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.

June 15th, 2009

Open letter to all HR software vendors

Posted by Brian Sommer @ 6:30 pm

Categories: Analytics - Performance Management, Current Affairs, ERP, Future of Application Software, GRC - Governance Risk Compliance, HR, The Application Software Buyer, Web/Tech, software. applications, vendors

Tags: Human Resources, Boss, Brian Sommer

HR products haven’t really evolved much the last decade. Sure, many have changed their business and delivery models to become SaaS (software as a service) vendors but the functionality is still little changed from the 1990s. Yes, I know that talent management has seen some changes over the last few years but, honestly, are concepts like 360-degree evaluations and tying compensation to performance all that new? No.

Today, I will get a call from a dear friend who I’ve had the pleasure of working with for approximately 10 years in two different firms. About 10 years ago, she went to work with a firm closer to where she lives. The commute was great but the workforce, pay and management weren’t. She then left to join another firm but will likely tell me today that she is leaving them. Why? Gross mismanagement from the top.

I know from whence she speaks as I have toiled under inept, corrupt, morally bankrupt and vile bosses. I have seen what bad bosses do to organizations and the people who work (or worked) for them. I’ve seen them fire great people to make room for their toadies or people who won’t become a threat to their position. I’ve seen bosses with an air of superiority so bad that they wouldn’t dare think of listening to a mere commoner like me or others.

Did you know that close to 85% of the time that people leave one employer for another is because of their boss? I can believe it. And yet, amazingly, human resources (HR) software vendors don’t do anything to detect bad bosses. Seriously, how can you have a talent management product if you can’t even detect which of the managers or executives are causing large numbers of people to leave?

Now before every HR vendor out there flames me, let’s establish some basic tenets. Yes, many HR systems and firms support exit interviews. It is in these interviews that employees are supposed to tell an HR person why they are leaving. Do you really think they’ll cop to “My boss is a demeaning, narcissistic twit who verbally abuses everyone and makes our lives a living hell”. No – they’ll give some passable statement like needing to make a quality of life change. That way they’ll still have some chance of getting a neutral or positive reference from this soon to be former employer.

Many HR software products also support 360-degree feedback. This allows workers to provide upward feedback to their bosses. Well, this may be a shock to HR software developers but the average employee knows their responses to this evaluation will not be kept confidential and private. If these employees ever did spill the beans about a bad or dysfunctional boss, repercussions would likely follow but unfortunately they’d likely clobber the employee not the boss/manager. Even when bad bosses do get some tough feedback, research indicates that the narcissistic tendencies in these folks ensures that they will not change.

Third, HR products often possess analytic modules today. HR vendors will contend that these solutions can report which boss has higher than normal attrition. Well, isn’t that a great help! This tool causes firms to lose a lot of great talent until enough people (a statistically significant quantity) have left so that a monthly or quarterly report shows that there is a problem. This is such a waste of analytic (and executive) time as a great analytic tool should be predicting which managers may need an intervention before the attrition goes off the charts. Instead, the current analytic tools wait until the problem is really bad before the software reacts to the problem. Businesses need analytics with foresight not hindsight.

Here’s what an analytic application should do. First, HR vendors must learn to use something else besides just transaction data. They need to ask questions of executives to learn how they detect a bad management situation. They would learn about ‘proxies’ or ‘clues’ that something is amiss. They would then build an analytic application that scans all employees, all managers and all departments to see:

- which departments are experiencing higher than average transfer-out requests
- which departments are experiencing higher than average sick time
- which departments have personnel cashing in all of their stock options
- which departments are seeing their average personnel evaluation scores dropping
- which departments have a higher than average vacation time usage rate
- etc.

When a single department is leading many of these indicators, these are ‘early warning’ indicators that a bad, dysfunctional, ineffective, toxic or pathologically flawed manager is in charge.

Top executives want to know who is driving off their best talent. AND THEY WANT TO KNOW ASAP! But, do HR products do this? No way. Should they? You bet.

So will you, HR vendors, create these predictive (not historical), analytical tools? Will you help businesses identify and purge themselves of the narcissists, egomaniacs, paranoids, bullies and other managerial misfits that hurt your customer’s profitability, efficiencies and effectiveness?

The current crop of HR products was apparently designed to manage workers but not managers. These technologies are embarrassingly light when it comes to putting appropriate focus on middle and top management. It’s almost as if these vendors don’t want to upset those who might authorize the purchase of their products. In my conversations with HR executives, many of them are frightened to confront bad managers. Giving them the real insights into their business and its management might embolden HR professionals to rid their firms of bad managers/executives.

HR software vendors seem too content to stay in the HR transaction processing sandbox. Analytic thinking is not about presenting transactional data in new, pretty formats. Yes, it’s nice that a vendor can show a graphical correlation between performance reviews and compensation. But, that correlation isn’t exactly innovation. An innovative idea would be to look at non-transactional matters and create a new way to study, analyze and resolve those issues. So far, HR analytics have come up way short on the truly innovative scale.

I started this blog because of my frustration with HR vendors and their inability to spot bad bosses. My last word on that matter is that while you can’t legislate integrity, you can get rid of those who lack it. HR executives need better analytics and HR vendors should be creating the innovations in this area to enable them.

