Two more business intelligence vendors are hooking up

Just three days after the Business Objects and Crystal Decisions merger announcement, Hyperion and Brio have announced a merger. Why? Hyperion appears to be filling out its line card. By integrating Brio's Performance Suite and Metrics Builder into its offerings, Hyperion will be able to offer a more complete set of products, from advanced query and analysis to financial analysis and performance dashboards. This will allow Hyperion to offer less sophisticated prospects tools to do basic reporting against transactional systems while providing them an upgrade path to more complex business performance indicator (KPI) scorecards and dashboards. Hyperion's flagship product is its Essbase OLAP system.

But some observers don't see the need for business intelligence vendors to offer a complete suite of products. An Internet News article quotes analyst Mark Smith, of Ventana Research. "We believe the Hyperion acquisition of Brio is not a significant move that will impact the BI or Performance Management market," he said. "Since Hyperion had little traction with the OEM of Crystal Enterprise over the last year and half in a product called Hyperion Q&R, there does not seem to be any real demand by customers or push-traction by Hyperion in selling query and reporting." With competitor Business Objects now acquiring Crystal Decisions, I'm wondering if Hyperion will continue the OEM relationship for Crystal Enterprise.

The combined Hyperion/Brio entity will have revenues of $613 million, 2,700 employees, and over 16,000 customers worldwide.

New milestone in adoption of e-procurement

Since 2000, the Institute of Supply Management (ISM), in conjunction with Forrester Research, has been conducting a quarterly survey on the adoption rate of various e-procurement practices, and the most recent report shows a new milestone has been reached. The June survey, for the first time, shows that manufacturing companies are using the Internet to purchase direct materials (i.e. those consumed in manufacturing of products) at a greater rate than they are using the Internet to purchase indirect materials (e.g. office supplies, repair parts, and services). Survey respondents spent an average of 11.7% of their total direct materials spend using the Internet in Q2 2003, up 1.7% from Q1. Indirect materials spending remained flat at 11.0%.

Why is this a big deal? Early adopters of Internet e-procurement focused on indirect procurement as a way to gain some economies of scale with categories such as office supplies, where purchases were decentralized and ad-hoc. Significant savings could be achieved through group buys, and maverick spending could be curtailed by means of an e-procurement system. Additional savings could be achieved through reduction in cost of the purchasing transaction itself. But in manufacturing firms, indirect procurement has always been less strategic than direct procurement, where cost of material was just one factor--quality, delivery, and service are also major considerations. Furthermore, with direct materials the procurement process is usually more complex, with quoting, configuration, specification, and scheduling as major activities in the process. The fact that in manufacturing firms e-procurement of direct material now exceeds that of indirect material indicates that the technology is becoming more commonplace and capable of being used more strategically. The hype phase of e-procurement is past, and companies are now making serious progress in adopting the technology.

So, what is keeping manufacturers from using e-procurement in even greater measure? According to Edith Kelly-Green, spokesperson for ISM and VP/chief sourcing officer for FedEx, "Two of the main concerns keeping survey respondents from wider adoption of the Internet surround the lack of supplier enablement and integration with internal and external systems." As these barriers are gradually overcome, expect to see e-procurement become as common as the fax machine, in my opinion.

The complete survey results are on the ISM web site.

Vendor consolidation hits business intelligence sector

It's just been announced that Business Objects, a leading vendor of business intelligence (BI) software, is acquiring Crystal Decisions, a developer of end user reporting tools. The marriage makes a lot of sense. Business Objects targets its products at business analysts and power users. It also develops high end online analytic processing (OLAP), business performance management, scorecard, and dashboard applications. Crystal, on the other hand, focuses mostly on the end user. Its flagship product, Crystal Reports, is probably the most widely deployed report writer across a variety of enterprise systems. Most vendors have realized that there is no point in trying to develop or market their own report writing tools, and Crystal has pretty much become the standard, having OEM relationships with over 350 software vendors, including majors such as Microsoft, PeopleSoft, and SAP. Crystal Decisions--which was spun off from Seagate Technology in 2000 and was on track for an IPO itself prior to this deal--has been a rising star in the enterprise software marketplace, with revenue growth of 30% in 2002.

The BI market is highly fragmented and ripe for consolidation. The Business Objects/Crystal entity, if approved by shareholders and the SEC, will have combined revenues of over $700M, making it now the leading Tier I BI vendor, followed by Cognos and Hyperion. Tier II BI vendors include Microstrategy, Brio Software, Actuate, and Information Builders. Leading technology platform vendors in the BI space include IBM, Oracle, Microsoft, Teradata, and Sybase.

There is one risk to Business Objects, however, in acquiring Crystal Decisions. Some of those 350 OEM relationships that Crystal has built are software developers that also offer business intelligence and enterprise performance reporting functionality. How eager will those vendors be to continue to wrap themselves around Crystal Reports, if the new owner of Crystal is now directly competing with them?

The press release on the Crystal deal is on the Business Objects web site.

