The Enterprise System Spectator

Geography More Important than Industry in IT Salaries

2012-01-17T14:32:00.000-08:00

Over at Computer Economics, we've just published our 2012 IT Salary Report, as we've been doing for over 20 years.

The headline this year is that IT workers in the U.S. will only receive a 2.8% pay increase, at the median, as shown in the Figure nearby. Even organizations at the 75th percentile are budgeting for only a 3.0% wage increase for IT professionals. That lags well behind the 3.4% rise in the Consumer Price Index for the 12-month period through November 2011.

A short summary of these top line trends can be found a post on the Computer Economics website.

Influence of Industry Sector on IT Pay Scales

Although the general trend for U.S. IT salaries is interesting, what I find more interesting is an analysis of factors that affect IT salaries. After we published this report this morning, we received a media inquiry from a reporter covering healthcare IT. She wanted to know, did we have any data on IT salaries specific to the healthcare industry?

Fortunately, this year for the first time, we provided an analysis of IT salaries by industry sector, based on data we acquired from the U.S. Bureau of Labor Statistics. These "pay relatives" by industry sector complement those that we also provide for over 400 metropolitan areas.

So, to answer her question directly: according to the industry sector data, IT compensation in the healthcare sector is about 82% of the national median. For example, if you are a desktop support technician in the healthcare industry, you can expect to make only 82 cents on the dollar, compared to desktop support personnel nationwide.

A Misleading Statistic

These "pay relatives" by industry sector can be misleading, however. In this example, healthcare organizations tend to be located in all metropolitan areas, both urban and rural, that vary widely in their cost of living. Other industries--financial services firms for example--tend to be concentrated in large metropolitan areas, like New York, Boston, and San Francisco, which have higher cost of living indexes. Low and behold, when we look at the pay relative for the finance and insurance sector, we see that it is 104% of the national median.

So, in our opinion, IT workers in financial services firms on average across the U.S. are paid more than their counterparts in healthcare organizations, not because financial services firms pay more, but because they tend to be located in metropolitan areas with higher costs of living.

Implications for IT Managers

Therefore, if you are using the Computer Economics salary tables to evaluate pay scales in your organization, you are better off to put most of your emphasis on the geographic cut of the data than the industry sector cut.

There are exceptions to this rule, of course. For example, business analysts or applications developers with experience implementing electronic medical records are in high demand right now. Healthcare organizations will likely need to pay a premium to recruit and retain IT professionals with this experience. Likewise, financial institutions are likely to be at the top of the pay scale for IT security professionals with experience in financial transaction processing environments. In the applications area, IT management, business analysis, and other business-oriented positions, industry-specific experience almost always commands top dollar.

But for most other IT positions, such as data center operations, system administration, help desk, desktop support, and other jobs that are not highly industry-specific, consider the geographic dimension as the most important in benchmarking IT pay scales. Essentially, if the person holding the job can move from one industry to another, with little or no retraining, the pay scale for that job is highly dependent on the geography, not the industry.

A full description of the Computer Economics 2012 IT Salary Report, with free sample pages is available.

IT Budgets vs. Tech Industry Spending: What's the Difference?

Enterprise IT Buyers: Don’t Listen to Financial Analysts

2011-12-18T07:24:00.000-08:00

When it comes to enterprise IT decisions, I have come to the conclusion that buyers shouldn’t read the financial press. There are industry analysts and there are financial analysts, and they address two distinct audiences.

Exhibit A is this Business Insider post, entitled, The Awful Economy Is Really Going To Hurt SAP. Here’s the post’s lede:

SAP's hot new software, HANA, has been a relative flop, said BofA Analyst Chandra Sriraman this morning.

HANA was hailed as groundbreaking when it was introduced about a year ago. It sits in a computer's memory so it literally runs while the computer processes transactions.

There's just one problem: No one is buying it.

The post goes on to quote Sriramen concerning why he feels that SAP “will be hurt by slower demand from its key manufacturing customers, depressed business confidence and the financial mess in Europe.”

Now, what are prospective buyer of SAP’s software supposed to make of this commentary? That the prospect should not move forward? If I am an SAP customer, should I be concerned?

The answer, of course, is no--because financial analysts, like this one, do not have SAP customers or prospects as their audience.

Two Stakeholder Groups

Putting aside the cute part about "HANA…literally [running] while the computer processes transactions" and Sriramen’s conclusion that SAP faces an "awful" 2012 (I happen to think he is wrong), let's understand the difference between a financial analyst and an industry analyst.

Every publicly-held enterprise IT vendor (or any publicly held company) has many stakeholders: shareholders (investors), customers, employees, business partners, suppliers, and the community at large. But for purposes of this discussion, let’s focus on the two primary groups of stakeholders: customers and investors. What are the objectives of these two groups?

Customers are interested in the value of the vendor's product (its benefits and costs), the quality of the vendor's service, the vendor’s ability to innovate, and the long-term viability of the vendor itself.
Investors, of course, are also interested in these things. But--and this is the key point--investors are not interested in these things directly. They are interested in these things in terms of what they mean for the stock price, short-term and long-term.

Investors want to see that the product has value, because companies that offer such products tend to have growing stock prices. They want to see excellent customer service, because it contributes to customer retention, which has a positive effect on the stock price. They want to see that the vendor is innovative, because innovation drives growth and growing companies command a higher price-earnings ratio. Moreover, they want to see a long-term sustainable business, because this protects the stock price.

But there are also some things that investors are interested in that customers should not at all be concerned about.

Intrinsic value of the shares. Investors spend a lot of time comparing the intrinsic value of the vendor’s shares (what they should be worth based on fundamentals) versus the current stock price. Stocks that are undervalued by the market tend to rise over the long term.
Market expectations. Investors—especially short-term investors—spend a lot of time trying to forecast prospective company financial performance for the next reporting period versus management guidance and market expectations. Companies that outperform market expectations will usually see a jump in their stock price.
Economic outlook. Investors also spend a lot of time refining their outlook for the economy in general or for the industry sector and geographies that the vendor serves, because the vendor’s stock price tends to rise and fall according to these economic outlooks.

It’s easy to see, then, why customers should not be concerned about these things. Consider, for example, a prospect that is considering SAP’s HANA. If HANA is a good choice for that prospect, it makes no difference how HANA affects SAP’s share price. The market may be underestimating or overestimating HANA’s contribution to SAP’s financial performance. But either way, that has nothing to do with whether HANA is a good choice for that prospect.

Generally, financial analysts do not have the depth of understanding that good industry analysts do, concerning a vendor’s products or customer experiences. They may do reference checks, as best they can, but because they do not deal with customers of the vendor on a day-to-day basis, they lack the direct experience in seeing how the vendor actually performs in the field.

For example, last week, my associate at Constellation Research Alan Lepofsky and I provided a short briefing call for a financial analyst from a well-known Wall Street investment firm on the subject of CRM vendors. At the end of the call, the financial analyst remarked that what he liked about our call was our ability to refer to specific examples with specific customers. This is why financial analysts ask for briefings from industry analysts, but seldom do you see the reverse.

Another example: my associate Ray Wang recently gave a short on-camera interview with CNBC on the news that SAP had made a bid for SuccessFactors, an HRM cloud computing provider. Ray deals with enterprise IT sellers and buyers every day. But the questions from the CNBC hosts had nothing to do with whether either SAP or SuccessFactors were good choices for enterprise IT buyers. Rather, their only concern was what SAP’s bid for SuccessFactors meant for investors. Here are some examples of the questions they asked Ray:

“What are the big names that pop to your mind here that could be the next ones to [be acquired] in the cloud space?”

“What about the pioneer in the SaaS market, valued at $17 billion, Salesforce.com [being acquired]?”

“So, Ray, NetSuite is up nearly 10% today, which is I think an all-time high. Would you rush into this stock right now or is it too much, too fast?”

“Hey Ray, how does this make you feel about SAP here? SAP is a company that for the most part trailed Oracle, it stayed out of the M&A game, it seems very hungry to do deals here—that’s great, it worked for Oracle…but are they getting out of their core competency, are they spending more [for SuccessFactors] than they should here?”

Now, if I were an enterprise IT buyer and I got 10 minutes on the phone with Ray, are these the questions I would ask him? I think not.

The Right Advisor for the Right Audience

Lest anyone think I am railing against investors--I am not. As a free-market capitalist, I believe that private investment is the best way to pick winners and losers in the marketplace. I trust individuals and organizations putting their own capital at risk more than I trust some government bureaucrat deciding which organization or industry to favor.

Furthermore, the best financial analysts often have interesting insights. I do read them from time to time, because they see things from a different perspective (the investor’s perspective). As my late business partner used to say, financial analysts are using “a different algebra.” Seeing things from the investor perspective can help me, as an industry analyst, understand why a vendor may be behaving in a certain way. For example, why a vendor is targeting a certain market segment or de-emphasizing a certain line of business.

But I do believe it is important for enterprise IT buyers to understand that their objectives and success are not always aligned with the immediate interests of investors, and they shouldn't pay too much attention to the short-term stock market performance of an enterprise IT provider.

So, just as shareholders shouldn’t ask me for investment advice, enterprise IT buyers shouldn't read financial analysts for advice on technology decisions.

Update: my friend Jon Appleby has a great post, critiquing the same financial analysis post I referenced here. My friend Vijay Vijayasankar also has a good post on the Bank of America analysis, and has added a comment to my post here.

SAP in Transition on Mobile, Cloud, and In-Memory Computing
IT Budgets vs. Tech Industry Spending: What's the Difference?

SAP in Transition on Mobile, Cloud, and In-Memory Computing

2011-11-15T14:17:00.001-08:00

I attended two days at SAP’s SapphireNOW conference in Madrid earlier this month, at the end of a month-long trip to Spain and Italy. The trip to Madrid gave me a good opportunity to catch up with the latest developments with SAP since the Sapphire conference last May in Orlando.

Jim Hagemann Snabe gave the Wednesday keynote, which I found tighter and more balanced than similar messages delivered in Orlando. Back then, the keynotes seemed to overly emphasis HANA, SAP’s new in-memory database technology. Although HANA is still hugely important to SAP, the message is now more balanced between SAP’s three focus areas of innovation: mobile, cloud, and in-memory computing.

I also appreciated Snabe's tone, focusing positively on SAP’s roadmap and customer success stories. This was a welcome change from recent keynotes by the CEOs of some of SAP’s competitors, whose bar-room brawling style might be more entertaining but doesn’t provide much real insight. Personally, I find Snabe’s low-key approach much more palatable, and I have to believe customers feel this way also.

So, in a nutshell, here is my bottom line: I see SAP in a period of transition with cloud computing, mobility applications, and in-memory computing. There is progress, but success is not ensured.

Business ByDesign Has Momentum, but Line of Business Apps Lagging

SAP has two major cloud initiatives: its Business ByDesign (ByD) ERP suite for small businesses and its Line of Business (LoB) SaaS applications, which complement its Business Suite.

Concerning ByD, SAP is on target to reach 1,000 customers sold by year end, although SAP executives indicate that reaching that goal might come down to the wire. Although reaching or exceeding that number will matter to some SAP folks’ year-end bonuses, I would view anything close as being a significant accomplishment. My consulting team at Strativa recently evaluated ByD in a competitive deal and came away favorably impressed. Customer reference checks during the Madrid conference were also encouraging. I believe SAP has a winner with ByD: both for subsidiaries of its large customers and in net-new small business deals. Those who question the viability of ByD at this point should reconsider their assumptions.