February 3rd, 2009

Got Capital? Lumigent got plenty in a rough market

Posted by Brian Sommer @ 4:42 pm

Categories: Analytics - Performance Management, Auditing - Tax - Accounting, ERP, Financial Software, GRC - Governance Risk Compliance, Software Financial Stats, Software Vendors, Vendor Financing, software

Tags: Software, Audit, Investor, Lumigent, Regulations, Financial Accounting, Tools & Techniques, Government, Finance, Management

Good ideas trump an even dismal economy

Recently, Lumigent, a software firm in the GRC space closed a recapitalization round of $6 million (USD). Lumigent, an eight-year old firm, expects this to be its last venture backed round of capital as it anticipates profitable operations by next year. The company has approximately 500 customers.

Lumigent is clear about its value proposition in the GRC space. Their top three marketing messages are:

- driving down the cost of compliance
- ease of installation and setup (versus the software deal turning into a long, expensive consulting or implementation services gig)

When I spoke with CEO John Capobianco, I got a bit more insight into their success on both the sales and venture raising fronts. Lumigent wins new work as they realize that governance, regulation and compliance are expensive activities and they work to minimize that cost. In contrast, I’ve heard audit partners gloat over the full employment, fat fees and oversized partner earnings that regulations like Sarbanes-Oxley have brought to their industry. The audit industry should be ashamed at their greed while doing little to prevent frauds, financial meltdowns, etc.

But I digress.

Lumigent works on two levels. First, the solution is designed as a plug-in of sorts for major ERP solutions. This effort creates a ready-made product for users of these ERP products. From my notes, the company supports PeopleSoft Financials, Deltek and other products. Newer versions will support Lawson, Great Plains and Kronos application software users. An SAP solution is not ready at this time. Second, the software reads the database recovery file to understand all of the changes (before and after) that are occurring to the production systems. This approach lets them monitor GRC activities without being a drag on the production databases.

How did Lumigent get this round of capital financed? It certainly helped that the firm is in a growing area of business application software. Moreover, the investors and executives at Lumigent are betting that more regulation will soon inundate businesses as Congress, taxpayers, etc. will demand more accountability from businesses. The numbers of business failures, bailout recipients, job losses, etc. will doubtlessly drive new requirements in governance and regulation.

But more regulation, etc. is very costly and may exacerbate the lack of profitability U.S. businesses possess today. The only logical solution is to create GRC solutions that are no more costly (or less costly) than current solutions and yet do a lot more. That’s the message Lumigent has pitched to investors and to its customers. It apparently worked for investors and the current crop of customers. Let’s see how they do in this tough economy.

November 30th, 2008

Taleo: Management’s comments regarding their November to forget

Posted by Brian Sommer @ 4:28 pm

Categories: Analytics - Performance Management, Current Affairs, HR, Litigation, Mergers & Acquisitions, Software Financial Stats, The Applications Market

Tags: Taleo Corp., Operational Accounting, Revenue Recognition, Sales Strategy, GAAP, Financial Accounting, Financial Services, Finance, Sales, Brian Sommer

A Different and More Optimistic View - Execs Confirm Many Prior Assumptions

Last week, Taleo’s Katy Murray, CFO, and Nate Swanson, Investor Relations, were kind enough to spend a few minutes with me to discuss my recent post on Taleo. The overall tone was positive and not the least bit defensive or confrontational. It was business-like, professional and informative.

Here’s what was learned:

- The Revenue Recognition issue is not tied to the Vurv acquisition. The matter apparently dates back to the formation of the company as Taleo has not changed their accounting methods since then. To date, the company has not received much insight into the issue from their auditors, Deloitte & Touche, LLP. Taleo speculates that it might be tied to a GAAP interpretation issue but has no insight at this time.

- The insider trading allegations may be tough to prove. Beyond the points I made in my earlier post, Katy indicated that all Taleo executives have been bound by 10 B 5-1 plans (see this Wikipedia entry with particular attention to the affirmative defense section ). Essentially, these executives have a narrow window to put together a stock sales program. Once developed, the executives have no control over the price or other aspects of the program. There are no discretionary trades in these arrangements. Katy added that this situation is “nothing similar to the Mark Cuban situation” recently in the papers.

We also discussed the financial numbers from the third quarter.

- The increase in Sales and Marketing expense in the last quarter included $5.2 million in amortization costs related to the Vurv acquisition and to impairment of certain assets. These are one-time costs.

- New customer growth increased in the quarter with 22 new enterprise customers and 210 SMB customers.

- The new Taleo Performance Management product is doing well against plan. Revenues for this product are at a level one quarter ahead of plan.

- EPS guidance for 2009 was lowered from $0.87-0.89 a share to $0.80-0.85 a share due to recognition of the current economy.

- The drop in free cash flow appears to be related to the Vurv acquisition. The company spent approximately $45-50 million on Vurv ($36 million purchase price, $9 million to retire Vurv debt and $5-6 million in restructuring costs).

Both executives were confident but not cocky. They realize competitors will try to make the most of these recent events but for now, there really isn’t much to these concerns. Until (or unless) the Deloitte & Touche review uncovers anything, these events may be a major distraction to the company.

To rip-off Shakespeare, this may be “much ado about nothing”.