It's official: PeopleSoft acquires J.D. Edwards

The combined firm will have annual sales of $2.8 billion, 13,000 employees and 11,000 customers in 150 countries, making it number two in the enterprise applications marketplace, behind SAP and ahead of Oracle's application business. The combination makes Oracle's bid for PeopleSoft now more expensive, and I still predict that it is not going to happen. The Associated Press today has details on PeopleSoft/JDE deal.

More interesting, however, is an interview on CNET with Ray Lane, former president of Oracle and currently a partner with venture firm Kleiner Perkins. Lane comments on structural changes in the software industry, the prospects for Oracle in acquiring PeopleSoft, and trends that will drive growth in IT in the coming years. Lane says, "A lot could be done above the ERP layer to build composite applications better and offer better user access. A lot of what I'll be doing is around finding a better process for integrating data and more intelligence. I've got a lot of data, but no freaking idea what it's doing."

With hype gone, spending on supply chain connectivity is trending back up

In an encouraging report, the Yankee Group is projecting that supply chain management (SCM) spending for B2B connectivity will grow 12% in 2003 and will continue upward for the next three to five years. According to Yankee, investments by major players such as Intel, Cisco, Dell, Sun, Wal-Mart, and Home Depot, are driving their trading partners to make corresponding investments.

The report points to "direct connect" approaches as the leading topology for electronic connection, with EDI over the Internet (EDIINT and AS2) platform showing strength in several industries, RosettaNet gaining traction in the high tech supply chain, UCCnet becoming dominant in the retail supply chain, and CIDX gaining ground in the chemical vertical.

Software and services vendors who are benefiting include those with strong orientation toward EDI, such as Sterling Commerce and GXS, as well as vendors leading the charge in EDI over the Internet (EDIINT), such as SPS Commerce and Cyclone Commerce. Major enterprise system vendors, such as SAP, Oracle, and Microsoft, that have introduced similar capabilities for supply chain connectivity should also benefit.

For more discussion regarding Internet-based EDI and the impact of Walmart's mandate to its suppliers, see my post on Sept. 17, 2002.

Business changes needed to ensure enterprise system success

A key point in my presentation to AICPA last week was that enterprise system projects often require significant business process change in order to ensure success. Our cumulative experience in the 1990s shows that it simply doesn't work to slam new systems into an organization without addressing the culture, attitudes, and processes that will need to be changed.

To reinforce this concept, at the end of each workshop, I asked participants to think about a current or planned enterprise system initiative at their companies and to consider what business changes would be needed to ensure success.

The participants volunteered a number of such initiatives, including new financial systems, complete ERP replacements, CRM and supply chain systems, and one custom development system. But what was interesting was to look at the business changes they indicated were needed to make these systems effective. After the workshop, I clustered the responses and came up with the following observations.

1. User ownership was indicated in 25% of the responses--an important recognition that without the buy-in of those whose jobs are affected, no system will be successful.
   


2. Cultural changes, such as salespeople being willing to openly share sales pipeline data, was mentioned in another 25% of the responses.
   


3. Data integrity issues were indicated in 19% of the responses, possibly in reaction to the strong emphasis I gave to this point in the workshop.
   


4. Specific business process changes, such as purchasing, operations, and sales processes, were mentioned in 13% of the responses. It is likely that with more time for consideration, participants would have been able to list more of these.
   


5. The remaining responses pointed to improved disciplines and changes in performance measurement and incentive systems.

Over the past decade, companies invested heavily in information technology, sometimes with disappointing results. Business leaders are now recognizing that the key to success is to focus on the business changes needed to make the new technology effective.

What's at the top of the CFO's mind regarding information systems?

During my presentation at the AICPA Controllers Workshop last week, I started by asking audience members to indicate their major concerns, issues, or interests when they think about information systems in their companies. Though not formal survey, the spontaneous responses from among the hundred or so participants says much about what's on the mind of CFOs and Controllers these days relative to enterprise systems.

After the workshop, I clustered the responses into logical groups as follows:

1. Selection and implementation concerns. This was the largest cluster, with 35% of the responses. Comments such as "choosing the right ERP system," "retaining knowledge of the system after implementation," and "on-going support" show that CFOs still view system selection and implementation as a significant undertaking. After many well-publicized implementation failures in the 1990s, this is a good sign.
   


2. Reporting was indicated in 17% of the responses, with several participants emphasizing the need to get better access to information locked up in ERP systems.
   


3. Integration issues were indicated by 13% of the responses, with special emphasis on combining financial and operational systems. An additional 4% of the responses mentioned auditing of ERP systems for internal controls, which may indicate Sarbanes-Oxley is part the interest in having good integration between financial and operational systems.
   


4. Also top of mind is security, mentioned by 13% and ease of use, mentioned by 9%.

Interestingly, only 9% of the responses mentioned cost of IT as a concern, which is surprising considering that the whole audience was CFOs and Controllers. Perhaps it is a sign that software prices have come down, or more likely, that executives are putting more emphasize on the effectiveness and success of systems rather than the pure cost of the technology.

