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 20th, 2009

Demand this from software vendors

Posted by Brian Sommer @ 4:49 pm

Categories: Analytics - Performance Management, ERP, Financial Software, Future of Application Software, Notable Research, SaaS and Beyond, Selling & Marketing Software, Software Vendors, The Applications Market, software. applications

Tags: Vendor, Customer, Sales Strategy, Tools & Techniques, Software As A Service (SaaS), Sales Force Management, Enterprise Software, Sales, Management, Emerging Technologies

I was getting a briefing last week from a software executive. We got to a point in the conversation where the discussion was focusing on existing products. I moved the conversation to a different space, though. If you’re getting a pitch from a vendor, you should move the conversation, too!

Still Market Relevant - When the vendor dialogue is all about existing customers buying more of the old product line, it’s not all that intriguing. Yes, it tells me that the vendor is still relevant to its customer base but these sales are mostly in-fill sales. You remember these sales, don’t you? They’re like those customers who had previously bought most of the ERP suite but now need the CRM (customer relationship management) modules.

Gaining Market Share - When a vendor is getting all-new customers for its existing products, then that’s a bit more newsworthy. This means that the products are appealing to new buyers and these just aren’t the existing customers. That means the products are still fresh and delivering competitive advantage. Alternatively, this market momentum could also signal that the software vendor has a great sales and marketing organization or is buying its way into ever greater market share. Wall Street likes this quadrant but a vendor can’t stay here forever as its products will age and lose their market appeal or luster.

Re-enlistments – These are the customers who are re-affirming their commitment to the vendor. They are choosing to upgrade their applications to the all-new application suite, new platform, etc. These firms are making a major financial commitment and their decision to do so is not trivial. Re-enlistment scenarios often occur with major technology platform changes (e.g., going from client-server architecture to Web 2.0 applications).

Hot Space - The top right quadrant is the really high-interest zone. This is where all-new products are attracting all-new customers. This stuff is red-hot! It’s the kind of software that makes the customers of other software vendors abandon their old products and switch to the new stuff. When you think of this quadrant, don’t just think of replacement technologies. Think about the products you bought for the first time. Think about your first cell phone, spreadsheet program, MP3 player, etc.

I want to hear more Hot Space stories. They are undoubtedly more interesting than the other stories and they are really rare. If a vendor has been around a while and has 1000 customers, probably 900 are in the Still Market Relevant quadrant. The rest are scattered across the three remaining quadrants with fewer than a dozen or two in the Hot Space quadrant.

Over the last few years, the numbers of customers and stories in the Hot Space has been in decline and, worse, as a percentage of total customers, experiencing a very real decline.

Innovation in ERP, for example, has been so bogged down in technical infrastructure changes (e.g., middleware/SOA platform changes) and business model changes (e.g., from on-premise to SaaS (software as a service)) that real value-adding, business-relevant improvements to products are far and few between. Look at the ‘amazing’ value that business analytics hasn’t brought in to date. Analytic applications are still crunching internal transaction data. The lack of imagination and innovation here is an embarrassment to the technology sector.

When a software vendor comes knocking on your firm’s door, ask them to segment their customer base along the lines of the four-quadrant picture above. Then, only ask them to describe the value derived and experience of these all-new customers buying all-new solutions. If they struggle with this exercise, this vendor is selling you yesterday’s technology. Your users will love this old-time solution the vendor is pitching as much as they’d want to buy a newspaper from last week. Even if the vendor has some stories in this quadrant, these may actually reference old technology. Watch out for this. If it doesn’t have sizzle, differentiation and freshness, then it’s old news. Don’t reward vendors for re-packaging an old product in new wrapping. Make them innovate or make them get out of the way.

** UPDATE **
I read the comments many of you post to these blogs. Thanks.
A reader of this post raised a couple of points I’d like to clarify. Were a vendor to approach your firm about an existing product, one that has been on the market for a while, am I suggesting you not consider it? No, I’m not but I would caution you that the product you could be considering may be a bit long in the tooth. I wouldn’t pay too much for old-tech. But also remember that the vendor that has nothing in the top right quadrant is also a vendor with a limited future. This is an area where the vendor’s future sales momentum will occur. Without something to entice new customers into the fold, this firm will be lucky to make in-fill sales to existing customers. So, if you need something now, any product in any quadrant will do. But, if you want a product with a future, find a vendor who is building for the future.

October 16th, 2009

Two Views of the Software Market

Posted by Brian Sommer @ 11:07 am

Categories: Current Affairs, ERP, Future of Application Software, Notable Research, Software Vendors, The Applications Market, software. applications

Tags: ERP, Vishal Sikka, S-curve, Enterprise Resource Planning (ERP), Enterprise Software, Software, Brian Sommer

A Bridge Too Far?

