Tuesday, September 30, 2003
Pass the Kleenex
At an SAP conference in Switzerland this week, CEO Henning Kagermann said that Oracle's chances of acquiring PeopleSoft are "now less than 50%." However, "desperate pricing" as a result of uncertainty surrounding the deal are hurting SAP. Kagermann says that in 40% of the deals where SAP competes, SAP loses on price.
Kagerman says, "If the whole industry starts to compete on price, price will never come back."
Monday, September 29, 2003
Is Microsoft upstaging Great Plains, Solomon, Navision, and Axapta with "Project Green"?
By now, we all know that Microsoft (MSFT) has entered the enterprise applications space with its acquisition of Great Plains and Navision. These two acquisitions gave Microsoft four enterprise suites--Great Plains, Solomon, Navision, and Axapta--which it sells through Microsoft Business Solutions and its reseller channel. But what is not widely known is that Microsoft, at the same time, has been working on an entirely new product line, code named "Project Green," that will be tightly integrated with Microsoft server and desktop operating systems. Microsoft CRM, released in January, is an early deliverable from Project Green.
Project Green addresses one concern that I've had about Microsoft's acquisition of Great Plains and Navision--that neither vendor's products were totally aligned with Microsoft's technology. For example, Axapta, which is arguably the product with the greatest breadth of functionality, is written in a language called X++, using a development environment called MorphX, and can run on both MS SQL Server and Oracle databases--not exactly what one would call a pure Microsoft architecture. In fact, my recommendation has been that if you are looking for an ERP system built today wholly on Microsoft technology, such as Visual Studio .NET, you'll need to look outside of Microsoft to a product such as Syteline from MAPICS.
But Project Green changes all that. Microsoft clearly is not waiting for incremental upgrades to Great Plains, Solomon, Navision, and Axapta to deliver those applications under pure Microsoft technology. In parallel, it is starting from scratch and plans to begin releasing the new Green apps in 2005 in parallel with Microsoft's next-generation operating system, known as Longhorn.
Although this strategy is entirely rational from Microsoft's standpoint, it might not be so welcome if you are an existing user of Great Plains, Solomon, Navision, or Axapta. After all, if Microsoft is starting over from scratch, what does that mean for the future of your applications? Users of Axapta's CRM application might already be asking this question, after Microsoft in January launched its own CRM product. As the years go by, which CRM will Microsoft invest in: Microsoft CRM or Axapta CRM? To ask the question is to answer it.
So, why did Microsoft even bother to buy Great Plains and Navision if it was planning to write new applications from scratch? The answer, in my opinion, is that Microsoft was buying not the technology of these vendors but their customers. In this regard, Microsoft's approach is similar to that of SSA Global's: it is cheaper today to buy an existing customer base than it is create one through new sales. (See my post yesterday.)
InternetWeek has more analysis of Project Green
Friday, September 26, 2003
SSA's strategy: acquire customers and technology on the cheap
Line56 has a lengthy analysis
of SSA Global's acquisition strategy, largely favorable, based on impressions from its recent user conference in Orlando. Line56 sums up the strategy as, "Today it is cheaper to acquire customers than to sell to them, and it is cheaper to buy technology than build it." Without a lot of fanfare, the company has been taking advantage of weaknesses in current market conditions to acquire software vendors that have substantial customer populations. In the process, it has been laying out a roadmap to preserve the technology investments of those customers. Customers these days, not eager to undergo large scale conversions to new systems, are warming to the message. As a result, SSA Global has now become the fourth largest ERP vendor, behind SAP, Oracle, and PeopleSoft.
Separately, vnunet.com is reporting that SSA has already finalized an agreement to acquire another
ERP vendor (unnamed) but will not announce it until March 2004 because of the need to first integrate Baan into its offerings. In an interview, CEO Mike Greenough indicated that SSA's next acquisition will be of a privately held ERP vendor and will extend SSA's user base in a new vertical market. He further indicated that there are five to six other ERP vendors that SSA could go after. The report notes that Greenough is already on the record as stating an interest in both Manugistics and i2.
Read the whole article on vnunet.com
for more details.
Thursday, September 25, 2003
SSA Global plans to consolidate product lines
SSA Global (formerly SSA GT) has finally announced plans to merge its dozen or so products into two main product lines. One product line will bring together all of the iSeries (formerly AS/400) systems, including BPCS, Infinium, and several systems acquired from Computer Associates, such as PRMS and KBM. The other product line will bring together the Unix based products, such as the recent Baan acquisition as well as several other products acquired from CA. Integration will be based on open standards wherever possible, using Java 2 Enterprise Edition (J2EE) and IBM Websphere. SSA expects the migration to take two to four years. However, the company is still promising to maintain support for older products indefinitely.