On the Line-of-Business side, progress is not as impressive. SAP has one SaaS application—Sales On Demand—in general release. But don’t expect to see other applications any time soon. Travel On-Demand (mostly expense reporting) will go into beta in Q1, 2012, according to Sven Denecken and Kevin Nix, who head up LoB development. Career On-Demand is scheduled to go to the first beta customer in Q2, 2012. In addition, Kevin and Sven told me of another LoB application now in development: Social Service and Marketing On-Demand. I have no target date for this product.

SAP positions these LoB applications as people-centric applications, helping end-users accomplish their daily activities. Although this is an interesting approach, the LoB apps do not have very broad functional footprints. For example, Sales On-Demand is primarily focused on the collaboration of pre-sales teams and others as they coordinate their activities for specific prospects. It is by no means a complete CRM package—it is not even a complete sales force automation app. Likewise, Career On-Demand is not a complete talent management system. Rather it is focused on helping people manage their goals, objectives, and daily activities and to see what others across the organization are working on. Finally, Social Service and Marketing is narrowly focused on processing incidents originating from Twitter and other social media channels.

In my view, the LoB applications are a defensive play by SAP, aimed at keeping its installed base from leaving the SAP-fold for newer cloud-based providers. For example, in my view, Sales On-Demand is aimed at keeping SAP CRM customers from considering Salesforce.com. Likewise, Career On-Demand is meant to keep SAP HRMS customers from considering Workday. Finally, Travel On-Demand is SAP’s answer to Concur’s expense management system. SAP may be successful in getting its installed base to adopt some of these LoB applications, but because they are not complete solutions, I do not think they are an adequate response to the threat from Salesforce.com, Workday, Concur, and others. Furthermore, it is hard to imagine non-SAP customers purchasing these solutions.

The other problem with the LoB applications, frankly, is that they are a late response by SAP. Salesforce.com, Workday, and Concur have been developing and marketing their applications for years. In the case of Salesforce.com, over 10 years, and SAP is only now starting to respond? It’s like the student who turns in (hopefully) a well-written essay, but misses the deadline.

So, on my scorecard, SAP gets an “A” for ByDesign and a “C” for its line of business applications.

Turning the Ship on Mobile Applications

On the mobility front, SAP appears to be making good progress. Based on a briefing I received, there are now 50 mobility apps available in the new SAP Store. Of these 38 are authored by SAP and 12 are from partners. There are 200 more in the development pipeline (split between SAP and partners is not clear to me).

All of the current apps in development are based on the Sybase Unwired Platform (SUP), and this is where there are some issues. The SUP is a general platform for mobility device development and management. It allows a developer to write an application and have it deployed on multiple devices, such as RIM’s Blackberry, Apple’s iPhone/iPad, Android devices, and Windows phones. It also provides an enterprise-class management platform for back-end data access, application provisioning, user and device management, and security. So from the perspective of ensuring that its mobility apps are enterprise-class, I can understand why SAP would want mobile applications developed by partners to be certified for SUP.

The problem, however, comes from the developer perspective. Many of the best mobile apps development these days are coming from small shops, and current SAP licensing practices by SUP are, shall we say, burdensome for small developers. Based on briefings we received, it appears SAP understands the obstacles in the way of small developers and wants to show some flexibility on this issue. There is talk of allowing developers to work outside of SUP and then submitting their applications for certification. There was even talk at some point of allowing apps to be sold via the SAP Store that do not run on top of SUP, but that is by no means current policy.

My colleague Dennis Howlett has a deeper dive on SAP's mobility progress.

So, it would appear that on the mobility front, SAP is in transition. They are making good progress, but they need to follow through on their good intentions to become more developer- and partner-friendly in mobile apps development.

In-Memory Computing Still Rings SAP's Bell

Although the Madrid messaging was balanced among the three areas of innovation, you can still sense the excitement among SAP executives when they come to the subject of in-memory computing. They honestly feel that its in-memory technology (HANA) will leap-frog SAP over its competition. In a small group briefing with Vishal Sikka, he spent significant time talking about the value proposition of in-memory computing to provide faster answers to business queries, without the constraints of data structures such as cubes. The value of HANA has already been demonstrated in a limited number of one-off proof of concept projects for select customers, many of whom were featured in the Orlando conference.

The next step is to scale up HANA adoption by using it as a customer platform for SAP’s business warehouse (BW) deployments. In a sidebar conversation with Sanjay Poonen, SAP’s President of Global Solutions, he indicated this is where most SAP customers will first realize the value of HANA.

Ultimately, though, SAP intends to bring in HANA underneath parts of the Business Suite—we had one briefing from a customer looking to run HANA underneath its trade promotion processing to more quickly analyze pricing trends. SAP has a far-reaching vision for HANA to ultimately become the data platform for many of its products.

So SAP is also in transition with in-memory computing: moving it from a small number of proof-of-concept case studies to a broader adoption by its customer base. This migration has only just begun.

Can SAP Make The Needed Transitions?

For the largest enterprise software vendor in the world, the roadmap is good. But is it possible for SAP to complete the needed transitions? There are strong economic rewards up front for HANA, which are big ticket license sales. But will SAP be willing to devote the resources necessary for its cloud solutions and mobility applications to be successful, where the deals are smaller? The signs are encouraging, but success is not ensured.

Progress is good with mobility apps, but the partner model needs to be improved. When small mobile developer partners, like Graham Robinson, tell me they are happy with SAP’s support then I will be convinced that SAP stands a good chance of being successful. The words coming from SAP executives are the right sounds, but I’m waiting to hear confirmation from small developers that SAP’s actions are following its words.
It is going to be interesting to see how SAP’s cloud computing programs proceed. For SAP, cloud is both a sustaining innovation and a disruptive innovation (to use the terminology of Clayton Christensen). From the standpoint of SAP’s large customers with many small subsidiaries, ByD is a sustaining innovation because it gives them something to offer for their subsidiaries. Many competitors, such as Microsoft Dynamics, Epicor, NetSuite, and Plex, are targeting these subsidiaries in a so-called "two-tier ERP" strategy. Thus, ByD preserves and extends the revenues that SAP receives from these large customers.

The larger question is whether ByD can consistently beat out cloud-based competitors such as NetSuite, Plex, or Rootstock for net new deals in small organizations. As I indicated, the signs so far are good. But will SAP be willing to invest what it takes for such small deals? Furthermore, will SAP be willing to let ByD naturally grow up-market and start to disrupt (cannibalize) its sales of SAP All-in-One or even its Business Suite? If so, then I would declare victory for ByD as a truly disruptive innovation.

I do not view SAP’s LoB applications as disruptive. These apps are targeted primarily at SAP’s installed base and are therefore a sustaining innovation for SAP. They do not need to be best-in-class. They only need to be good enough to keep customers from going with SFDC, Workday, Concur, or other pure best-of-breed cloud solutions. But, as noted earlier, these are not complete solutions and may not be enough to keep SAP customers from looking elsewhere. Also, they are unlikely to find much of an audience outside of SAP’s installed base.
Although I would agree generally with Vishal’s assessment about HANA, from an economic standpoint, in-memory computing does not require SAP to transition its thinking or business model. From an economic standpoint, in-memory computing is a sustaining innovation for SAP. SAP can use in-memory computing to continue to sell big-ticket licenses to big-ticket customers and receive large annuities in the form of maintenance fees. It is not like cloud and mobile which require that SAP make changes in its expectations on how it will make money in the future.

So in terms of transition, I think SAP has made the most progress with cloud computing, with Business ByDesign but not with its line of business applications. The direction with mobility applications is good, and SAP is making the right noises about working with small developers, but it is too early to see words translated into action. Finally, even though in-memory computing is still early in its roll out, it stands a good chance of success if SAP can gain adoption beyond its initial proof cases, because it does not require SAP to change its business model.

I made some of the same points in a very short interview with Dennis Howlett, during the Madrid conference. You can watch the interview below.

Postscript: I’ll repeat here what I said to my SAP host when I bid goodbye from the Madrid conference: I know some of us often give SAP a hard time. But we do it for one reason: we care about SAP’s customers, just as SAP does, and we want SAP to be successful for their sake.

Disclosure: SAP paid part of my travel expenses to attend the Madrid conference.

Cutting Through the Fog of Cloud Computing Definitions

2011-11-06T00:30:00.001-07:00

In recent years, the term "cloud computing" has been used and abused by vendors and their marketing groups to denote just about anything the vendor offers other than on-premise systems. Analysts too have piled on, each offering their own definition of cloud computing. This 2009 Wall Street Journal article outlined the confusion. The result has been fruitless arguments over what is "true cloud" or "false cloud," as in the recent tit-for-tat speeches by Larry Ellison and Marc Benioff during Oracle Open World.

Such debates are likely to continue, but now there is at least one official source for the definition of cloud computing. The National Institute of Standards and Technology (NIST), an arm of the US Department of Commerce, has now published The NIST Definition of Cloud Computing. Though other standards bodies may (or may already have) published their own definitions, NIST carries particular weight as it is often referenced in U.S. governmental procurement. The NIST definition is vendor-agnostic and buyer-centric.

The NIST Definition

The NIST document is short--the body of the document comprises just three pages, with the definition itself taking up less than two pages. In it, the authors describe the essential characteristics, service models, and deployment models for cloud computing.

The five essential characteristics are: on-demand service, broad network access, resource pooling, rapid elasticity, and measured service.

They go on to then list three service models, which should be already familiar to most observers: software as a service (SaaS), platform as a service (PaaS), and infrastructure as a service (IaaS).

Finally, they list four possible deployment models for cloud computing: private cloud, community cloud, public cloud, and hybrid cloud.

In my mind, the section that is most useful for distinguishing what is or is not cloud computing is the first one, the "essential characteristics." So, let me quote NIST directly (emphasis mine).

Essential characteristics:
On-demand self-service. A consumer can unilaterally provision computing capabilities, such as server time and network storage, as needed automatically without requiring human interaction with each service provider.

Broad network access. Capabilities are available over the network and accessed through standard mechanisms that promote use by heterogeneous thin or thick client platforms (e.g., mobile phones, tablets, laptops, and workstations).

Resource pooling. The provider’s computing resources are pooled to serve multiple consumers using a multi-tenant model, with different physical and virtual resources dynamically assigned and reassigned according to consumer demand. There is a sense of location independence in that the customer generally has no control or knowledge over the exact location of the provided resources but may be able to specify location at a higher level of abstraction (e.g., country, state, or datacenter). Examples of resources include storage, processing, memory, and network bandwidth.

Rapid elasticity. Capabilities can be elastically provisioned and released, in some cases automatically, to scale rapidly outward and inward commensurate with demand. To the consumer, the capabilities available for provisioning often appear to be unlimited and can be appropriated in any quantity at any time.

Measured service. Cloud systems automatically control and optimize resource use by leveraging a metering capability at some level of abstraction appropriate to the type of service (e.g., storage, processing, bandwidth, and active user accounts). Resource usage can be monitored, controlled, and reported, providing transparency for both the provider and consumer of the utilized service.

Keep these key points in mind.

Cutting Through the Ellison/Benioff Fog

So, let's apply these characteristics to what Larry Ellison and Marc Benioff each describe as cloud computing. In my opinion, both are right and both are wrong.

