November 25th, 2009

For Professional Services, the World is Still Round

Posted by Brian Sommer @ 12:29 pm

Categories: CEO Interview, Current Affairs, India & Services, Outsourcing, PSA - Professional Services Automation, Professional Services

Tags: Professional Services, Services Team, Supply Chain Management (SCM), Food & Beverage, Outsourcing, Operational Accounting, Enterprise Software, Software, Manufacturing, It Operations

Today, I turn over the writing chores to Morris Panner, the OpenAir CEO. I’ve known Morris for quite some time. Since we’ve had several conversations of late re: SRP (services resource planning), I suggested to Morris that he take a stab at the topic and here it is:

by Morris Panner, OpenAir

One of the most popular trends in healthy living has been the “eat local” campaign.
Global and processed food solutions make today’s food economists worry – there are massive trade-offs in quality for the benefits in cost and convenience.

Oddly enough, there is a similar debate raging in the services world of today.

Thomas Friedman (author, The World is Flat) captured one side of the debate best when he wrote of a world where ubiquitous access to Internet and computing skills meant that companies could outsource anything to the cheapest markets.

Increasingly though, companies have started to see the other side of the debate. Books such as The World is Curved have started to explore the notion that “local competencies and skills” make a big difference.

That said, let me propose something of a hybrid theory – which is what I think is actually happening in the world today.

On the one hand, certain commodity services – standard and repeatable coding tasks connected with product enablement or other back office tasks that don’t require customer interaction - truly are moving offshore and should do so. In the old days, there was immense frustration from clients – and great benefit to the system integrators – when they had to pay exorbitant rates for routine services. Moving these commodity services offshore is virtuous. There is little contact with the customer and there truly is no reason for it to be performed on site.

On the other hand, there is another set of services that truly starts to get at the core relationship between company and customer, where the culture of the company and its commitment to its customers is most truly expressed. These interactions are true gold for the company as you can learn valuable things from your customers about how they use your product and how they want to use the product. Mastering these interactions is core to an effective retention strategy and are outsourced at great peril.

Years ago, David Brooks, the renowned New York Times columnist, referred to the services teams in companies as “the camels of innovation.” These individuals would travel anywhere to bring the distinctive human element to the deployment of a company’s technology. Over the past several years, we have seen these services teams become more and more important and we have watched technology product companies revolutionize their views of value added services on their core offerings, transforming them into a must have on a global scale.

It began with IBM, but has continued with HP, Dell, Xerox and Fujitsu, as these technology product companies have seen the need for services teams to help customers see the truly special value of their products. Today, it is not just the behemoths that have services teams to help deploy technology. Almost every technology firm of any size sees the strategic need for a services team to aid deployment and gain the all important customer loyalty, not to mention adding valuable revenue in a challenging economy.

At a recent Technology Services Industry Association (www.tsia.com) conference I attended, JB Wood and Thomas Lah, leaders of the association, elegantly made the point that the technology business – both hardware and software – has become a services business. Here is some data they created and presented at the conference reflecting the share of services revenue as a percentage of total revenue of the leading software and hardware companies.

*source: TPSA, JB Wood, Complexity Avalanche, 2009

The notion that our economy is becoming more and more dominated by services is not new, but the way in which this development is expressing itself surely is. The human element is becoming the most important element in a company’s presentation to its customers. It is becoming very hard to differentiate on a product alone – rather, it is the way the customer experiences it that has become the dominant factor. Human talent, rather than being devalued in a highly mechanized world, is being elevated.

The implications of this are profound for how the modern enterprise must manage itself today. Gone are the days when Enterprise Resource Planning systems ruled the roost and the key competence was effective manufacture and delivery of products. In those bygone days, services were an afterthought.

SAP made its name by understanding that the global supply chain revolution in production required a whole new way for companies to interact with supply chains and inventory. Now, we are seeing the need for a whole new approach to managing the global enterprise.

New Services Resource Planning systems are required. Simply put, people cannot be treated as a collection of interchangeable parts. The global coordination of a services business requires a discipline even more subtle and intense than ERP. It involves not only managing a roster of professionals with varying skills, but forecasting when you’ll need those skills and where and for how long. It means managing projects on time and on budget, and billing for and recognizing the revenue they bring in the most efficient manner. It means catering to the road warriors that make up that same services business so that they can be most effective, no matter where they are in the world.