I've been expecting this move for some time now. There's no way SSA Global can be successful by maintaining so many separate product lines. As SSA's Cory Eaves says, "There's no need for us to support 12 different general ledger systems or 12 different accounting systems. It just doesn't make sense; it's not economical for us."
Rationalizing the portfolio and consolidating to two families should allow SSA to leverage product development resources across a larger base of customers and should make it easier to accommodate future acquisitions into these two families.
CNET has a good summary of SSA's direction
Tuesday, September 23, 2003
Corporate IT spending picking up for outside services
If you are an IT services provider and you're wondering whether business over the past two years has really been as bad as it seems, check out this research note from Computer Economics (CEI)
. From 1999 to 2002, large companies cut spending on outside IT services nearly in half
, from 10.5% of their IT budgets to 5.7%. During the same period, mid-size companies cut such spending even more, from 10.4% to 5.2%. So, even if total corporate IT budgets remained relatively flat this period, spending on outside services was cut roughly in half.
But the worst may be over. According to the same study, spending in 2003 is projected to jump to 7.1% for large companies and 6.3% for mid-sized organizations. And, in 2004 spending is expected to rise to levels not seen since 1999: 8.3% for large organizations and 7.5% for the mid-tier.
CEI defines large organizations as those with over $750M in annual revenue and mid-sized organizations as those between $250M and 750M. Outside services includes contract services (e.g. help desk), project consulting, and temporary staff augmentation but does not include outsourcing of entire data centers or application development groups.
Sunday, September 21, 2003
PeopleSoft/JDE combination: off to a strong start
Last week, I attended the PeopleSoft Connect conference in Anaheim, as an industry analyst representing Computer Economics. My main objective was to size up the just-completed acquisition of J.D. Edwards by PeopleSoft, and also to gather information regarding the offerings of the newly combined entity on the life science industries, a particular interest of mine.
On the first objective, the combination of J.D. Edwards and PeopleSoft seems off to a good start, with just one small concern.
Expansion, not consolidation.
PeopleSoft is spinning the deal not as a "vendor consolidation" but as an "expansion," with the two vendors complementing the other's industry strengths and customer installed base. The story is that PeopleSoft targets large enterprises, whereas JDE targets the mid-market. PeopleSoft strength is in vertical industries such as healthcare, financial services, education, and people-oriented services (e.g. professional services), while JDE focuses on manufacturing/distribution, asset-intensive industries, and project-oriented service businesses (e.g. construction).
Conference speakers continually emphasized the "IP" ("intellectual property") that the two companies bring to each other, to the extent that by the end of the week the term was becoming a bit tired. Simply put, the deal brings together some really smart people, from both companies, that are experts in certain industries and business functions. For example, PeopleSoft has undisputed thought leadership in human capital management and supplier relationship management, and JDE claims experts in supply chain management and project accounting.
Buzzword aside, PeopleSoft is right to focus on this point. Successful mergers in the software industry are delicate efforts. The major assets have feet, and keeping those assets from walking out the door is no doubt a prime objective. Based on my interviews with both PeopleSoft and JDE representatives last week, I think the odds for success are good. In one-on-one discussions, managers show a genuine excitement about the merger. Many presentations during the week were delivered jointly by PeopleSoft and JDE experts, who demonstrated respect for each other and acknowledged the expertise each brings to the deal.
PeopleSoft is going out of its way to strongly signal that it intends to continue development and support for all three product lines: PeopleSoft Enterprise (the PeopleSoft 8 product line), EnterpriseOne (the network-based JDE One World product), and PeopleSoft World (the host-based JDE World Software, which runs on the IBM iSeries platform). The last thing PeopleSoft wants to do is give any hint to any JDE customer that they will see reduction in support or development dollars. This is understandable. However, at some point, PeopleSoft will have to make some choices. Does it really make sense to put as much development resources into the JDE HR module when PeopleSoft's functionality is so much stronger? I note that PeopleSoft has already put the PeopleSoft tools developers and the JDE tool developers into one group, headed by Jesper Andersen, recently brought over from Pivotal. Evolving into one tool set would be the start of any effort to reduce duplication between the product lines. Ultimately, it makes a great deal of sense for the three product lines to share some common functionality, such as HR and business analytics. But PeopleSoft can be excused from talking about such choices at this early stage.
A questionable branding decision.