In a blogger briefing this week at SAP’s TechEd, SAP CTO, Vishal Sikka, drew a chart of the application software market and what new areas of technology are of interest to the firm. I’ve tried to reproduce his freehand drawing into the following PowerPoint rendering. I believe I have captured the essence of his points but apologize in advance if I omitted some of the subtleties of his sketch.

Vishal discussed how new technologies, like social networks, are forcing ERP vendors to process new kinds of information (i.e., unstructured data that may exist in great volumes with little organization), understand the explicit and tacit insights within this data and connect it to the decision making processes of modern companies.

I agree that new kinds of information are presenting themselves to businesses. Sadly, most ERP vendors have often ignored new kinds of information and, instead, focused single-mindedly on those transactions that eventually end up in a general ledger.

Now, let’s look at the broader picture. ERP vendors are behind the eight-ball on several data fronts. Here’s my abbreviated list on this subject:

- event data – Businesses make all kinds of decisions based on external (and many internal) events that are never found in an ERP. For example, sourcing personnel make a number of decisions as to how much to buy, what to pay, etc. based on current commodity price movements. If a key commodity your firm needs suddenly jumped up in price, would your ERP system notify a buyer? I doubt it. Other events are triggered by legislators, competitors, regulators, the press, bloggers, employees, etc. Does your ERP monitor and assess the changing market share and business fortunes of your competitors or is it still trying to perfect last year’s financial statements?

- the context behind data – Can your ERP system scan non-structured data, like blog posts, and determine whether your firm (or a competitor) has suddenly got a product reliability or customer service issue? I doubt it. Most ERP’s are still stymied with problems like how to reconcile the company’s headcount in the HR module with the headcount used in the Budgeting module or the headcount figures in the company’s EEO reports. If an ERP can’t understand structured, accounting data, how can it deal (credibly) with data from less structured sources or data from external sources?

- data for non-traditional users – Your ERP probably makes a bunch of accountants, clerks, data entry people, outsourcers and systems integrators happy. But what does it really do for the significant number of other data-hungry people who are constituents of your firm? Does your ERP have dedicated applications for your board of directors? Your suppliers? Your customers? Different regulatory agencies? Your external auditors? The activist shareholders who are watching your management team? ERP products were designed to satisfy an internal, mostly accounting/Finance user group. While lots of vendors tout ‘analytics’, ‘business intelligence’ or ‘data warehouses’ to address some of these new constituencies, these are mostly bolt-on reporting tools that simply re-work existing, internal transaction data. I really doubt any ERP was designed as ‘business operating system’. Recently, I saw a picture of a horse-drawn cart where the owner had so overloaded the cart that it tipped backward and lifted the horse off the ground. That’s ERP today – an overloaded horse cart. We need vendors who will take a fresh perspective at the totality of a business and its information needs. The incremental approaches of late may work for a while but if left unchecked, create a poor long-term solution.

I got the impression that SAP’s leaders are looking at many of the right kinds of data and business questions but their self-imposed need to do so within the context of keeping everything in the original ERP wrapper may be limiting their vision and potential.

Their desire to push everything into the same technology, same business construct, etc. may not be correct. It feels like they are pushing, a la Montgomery’s Operation Market Garden, for a bridge too far. I’m unconvinced that a solution designed for manufacturers and designed to report, process and store internal transaction data is necessarily the best platform for the businesses of today and tomorrow.

Don’t believe me? I give you a couple of things to ponder. When most ERP systems were designed, technology was heavily constrained. Memory, throughput, processor speed, disk storage, etc. were all in short supply and expensive. ERP designers created systems that worked within these constraints. They intentionally constrained their products to have less than a whole, world view of business. Their products cherry-picked a few key computationally intensive or labor intensive internal tasks and automated them. Over time, as computing became less constrained, more function points and process components were automated. But, at its core, these solutions are still constrained as they were designed as internal systems, using internal transaction data that creates backward looking reporting data.

ERP vendors could create better, more relevant solutions now if they’d just envision a technology world without constraints. When you create systems assuming you have unlimited storage, terabytes of in-core memory, etc., you realize that business information doesn’t have to be internally generated data only. You realize that work is not just comprised of internal work processes (just watch how a sourcing professional does their job – they spend much of their time checking prices of suppliers, analyzing the financial statements of suppliers, etc. – they spend just minutes a week actually keying in a purchase order) but a mix of internal and externally facing tasks. When you realize that the old systems’ views of processes were artificially constrained and limited to an internal view of the world, then you understand that the old data model for ERP is just obsolete, irrelevant and desperately in need of a new perspective.

Data isn’t the only sticking point. ERP systems were designed for internal users. They weren’t created to serve other constituents like board members, activist shareholders, customers, regulators, suppliers, external auditors, etc. Many corporate constituents were never part of the original data model of these products and bolt-on efforts to mollify/pacify these non-traditional users are ‘limited’ by design.