Finally, a new system of managing people is required. Communication across the enterprise means that collaboration will replace top-down, command and control directives. In one address, Cisco CEO John Chambers noted that he was awfully good at the command and control part of managing a business, but it was the collaboration and distributed management that required constant innovation and work.

In today’s world, the core challenge facing all of us who run a business that includes services – which is increasingly all of us – is to develop those core competencies and systems which will allow us to provide highly localized services in a global economy.

Talent matters and customers recognize the difference on-site services make as they navigate the difficult waters of product installation and deployment. It is no surprise that the most dynamic area of tech M&A is driven by product-focused companies acquiring services businesses – look for that dynamic to continue.

The implications in systems, training and management are only just beginning.

November 17th, 2009

Inappropriate Performance Review Phrases (We'd All Like to Use)

Posted by Brian Sommer @ 9:14 am

Categories: HR, Humor, Professional Services, Service Providers

Tags: Performance, Performance Review, Herewith, Performance Management, Human Resources, Workforce Management, Brian Sommer

But Check With HR First

James Neal wrote the book “Effective Phrases for Performance Appraisals” many years ago. Today, it’s in its twelfth edition and has sold more than a million copies. BusinessWeek even noted this event.

As much as I enjoy praising the virtues of great employees, it’s the less than stellar ones I, and I suspect many of you, struggle with mightily. We rack our brains looking for those exact, precise, clear-cut and definitive words that basically tell them “You screwed up and you’ll be gone soon unless you do a 180”. But what are those words? Why isn’t there a book for these gems?

Well, I think it’s time we start collecting the phraseology for the underperforming or malcontents under our supervision. Herewith are some starter phrases that might be a tad bit too strong for that next annual review you conduct. And of course, make sure your HR team signs off on any of these before you use them.

1. “Couldn’t find a successful path to complete this project even if we gave him a GPS”

2. “Wanting and getting a raise/promotion are two different things”

3. “Approaching his deliverables is like approaching an outhouse – you just know they’re going to stink”

4. “He talks to himself – a lot – because he likes the sound of his voice better than mine or the client’s”

5. “If I wrote a performance review as poorly as he writes, it would say ‘UR GRAMR SUKS”

6. “Has set a new standard in work performance – unfortunately it’s not good one”

7. “Employee wants the firm to sponsor his attendance in a foreign language class. I suggested he learn some English phrases first like ‘on-time’, ‘on-budget’ and ‘performance plan’”

8. “Asking out our married CEO on a date was not a good career move”

9. “He set a department record for the most dead relatives, sick pets and 24-hour bugs in one year”

10. “Thinks we don’t know that he catches 40+ daytime baseball games a year. Even customers complain that their calls can’t be understood over all of the stadium noise”

11. “Single-handedly parked more porn on a company laptop than anyone in the history of the firm”

12. “Could have tattoos all over his arms but we’ll never know as he hasn’t rolled up his sleeves and gotten his hands dirty in years”

13. “Actually thinks Facebook is a business application”

So what phrase have you been itching to use? Got a favorite that speaks volumes about poor performance? Send it along and share it with us.

November 15th, 2009

Before you do that BPO, Audit, Consulting or other services deal, check out these costs

Posted by Brian Sommer @ 8:25 pm

Categories: Contracting, ERP, GRC - Governance Risk Compliance, Implementing Technology, Notable Research, Outsourcing, PSA - Professional Services Automation, Professional Services, Selling Professional Services, Service Providers, Sourcing, The Application Software Buyer, expense management, expense reporting

Tags: Rental Car, Hotel, Audit, BPO, Consulting, Business Services, Business Process Outsourcing (BPO), CAD, It Operations, Software

Is your services partner wisely spending its/your money????

I’ve spent a lot of money on travel. Over one 10-year period, I went through $2.5 million just on airline travel alone. I think I understand travel well.

I always look through the annual Business Travel News top 100 travel spending report. Companies are ranked by the amount of air travel spend they incur annually in the U.S.