My one concern is with PeopleSoft's decision to rename the former JDE One World product as PeopleSoft EnterpriseOne. The problem is that the name implies that the product is for small companies, even an entry-level system. As evidence, I submit that the name is similar to SAP's offering for small companies, SAP Business One. Furthermore, PeopleSoft may be inadvertently contributing to this misunderstanding with its own (and to my mind, artificial) distinction between PeopleSoft's strength in large companies and JDE's success in the mid-tier. To my mind, there is no intrinsic limitation in JDE's One World product scaling to large organizations. The fact that JDE has had success in the mid-tier does not preclude the use of One World by large organizations, and in fact JDE claims a number of large enterprises as clients. One World is a multi-entity, multi-facility, multi-currency system with world-class functionality. Hopefully, at some point, PeopleSoft will re-brand the product to remove the implication that it is for "small companies."
Concerning the merger of PeopleSoft and JDE, so far so good.
Wednesday, September 17, 2003
On a personal note
I will be speaking at the joint dinner meeting of APICS and ISM in San Diego, next Wednesday, Sept. 24, on the subject, "Enterprise Systems in an FDA Regulated Environment." If you'd like to attend, you can find details on the San Diego APICS web site
and also on the San Diego ISM web site
. I'd love to see you there.
Sunday, September 14, 2003
The case against case studies
Among software sales reps, it's common wisdom that case studies are an essential part of the sales pitch, with few drawbacks. Buyers like them because hearing about another company gives them something they can identify with. The sales executive likes them because he can highlight the strong points of his package in the form of a story. Case studies are key to the sale, right?
After listening in on a software sales presentation last week, I'm not so sure. This well-known vendor used a case-study as the focus of a two hour meeting and failed miserably. The basic problem was that the prospect couldn't identify with the company in the case study. For example, the prospect sells direct to consumers, but the case study was from a wholesale distributor. The prospect does all drop shipments from suppliers to customers, but the case study involved shipment from inventory. So, from the get go, the prospect did not identify with the case study, which raised questions in the prospect’s mind about package functionality.
Then, instead of directly answering these questions, the vendor suggested that the prospect continue listening to the whole case study and implied that perhaps the prospect might consider changing the way they do business. Needless to say, this did not go over well.
In a debrief later with the CFO and Controller, I suggested that this vendor needed more time to learn about the prospect's business. But the Controller told me that the salesperson had spent several hours interviewing her and the IT director. Therefore, there can only be two explanations. Either the sales team was incredibly dumb, or they thought that using a case study would relieve them of the need to address feature/functions point by point. I suspect the latter.
Ironically, I have evaluated this package in the past, and I suspect that this vendor has good functionality in those areas where the buyer has concerns. Unfortunately, the buyer didn't get to hear about it because the vendor was so intent on presenting his case study.
So, here's some free advice to those laboring to sell software in this difficult economy:
- Force yourself to identify the top 3-5 characteristics of the prospect's business that either are unique or that the prospect thinks are unique. Verify with the prospect before the meeting that you are on the money. Prospects love to talk about their business, and you'll score points by showing an interest.
- In the sales presentation, demonstrate that you understand these 3-5 characteristics and focus on how your solution meets the client's needs in these areas. Give the prospect something substantial to chew on.
What about case studies? By all means, use them, as long as they are relevant to the prospect's business. And please, offer them as a side dish, not as the main course.
Thursday, September 11, 2003
Chinadotcom rolling up enterprise system vendors?
Less than a week after announcing its acquisition of Ross Systems, Chinadotcom is announcing its acquisition of Industri-Matematik International Corp (IMI) a vendor of supply chain management systems. As with Ross, IMI is being acquired by Chinadotcom's subsidiary, CDC Software.
IMI is a well-regarded name in SCM solutions for consumer product distributors, with an enviable client base that includes GE, AT&T, Starbucks, Campbell Soup, Dial, Frito Lay, and Kelloggs. Six month revenue ending June 30 were nearly $22M. Unlike many other enterprise system vendors, IMI is profitable.
Is this the beginning of a trend? Chinadotcom makes it clear that Ross and IMI are just the beginning of an acquisition strategy. In its press release, CEO Peter Yip says, "The acquisition of IMI fits our overall strategy of developing and assembling a suite of related premium enterprise software solutions that allow for synergistic cross selling opportunities as well as the ability to enhance mid and long term profit by transferring key cost centers to China."
In other words, as was the case with Ross
, moving software development to China is also part of the plan for IMI. Why just provide outsourcing for the software developer when you can buy the developer outright? With weaknesses throughout the technology marketplace, it's a buyers market with few disadvantages and lots of upside.
The Chinadotcom press release
has the details.