Benioff's service, Salesforce.com, certainly meets the NIST definition of cloud computing, both in its CRM application, which meets NIST's definition of SaaS, and in its Force.com offering, which meets the definition of PaaS. He is also correct in criticizing the labeling of Oracle's Exalogic hardware as a "cloud in a box." By my reading of NIST's essential characteristics, one could construct a cloud service using Oracle's hardware, but the hardware itself should not be considered a cloud.

But if Benioff is referring to Oracle's newly announced Public Cloud Services as a "false cloud," he is wrong. Oracle's Public Cloud Services certainly meet the NIST definition of cloud computing. But it is primarily an IaaS offering, similar to Amazon's EC2. Assuming that Oracle will offer development capabilities on top of its Public Cloud Service, those would be PaaS, and if it chooses to run applications on top of its Public Cloud Service, such as Oracle CRM On-Demand, those would be SaaS.

On the other hand, Ellison is wrong to label Salesforce.com's PaaS offering as a "false cloud." Ellision's argument is that Force.com utilizes proprietary extensions to Java and other programming languages, which make it difficult to migrate applications to other cloud providers. But there is nothing in the NIST definition of cloud computing that requires interoperability between different cloud service providers, as desirable as that may be. Ellison is simply turning what he sees as a disadvantage of Benioff's cloud into an argument that it is by definition not a cloud.

Cutting Through the Application Hosting Fog

The NIST definition is also useful for cutting through vendor marketing efforts to label anything they do off-premise as cloud computing. In particular, application vendors that simply host their on-premise solutions in their own, or partner, data centers should not be labeling those as cloud computing. In particular, simple hosting of an application does not qualify as cloud computing because it lacks the essential characteristics (see bolded sections in the quoted definition above).

With a hosted application, the customer generally cannot "unilaterally provision computing capabilities, such as server time and network storage, as needed automatically without requiring human interaction." In addition, with a hosted application there is generally no "sense of location independence." Rather, the customer usually knows the data center and may even know the data center, cage, or rack in which his hosted application resides, even if the application is hosted on a virtual server. Finally, with a hosted application, computing resources generally cannot be "elastically provisioned and released, in some cases automatically, to scale rapidly outward and inward commensurate with demand." Rather, the customer must negotiate provision of additional computing resources.

Notice also that the NIST definition does not mention anything about how cloud services are contracted. Some vendors point to subscription pricing as evidence of their hosted applications being cloud offerings. According to NIST, how the customer pays for the service has no bearing as to whether the service is cloud computing. It could be subscription pricing, it could be a perpetual license, or it could be something else.

The marketing hype and confusion over cloud computing will no doubt continue. But at least now NIST offers a reasonable and objective definition.

Salesforce.com: more than an itty-bitty application
The inexorable dominance of cloud computing
Lawson's cloud services: good start, but no SaaS
A game-changing play in enterprise software

How to Become a Chief Innovation Officer

2011-10-28T04:01:00.000-07:00

I had a real treat this week: I was invited to give a presentation to 25 CIOs at Infor's European CIO Advisory Council meeting, in Maranello, Italy. If you are not familiar with Maranello, it's famous as the town of the headquarters of Ferrari, which is an Infor customer. More on Ferrari at the end of this post.

Infor's Integration Strategy

The event was kicked off by Infor's CEO, Charles Phillips, who came into the top job last December, from his previous position as Oracle's co-President. It was a good opportunity for me to see how Charles deals up close with Infor customers, some of whom were meeting him here for the first time. Charles demonstrated a detailed knowledge of Infor's product portfolio and an ability to outline complex product strategy in business terms.

To that point, Charles gave the best explanation I've heard to date on Infor's integration strategy. Infor's Intelligent and Open Network (ION) is a lightweight middleware product that provides integration between various Infor products, between those products and third-party applications, and between those products and customer/partner developed systems. It is "lightweight" in that it is not optimized for specific transactions or point-to-point integration. Rather each application publishes a complete XML document for each transaction (e.g. a sales order), to which other ION-aware applications can subscribe asynchronously. ION stores all XML documents in a business vault, for reporting purposes and, I assume, to satisfy any regulatory compliance needs for audit trails.

According to Charles, ION is not appropriate for every application (e.g. an equities trading platform requiring subsecond response time would not be a fit), but it meets the need in a simple way for enterprise business applications, such as ERP, CRM and supply chain management. Infor is now in the process of ION-enabling each of its products for approximately 93 business transactions.

The best part is that ION ships as just three CDs, which, according to Infor, can be installed in about 10 minutes.

Infor's Challenge

So are all Infor customers ready to move forward with ION? Not quite. From group discussions and hallway conversations, it is clear that Infor's challenge is to get customers to current releases of their Infor products, where they can take advantages of Infor's new capabilities.

To be fair, this problem is not unique to Infor but common to all enterprise software vendors with large and long-standing installed bases. Many customers purchased their ERP systems years ago, and for good and not-so-good reasons they may have made hundreds or thousands of code modifications. Although they may have seemed justified at the time, these modifications now make it nearly impossible for customers to upgrade. In successful case studies mentioned by Infor executives, the only thing that seems to work is to take a clean-sheet-of-paper approach: put the latest software version in front of users in a conference room pilot and ask, "What's missing?" If you start with the assumption that each previous modification is still needed, the whole project collapses under its own weight.

How to Become a Chief Innovation Officer

This background turned out to be a good set-up for my presentation. I shared that the job of the CIO is becoming more difficult. CIO budget increases in most companies are severely limited, while at the same time CIOs are being asked to do more: support business change (which is increasing) as well as new technology innovations, such as mobile applications, business intelligence, new customer-facing systems, and social business.

The risk for CIOs under these pressures is that they may become, essentially, irrelevant. According to our research at Computer Economics, 75% of CIO budgets go toward ongoing support, leaving only 25% for innovation. With limited time and money, the CIO is forced to defer many business requests for new initiatives, and when users can't get what they need from the CIO, they begin to develop their own systems and IT capabilities. Eventually, the business stops asking the CIO for new stuff, and the CIO slowly becomes just a "Chief Infrastructure Officer," maintaining existing systems.

In such an environment, how can the CIO grow into a "Chief Innovation Officer?" I outlined the key steps.

Optimize the Infrastructure. The first step is to lower on-going support costs to free up money for innovation. Understand your current cost structure and where there are opportunities to upgrade and consolidate the infrastructure and applications portfolio. Adopt key IT management best practices for incident management, problem management, and change management, which further lower costs and improve service levels. Cloud computing can also play a role here as a way of quickly rolling out new systems that build upon the organization's core transactional processing systems.
Become a Chief Integration Officer and Chief Intelligence Officer. Once the infrastructure has been optimized, the CIO now has the credibility and ability to expand his or her role to become a Chief Integration Officer (focused on end-to-end business processes and customer/supplier integration) as well as a Chief Intelligence Officer (focused on turning internal and external data into useful information and deploying it to the organization through a variety of channels).
Become a Chief Innovation Officer. The CIO is now not only reacting to and supporting the business strategy but also leading the business into new IT-enabled products and services.

I finished with a warning. Becoming a Chief Innovation Officer is not a one-time promotion. Today's innovation becomes tomorrow's infrastructure. Just as personal computers and email were once seen as innovations in IT, today they are just part of the infrastructure. Any CIO today who is focused on PC maintenance or email administration risks becoming irrelevant. So also, tomorrow, mobile applications, tablet computing, and business intelligence will become commonplace as elements of tomorrow's infrastructure. The CIO's challenge is to continually learn and grow.

The Need for Speed

Our two days together were not all work and no play. As part of the event festivities, Infor arranged a tour of the Ferrari Museum and a Ferrari test drive around Maranello for all the attendees. I put together a little video of my Ferrari driving experience, which you can view below.

Disclosure: As a client of Constellation Research, Infor paid for my participation in this event.

New details on Infor's Lawson acquisition
The Four Personas of the Next-Generation CIO (R "Ray" Wang, HBR)

Risks and Opportunities with SAP's Platform Economics

2011-10-18T02:50:00.001-07:00

Unless you hang around with SAP developers or independent SAP analysts, you may not be aware that there is a conflict brewing over how SAP wants to charge for its new technology platforms. Specifically, the Sybase Unwired Platform (SUP), which SAP acquired for developing mobile applications, and the SAP Netweaver Gateway, which SAP built to allow third-party applications and devices to connect seamlessly with SAP back-end processes.

The conflict is this: SAP wants to make money, on some basis, for SUP and the Netweaver Gateway, while any fees charged for these platforms discourage third-party development and increase the cost for customers.

Dennis Howlett has been hammering on this subject for many months, encouraging SAP (pleading might be a more appropriate word) to offer these platforms at low-cost or no-charge. He calls it the "Apple model," in recognition of how the free-nature of Apple's development platform has enabled thousands of developers to write third-party applications for Apple's iPhone and iPad. At SAP's annual user conference in Orlando this year, I heard him bring up this point directly with SAP co-CEO Bill McDermott. Bill appeared interested, but non-committal. After the conference, Dennis wrote about SAP's mobile platform, on a downbeat note:

The main problem comes in the licensing model. I find it staggeringly backward thinking that SAP almost invariably finds it necessary to monetize everything that has running code attached to it. That world has been left behind. If SAP could mobilise itself to think differently to the way it is accustomed it could (almost) easily bulk up without having to find another mega acquisition that inevitably amplifies disruption.

Now, just this week, Dennis called my attention to a post written by a third-party SAP developer Graham Robinson on SAP's own SDN site, which strongly confirms SAP's problem:

So let's say I come up with my own killer app. It is an all-singing all-dancing mobile application that will provide huge business benefit to lots of SAP customers. In fact it is so good I can sell the idea to my favourite customers (those that trust me) with a business case that they will jump at. So I have the idea, I have the funding and foundation customer commitment - I am ready to go. So time to decide what technology I should use to build my application with. Let me focus on NetWeaver Gateway but I think similar arguments apply to the [Sybase] Unwired Platform.

....I see NetWeaver Gateway as a programmer productivity tool. It provides a method for exposing SAP functionality using those standards mentioned - but we ABAP developers have been able to do that for years....I am not saying I am not interested in a toolset and/or framework from SAP that does this sort of thing as well, I am. But really the value proposition is that NetWeaver Gateway will save me development time on the backend in publishing the services I want to consume in my application.

BTW - I do not believe NetWeaver Gateway saves me any time developing the front end application despite all the great "app in a minute" demos we have seen. Whether I use NetWeaver Gateway to expose services or I handcraft my own as long as I conform to industry accepted standards the front end development tool should be able to introspect and the runtime consume these services identically.

So back to my killer app. Why should I take the funds my customer has committed to my app and pass some of them onto SAP? Even assuming I could get a straight answer from SAP on what the price would be - why should I do it unless the benefits outweigh the costs? How can a recurring pricing model on a piece of technology be weighed up against the value of saving me development time on a project I already have approval for? And why should I just let dollars go to SAP for my idea? And by the way my customers' employees (the target audience for my killer app) are already licensed to use SAP anyway. Why should they pay again? ....

Returning briefly to the [Sybase] Unwired Platform - how do I justify the cost (albeit unqualified) of this platform against the benefits of my single, albeit killer, app? I can't. And even if I could why would I confuse my customer with extra technology and extra licensing when I don't need to? I wouldn't
....