In reviewing the latest issue, I was pleased to see several systems integrators, software companies, hardware vendors and other technology related firms have instituted some great practices in recent years. I even compared this year’s report with data in a prior year (see graphic).

Where the Money Goes

Now, some firms are spending more on air travel and total T&E (travel and entertainment). Why? Well, last year’s fuel costs drove air fares up demonstrably and that got reflected in higher travel costs. Some firms grew organically and some took on substantial acquisitions (e.g., SAP buying Business Objects, HP buying EDS, etc.). Growth should trigger higher travel costs as more headcount usually translates to more travel cost.

But, buyers of services need to look a bit deeper and question potential service providers as to the measures they are taking to ensure that the money they spend on travel and T&E is worthwhile and cost-effective.

Here are some areas to probe:
- Are training trips booked with 21-day advance purchase fares?
- Do employees use the lesser of the integrator or the client’s negotiated rates with carriers, hotels, rental car companies, etc.?
- Do employees car pool/share rental cars on long-term out of town engagements?
- Do employees stay in apartments or extended stay facilities in lieu of hotels for long-term engagements?
- Do employees use 7-day advance (or longer) fares for internal meetings?
- Are internal meetings scheduled for days when employees would normally be in their home office location (e.g., Friday)?
- Does the integrator/software firm aggregate travel spend globally to maximize its pricing power?
- Do the integrators/software firms utilize closer-in personnel so as to avoid air travel altogether?
- What percentage of trips are booked for travel that will not be chargeable/billable? How can this number be reduced further?
- What class of travel is being booked for short-haul, long-haul and international travel?
- Are service workers allowed to choose the carrier? How can a client be assured that the lowest fares are being selected?
- Does the service firm discipline employees who violate travel policies? Does the client have to pay for these excesses?

Beyond airfare, the size of the T&E numbers is what really gets my attention. Admittedly, I’m surprised when my rental car bill or my hotel bill exceeds my airfare. It happens more frequently these days as rental car rates have shot up in many markets. You’ll really see it when you stay more than a day in a given market (I rarely get that luxury).

I’ve seen service people charge in some whoppers on their time reports. Usually, they get nailed for it. You know what I’m talking about. Staffers taking clients out for mega-expensive dinners and charging it in. Lazy staff who don’t book travel until the last second. Staffers who insist on staying in resort hotels, use valet parking, etc. I have a name for those folks: ex-employees.

I once had a boss who insisted on only staying in the absolute finest hotels and dining in restaurants that only the most well-heeled gourmet could afford. And, of course, he only flew first class.This person was an empirious cad without empathy. This ultimate narcissist was hell to work for and a major expense control problem for his clients.

I spend a lot of time in software and service negotiations outlining the rules of the road, so to speak, on how service providers will operate when engaged with my clients. Trust me, if you don’t have these conversations, you will lose a lot of money.

So, what are the most egregious T&E sins of service providers you’ve seen?

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 14th, 2009

Customer Intimacy wins in SAP SI's and Channel Partners

Posted by Brian Sommer @ 10:25 am

Categories: Current Affairs, ERP, Implementing Technology, India & Services, Professional Services, Selling Professional Services, Service Providers, The Application Software Buyer, The Applications Market, sales

Tags: Customer, SAP AG, Firm, Channel Partner, Business Services, Strategy, Supply Chain, Product Development, Management, Business Operations

Yesterday, several bloggers at the SAP TechEd conference in Phoenix had an opportunity to speak with Zia Yusuf, EVP, Global Ecosystem & Partner Group of SAP.

I asked Zia what characteristics typify the best SAP partners. He rattled off five qualities that the best systems integrators and channel partners possess. These qualities and my comments on each include:

1) Have individuals that are deeply involved/connected with SAP’s product direction. We had a great conversation on this point. It’s obvious that implementers who know where the product roadmap is going are better able to serve customers. What too few implementers may do is the extra step to connect themselves to the product development side of a vendor like SAP. Software buyers need to review potential systems integrators on this point. They should see evidence of the implementer’s presence at venues like TechEd, their participation in forums like SDN, etc.