Bolting data from social networks, group-think collaborations, web crawling activities, etc. into ERP solutions may tax the ERP data model to the breaking point. Even if these solutions have the technical elasticity to support these new data types, the basic limitations with the inwardly focused old ideas of business, business information, etc. will remain within old ERP solutions. The old ERP design is ready to be replaced with one more relevant for today’s firms.

We need visionary ERP vendors who will take the fresh piece of paper and envision what a new generation of software product should look like. The technology maturity curve for ERP solutions has run its course. The S-curve has hit its apex and has flattened. It’s time for a new kind of product. It’s time for some real innovation and not more of this innovation at the margins.

Vishal’s vision looks good and SAP has the R&D resources to make big things happen. But will we see a vendor brave enough to re-imagine what ERP should really be? Or will we see more stuff bolted to the exterior of the old ERP and business thinking of yesteryear? I’ll keep hoping for the former.

September 25th, 2009

Shouldn’t services firms have their own ERP?

Posted by Brian Sommer @ 9:41 am

Categories: CEO Interview, Future of Application Software, HR, PPM - Project Portfolio Management, PSA - Professional Services Automation, Professional Services, Selling Professional Services, The Applications Market, software. applications

Tags: Staffing, ERP, Services Firm, Service Firm, Enterprise Resource Planning (ERP), Sales Strategy, Enterprise Software, Software, Sales, Brian Sommer

I caught up this week with Morris Panner, CEO of OpenAir (now part of NetSuite). One aspect of our wide-ranging conversation concerned the continuing evolution of businesses, the economy, etc. towards a greater services orientation. Drawing on that, we discussed how services firms need their own version of ERP.

Here are just some of the ways I believe a Services ERP would differ from a traditional ERP:

1) Services firms need visibility in their ‘resources’ so that the best/optimal staffing decisions can be made. If the best resource (as measured by value delivered) is available in one country but the work is sold in another and eventually delivered in a third, can these resources be optimally scheduled? ERP/MRP solutions optimize capital resources (e.g., stamping machines, extruders, CNC machines, etc.), customer orders, inventory and other assets. But, in services firms, the optimization software is still in its infancy or non-existent. Sadly, this staffing is often controlled (not optimized) by individuals whose allegiance is to a local sales or operations person and not to the service firm or its shareholders.

2) The CRM component of ERP is also structured to serve Industrial Age firms. Service firms need information about people, availability, real-time pricing data about people, etc. and this is different from products. For example, if your service firm knows it will soon offload a very large number of SAP implementers from a big project, would you want to offer some discounted pricing to prospects to soak up all of that upcoming bench time? And, would you want to be selective in offering these discounts for only some personnel while actually boosting the rates of others who have distinguished themselves as real experts in this subject matter? ERP solutions don’t do that.

3) Sales commission calculations are/should be different in services firms. Some sales people would prefer to sell only domestic work as they are paid a percent of total revenues. Selling a mixed mode project (i.e., where some work is performed offshore and some on shore) results in a lower total fee estimate and lower sales commissions for the sales person. Shouldn’t the sales commissions be driven on which projects drive the greatest margin for the employer or greatest value to the client (and not greatest income to the sales person)? Do ERP systems address this? Do ERP systems show a local sales person the staff availability of personnel in another country? Do ERP systems recommend the best value people for a project regardless of location?

4) ERP systems (still) don’t integrate non-accounting data into their software well. Service firms need to capture, reuse, modify and expand prior work plans, intellectual property, ideas, etc. into their projects, deliverables, work plans, etc. They need a flood of information about people so they know who to staff and where. That sort of information changes daily and is rarely found in the standard HR system. This is why resource managers exist in service firms and knowledge management components are essential in service firms’ IT solutions. ERP providers have tried to bolt on project tracking and some PPM capabilities to their ERP offerings but it doesn’t work well. ERP was designed first for accounting transaction data and then updated for Industrial Age firms. Overlaying ERP on service firms is an unnatural act and not optimal for these firms.

PSA (professional services automation) firms did some great things to get services firms more productive and efficient. We all owe them a big thank you just for making time entry a one-time event and eliminating all the reconciliation work (between the project tracking module, payroll and budget/estimating systems). PSA vendors also made billing, collaboration and other project work easier, too.

The initial focus of PSA has been to stitch together a number of service functional needs into a smaller collection of better integrated solutions. Service firms now have better, larger, more robust and more efficient systems. They still have islands of service automation software and data that include: PSA, spreadsheets, accounting software, HR/Payroll software and BI/Analytics. It’s time for that to come together as a more unified solution set.