The real problem is that SAP are struggling to find a way to monetise the millions, probably billions, of users they envisage connecting to their customers' SAP systems via the internet. These will be their customers' customers, their customers' suppliers, their customers' prospects, Joe Average searching for the cheapest widget. Basically it could be everyone in the world with a smart phone.

This is a new-ish problem, but I am sure SAP looked for old business models to learn from. I suspect the business model they took on board is that of the utility companies. IDEA! Let's put a meter on the edge of the SAP landscape and charge for use just like the electricity, gas and water meters on the edge of everyones property. (In case I wasn't obvious enough - SAP NetWeaver Gateway is the meter) Kar-ching! Brilliant! [Emphasis mine.]

Read the whole thing, as Graham goes into more depth in his full post.

Some Monetization May Be Appropriate

After reading Graham's post, I reconnected with Dennis Howlett on this subject. Interestingly, Dennis does see an opportunity for SAP to monetize these two platforms for a select group of customers--its largest customers, who will use these platforms for their own revenue generation. Dennis writes:

SAP believes its largest customers will pay for SUP because they will use it to develop apps for their own purposes from which SAP would likely see little or no economic benefit. These companies - as Gartner has indicated - could easily turn into applications suppliers in their own right, building their own IP on the side of what SAP can offer for the benefit of their ecosystems. The nearest equivalent would be the proprietary EDI mechanisms the likes of Toyota and Dell created which went right through their supply chains.

That's a model I would expect to emerge because the value that can be driven is clear, clean and in the control of the channel master. Therefore, there is a case for SAP charging that fits their model and satisfies the needs of those very large customers. But it will be limited to SAP's top 400-500 customers and does not bring with it a sustainable model. At best it is a series of one-off deals that in total would likely be worth no more than $2 billion in license revenue and $450 million in annual maintenance, based upon past performance, Sybase pricing, discounts, bundling and the like.

However, such models cannot hope to cover all eventualities or for that matter the whole of the market. We can envisage thousands of situational, ad hoc, even one-off applications where the need for fast tracking is paramount or where value comes from volume usage. This is already happening in the Salesforce.com universe where cloud brokers like Appirio are working on a 4-6 week develop/release cadence for proof-of-concept to initial deployments. Having ready access (which has to include easy, clean, cheap licensing) is the only model framework that will encourage those types of developer shop to flesh out the 80% SAP claims it wants to see from its ecosystem. In other words, it is no longer about the fear of leaving money on the table. It is about investing now for benefit that accrues to everyone.

He concludes, "If SAP does that, then it will fulfill its promise of being a good citizen in the enterprise apps landscape."

SAP at a Tipping Point

I'm not sure SAP realizes how precarious its position is, and it works two ways.

SAP charging for the SUP and Netweaver Gateway creates "friction" for both developers and customers. As Graham points out, he has no real economic incentive to develop for these platforms, which will eat into the budget his customers have allocated for his development projects.
The desktop analogy: when you license SAP, do you pay an additional license fee to use your desktop computer as a user interface? Of course not. SAP customers are already paying maintenance fees for enhancements to their SAP products. Why should those customers have to pay SAP an additional license fee to use a mobile device instead of a desktop computer? Even if those mobile applications add functionality to the SAP applications the customer has licensed--isn't that what the customer is supposed to get by paying maintenance fees?

SAP charging for the SUP and Netweaver Gateway further opens the door to competitors, such as Workday, who are bundling mobile applications at no charge. I fear that SAP is just giving customers another reason to consider alternatives to SAP.

My own work with SAP customers tells me that, in many accounts, SAP is not at the center of the action as it thinks it is, especially when it comes to line-of-business users, which SAP hungers after. Many of these customers are actively looking for new functionality, and they generally take a look at SAP's offerings. But it doesn't take much to nudge them into the welcoming arms of another provider, whether it be for CRM, customer service, or --yes--mobility applications. SAP argues that the integrated nature of its Business Suite and ability to support end-to-end processes gives it a strong advantage with its installed base. My work with SAP customers tells me otherwise. Yes, there are benefits to integration. But that alone is not enough to keep customers in the SAP fold when there are strong economic incentives, or perceived functionality advantages, from competing solutions. Throw up an economic disincentive to adoption of SAP's SUP or Netweaver Gateway, and customers may be quick to look elsewhere. Many won't migrate away from SAP, but they'll wall it off and implement new stuff around it from competing suppliers.

The Entitlement Mentality

What concerns me about SAP's attempt to monetize these two platforms is, once again, the mentality of entitlement. We saw it previously with the battle over SAP's attempt to increase its maintenance fees across the board to 22%. SAP consistently gives the impression that, because of its market dominance in the past, that it is somehow entitled, not only to continuing revenue from its customers, but an increasing share. It does not give the impression that it is concerned about losing ground to upstarts in the cloud, such as Workday or NetSuite, or its traditional competitors, such as Oracle, Microsoft, Infor, IFS, or dozens of others with niche industry functionality.

SAP apparently views its SUP platform and Netweaver Gateway as a way to gain new revenue. I view them primarily as a way of keeping the revenue it's already receiving.

SAP's Opportunity

If SAP can free itself from its entitlement mentality, it has an enormous opportunity with its installed base, which is the largest in the world, including many or most of the world's largest companies.

Such companies have a huge legacy investment in SAP, both in terms of historical data and business processes built around SAP software. Many of these customers would love to stick with SAP for mobile applications, which by most accounts will become the primary way that business users connect with business applications. If the SUP is low or no cost for the majority of customers, it will encourage thousands of developers, such as Graham, to embrace it, and tens of thousands of customers to make it part of their applications infrastructure. The same economics apply to the Netweaver Gateway. If SAP really wants to lock-in its customers, it should offer these platforms to the majority of its customers at low or no charge. This will liberate business value to SAP's installed base, ensuring SAP's relevance for years to come.

Whether SAP truly recognizes this risk and opportunity remains to be seen.

Updates: Others have been pounding away on these points for some time. Here are some other good perspectives on this subject.

Jarret Pazahanick: Is SAP Using the Right Mobility Strategy. Jarret, an SAP mentor, outlines several ways in which SAP could make more money by not charging for SUP.
Dennis Howlett, John Appleby, and Vijay Vijayasankar discuss in this 13 minute video the need for SAP to roll out an Apple-style apps store model, including – in their view – the need to give away the platform. SAP’s progress on mobility is assessed, and they ask, “Is SAP Listening?”
Jon Reed covers a lot of ground in his post on SAP at the Crossroads, but be sure to read section 4 toward the bottom on "How Can SAP Win the Hearts and Minds of Developers?" As a bonus, there is an excellent video interview of Graham Robinson who makes many of the same points as he did in his blog post quoted at the top of this post.

I'll add more links as I come across them.

Mad as hell: backlash brewing against SAP maintenance fee hike
SAP innovating with cloud, mobile and in-memory computing

Breakthrough in Material Planning: Demand Driven MRP

2011-09-22T16:16:00.001-07:00

For the first time in over 30 years, Material Requirements Planning (MRP), is undergoing a fundamental improvement. A major new development, dubbed Demand Driven MRP (DDMRP) is moving from theory to practice, and the results are impressive. If you care about manufacturing ERP, you would be wise to pay attention.

Carol Ptak recently called my attention to her work with Chad Smith at the Demand Driven Institute, which they founded in 2010 to promote the concepts of DDMRP. I've known Carol for many years, through her work as past President and CEO of APICS and her time at PeopleSoft, where she was an early proponent of making MRP more "demand driven." I wrote a brief blog post in 2003 covering this subject (see: PeopleSoft Strengthens Its Manufacturing Offerings by Acquiring Demand Flow).

So, I jumped at the opportunity to set up a briefing on DDMRP with Carol and Chad for me and my associates Bob Gilson and Nick Hann at Strativa.

Bringing MRP into the 21st Century

Before we look at some of the key concepts of DDMRP, let's review the history of material planning.

MRP, first developed in limited fashion in the 1950s and 60s, really took off in the 1970s, when computer systems enabled widespread adoption and APICS undertook the "MRP Crusade" to popularize it. It was a great advance over previous material planning techniques, such as statistical order point (popularized during the Second World War), which viewed each inventory item separately. The big conceptual breakthrough of MRP was to separate dependent demand (sub-assemblies and purchased items) from independent demand (e.g. finished goods and service parts). MRP, therefore, provided a holistic, or system-wide view of inventory.

MRP (material requirements planning) morphed in the late 1970s and 80s into MRP II (manufacturing resource planning) and ultimately ERP (enterprise resource planning). But the heart of today's ERP systems (at least in the manufacturing sector) is still the MRP processing logic that is essentially unchanged since the 1970s.

In practice, MRP relied heavily on demand forecasts to drive planning and used safety stock inventory to cover variability in lead-times and forecast errors. The results, though far better than the old order point systems, were often excess inventory and less-than-acceptable customer service levels.

Just-in-Time (JIT) inventory and lean manufacturing techniques were, in part, a reaction to the complexity of MRP and a desire to obtain better outcomes. Introduced in the 1980s, JIT was a simplification in material planning and it took inspiration from the quality management movement and Toyota Production System in Japan. JIT is essentially a "pull system"--relying upon simple demand signals, such as Kanbans, from customers to suppliers up and down the supply chain, often with little or no computerized support. Unlike MRP, which viewed inventory as an asset, JIT viewed inventory as a "waste" and sought to minimize it wherever possible by minimizing variation in supply and demand, and reducing setup times to enable smaller lot sizes. But its emphasis on inventory reduction, lack of a system-wide view of inventory, and incomplete planning equation created brittle supply chains, subject to disruptions.

Embracing and Extending MRP and JIT

Demand Driven MRP is not a completely new method: it builds upon and extends the concepts of MRP while borrowing the best features of lean manufacturing. Like lean manufacturing, it seeks to "align efforts and resources as close as possible to actual demand" (a so-called pull system) while at the same time, like MRP, provide "visibility to the total requirements and status picture across the enterprise."

The authors' background in the Theory of Constraints is evident. They are not looking to compromise between MRP and lean manufacturing. Rather they recognize and seek to satisfy the legitimate objectives of both. For example:

The greatest extension of DDMRP is the introduction of supply chain modeling prior to generating material plans, as shown in steps 1-3 in the Figure at the top of this post. Here, the organization determines the optimum places where inventory should be held. This is a step that MRP simply does not address. MRP and even Advanced Planning systems (APS) generally take inventory stocking points and safety stock levels as givens and plans within them. At the opposite end of the spectrum, JIT techniques are blind to the overall supply chain. Each node of a pure pull system is only sensitive to the demand at the next downstream operation. DDMRP, on the other hand, models where inventory should be held in order to minimize lead times and reduce variability where it matters the most.
In terms of inventory, DDMRP stakes out a middle ground between MRP and lean manufacturing. It does not view inventory as a waste, as lean manufacturing does with its goal of "zero inventory," and it does not seek to establish safety stock levels in a static way, as MRP generally does. Rather it seeks to hold the right amount of inventory at the right place in the supply chain "to promote flow but minimize working capital," and "to size and dynamically adjust those strategic stock positions" based on a set of rules dominated by six factors.
DDMRP deals with lead times in a more realistic fashion than traditional MRP, which in calculating manufacturing lead time assumes all components are in stock, or in calculating cumulative lead times assumes nothing is in stock. Neither are good assumptions in most environments today. DDMRP introduces a concept it calls Actively Synchronized Replenishment (ASR) Lead Time (ASRLT), which represents "the longest unprotected sequences in the bill of material" where "protection" is defined by strategic stocking points. These points decouple, compress, and ultimately define the calculated lead time of an item.
MRP is only a planning tool and JIT is only an execution tool, whereas DDMRP is both a planning tool (in the modeling and planning stages) and an execution tool, in the execution stage (see Figure at top of this post).
DDMRP greatly reduces the emphasis on accurate forecasts in driving supply plans. Demand is driven entirely or largely by actual customer demand (typically sales orders), which can then be satisfied from compressed lead time due to the strategically placed inventories at the subassembly or component level.

