise vendors at risk for income declines as more customers opt to go off maintenance.

Maintenance revenue is a top of mind item for the CEOs of on-premise solutions. It isn’t for cloud solutions vendors. One such cloud provider said that to me just today.

Now, look at what Open Connect is doing. It is not only connecting these very dynamic cloud based apps to on-premise apps, it is also doing cloud-to-cloud connectivity. Imagine your accounting application running on one firm’s cloud environment, interacting with another cloud’s CRM solution that’s also interacting with another services automation solution on a third cloud environment. Then, just to make it more mind-blowing, imagine that all three of those cloud applications are changing, simultaneously and continuously. Each system will need the awareness of the other solution’s changes. Interfaces will become fluid and very dynamic. Finally, consider that the user may be unaware that these background changes are even occurring. Now that’s a big jump in integration. That’s a jump the on-premise vendors can’t complete.

When many on-premise vendors cannot even create a multi-tenant version of their product line (most can only offer hosting services), how can they deliver the level of cloud-to-cloud integration that the market will demand?

Next ERP solution you evaluate, verify that:

- the solution can do on-premise to on-premise, on-premise to cloud, and, cloud-to-cloud integration
- the solution can, independent of end-user interaction, dynamically update interfaces and system-to-system integration
- the solution can update its functionality without IT or end-user assistance, budget or time
- the solutions will always contain the latest functionality, latest process flows, etc.

I still need to see the proof points behind Open Connect and the market will tell us whether it delivers on all aspects of cloud-to-cloud connectivity. Yet, the potential of this capability should be enough to scare the wits out of the number crunchers in the on-premise firms.

October 22nd, 2009

Sustainability: Hard for business, harder for ERP vendors

Posted by Brian Sommer @ 11:08 am

Categories: Current Affairs, ERP, Future of Application Software, Think About IT, software, software. applications

Tags: Sustainability, ERP Vendor, ERP, Enterprise Resource Planning (ERP), Enterprise Software, Software, Brian Sommer

“Everyone, we’’re currently meeting with customers to see what sort of requirements they might have in the sustainability space. With this input, we hope to someday craft a reporting solution to help customers understand what their carbon consumption really is.”

HOLD IT RIGHT THERE

ERP vendors don’t get sustainability. They think it’s about collecting all of a user’s electric and gas bills to determine their carbon footprint. They think it’s a reporting exercise. If they can develop a spreadsheet with more rows and columns than the next ERP vendor, then they have achieved some sort of market leading, product excellence crown of achievement.

NO

Putting sustainability into ERP solutions will be very intrusive, very disruptive and expensive, if it is done correctly. Why? Well, sustainability requires new ways of looking at:

- which products to make
- what the true costs of a product are including costs for carbon offsets
- which production facilities should/should not be used to achieve optimal business, financial and ecologic outcomes
- how product scheduling should be optimized to take advantage of lower emission, lower carbon generating, etc. plants and machinery
- etc.

Let’s examine this further. In an ERP solution today, does a cost accounting module account for carbon offset costs as part of a product’s actual or standard cost? No. Some solutions might allow for a user to add a new cost item for this but can the system automatically drop in the correct cost based on:

- the specific machinery used (some machines use more energy than others)
- the time of day the product was made (i.e., some products may be made at night with hydroelectric power instead of daytime production using natural gas powered electricity)
- the location where the product was made (i.e., some facilities have naturally lower energy consumption or take advantage of solar/wind energy)
- whether recycled or virgin packaging was used
- etc.

Pre-sustainability cost accounting is passé in the new world. Cost accounting needs to be re-worked.

Now look at production scheduling algorithms. These optimization formulas were created to simultaneously solve several variables to produce optimal production schedules. These algorithms try to reduce the amount of machine down time, increase the likelihood of customers receiving promised products on time and meeting the target cost requirements of the products to be made. But these algorithms were not designed to assess the carbon footprint of each product that could be produced. These algorithms will need to be re-worked.