Winners and losers in today's enterprise software market

Computerworld has a short article today outlining the earnings reports in various categories of enterprise software vendors. This gives a quick snapshot of how the landscape is changing as the market for technology spending is showing some improvement. Of interest are the following observations:

1. Top tier suite vendors SAP, Oracle, PeopleSoft, and J.D. Edwards are holding up remarkably well in this market, even though there is a great deal of uncertainty regarding Oracle's hostile bid for PeopleSoft, and PeopleSoft's friendly bid for J.D. Edwards.
   


2. Best-of-breed CRM vendors, characterized by Siebel, continue to suffer as the pendulum seems to be swinging away from a best-of-breed CRM approach toward CRM as part of an integrated suite offered by the major ERP vendors. Siebel's strategy of offering tools to facilitate integration with other enterprise systems does not yet seem to be overcoming the attraction of pre-built integration of the full suite vendors.
   


3. Standalone enterprise application integration (EAI) vendors, such as Tibco, WebMethods, SeeBeyond, and Vitria continue to suffer. While CIOs consistently rate integration as a top priority, the EAI vendor landscape has changed radically. One the one hand, large vendors such as IBM and BEA have cornered a large part of the EAI market. On the other hand, Web services standards holds out promise of easier "roll your own" integration between software components in the future. Therefore, customers that have not already committed to an EAI vendor may be holding out hope that an EAI software decision--which can be huge--can be avoided. Most analysts agree that there will continue to be a market for EAI software, although only Tibco and WebMethods are likely to remain as standalone EAI vendors.

Epicor swallowing ROI Systems

The ERP vendor consolidation trend continues with Epicor (EPIC) completing its acquisition of ROI Systems, a privately held Tier III player known for its MANAGE 2000 ERP system. As I have written previously, Epicor has been traveling the same path as MAPICS and SSA GT to build a large installed base by acquiring weaker competitors. One might also include Best Software and Exact Software as examples of enterprise system vendors pursuing a rollup strategy.

Details on Epicor's acquisition of ROI are in Epicor's press release.

Managing change is key to enterprise system success. One of the key points in my AICPA presentation this week will be the need to treat enterprise systems projects as change management efforts. The McKinsey Quarterly this month has an excellent article on the psychology of change management, and it outlines four conditions for changing the mind-set of employees. They are:

1. A purpose to believe in. "Employees will alter their mind-sets only if they see the point of the change and agree with it—at least enough to give it a try."
   


2. Reinforcement systems. "The surrounding structures (reward and recognition systems, for example) must be in tune with the new behavior."
   


3. Training in skills required for change. "Many change programs make the error of exhorting employees to behave differently without teaching them how to adapt general instructions to their individual situation."
   


4. Consistent role models. "Employees must see people they respect actively modeling the change."

According to McKinsey, each of these conditions is realized independently. but "together they add up to a way of changing the behavior of people in organizations by changing attitudes about what can and should happen at work."

The article is on the McKinsey Quarterly web site.

On a personal note. I will be speaking this Friday at The American Institute of Certified Public Accountants (AICPA) Conference in Las Vegas on the subject of Process Improvement and ERP--Making the Investment Pay off, Finally! I am a last minute substitute for my friend, Dick Kuiper, of AQA Research, who put together some excellent material on the subject. Now I get to go and deliver it. Here's the abstract:

Process improvement and Enterprise Resource Planning (ERP) should go hand in hand. But many times, it is difficult to connect the two--in fact, the majority of ERP systems implemented over the past 5 –10 years have failed to deliver on the promised benefits for this very reason. Organizations must deploy a solid process improvement strategy if they want to realize the benefits of an effective ERP system. ERP, being a set of business processes that build upon process improvement initiatives, enables companies to dramatically improve customer service and productivity, both internally and externally, while sharply lowering costs and inventories. This session will assist the participant with identifying process improvement initiatives while planning an ERP implementation or re-implementation endeavor.

This is normally where I would invite readers to register and attend, but the conference is already sold out.

Cost of compliance with Sarbanes-Oxley isn't mainly in new systems

Bob Gilson pointed me today to a recent survey on the costs of Sarbanes-Oxley compliance, and the results don't back up software vendor hopes that Sarbanes-Oxley is "the next Y2K" for IT spending. The survey by PricewaterhouseCoopers (PwC) survey of US-based multi-national corporations found that only 41% cited new tools and technology as being at least "somewhat costly" in their compliance efforts.

Rather, the main costs of compliance appear to be for internal resources. According to the survey, 76% of the cost of Sarbanes-Oxley compliance is for added internal resources, and 24% for external assistance. A majority of executives listed several aspects of compliance as being at least "somewhat costly," including documentation (mentioned by 74%); legal requirements (72%); detailed policy development (65%); self-assessment (62%); attest requirements and certifications (59%); and staff training (56%).

According to Frank Brown of PwC, "Much of the cost of complying with Sarbanes-Oxley lies in gathering and certifying information. Although some companies may need to upgrade their corporate systems to provide information required by the new law, many executives see these new capabilities as adding value beyond mere compliance."

A summary of the report is on PwC's Barometer Surveys web site.