These larger solutions will likely form the nucleus of a SRP (services resource planning) offering but won’t initially deliver the full capability of SRP until someone adds the unique business functionality that only service firms have and need. Functionality like support for global service delivery models, billing and currency reconciliation for global projects with globally sourced team members, resource staffing optimization models, etc. That may be a few years off but it’s what will eventually come. The question is which vendors will deliver it?

I’m pleased NetSuite kept Morris after they acquired OpenAir. It speaks volumes to their support for the service industry. The question now is will NetSuite create a full, robust SRP for the services space?

August 10th, 2009

Where's my wedding invite? SAP and Tibco?

Posted by Brian Sommer @ 7:23 pm

Categories: Current Affairs, ERP, Future of Application Software, Mergers & Acquisitions, SAP, Software Vendors

Tags: TIBCO Software Inc., SAP AG, Mergers & Acquisitions, Corporate Law, Pricing, Investment, Finance, Business Operations, Marketing, Brian Sommer

Are SAP and Tibco getting hitched?

Reuters today indicated that SAP may be getting serious about buying Tibco.

This isn’t the first time this potential corporate marriage has been rumored. Check out this 2007 post from fellow blogger Dennis Howlett when the speculation was running high then.

Will this time be different? It could be but first let’s understand how some corporate M&A types think/operate. Corporate M&A deal makers often explore whether potential takeover candidates possess the appropriate deal synergies to pursue the matter in the first place. If the deal fits strategically, then a set of pricing calculations are made, the lawyers are hired and the bankers get things rolling. However, few M&A types will make a run at a company more than once. ONCE A POTENTIAL ACQUISITION IS PASSED ON, IT RARELY IS CONSIDERED AGAIN.

Time and changing business situations/needs can change things, though. Since 2007, Oracle has made several acquisitions and has a big one in Sun still out there. Will SAP feel the need to bolster its middleware to better confront Oracle in the marketplace? Does the acquisition of Tibco open up more cross-selling opportunities for SAP today? Does SAP need to do this deal to prevent Tibco falling into the hands of a competitor? Will this deal be accretive in short order? There are many considerations to review in a new run at Tibco and I’m not sold yet that it will/should happen.

With merger rumors, remember the old investment banker advice “Buy on the rumor, sell on the deal”.

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….

July 27th, 2009

Is Your IT Shop Mature Enough for Cloud Computing?

Posted by Brian Sommer @ 8:24 pm

Categories: Current Affairs, Future of Application Software, Outsourcing, Professional Services, SaaS and Beyond, Software Development, The Applications Market, Think About IT, internet

Tags:

Recently, I’ve written about software vendors being (or not being ready) for cloud computing. I’ve also written about large consultancies being able to support their clients as they move to the cloud. These consultancies and systems integrators are taking the cloud mainstream.

Last week, I spoke with a HP executive about the cloud and their insights into client adoption for same. One of the subjects we covered focused on the readiness of clients to adopt the cloud for some of their processing needs. Note, these aren’t HP’s words or opinions – they are exclusively mine. But, I thank the folks at HP for the illuminating conversation and the thoughts they provoked.

CIOs are clearly moving up the maturity curve re: cloud computing. The number of skeptics is diminishing while the ranks of other categories are growing. More and more CIOs are looking at using cloud based solutions for:

- specific application software needs (e.g., CRM)
- application software development and testing environments
- replacements/retirements of computer hardware facing obsolescence

I’m not hearing all the fear/concern over data protection. In the last year alone, the number of software vendors with SAS 70 certification has mushroomed and prospective client concerns have diminished accordingly. The current harsh budget environment makes CIOs look at cloud environments as realistic options to non-existent CAPEX budgets. This is especially true when CIOs have older servers in need of replacement or when big development projects need dedicated test and development environments. Cloud acceptance isn’t just creeping into the CIO tool chest, it might be flowing in strongly.

CIOs will need to marry their needs and business requirements with the true capabilities of cloud capability providers. I suspect that some providers offer a cloud ‘space’ and not much else. CIOs will likely need more. They’ll want to work with providers that can advise them on needed capabilities in their application portfolio, changes they’ll need to make in their applications, techniques and technologies required to make cloud apps integrate with legacy apps, etc. If a cloud provider just offers bandwidth and disk storage, their solution may be woefully inadequate.

Caveat emptor will still be the rule for those CIOs in the higher levels of maturity as the different providers are offering a wide range of cloud computing capabilities. Some offerings will not meet specific business needs.

Finally, much of the cloud conversation these days ignores the people aspects of it. IT leaders will no doubt find that their teams will need additional training and sensitivity to specific cloud technology requirements. These skill needs could upset some IT personnel while others will likely enjoy the opportunity to learn new, marketable skills.

Where’s your IT group on the cloud maturity curve?