Look at the product quotation module. This functionality lets a product or design engineer build out a product specification, cost it out and price it. It helps companies, especially make-to-order manufacturers, decide what to make and how much to charge for it. As designed, these systems do not explicitly support additional cost concerns that sustainability might introduce. How would a package help a product designer/engineer determine where a product should be built, what machinery should be used, etc. to achieve needed profit levels while also incurring low carbon offset costs, low impact on the environment, etc.? This functionality needs to be re-worked, too.

In all, I believe ERP vendors will need to re-work their fixed assets, order entry, job costing, production scheduling, logistics, transportation management and many more applications if their solutions are to really support sustainability. It might be easier to determine which modules won’t be impacted by sustainability than to identify the ones that are.

When I heard a major ERP representative give a comment like the one at the top of the post, I was apoplectic. This firm was approaching sustainability in manner consistent with adding some minor, bolt-on functionality to the core product. They didn’t realize that these changes will be significant and when new legislation for sustainability (e.g., Cap and Trade) kicks in, their customers will need it (all) immediately. Customers will not have the luxury of time to wait for this ERP vendor to:

- spend a year or two collecting requirements from a few ‘strategic’ customers
- spend another year ‘studying’ these requirements and getting approvals for development work to proceed
- spend two-three more years developing the needed functionality for the initial release
- spend another year hand-holding the alpha/beta version of the product with a limited release group of customers
- then, finally, after seven years or so finally start rolling out a functionally light or insignificant version of the product to the general market.

No, sustainability is not like analytics. It won’t be something you can bolt to the exterior of the ERP suite and add a little something to it every few months. Sustainability functionality will be big, disruptive and important. When it is needed, all of the functionality will be needed at once.

Sustainability is a great example of what’s wrong with innovation in ERP today. Vendors have forgotten how to innovate. The fact that this ERP representative is asking customers and bloggers for ideas and items to put on their development list is appalling. The vendor should already know, by their own assessment, what needs to change in their product line to support sustainability. If they have to ask me, they are doomed.

Innovation is not (and please understand this point) about order-taking but you’d swear that’s how ERP vendors see it. Innovation involves imagination, empathy and the anticipation of future market needs/demands/wants. That’s the part ERP vendors don’t get.

October 5th, 2009

The troubling thoughts re: outsourcing

Posted by Brian Sommer @ 4:35 pm

Categories: Contracting, Current Affairs, India & Services, Mergers & Acquisitions, Notable Research, Outsourcing, Professional Services, SaaS and Beyond, Selling Professional Services, Service Providers, Think About IT, deal

Tags: Solution, BPO, Outsourcing Company, Customer, BPO Deal, Business Process Outsourcing (BPO), Outsourcing, It Services, Managed Hosting, It Operations

Watch this space for future problems!

There’s a lot going on in the outsourcing world lately. Things like:

- Perot Data Systems being acquired by Dell

- ACS getting bought by Xerox

Add to these deals, consider that:

- Accenture is providing guidance suggesting zero growth

- Accenture cutting back its executive ranks

- A colleague telling me that outsourcing, traditional & BPO outsourcing, is on the way out

Let’s look at that last supposition. BPO, business process outsourcing, is built on the idea that an outsourcer can assemble a great collection of technologies, design & enable them with a specific set of business processes and deliver a step-change improvement in a customer’s business operations. Generally, BPO providers can take a customer experiencing 3rd or 4th quartile performance levels to 1st or 2nd levels and at a lower cost than the customer was able to deliver on their own.

BPO deals are tough, though. Customers fight the urge to adapt standardized processes and often end up with processes that have some best processes and some of their old bad habits (and cost structures) embedded within them.

BPO solutions have traditionally been built around older ERP solutions. They’ve been constructed with the stuff your firm was using before it went to BPO. Many use older client server software and not newer SaaS (software as a service) products. These solutions may or may not have a SOA (service oriented architecture). They may be built from the parts of several ERP and specialty software firms. Sure, the vendors are selling an outsourced process and not a technically elegant solution. But, what happens when BPO buyers are looking under the hood and see a solution that’s long in the tooth technically? Just last week, I spoke with a vendor whose firm is still selling a COBOL-based, HR Payroll product with a runtime compiler in it. Oh, did I mention it was a green-screen solution that an outsourcer is using.