2) Ensure all their SAP implementation professionals are getting the training and product knowledge they need to be successful. Software buyers should insist that their implementers are certified on the products they install. Better still, see what the implementer’s overall level of certification is for their practice. Those firms who don’t invest in their people probably have a low-cost orientation and/or experience high turnover. Either way, firms with lightly trained individuals can’t possibly deliver the same level of value as one who invests in talent. Who do you want installing your software – people who know the product well or people who want to learn about the product on your dime?

3) Can adapt, quickly and easily, to ever-changing markets and market dynamics. When the marketplace demands a systems integrator possess a global delivery model, can the local, New Jersey firm you’re considering deliver a mixed mode solution? If it can’t, it better have some compelling other reason for your firm to use them (e.g., intimate industry knowledge). Markets move and move frequently. Integrators must move resources to different verticals (e.g., is anyone still selling new work in the Automotive sector?) and different labor markets (e.g., shifting more offshore work from India to China). Adaptability to changing markets is a proxy to illustrate how well a vendor can adapt to changing customer needs, too.

4) Are focused on customer service/value delivery – I’m still surprised at how many firms say words like ‘We deliver outstanding value to clients’ but can’t really prove it. Saying and doing are two different things. Smart services buyers get this difference and will ask for proof.

5) Tie their revenues to the delivery of value to customers – Better firms don’t front-load a lot of costs while value delivery is back-ended. Better implementers can craft plans, cost structures, etc. to align these two concepts. Customers will expect and demand this.

A few years ago, Michael Treacy and Fred Wiersema wrote the book The Discipline of Market Leaders. They posited that firms need competency in three key disciplines but they must excel at one of these if they are to be successful. Those disciplines include:

- customer intimacy
- product innovation
- process excellence

In their book, they highlighted companies like Nordstrom as an example of a customer intimate firm. Product innovators would be firms like Intel. Process excellent firms do something better than anyone else in their segment. Those firms could be like Dell and its supply chain or WalMart and its logistics (i.e., cross-dock, low inventory focus) or attention to cost reductions. Quality producers and low cost leaders in a market sector often are process excellence firms.

I pushed Zia to then pick one of these three market disciplines. I wanted to know which one is key for systems integrators/channel partners. Without a moment’s hesitation, he said customer intimacy.

That’s really no surprise as most consultancies sell work and sell follow-on work due to the long-standing relationship they have with their clients. Some firms bend over backwards to place their ex-employees into key clients. If a service provider has ‘customers’ instead of ‘clients’, then they probably aren’t customer service focused.

The best integrators really try to understand their clients. They know what the value drivers will be for a given initiative and will construct an implementation plan that aligns with it. Integrators who take a one-size-fits-all approach to projects lose some deals and don’t delight some of the customers they have.

Customer intimate integrators know the client’s industry, know the personal/career/political/economic agenda and needs of each client executive. These integrators win because of their client knowledge.

Customer intimacy alone will not carry the day. If an integrator is customer intimate but not winning 60+% of their proposals, then they probably aren’t doing enough in the other two disciplines. For example, knowing a client’s needs well won’t be enough if your cost structure is way too high. It also doesn’t help if your firm has nothing new, original or proprietary to add to the standard SAP solution sets. Better integrators bring their own intellectual property into a deal. These added extras are the competitive differentiators implementers must possess.

My view is that implementers need to be something like 40% focused on customer intimacy, 30% focused on product innovation and 30% focused on process excellence. If an integrator is overly skewed in just one discipline, they may be unable to win the work they need to be a sustaining or growing service provider.

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 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?

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 16th, 2009

Interview with Microsoft’s Seth Patton

Posted by Brian Sommer @ 4:49 pm

Categories: PPM - Project Portfolio Management, PSA - Professional Services Automation, Professional Services, Service Providers, Software Vendors, software

Tags: Microsoft Corp., PPM, Microsoft Project, Microsoft Office, Office Suites, Software, Brian Sommer

More from the Project Conference

Seth Patton is the senior marketing director for Microsoft Project. I got thirty minutes alone with Seth at the Microsoft Project Conference 2009 show this afternoon.