Tuesday, September 09, 2003
Ellison's analogy hints at Oracle's attitude toward PeopleSoft customers
In a recent interview with San Francisco Chronicle editors
, Oracle's Larry Ellison made an interesting, but telling, analogy in talking about Oracle's takeover bid for PeopleSoft. Ellison objected to the questioner's use of the phrase "hostile takeover." Ellison said,
The use of the word "hostile" I find utterly fascinating because the question is: hostile to whom? If you're renting a house in Pacific Heights, and I go to the owner and offer him $10 million for an $8 million house, that offer is not hostile. As a renter, I may feel that's not a welcome offer, but all we're doing is giving the owner a choice. So we want to go directly to the shareholders. The only people who consider this hostile are the renters, the managers who don't own the company, whose jobs in fact will be lost.
Let's see, Larry sees three parties as stakeholders in the deal: the owner of the house (PeopleSoft shareholders), the bidder (Oracle), and the renters (PeopleSoft managers). Hmmm...who is missing in this analogy? Maybe...PeopleSoft customers?
A better analogy might be a bagel shop in Pacific Heights that is being taken over by Winchell Donuts with the intention of turning it into a donut shop. The bagel shop owner gets his price, Winchell's gets the store location, and the bagel shop managers lose their jobs. But there is one more stakeholder in this analogy: the neighborhood customers that want bagels, not donuts.
PeopleSoft's customers have a legitimate concern that Oracle's intention is not to better serve them but to eliminate an Oracle competitor. Ellison's poor choice of an analogy just reinforces that perception.
Friday, September 05, 2003
Ross Systems gets "Shanghai’ed"
Ross Systems, a process-manufacturing ERP vendor, is being acquired by Chinadotcom and will operate as a part of its CDC Software unit. It's an perplexing move. Ross’s iRenaissance suite is one of the few ERP packages focused purely on process industries, such as food and beverage and chemicals. Although, like most enterprise software vendors, Ross been through some hard times recently, it has become profitable in the last few quarters. Just three months ago, it signed up Chinadotcom as a reseller in the Far East. Now, it's selling them the store.
So who is Chinadotcom? Based in Hong Kong, it was originally a Web hosting provider. But it has been turning itself into a software developer and offshore services provider, competing with the large India services firms. Therefore, I suspect that cost savings from offshore software development is the driving force at work here. In the Chinadotcom press release
, CEO Peter Yip hints at this: "Ross Systems is expected to achieve certain cost savings and synergies by outsourcing to our low cost software development center in Shanghai and developing synergies in various aspects including cross selling within the chinadotcom group of companies."
There is a nearly universal trend for enterprise system vendors to move software development offshore, avoiding high programming costs in the U.S. and Europe. Ross, selling itself to an offshore provider, just takes this trend to the next level.
Thursday, September 04, 2003
FDA finalizes guidance for 21 CFR Part 11
FDA has just released the final version of its guidance document "Part 11, Electronic Records; Electronic Signatures - Scope and Application." At first glance, there are not many changes from the draft guidance that FDA released in February. I do note, however, that FDA has clarified that users of legacy systems (systems in use prior to Aug. 20, 1997) are not totally off the hook. The guidance now says, "You [must] have documented evidence and justification that the system is fit for its intended use (including having an acceptable level of record security and integrity, if applicable)." The term "documented evidence," in my opinion, points to some level of system validation to ensure that the system is trustworthy and reliable.
The final guidance document
is available on the FDA web site.
For more background on 21 CFR Part 11, see my post regarding the draft guidance in February
. For perspective on how software vendors are addressing Part 11, see my post on Oct. 16, 2002
I will be speaking on this subject later this month at the joint meeting of APICS and ISM
in San Diego.
Tuesday, September 02, 2003
2003: a dismal year for IT budgets in large organizations
According to a research note by Computer Economics
, 44% of large companies (over $750M in revenue) reported declines in their IT budgets in 2003--the highest number of declines reported since Computer Economics began tracking this statistic in 1989. At first glance, it doesn't look so bad when one notes that 40% of large companies reported budget increases
. But a more careful look shows that the magnitude of the cuts are greater than the magnitude of the increases. In other words, in 2003 more companies cut budgets than increased budgets and the magnitude of the cuts was greater than the magnitude of the increases.
But hope springs eternal. Computer Economics is forecasting a recovery next year.
(c) 2002-2015, Frank Scavo.
Independent analysis of issues and trends in enterprise applications software and the strengths, weaknesses, advantages, and disadvantages of the vendors that provide them.
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For information on how we can help your organization make and carry out these decisions, write to me.
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