There’s another issue with the traditional BPO solutions. They may not be economical for the solution providers and their customers anymore. True SaaS products can be great deals for the provider and the customer as they have multi-tenancy properties. Multi-tenant solutions permit the provider to operate one-version of the code for all customers while logically (not physically) separating each customer’s data. In contrast, many BPO solutions are not multi-tenant. Actually, they are far from it. Each customer has their own configuration and version of the code. Their data is logically and physically separated. BPO solutions in this fashion are more expensive to update and operate. Every time an old-school BPO provider needs to update their software (e.g., scheduled maintenance, new functionality, security patches, etc.), they have to do it one customer at a time. It’s expensive and, ironically, it’s inefficient.

Buyers are going to look at other solutions. Solutions that come with best practices built in and are capable of instant updating. They can be updated simultaneously for all customers. New processes can be enabled immediately. Buyers will want solutions built for cloud platforms and offered by vendors who can really get their cloud costs down. They’ll want a solution provider who uses Linux and not some proprietary operating system. They’ll want a provider who builds their own servers using commodity parts. Likewise, they’ll want a provider who offers disk storage at prices closer to the sub-$100/terabyte prices you and I pay at mass retailers and not prices form factors higher from brand name hardware vendors.

Pricing will fall for the hardware, software and services in the mostly back office enabled BPO world as these are all commodities now. SaaS will just exacerbate the drops.

Traditional outsourcing, that space where clients transfer entire data centers to a third party, may be on the way out, too. Non-core applications will go to the cloud as more and more of the hardware in a data center is scheduled for retirement. It’s a predictable route given the need to free up capital and labor. Customers will continue to move troubled, non-strategic apps to outsourcers or SaaS solutions. They will do so just as many of us trade-in our messed up old cars for newer ones. Problem is, too many traditional outsourcing solutions aren’t too different from the old cars…

Traditional outsoucing made sense when labor arbitrage was a key value driver. It isn’t anymore.

Today –
Today, outsourcers are taking calls from acquirers, private equity firms and others. They know tough times are ahead and are looking for an exit strategy for their investors. Who wins? Well, the investors in the outsourcer might see a bump in their stock price but it won’t be long lasting. Structural changes introduce turmoil in markets and we should see some here.

Gartner recently published an analysis of this space and predicts 25% of outsourcers are going to disappear.

That’s a lot of change and it will disrupt a number of firms. Just make sure yours isn’t one of them.

I’m concerned that some of the buyers of outsourcing firms may have rose-tinted glasses on and their employees (and clients of these firms) could get hurt. Let’s hope not.

September 21st, 2009

Dell and Perot: What this means

Posted by Brian Sommer @ 2:22 pm

Categories: Current Affairs, India & Services, Mergers & Acquisitions, Outsourcing, Professional Services, Selling Professional Services, Service Providers, Think About IT, deal

Tags: Acquisition, Dell Computer Corp., Perot, Mergers & Acquisitions, Corporate Law, Investment, Finance, Business Operations, Brian Sommer

Look at more than the upside to any acquisition

Dell and Perot are getting married. This acquisition puts approximately 23,000 Perot services employees in with Dell. (see Larry Dignan’s detailed post on the transaction ) (here’s an InfoWorld post, too)

From the macro view, here are my observations:

1) This deal is the latest where a hardware vendor moves up the technology stack and acquires a major IT services vendor. HP did it with EDS. IBM did it with PWC. Services margins can be solid but not all services and services firms deliver great margins. In fact, for sheer gross, gross margins look at the margins coming from application software vendors.

2) Interestingly, some software vendors are starting to move up and down the technology stack, too. Oracle’s acquisition of Sun is one example. What’s driving acquisitions appears to be this: many tech sectors are experiencing slow to no growth. They need to get hitched to players in more robust spaces. On-premise vendors of software are in trouble. SaaS vendors are not. Some BPO services are not growing.

3) Competing on hardware alone is hard and low-margin work. With more technology going to the cloud, the need for on-premise data center gear may have peaked for a while. If a hardware vendor is to grow its top line revenue, it needs to move into the high growth spaces.