We discussed several topics impacting the PSA (professional services automation) and PPM (project portfolio management) software space. Here are the highlights from that conversation:

1) How will Project 2010 impact other PPM competitors? Seth and I discussed how the 2010 version of Microsoft Project makes the solution more competitive with existing PPM solutions, especially those targeting the SMB (small-medium business) market. Independent software vendors in that space will definitely feel more competition from Microsoft. More specifically, these vendors will see more energized competition from Microsoft vast army of channel partners. Seth discussed how Microsoft customers are desirous of solutions that take advantage of other Microsoft products like SharePoint, Office, Exchange, etc. Many customers are looking to consolidate or reduce the number of software vendors they are dealing with. As Microsoft’s Project technologies continue to improve, Microsoft may continue to drive out more independent software vendors from customers’ IT departments.

2) Why did Microsoft make so many ease of use and interoperability improvements to this product? Seth discussed how making the product easier to use means more people can utilize the product immediately. By reducing the product’s learning curve, Microsoft expands the potential user base. More novices and more users in different sized firms are now target customers for Project 2010.

3) How will Project 2010 interoperate with other ERP and PPM solutions? Better than before. Avnet is integrating Project with SAP application software. Seth indicated that they are moving time sheet data between the two systems. Project 2010 will come with out-of-the-box integration with two MBS (Microsoft Business Solutions) accounting products: Dynamics SL (nee Solomon) and Axapta.

4) Are professional services firms using Project or are they using PSA products instead? According to Seth, several large services are big users of Project. He specifically mentioned CSC and EDS as two examples of this. While PPM products, Microsoft’s included, contain many of the functions needed by professional services firms, they are still some key functions not available within Project just yet. These include: client billing; dedicated time entry for vendor, client, contractors, etc.; two-way interfaces with payroll systems; proposal tools; and, more. Nonetheless, Seth reminded me that thousands of Microsoft partners are service firms as well as users of Project in client work.

5) Is Microsoft seeing an uptick in Project sales due to ARRA (American Reinvestment and Recovery Act of 2009)? Seth stated that they have seen some big deals pop in on the big federal deals but state and local action has been minimal to date.

6) Does Microsoft have anything to report on the NPD (new product development) front? Microsoft has struck deals with PLM vendors. One of these is PTC. If you are into this functionality, you should also check out Planview’s and CA’s offerings here.

I’ll do one more post tomorrow after Gary Hamel speaks. Until then…

September 16th, 2009

More on Microsoft Project 2010

Posted by Brian Sommer @ 1:37 pm

Categories: PPM - Project Portfolio Management, PSA - Professional Services Automation, Professional Services, Software Vendors, software

Tags: Microsoft SharePoint, Microsoft Corp., Capability, Collaboration, Content Management, Groupware, Microsoft Project, Team Management, Enterprise Software, Software

The Completeness of the PPM Solution Grows

(More from the Project Conference 2009 in Phoenix)

As the demonstrations of Project 2010 continue, I noted the following:

1) Microsoft has added a lot of functionality in its Resource Management and Time Entry components. The resource management capability gives project managers, staffing professionals and others a lot of visibility into the project conflicts, overbookings, under-utilization, etc. of potential team members. I have seen slicker capabilities in some high-end PSA (professional services automation) systems but the version I saw today is a big jump in capability compared to the older version of Project that is on my desktop computer. Likewise, time entry capabilities are slicker. Microsoft even added a well-controlled/secured ability to let a project manager enter time for sick team members or third party team members who do not have access to the software.

2) Project 2010 has functionality to support: Demand Management, Portfolio Selection, Resource Management, Schedule Management, Business Intelligence and more. As I posted earlier today, the product is no longer just a project tracking/management tool. It’s a PPM (project portfolio management) tool.

3) Connecting Project 2010 to SharePoint opens up additional capabilities for users. Specifically, SharePoint brings Collaboration, Project Portal, Knowledge Management and other capabilities to this PPM solution. While SharePoint integration is not entirely new to the product, the enhanced capabilities, easier tailoring and more powerful reporting are. These improvements make the product a stronger player against other PPM solutions on the market.

Users of this software might need four components: Project Web Access (to access project data on the go (i.e., via laptop, cell phone, etc.), Project 2010 Professional for the desktop/laptop (to do more complex project tasks), Project 2010 Server (to execute key processes and facilitate the sharing/updating of shared project data), and, SharePoint Server (to facilitate project portals/web pages, collaboration, etc.).

More to follow….