These are just a few of the key concepts of DDMRP. For a more complete view, see the additional resources listed at the end of this post.

If there is any doubt that DDMRP is a major breakthrough, consider this: the book everyone considers the "Bible" of MRP was written in 1974 by the late Joseph Orlicky, and the second edition was authored in 1994 by the late George Plossl. McGraw-Hill, publisher of Orlicky's Material Requirements Planning has just released the third edition, which is authored by Carol Ptak and Chad Smith, the brains behind DDMRP. This third edition now incorporates the concepts of DDMRP, building upon the work done by Orlicky and Plossl, two of the fathers of MRP.

Proof in the Pudding

Think DDMRP is just a nice theory? Not so. The benefits have already been demonstrated by at least two early adopters:

Oregon Freeze Dry, after adopting DDMRP, saw a 20% increase in sales 20% and 60% inventory reduction in one division, along with 60% reduction in make-to-order lead-time and 20% inventory reduction in another division.
LeTourneau Technologies (LTI) is an interesting case study in the natural resources sector. The firm implemented DDMRP in one of its two plants, while letting the other plant continue with traditional MRP. Both plants had similar resources, bills of material, and material planning personnel.

During a boom and decline cycle of 2005 to 2008, the DDRMP plant grew revenues from $270M to over $620M, while growing inventory by only about $80M. In contrast, the traditional MRP plant experienced the similar growth in revenues, but inventories grew at the same pace. When the recession hit in 2008, the DDMRP plant , however, was well positioned with lean inventories while the traditional MRP plant was exposed to a huge amount of inventory liability.

Additional case studies should begin to appear as other organizations gain experience with these new methods.

What's Next?

I believe that enterprise software vendors, especially those focused on supply chain management, are going to move quickly to begin to incorporate DDMRP concepts into their systems. So far, there is only one software provider that has done so, Replenishment+® from Demand Driven Technologies, of which Chad Smith is a paid advisor. However, I see indications that some other vendors are moving in this direction. In other words, I do not believe availability of software is going to be an obstacle.

If there is any obstacle to wholesale adoption of DDMRP, it is going to be in the general level of resource planning skills in many manufacturing organizations. The concepts behind DDMRP are not simple. Many practitioners tasked with responsibility for MRP systems today do not have a deep understanding of MRP principles, even of traditional MRP circa 1974. How are they going to grasp the concepts behind DDMRP? I think this will be the key limitation hindering widespread adoption, unless manufacturing organizations are willing to re-invest in professional development in a sustained way. Conceptual education--not just software training--is going to be key.

A corollary observation is this: production and material planning is going to become an even more critical function for manufacturing and distribution firms. It always has been, of course, but it will become even more critical in industries where some players have the skills to adopt DDMRP and others don't. No longer just a back-office function, resource management should once again become an inviting career path for young people.

Additional Resources

There is much more to DDRMP than I can outline here, such as its ability to accommodate seasonality, ramp up/down in production, and end-of-life scenarios, all of which are troublesome for traditional MRP systems and especially lean-manufacturing systems. Therefore, it is best to point readers to the following resources.

Demand Driven MRP. The flagship DDMRP website maintained by Carol and Chad, with a good introduction to DDRMP. Free white papers, videos, and podcasts are available on a number of DDMRP topics.
Demand Driven Institute. The educational and consulting organization promoting the concepts of DDMRP. The textbook I mentioned earlier, Orlicky's Material Requirements Planning, Third Edition, is also available here, with a supplemental DVD.
Orlicky's MRP. This is the official website of the new edition of Orlicky's Material Requirements Planning.

There are several white papers and videos linked at these sites that go into more depth on DDMRP. Training classes are now being rolled out. In addition, the authors will be presenting more on this subject at the APICS International Conference in Pittsburgh, October 23-35. If you are planning to be at this conference you will be wise to register for this session, as it will probably be standing room only.

APICS Returns to Its Roots
PeopleSoft Strengthens Its Manufacturing Offerings by Acquiring Demand Flow
Lean Manufacturing: Not a Complete Solution without Information Technology
Lean Manufacturing Doesn't Really Need Software, But Software Can Help
Lean Thinking is Still More Than Software

Kenandy: A New Cloud ERP Provider Emerges from Stealth Mode

2011-09-01T08:40:00.000-07:00

There's news for those of us interested in manufacturing ERP: a new cloud ERP provider is having its coming-out party this week at Dreamforce, the annual user conference of Salesforce.com. Kenandy, which is built entirely on Salesforce.com's platform, provides core manufacturing functionality, such as inventory, shop orders, purchase orders, and material planning. Founded in 2010, Kenandy already has one customer live and a handful of others sold and in implementation.

Early this week, several people forwarded me advance word on Kenandy from a Wall Street journal blog post. Normally, the launch of a new cloud provider would not warrant this kind of attention. But this launch has an interesting twist: the brains behind Kenandy is none other than Sandra Kurtzig. She is the original founder and CEO of ASK Group, the developer of the well-known ManMan ERP system--more or less the SAP of the 1980s. She retired something like 10 years ago, but was convinced to come out for an encore by Marc Benioff, CEO of Salesforce.com and her neighbor on a beach in Hawaii. Kenandy has venture funding from Kleiner Perkins Caufield & Byers, and its managing partner Ray Lane sits on Kenandy's board.

Kenandy's Angle

I scored an interview with Sandra and her CMO Rod Butters yesterday, prior to Sandra's appearance on stage with Marc Benioff this morning at Dreamforce. I had a lot of questions for Sandra, and she was forthcoming with answers.

Kenandy is positioning itself for small and midsize manufacturers ($15M - $300M), especially those that source, manufacture, and distribute products through contract manufacturers and channel partners. Sandra noted that ERP vendors with systems designed in the 1970s and 80s (such as ManMan) assumed their customers were vertically integrated. Her perspective is that this orientation has carried forward in the design assumptions of the leading on-premise ERP providers today, which have their roots in systems built during that time period. This is not a good assumption today, as even small and midsize manufacturers are contracting large parts of their operations offshore and have complex distribution relationships with channel partners. Such organizations need an extended ERP system, and Kenandy is being designed with these scenarios in mind.
Built on Salesforce.com's platform, Kenandy is a full multi-tenant SaaS offering. An organization can run multiple facilities within a single tenant, or it can set up multiple tenants, for its contract manufacturers or business partners, for example, and gain inventory and production visibility up and down its supply chain. (Disclaimer: I have not evaluated Kenandy on any functionality points to confirm these features).
Kenandy expects very short implementation times. Its first customer, Den-Mat, a maker of dental products, went live in two weeks, converting from a legacy IBM Series i (AS/400) system.
Kenandy is focusing on manufacturing functionality and depending on other cloud providers to fill out other parts of the enterprise suite. For example, there is integration (of course) with Salesforce.com for CRM, and with FinancialForce.com for financials. In addition, Sandra claims that integration with customer's legacy systems (e.g. Quickbooks) are always an option.
Development of Kenandy is being led directly by Sandra: in other words, she is not only the founder and CEO. Like many start-up software firms, she is also the brains behind the product and the chief product management executive. She is working with a small group of internal developers and is supplemented by development resources from Persistent Systems in India.

I also took a walk to the Expo floor and got a quick view of Kenandy's system. I also met the "Ken" of Kenandy. (The firm is named after Sandra's two sons, Ken and Andy).

A Market with Lots of Open Space

I am currently working on a research report on cloud-based ERP systems, so I was quite interested in seeing a new competitor emerge in this market. In my view the market is wide open. There are only a handful of pure multi-tenant SaaS ERP providers, and even few that can support the needs of manufacturers. These providers include NetSuite, SAP's Business ByDesign, Workday, Plex, and Rootstock.

Compare this to the dozens or scores of ERP providers that we could choose from in the 1980s and 1990s. Today the market for traditional on-premise ERP systems is dominated by two vendors: SAP and Oracle. Microsoft occupies a strong secondary place, especially in the SMB space. Many of the other players have been acquired by Infor and Oracle, though several good providers, such as IFS, Epicor, QAD, Syspro remain independent.

Nevertheless, the broad industry trend is moving to cloud computing, and manufacturers that want full-suite ERP in the cloud have few choices. Therefore, the market is wide open. As I mentioned to Sandra, it's like the Pilgrims landing at Plymouth Rock. There is a whole continent waiting for anyone so inclined to stake a claim. There's no need to argue about property lines with neighbors. Just go out, pick a few verticals, geographies, and organization sizes, and build out your offering. There is plenty of room to grow.

Other providers are already doing so. Plex was first out of the gate, with a full cloud-based ERP offering dating back to the middle of the last decade, and they continue to gain momentum. SAP's launch of Business ByDesign is also gaining traction, not only in subsidiaries of SAP's traditional large customer base, but in net new SMBs as well. Rootstock, not as well known, has a credible offering for manufacturers (especially project-based) on NetSuite's platform, and it has now migrated its manufacturing ERP offering to Salesforce.com's platform. Moreover, other on-premise vendors, such as Epicor and Infor, have enabled their products to operate in a multi-tenant cloud deployment model.

But there are large swaths of open space. Kenandy is a welcome new player.

Update, 10:02 a.m.: Sandy is on stage now at Dreamforce. She's wearing a button with the letters ERP crossed out. Marc asks, "Your previous firm ASK built on HP's platform, right?" She jokes, "Is HP still in business?" Ray Lane, an HP board member, is standing next to her. Sandy mentions Salesforce.com's investment in Kenandy. Ray, as mentioned in my post above, is also an investor, and now relates the story of Sandy showing up in Ray's office, asking for money. Ray, who like Sandy, is well over the median age at Dreamforce, admonishes the audience, "Don't think our generation is through yet!"

Update, 10:20 a.m.: Dennis Howlett looks at manufacturing cloud ERP developments.

Update, Sep. 6: Dennis Howlett interviews me live about my thoughts on Kenandy. Click on the image below to watch the interview.

Workday pushing high-end SaaS for the enterprise
SAP Innovating with Cloud, Mobile, and In-Memory
Plex Online: pure SaaS for manufacturing
NetSuite a viable alternative for SAP customers?
Workday: evidence of SaaS adoption by large firms

Twenty Years of ERP Lessons Learned

2011-08-28T14:30:00.000-07:00

I gave a keynote presentation last week at the Manufacturing ERP Experience conference in Chicago. Because the primary attendees were end-users and prospective buyers of ERP systems, I wanted to share something on current ERP trends and best practices for success.

But this presented a challenge: I've been speaking about ERP for over 20 years. How would a presentation on this subject be different today than one I would have given 20 years ago?

So, during the keynote, I thought of at least three ways in which ERP is different today, and one way in which it is still the same.