4) Some services firms are more interesting deal partners than others. The late BearingPoint wasn’t huge yet it could not attract a buyer for the whole enterprise during its last days. BearingPoint was carved up into pieces. Some services firms aren’t ever considered for an acquisition. Accenture, my old alma mater, may be too big to be acquired. Others have poor fitting cultures. Others have reputation damage. Others still are priced at too great of a premium to be acquired. Cognizant (full disclosure: I own a few shares of this firm) and some of the Indian-based services firms are not bargain priced at this time.

5) Managing services firms is different from managing a manufacturing concern. The language of services (e.g., bench time, utilization, target chargeability, unplanned fee adjustments, etc.) has no parallel in manufacturing circles and vice versa.

For Dell, my advice is:

1) Find/Use great talent to run this part of your firm. Get the best services (not hardware) executives you can for Perot.

2) Get realistic on the potential synergies this union will spawn. Use the executive contacts that Perot personnel have to extend your presence in the accounts. Use Perot people to work the upper levels of client management in the existing Dell customer base. But, don’t expect your Dell people to sell Perot services and Perot people to sell servers.

3) Culture is a big thing in a services firm. Understand Perot thoroughly before you start to change it. Hopefully, this was a part of your due diligence but don’t be surprised if it comes back to bite you repeatedly. People-centric businesses are really touchy about this.

4) Understand that every sales call Perot people make today and in the near future will be tougher as a result of this deal. Your competitors will feed clients and prospects a lot of questions that may embarrass or stymie the Perot sales professionals. Competitors will position themselves as more stable, more secure, etc. Sure, this happens in lots of acquisitions but in a services deal, it really stings when the customer is questioning whether any of the people in a proposal will still be with the combined firm in the next few days. Dell must provide absolute certainty to the employment, proposals, staffing, etc. of the Perot people or business development will suffer. Dell will also need to communicate this message of stability publicly to all prospects and customers.

5) Watch for brain drain. The best and brightest don’t like the apple cart getting turned over. They’ve invested a lot of time, energy, etc. into getting promoted within Perot. Now that Dell is the new owner, the best and brightest are going to question where their career is (or isn’t) going. There’s a reason service firm acquisitions often get low multiples: unlike capital, machinery and patents, people leave these firms. And, after an acquisition, they can leave in great numbers. If Dell doesn’t move very fast, defections will occur and Dell with end up with a services firm that lacks many of its best people and now appears to be an over-priced acquisition with lessened revenue prospects.

6) Sell the growth strategy internally and externally. Services people want to be part of growing (not volatile, stagnant or declining) firms. None of them want to be the last people out. Make sure you have a compelling vision for this part of your business and relentlessly communicate it to everyone there.

7) Understand the impact of this deal on the brand of both Dell and Perot. Both firms have good name recognition but a brand is that thing people instantly recall about a name or logo. IBM created a new entity for its services business while appending the IBM moniker to it. Ask yourself, what does Dell want us to think of when we hear of its services unit? Is it value, excellence, outsourcing, etc? I doubt its hardware sales.

Good luck Dell

September 15th, 2009

Taleo, Talent Management and What’s Wrong With ERP Spending

Posted by Brian Sommer @ 9:12 am

Categories: Current Affairs, ERP, HR, Think About IT

Tags: Talent, Taleo Corp., ERP, Talent Management, Enterprise Resource Planning (ERP), Workforce Management, Professional Development, Enterprise Software, Software, Human Resources

Is your career worth at least one security patch?

This week, Taleo is conducting its user conference in Las Vegas. They are announcing their Taleo 10 product this week to coincide with the show.

Rarely do I get to see a software vendor presentation that really nails the business problem their solution is addressing. In announcing Taleo 10, Taleo showed one slide that really resonated with me. That slide showed that the average American worker is paid about $47,000/ year. The average business incurs approximately $12,000/year in ERP expenses per worker and yet the average business spends less than $10/year/worker on talent management.

Think about that

Think some more

Those data points suggest a couple of items you should examine in your firm:

1) Are we really getting that kind of value from our ERP to be worth that expenditure?
2) Why are people/talent management costs so low in our firm?
3) Is a worker’s skill management/development only worth 1/1200th of that spent on ERP?