ERP as a Platform

Twenty years ago, ERP was viewed, in effect, as the final destination. For example, CRM was not yet popularized (Siebel was founded in 1993). In most companies, business intelligence was limited to report-writing or custom-built data warehouses. Mobility apps and collaboration systems were a long way off in the future. Even email was not well-established in business communications. So, ERP was where most of the action was, especially in the manufacturing sector, where it has its roots.

Although ERP was a hot topic in the early 1990s, today we understand that ERP really doesn't do all things equally well. Even the acronym "Enterprise Resource Planning" (an evolution of "Material Requirements Planning" and "Manufacturing Resource Planning" systems of the 70s and 80s) is a misnomer. ERP is not primarily a planning system, it's a transaction processing system. Its benefits are primarily in standardizing and automating business processes. To perform what-if planning, or to understand trends hidden in the data, or to gain a 360-view of customers, for example, you need to go beyond ERP.

Does that mean ERP is just one of many investments that an organization can choose to make in enterprise systems? Not at all. ERP plays a unique role in the applications portfolio, as the foundation for so many other things that organizations want to do.

Sure, you can go out and implement CRM as a standalone system, but CRM works better when it is integrated with ERP for end-to-end business processes. Some organizations have implemented supply chain management without ERP, but SCM is more powerful when it builds upon ERP as the system of record. Likewise, business intelligence systems, collaboration systems, and mobility apps add more value when they have ERP as their foundation.

Today, ERP is critical as the transaction processing hub of the organization and the system of record for major organizational entities, such customers, suppliers, people, orders, and accounting entries. In many respects, we can think of ERP as the new IT infrastructure, as a standard platform for building out the rest of an organization's enterprise applications portfolio.

Recognition of the Risks of ERP

The second way I think things have changed is in how organizations perceive the risks of ERP. Everyone has read about he horror stories of failed ERP implementations. Names like Hershey, Waste Management, and Nike are well-known examples. Many times the understanding strikes closer to home: most business leaders by now have either experienced for themselves, or heard from their peers, what can go wrong with an ERP implementation.

This wasn't the case 20 years ago. Executives often believed the hype of software vendors who claimed that implementation could be rapid or painless, or that business leaders could go about their jobs while the vendor, or a systems integration partner, did the hard work for them.

Very few executives believe this any more.

General Acceptance of Key Success Factors

Similarly, twenty years ago, executives were quicker to believe that new software could solve their problems, or that systems could be customized to match how the organization did business in the past. ERP projects were often viewed as "computer projects," not business projects.

Today, I find that business leaders have a better understanding of best practices for successful ERP implementation. They realize that ERP means changing now the organization does business. They usually recognize that top management needs to be committed and that it will require participation by all affected functions. They often realize that it is best to pick a system that fits the business, and as much as possible to avoid customizing software code.

But Outcomes Have Not Improved

So, if ERP plays a critical role, and executives understand the risks and best practices, then organizations must be more successful with ERP today then they were 20 years ago, right?

Sadly, I don't think this is the case. According to our 2011 survey, 38% of ERP projects exceed their budgets for total cost of ownership. Furthermore, as I indicated in my keynote, the risks of ERP go beyond cost overruns: ERP is particularly subject to functionality risks (the project was within budget, but the system doesn't satisfy key requirements), adoption risks (the project was within budget, but the organization is not fully using it), and benefit risks (the project was within budget, but the expected benefits are not realized).

So, what is the answer? The answer is that business leaders need to be reminded again and again about these lessons learned, and they need to execute on these best practices. So, while I could have given (and did give) much of this presentation 20 years ago, the lessons are still relevant.

You can watch a video excerpt of my presentation at the top of this post. The complete presentation is also available on Youtube. And, if you'd like a copy of the slides, please email me. My contact information is in the right hand column.

Four problems with ERP
Solving the four problems with ERP

IT Budgets vs. Tech Industry Spending: What's the Difference?

2011-08-11T09:39:00.000-07:00

According to our research at Computer Economics, we reported that 2010 IT budgets showed no growth at the median. At the same time, IDC reported the global IT market grew by 8%.

So which is it?

Over the years, I see a lot of confusion between these two metrics, so let's start with some basic definitions.

IT Budgets: This is the view from within an IT organization, of all IT-related spending.
Tech Industry Spending: This is the view of the technology industry and the investor community, of the total market for technology-related products and services.

As you can see, these are related but entirely different measures. Unfortunately, many industry observers refer to both of these metrics as "IT spending."

So, What's the Difference?

Even though much tech industry spending comes from corporate IT budgets, tech vendors have a lot of revenue that comes from outside IT budgets. Furthermore, corporate IT budgets contain quite a bit of spending that does not go to tech vendors. Here are the big three differences.

Consumer tech spending. Not all tech industry revenues come from corporate IT buyers. For example, Apple just surpassed Exxon as the world's largest corporation, by market cap. How much of Apple's revenues are derived from consumer tech spending vs. business IT spending? Surely, the majority. Microsoft has a much stronger business focus, but still a large percentage of Microsoft's revenues are consumer-related.
Corporate IT spending outside the IT budget. Not all corporate IT spending is in the corporate IT budget. The percentage varies by organization, but typically 20-50% of what could be considered "information technology" spending can take place under departmental budget authority. Some of this is "rogue spending," for example, when a sales group buys a few seats of Salesforce.com, without approval or oversight from the IT department. But a lot of it is by design. For example, in most manufacturing companies, spending on computerized machine tools is entirely within the manufacturing operations budget. Such machinery has an enormous amount of computing power and there is typically an entire group within manufacturing devoted to programming these machines. But the machines themselves and the staff members that program them are typically outside the IT budget.

Similarly, as my friend Vinnie likes to point out, products in nearly every industry today are becoming "smart products," with embedded computing power--not just automobiles, but even washers, driers, and refrigerators have IT capabilities. Do you think the technology spending that goes into designing and building products is under the manufacturer's IT budget? My observation is, almost never. Such spending accrues to the benefit of Intel, Cisco, and other tech vendors, but it is outside the corporate IT budget.
IT budgetary lines that are not tech industry spending. Finally, not everything in the corporate IT budget goes to technology vendors. The biggest item, of course, is personnel costs. Typically 40-50% of the corporate IT budget goes toward salaries of internal support staff, such as programmers, data center personnel, network personnel, and managers. Microsoft, Intel, and Cisco never see that money. So, right off the top, half of the IT budget does not show up in tech vendor revenues.

In addition, there are other corporate IT budget line items, such as facilities, power and utilities, and supplies that are typically not technology-related. Therefore, these show up in IT budget trends, but not in tech vendor market statistics.

When to Use Each Metric

Each of these measures is useful, but for different purposes. If you are a corporate CIO, you are interested in how your organization's IT spending compares against other, peer, organizations. You would like to know how your IT spending and staffing levels and their mix compares against industry standards. Therefore, you are really focused on IT budget metrics. Though they may make interesting reading, reports of tech industry revenues are not your primary focus.

On the other hand, if you are a technology vendor or an investor in the technology sector, you are really interested in how tech industry spending is expanding or contracting. You would like to know about overall tech industry revenues, and you would really like to know specifically about spending forecasts in the market you compete in. You are not interested in the typical corporate IT budget, unless your products or services are highly focused on that market.

What about consultants? If you are a consultant to IT organizations, your interest should be on IT budgetary metrics. Conversely, if you are a consultant to IT product/service providers, you probably want to focus on tech industry spending metrics.

So, when you read reports about IT spending trends, understand the context. Is the report referring to the IT budgets within user organizations, or the revenues of technology vendors? Those are two different things.

Microsoft as the Good Guys

2011-07-14T10:42:00.000-07:00

I spent a good part of this week at Microsoft's Worldwide Partner Conference (WPC) in Los Angeles, and I came away with this thought: in enterprise IT, Microsoft is turning into one of the "good guys."

When Microsoft ruled the world

First, let's turn back the clock. Around the turn of the last century, Microsoft had a lock on personal computing, especially with its Windows desktop OS and its Office productivity suite. Apple was in a far distant second place. Netscape had a head start with a Web browser but was soon crushed by Microsoft's Internet Explorer. Linux made inroads at the server level but never gained traction on the desktop. Microsoft on the desktop was like IBM in the data center in the 1980s. It was commonly said, whatever market Microsoft chooses to go after, it will soon dominate. The US Department of Justice and European Union pursued Microsoft on antitrust grounds, like the US did with IBM years before. But these actions seemed to do little to slow Microsoft's momentum.

But, what a difference a decade makes. The desktop is rapidly losing ground as the center of personal computing. Smartphones and tablet computer usage are exploding, and Microsoft has a tiny market share on both. Apple still has a small market share for desktops, especially in the enterprise, but it is now the choice for all the "cool kids." Microsoft still has a majority and growing share of the workload in corporate data centers (over half, even in large organizations, per our research at Computer Economics), but it is late to the game in cloud computing, which threatens the very reason-to-be for corporate data centers, long-term. Its search engine, Bing, has some interesting technology, but faces an uphill battle against Google, which dominates the search ad business. Therefore, in many markets, Microsoft is the underdog.

So, it was entirely fitting that the WPC Tuesday keynote this week began with a version of Coldplay's song," whose first line is, "I used to rule the world:

I used to rule the world
Seas would rise when I gave the word
Now in the morning I sleep alone
Sweep the streets I used to own

I used to roll the dice
Feel the fear in my enemies' eyes
Listen as the crowd would sing
"Now the old king is dead, long live the king!"
One minute I held the key
Next the walls were closed on me
And I discovered that my castle stands
Upon pillars of salt, and pillars of sand

There were signs of humility in the keynotes, such as Steve Ballmer remarking that the market share of Windows Phone had gone "from very small to very small." Even in touting success, such as with the roll-out of Windows 7 and Office 2010, there was none of the bluster we too-often see from certain enterprise vendors. Ballmer even had a hard time getting the partner audience to give a good hiss at the mention of a competitor.

So, as I'm listening to keynotes and conducting one-on-one interviews with Microsoft executives and partners, I'm getting the feeling that Microsoft is losing its place as everyone's favorite punching bag. In fact, it has a real opportunity to be the good guys in the enterprise IT marketplace.

I see this in three ways.

1. Offering safe platforms

Microsoft takes a lot of criticism for its proprietary technologies--especially from open source advocates (of which, I am one). I still believe that open source technologies, such as Linux, AJAX, and others, are a great foundation for building enterprise software. But, increasingly, independent software vendors (ISVs) are seeing Microsoft as another safe alternative.

It is not generally known, for example, that SAP--the granddaddy of enterprise software--is using Microsoft Visual Studios as the platform for scripting custom logic in its new Business ByDesign (ByD) cloud-based ERP system. SAP formerly did nearly all development in its proprietary ABAP language as well as in Java. But now, SAP apparently feels that Microsoft's C# is a better choice, at least for ByD. When I asked SAP about this a few months ago, an SAP executive told me, it's because most of the target market for ByD--small business--is already using Microsoft technologies.

This week, at the WPC, I ran into an executive of a Tier II ERP vendor, which competes with Microsoft Dynamics. I was surprised to see him at a Microsoft event. Why was he here, I asked. "Because, we're a Microsoft partner," he replied. "We use .NET, Lync, Sharepoint, and Microsoft's business intelligence capabilities as part of our product strategy. We're also using Azure to build cloud-based mobility apps."

Later in my one-on-one interviews with Microsoft executives, I asked about this. How can you compete with these enterprise software vendors in your Dynamics business, yet turn around and support them with your technology? The answer, in so many words, is that in the big picture, Microsoft will be more successful by being a safe platform provider for other vendors, than it will be by hoarding its technologies only for use by its own applications business.

So, at a time when other enterprise software vendors are questioning their commitment to Java, in light of Oracle's acquisition of Sun, Microsoft is starting to look like one of the good guys.

2. Focusing on cloud-value

Despite Steve Ballmer's talk about being "all in with the cloud," Microsoft's actual progress has been slow. From this perspective, Microsoft is seen as a laggard, falling behind cloud infrastructure providers such as Amazon, as well as SaaS providers, such as Salesforce.com and NetSuite. This has been my view for some time, and I still feel this way.

But from interviews with Dynamics executives, it's clear that there is some deep thinking going on about the cloud. Specifically, what is the value of cloud computing to customers? Is it only in cost-savings through outsourcing the infrastructure to a low-cost platform? Is it with all workloads equally, or with certain workloads? Are there parts of the enterprise suite that customers will more likely want to retain in-house, or with a trusted third party hosting provider, while moving other parts to a shared multi-tenant environment? What scenarios favor multi-tenant as the preferred architecture, due to the relationship between the tenants?

With many enterprise IT vendors today, where you stand on the cloud depends on where you sit. If you are a NetSuite or Salesforce.com, the only valid strategy is to have everything delivered as a pure multi-tenant SaaS offering. If you are a Larry Ellison, SaaS is a myth, or if you are a Harry Debes, the SaaS industry will collapse in two years.

But, with Microsoft there's no such dogmatism. Rather, it is thinking hard about where customers find the most value in cloud computing and is working to prioritize its migration to the cloud to focus on those value propositions. I just wish they would get there faster.

3. Enabling entrepreneurs

The third way in which Microsoft is the good guy is in the opportunity it offers to entrepreneurs. We all know that Microsoft's sells a lot of products to small and mid-size businesses. But Microsoft is also small-business-friendly in its partner channel. Attending the WPC is a real eye-opener: thousands of partners, mostly small businesses, many entrepreneurial, enabled by Microsoft's channel program. During these economic times, when everyone is championing small business as the key to economic prosperity, Microsoft is enabling thousands of entrepreneurs and small businesses worldwide to grow and compete successfully. In fact, IDC recently estimated the total 2010 revenue of the Microsoft partner ecosystem at US $580 billion. Compare that to Microsoft's revenue of approximately $60B, and you can see that every dollar Microsoft makes results in about 8 or 9 dollars of revenue for its partners. That's a big opportunity for Microsoft's 640,000 partners worldwide.

My interviews with three Microsoft partners also gave me insight into how these small businesses are winning in these difficult times. I interviewed Jeff Geisler, owner of Socius, a traditional CPA-type partner, which is growing steadily through the recession by acquiring smaller firms. I also met with Steve Thompson and Jim Sheehan from PowerObjects, a Microsoft CRM partner with strong development capabilities. Finally, I had a sit-down with Paul Tilling and Bob Hadingham at LexisNexis. Paul and Bob's group is an independent software developer in the UK that has taken its software for law firm practice management and is migrating it to Dynamics AX as its underlying platform. These three businesses have different focuses, but each is betting its business on Microsoft's partner channel.

With some other enterprise IT vendors, being a partner is a risky bet, as you sometimes find yourself competing against the vendor's direct sales force. Or, the vendor has a shifting strategy on where it wants to allow its partners to do business. Microsoft, by running 95% of its revenue through the channel, has no such conflict.

A closing thought

The choice of venue--Los Angeles--was entirely suiting to this theme. The city has seen hard times over the past several years. The glow is off the Golden State. The land of opportunity has been slow to recover from the recession. Our state budget is deep in the red and the business climate is going from bad to worse. It's a microcosm of most of the nation.

Microsoft could have chosen San Francisco or Silicon Valley, where it would have been just one more tech conference. Instead, it chose Los Angeles, where it could make a difference. In fact, I'm told, this was the largest business conference ever in Los Angeles, and was estimated to bring $45 million for local businesses.

So, once again, Microsoft is the good guy.

What’s new with Microsoft Dynamics AX 2012
Update on Microsoft Dynamics products and plans

The IT Spending Recovery and Implications for Enterprise Software

2011-07-07T12:55:00.000-07:00

Computer Economics has just published its 22nd annual IT Spending and Staffing Benchmarks study. The latest data, based on our survey from the first half of 2011, shows that the US and Canada have emerged from the IT spending recession of the past two years. At the same time, the recovery is weak and organizations have not returned to the IT spending growth rates of the middle part of the previous decade.

That said, some industry sectors are showing IT spending growth rates well above the median 2.0% for the composite sample, as shown in the accompanying figure. The insurance sector leads the way, at 5.0% growth in IT operational spending, followed by wholesale distribution, discrete manufacturing, high tech, healthcare, and process manufacturing, which all beat the composite median.

To no surprise, the sector dragging the averages down is government. Median IT operational spending by governments is falling 3%, the second year in a row that IT organizations in the government sector have reduced spending. The retail and banking and finance sectors also continue to show below-average growth in median IT spending, at 1% and 1.1% respectively.

Other key findings include:

IT operational budgets as a percentage of revenue is 1.6% this year, down from 1.8% of revenue in 2010, as revenue gains outpace investment in IT.
In a continuation of a six-year trend, IT operational spending per user this year is declining to $6,667, down from $7,002 the prior year, on an inflation-adjusted basis. The long-term trend is indicative of improving IT operational efficiency but is being pushed further by the cost-cutting of the past three years.
After three years of zero growth, IT capital spending is up 1.8% at the median. Discrete manufacturing, energy and utilities, and high-tech sectors show the strongest growth in capital investment.
The modest increase in IT spending this year is not reflected in IT hiring plans: only 34% of organizations are increasing IT headcount, while 27% are reducing staff levels.

A free 40+ page executive summary of the IT Spending and Staffing Benchmarks study is available, along with a description of the full report.

Implications for Enterprise Software

The recovery in IT spending is certainly good news for enterprise software buyers and sellers. The stronger-than-average recovery in the manufacturing and distribution sectors is especially welcome, as these sectors were hammered hard early in the recession. In our soon-to-be-completed technology trends survey, we are already seeing signs of increasing interest in expanding ERP systems, replacing legacy systems, and new investments in CRM, supply chain management, business intelligence, and mobility applications.

At the same time, our data shows the recovery is weak. Although many organizations are now willing to spend, they still have one foot on the brake, ready to cut back or postpone new spending initiatives if the recovery slows. Fear of a double-dip recession is far from over.

This cautionary mood means that sellers should expect buyers to negotiate hard on price. Flexibility in payment terms, with milestone payments instead of cash up front will also be well received. With its subscription-based pricing and avoidance of large up-front costs, software-as-a-service (SaaS) will continue to be an attractive option for many buyers. Finally, many buyers will be looking to add new functionality to existing systems, rather than completely replace them. Vendors that are able to play well with others will benefit the most in this environment.

In defense of incremental innovation
Take our Technology Trends survey, and share in the final report

In defense of incremental innovation

2011-05-29T12:32:00.000-07:00

As regular readers know, I am a fan of Clayton Christensen, author of The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. Christensen is the one who first coined the phrase disruptive innovation, which has become almost a cliche these days for anything "new" in the world of technology.

But when we say a certain innovation, or a certain technology, is disruptive, what does that mean? Disruptive of what? Disruptive to whom? Without a clear explanation, the term is ambiguous.

This became quite clear in a sales presentation that I gave recently with my Constellation Research associate Ray Wang. We were giving our usual stump speech and came to the part where we outline Constellation's focus on "disruptive technologies." Several individuals in the room grimaced. One of them spoke up and said something to the effect of, we are a conservative organization--we're not sure we are ready to be disrupted. Ironically, this is a high-tech company, at the forefront of its industry in terms of innovation. Yet, when it came to its own information systems, the word disruption was not viewed as a good thing.

Should our client (we did win the deal) have been concerned? I don't think so. Go back and read Christensen's book. In it, he is quite clear that the disruption caused by a new technology is not disruptive to technology buyers--it is disruptive to technology sellers, especially the sellers of older technologies that are replaced by the new technologies. In fact, buyers find the new technology anything but disruptive. They find it simpler, easier, and cheaper to use. It is the sellers of the old technology, which is more sophisticated, more feature-rich, and more expensive that are disrupted by the newer, cheaper, simpler technology.

The vendor's responsibility

This thought came back to me last week when I read a post by my friend and associate Vinnie Mirchandani, who attended, as did I, SAP's user conference in Orlando, Florida. In Sapphire Now: Innovation at the Edges, he writes:

But if there is plenty of innovation at the edges, the core [SAP's core products, such as ECC and the rest of its Business Suite] still seems fairly static. The lightbulb still has not gone on that if on-demand functionality can be delivered for sub-$100 a user a month, there is little justification for on-premise price points to be 10, 15, 20x that. That if Apple and Google and amazon can build mobile ecosystems of hundreds of thousands of applications and games with a cottage industry of entrepreneurs, SAP cannot continue to magically expect its current SI and outsourcing partners to match that speed or those price points. If small teams can build fairly ambitious HANA applications part-time in a matter of days, SAP’s and its partner’s project time scales need to be similarly compressed. if on-demand benchmarks are showing frequent upgrades and importantly instant propagation throughout the customer base, SAP cannot afford to have old-school and grudging multi-year customer base migrations at the core.

That is SAP’s next big challenge. It has picked up a whole bunch of hammers and sickles as it innovates at the edges. It now needs to use them to bombard the core.

Now, I have no argument with the thought that SAP needs to transform its core products with the same technologies that it is using to develop its new "edge" products, such as its line-of-business applications. In fact, SAP co-founder Hasso Plattner and board member Vishal Sikka emphasized this same point in small group discussions I participated in.

Where I do have a different point of view, however, is with any thought that SAP's existing customers would be well-served by a disruptive transition of SAP's core products. Call it the curse of the installed base or whatever you want. But the fact is that thousands of organizations use SAP's core products to run mission-critical systems that support their businesses. SAP cannot, and should not, disrupt or otherwise undermine the investment that those customers have made. Whatever SAP does in the way of innovation, it should do so in a way that preserves and extends those customer investments.

It's not that SAP doesn't know how to rewrite its core products. It's already developed a full ERP replacement built on a true multi-tenant, in-memory SaaS platform: its Business ByDesign product for small and mid-size businesses. And it is using the same platform to deploy its "edge" products, which Vinnie refers to. Ultimately, it intends to migrate functionality from the core to these new technologies.

Lest anyone think I'm an apologist for SAP, please search this blog for posts I have written about SAP since 2002, the majority of which are critical of SAP. But on this point, I respect what SAP is trying to do.

The customer view

Customers of SAP, Oracle, and other legacy vendors are in a difficult position. Many, such as the client I referred to earlier, see value in new technologies, such as mobile applications, cloud computing, and in-memory analytics. But the value does not justify a complete replacement of their core systems, which may be stable and meeting their basic requirements. Why replace those systems? How can the customer extend the value of those legacy or core systems, while at the same time acquiring and implementing new technologies?