Lots of firms talk about how critical their people are to their firm but these statistics really show that few firms put their money where their mouth is. Either people don’t matter or firms haven’t had the right enablers to help them develop and manage talent. If you work for a company, bring this subject up in your next annual review. Ask your HR executive when the company will spend as much on your continuing education and career development as it did on its ERP maintenance fees, upgrades, etc. Don’t expect much of an answer or an answer that will satisfy you.

Am I surprised by Taleo’s numbers? No. Too few managers know how to manage, let alone develop, the talent in their firm. They do know how to connect transaction data and their systems together. They can print reports and map processes but motivating people is tough. For many managers, they cannot or will not communicate with employees and then act surprised that employees aren’t in-tune with the company’s strategies. Worse, some managers have a bad day and then take it out on the employees. Afterwards, these same managers can’t understand why people aren’t highly motivated, why they’re looking elsewhere for true employment love, why they’re polishing their resumes instead of selling more product, etc.

I’m not saying Taleo 10 has all the answers but they are least focused on the right problems and are looking at the business issue in the right light. Readers, you need to goad your executives and see if their vision of the workforce, alignment and strategy is appropriate as comapred to the monies they spend on ERP and other cost areas. But, above all, get the Taleo 10 deck in front of these executives and see if it prompts some better resource discussions in the Executive Committee of your company.

September 10th, 2009

Rural IT hubs experiencing new interest?

Posted by Brian Sommer @ 9:18 am

Categories: Current Affairs, Professional Services, Service Providers, Think About IT

Tags: Job, Hewlett-Packard Co., Information Technology, Middle Class Job, Recruitment & Selection, Human Resources, Workforce Management, Brian Sommer

Green Acres is the place to be?

InformationWeek reports that:

IBM is opening one new service center in Dubuque, Iowa, that ultimately will employ 1,300 workers. HP is opening a center in Conway, Ark., that will create 1,200 jobs, most of them paying more than $40,000, according to reports. HP’s Rio Rancho, New Mexico center, expected to open in the spring of 2010, will eventually employ 1,300 workers. The jobs will pay $45,000 and up.

When you read the article though you’ll see some questions about the large tax abatements/incentives that the governments in these affected areas are offering to get these jobs.

On the whole, I’m pleased to see businesses, any business, adding jobs in the U.S.

For these communities, they’ll benefit from the infusion of white collar jobs that will build a strong middle class economy. Middle class jobs are very scarce in many rural communities and the biggest challenge many of these communities face is to create a diversified economic base that isn’t dependent on one or two large employers. Winning a big employer like IBM or HP is great but can these towns get other firms to locate operations there as well?

I grew up around some company towns. When these businesses packed up and left, the town died with them. I hope the folks in Conway, Rio Rancho, etc. keep their momentum going.

August 14th, 2009

Stories that warrant watching: EDS / HP, Microsoft, IBM, Adobe

Posted by Brian Sommer @ 6:46 am

Categories: Current Affairs, Litigation, Professional Services, Security, Service Providers, Think About IT, damages

Tags: Adobe Systems Inc., Hewlett-Packard Co., Microsoft Corp., Electronic Data Systems Corp., IBM Corp., Cookie, Microsoft Word, Word Processors, Microsoft Office, Office Suites

EDS Employees Take a Haircut Courtesy of HP
IBM taking out more employees?

VentureBeat reports that some EDS workers will face pay cuts of 29-47%. Additionally, more employees may be terminated come September 1. IBM is rumored to be sharpening the axe in its Global Services group to the tune of 16,000 employees this year.

Consultancies have a real issue with adjusting pay as they often succumb to market pressures in booming economies to raise pay levels but find it really hard to retract those market increases in a down market. If pay rate changes are tough, managing workforce levels in a volatile economy is even harder and considerably more painful. Whether you lose part or all of your paycheck, it hurts.

Word is that Microsoft Gets One of Its Products Barred From US Sales

If you haven’t been watching anything this week, you might have missed the Texas’ judge’s ruling prohibiting the sale of Microsoft Word in the United States. It’s a patent infringement case that might produce some interesting, but short-lived, side effects. Right now, I’m expecting some enterprising, offshore spammers are planning to deluge us with emails with headlines like:

“GET YOUR MICROSOFT WORD AND VIAGRA HERE!”

“WE’VE GOT YOUR OFFICIAL MICROSOFT WORD – ACT NOW WHILE SUPPLIES EXIST!”

“DON’T LET A TX JUDGE STOP YOU FROM GETTING THE MICROSOFT WORD YOU NEED”

If you want to read the two page court order, click here

Adobe Flash cookies – Leaving a bad taste?

Ages ago, privacy types were concerned that cookies were a problem for computer users. Most of that concern was unwarranted but recent revelations about Adobe Flash cookies may warrant a second look. Check out the story and see if you feel you need a bit more protection for your computer.

August 3rd, 2009

Stories that warrant watching: SPSS, HP, Acer, Google, SAP, Oracle, NetSuite

Posted by Brian Sommer @ 9:18 am

Categories: Current Affairs, Future of Application Software, Google, Mergers & Acquisitions, Oracle, SAP, SaaS and Beyond, Software Financial Stats, Software Vendors, The Applications Market, Think About IT, Web/Tech, internet, software

Tags: Google Inc., Software-as-a-service, Hewlett-Packard Co., Oracle Corp., NetSuite Inc., SPSS Inc., SAP AG, Acer Inc., Software As A Service (SaaS), Managed Hosting

Wedding bells for a Chicago software firm

Last week, IBM offered to pay $1.2 billion for SPSS, nee Statistical Package for the Social Sciences. SPSS was one of those niche firms with a lot of brilliant folks on board. They possessed a number of slick apps that few knew of or understand but nonetheless made millions for their users.

If IBM’s smart about this deal, they’ll keep the talent and push this technology, the modeling and advanced analytics, etc. into every vertical they can. IBM should also push the envelope on their technology and make this stuff as technically relevant as possible. Click for more from The Standard on this.

Acer, HP, Google Android and Google Chrome

The Standard reported that Acer was dropping the development of an Atom based netbook running Google’s Android. Acer and HP may develop netbooks based on Google’s Chrome. Google could become a real nuisance to Microsoft if it fields a market relevant desktop OS. This is a story to watch especially if application developers can be recruited to code for this platform.

SAP & Oracle Earnings (& Pricing)

SAP earnings were announced this week. The company’s revenues could be better but the firm is apparently ably managed and its operating margins even went up. Comparisons to same quarter revenues last year may be a bit unfair as that was one heck of a quarter and the last quarter whose results weren’t totally clocked due to the recession.

Oracle a few weeks ago boasted record 41% operating margins. FierceCIO reported recent price hikes by Oracle even in the face of a recession. I enjoyed the first paragraph of their article:

These are tough times and managers are trying to keep expenses down, but apparently no one told that to Oracle.

Oracle took an amazingly risky step, by raising the cost of some of its management options for its flagship database by 40 percent, according to a pricing list available on July 1, InfoWorld reports.

Now let’s compare those financial results to a SaaS vendor…

NetSuite Earnings

I listened in to the NetSuite earnings call late last week. The story at this application software vendor was decidedly more upbeat overall and it was really better by new revenue standards as compared to traditional on-premise providers.

NetSuite is also generating free cash flow from operations now. The company also indicated that is working a big services customer deal in Europe which has the potential for a 9000 seat customer.

As one of the better known and larger SaaS (software as a service) vendors, NetSuite benefits by the continuing rising tide that SaaS brings. Having large systems integrators and outsourcers legitimizing SaaS also helps the space. CIOs are now more comfortable and more knowledgeable about SaaS and I’d expect more CIOs to ask vendors like NetSuite this question: “Can you deliver for me big company SaaS expertise and mature solutions while maintaining the SaaS cloud cost structure of someone like Amazon or Google?” Yes, I think smarter CIOs are going to demand that vendors provide not just a SaaS solution but an inexpensive one, too! Maybe I’ll get to ask that question at their next earnings call….