Rather than focus on acquisition and implementation of a new technology just because it is new, I would prefer to focus on business value. If an old technology has value, why replace it? If a new technology is not cost-justified, or not justified for strategic reasons, why implement it? If an existing technology is already implemented, what is the business case for change?

That is the need that SAP (and Oracle, and other vendors with large installed bases of customers) is trying to address. It's not easy. In fact, one might say that if SAP can meet this need, SAP would be quite innovative. It would be like allowing a driver to swap out the engine while the automobile is moving down the highway at 75 miles-per-hour. I'm having a hard time thinking of an example where a legacy enterprise software vendor has made such a transition.

So, what most companies, especially large companies need is incremental innovation: implementation of new technologies for new applications, while at the same time preserving and extending the life of their existing systems, while over the long term incorporating these new technologies into those core systems. The alternative--ripping and replacing those core systems--is painful, expensive, and, yes, too disruptive for most organizations.

SAP innovating with cloud, mobile and in-memory computing
When smartphones disrupt medical devices
The inexorable dominance of cloud computing
The disruptive power of open source

SAP innovating with cloud, mobile and in-memory computing

2011-05-18T19:45:00.000-07:00

Based on my attendance at SAP's SAPPHIRE NOW conference this week, SAP appears to be making major advances in three strategic themes of innovation. But to succeed, it needs to do two things equally well: reach new customers with leading-edge technology while at the same allowing its legacy customers to adopt these technologies in an incremental way.

I arrived in Orlando Sunday evening just in time for dinner with SAP’s co-CEO Jim Snabe and a small group of bloggers. It was a chance to get to know Jim up close and exchange views on SAP and the enterprise software market. The conversation was very frank, and most of it was off-the-record. Jim described his own roots at SAP as well as his vision for the future, which currently revolves around three broad themes of innovation: cloud, mobile, and in-memory computing. Not surprisingly, these turned out to be major themes throughout the keynotes and briefing sessions I’ve attended.

Cloud computing

As Jim pre-announced with us Sunday evening, SAP just sold customer No. 500 for Business ByDesign (ByD), its pure SaaS solution for small and midsize businesses. This puts SAP ahead of its goal to reach 1,000 customers by the end of 2011, a point of pride. On Monday, I met in a small group briefing with Rainer Zinow, who is in a leadership position with both ByD and SAP's new line-of-business applications for customers of SAP’s Business Suite. The ByD platform, though originally developed for the small business offering, now serves as the platform for all of SAP’s on-demand applications, such as its Sales On-Demand.

On Monday, I also took time to walk out to the show floor for a test drive of the ByD application. I was impressed by the extent of functionality offered by the product, though I did find screens to be crowded and a bit difficult to navigate at first. Some of this might be resolved at implementation, as screens can be customized to reduce the amount of information displayed.

On Tuesday, I interviewed an early ByD adopter, who confirmed that they did find it helpful to configure screens to remove unnecessary information. This configuration can be easily accomplished by end-users. Nevertheless, it points out that once you get into implementation and change management, there’s not much difference between an on-demand and on-premise solution.

Mobile computing

SAP took a big step into mobile computing with its 2010 acquisition of Sybase. Much of the focus since the acquisition has been on development of the Sybase Unwired Platform (SUP), which provides the infrastructure for mobile applications (for example, device management). Now, with the platform now in place, the focus is turning to mobile apps themselves. SAP is showing dozens of mobile apps on the show floor. I got a look at some of them on the floor and also in a blogger briefing with SAP’s Ian Kimbell. Kimbell reports that initially it took SAP’s team a week or two to develop the initial apps, but after coming down the learning curve, the team now only required a couple of days to developa new application. This sort of productivity will hopefully lead to an explosion of innovative mobility applications, not just to replace desktop apps but to enable new business processes.

Some of the new apps are quite simple, such as expense reporting or management approvals, while others carry deeper functionality, such as those for patient data reporting or field service management. Some are developed directly by SAP, while others are being developed by partners. Most are or will be available through the newly announced SAP apps store.

See the video I shot, below, of some demonstrations of these mobile apps.

In-memory computing

Most enterprise software vendors consider cloud computing and mobility applications as the top two innovations currently disrupting the enterprise software marketplace. But SAP consistently lists a third innovation: in-memory computing. The strategic place of in-memory computing was made clear in my meeting with SAP co-founder and current Supervisory Board chairman Hasso Plattner.

In memory computing is simply an computing architecture where an entire database resides in main memory and all reads/writes are performed directly in memory, instead of in disk storage. (In SAP’s implementation, disk storage is still used as staging area for source data, for failover integrity, and to archive inactive data.) In-memory computing is enabled by the rapidly the improving price-performance of computer processors and memory, allowing main memory to reach into many terabytes, limited only by the number of nodes in the cluster.

SAP’s flagship use of in-memory computing is in its HANA in-memory appliance, although the technology is also being deployed in other applications, including SAP’s Business ByDesign, described earlier. SAP referenced a number of early HANA adopters during the keynotes, most of which focus on business analytics with very large data sets. Early adopters include:

Colgate Palmolive, which uses HANA to generate detailed real-time sales reporting for customers. The firm is also working with SAP now on a HANA application for trade promotions management.
Medidata, a SaaS-provider of clinical trials data management. The firm uses HANA to allow its customers (generally large drug and medical device developers) to analyze clinical trial data from around the world for trends in quality issues and to quickly take remedial action, potentially saving large amounts of money in each trial.
Caterpillar, the manufacturer of large earth-moving equipment, which uses HANA to analyze large numbers of product configuration options and design-to-order features. This application of HANA allows the firm to determine what configurations are feasible from instantly analyzing millions of rows of data.
Canoe Ventures, a joint-venture of several cable TV companies that uses HANA to customize delivery of ads to millions of individual viewers, allowing them to instantly request more information. This is an application that uses HANA for non-SAP data. Once the ad and viewership data is no longer needed, it returns to its sources. Nothing is held in a permanent data warehouse.

These are just four of the many case-studies presented by SAP board member Vishal Sikka and discussed further in my briefing with him after his keynote session.

As a data analysis tool, HANA competes with Oracle’s Exadata product line. In-memory computing itself is not unique to SAP. It is also employed by other enterprise system providers, such as Workday, as well as data analytics firms such as QlikTech.

Interestingly, SAP has at least two connections between in-memory computing and cloud computing. First, its cloud ERP offering, Business ByDesign, itself uses an in-memory computing architecture. Second, SAP plans to offer HANA as a service, running in SAP's own cloud, for customers that cannot afford or cannot justify an on-premise purchase of a HANA appliance.

What does it all mean?

SAP is one of the largest and oldest enterprise software providers. It has a large installed base. In pushing forward on these three fronts of innovation—cloud, mobility, and in-memory computing—it has two goals. First, to keep its installed base customers supplied with new technology, to keep them from looking elsewhere. Second, to provide new and interesting solutions to prospects that are not yet SAP customers.

These two goals can be seen in each of the three themes.

With its cloud offerings, SAP is aiming its line of business solutions, such as Sales OnDemand at its installed base, some of whom have been leaving the fold, choosing Salesforce.com for sales force automation rather than SAP’s own on-premise CRM solution (as evidenced in a recent deal I was involved in). At the same time, SAP is targeting its Business ByDesign service to new prospects--small and midsize companies--that are increasingly looking at cloud solutions, such as NetSuite. In addition, SAP thinks it has a winning strategy in selling ByD to small subsidiaries of its large customer base, which might otherwise look to Microsoft, Epicor, Infor, or QAD, for example, in a two-tier configuration.
With its Sybase Unwired Platform, SAP is trying to make life easier for its installed base customers, who otherwise would have to develop their own mobility applications or integrate offerings from a variety of providers to run on a variety of devices. At the same time, SAP thinks it can sell its mobility applications to companies outside of and separate from its installed base, potentially serving as an entry point for other SAP products. My associate Dennis Howlett thinks SAP should be even more aggressive in this strategy, by providing the Sybase Unwired Platform at low or even no cost, to gain a foothold in new organizations.
With its HANA in-memory data appliance, SAP is looking at providing supercharged data analytics capabilities to its own installed customer base, such as its Business Objects users. At the same time it has taken great pains to ensure that HANA plays equally well with non-SAP data, to position HANA as a general purposes data analytics solution, as shown in the Canoe Ventures case-study, outlined above.

Will SAP be successful in these three themes of innovation? It certainly has the resources to do so. Its large installed base throws off billions of dollars in maintenance fees that SAP can invest in new development. It also has a long and proud history of engineering excellence. And in its acquisitions of Sybase and Business Objects it gained the subject matter expertise and customer base to give it a foothold in mobility and analytics.

If there is any area where I might have reservations, however, it might be in cloud computing. Cloud solutions are an entirely different animal than on-premise systems, in terms of how they are developed, sold, delivered, and maintained. The revenue model is different, and as a public company, SAP is very sensitive to short-term constraints on its profitability.

When it comes to investing in the resources SAP needs to make ByD or the line of business applications successful, will SAP willingly pull resources away from its high-margin on-premise business or its multi-million dollar HANA deals? Those who are fans of Clayton Christensen understand the "Innovator's Dilemma." It is not an easy step for market leaders such as SAP. The leaders in the Business ByDesign and the line of business applications areas are certainly smart, talented, determined, and visionary. But will SAP as a whole stand behind their efforts when there is easier money to be made elsewhere?

Whether SAP as an organization can maintain the level of commitment needed to make them successful remains to be seen. The early results, with 500 new ByD customers is encouraging, but there are many more months and years ahead.

Note: SAP covered my travel expenses for this event.

New details on Infor's Lawson acquisition

2011-04-26T10:59:00.000-07:00

Confirming the rumors swirling for the past several weeks, Infor today announced that it is acquiring Lawson Software. (Technically, it is an affiliate of Infor's owner, Golden Gate Capital, doing the acquisition, but the practical outcome is that Lawson and Infor will now be one company.)

I received a quick phone briefing on the news from Duncan Angove, Infor's President of Products, Marketing and Support. Duncan himself is new with Infor as of last December, part of the new management team brought in from Oracle by CEO Charles Phillips.

The press release announcing the acquisition provides the primary talking points. But I wanted to get more details behind the announcement. Here's what I learned.

Product strategy

The acquisition is being driven by the top line (i.e. increasing revenues) and by the desire to create a "third-choice" for the top tier of enterprise buyers (i.e. someone other than SAP and Oracle) by delivering a strong offering for key industries. For example, Infor is interested not just in process manufacturing or "food and beverage," but "bakeries" and other sub-verticals. It intends to offer functionality that takes into account how bread dough rises at certain altitudes, or how long it takes an oven to reach its desired temperature, for example.

According to Duncan, there is little overlap between products of the two firms and they complement each other well. For example, Lawson has very strong presence in healthcare, and Infor does not have healthcare-specific offerings today. But Infor does have a strong asset management product, which is of great interest in hospitals, which must manage detailed information on medical device equipment. Infor sees the integration of Lawson's healthcare systems with Infor's EAM offering as an attractive offering.

Likewise, healthcare providers today face constraints due to the shortage of skilled nurses, and managing the productivity of nursing staff is a key driver of success. Lawson has strong human capital management (HCM) offerings for healthcare, which Infor intends to integrate with its own time-and-attendance and workforce scheduling applications (from its Workbrain acquisition), again, offering a more powerful solution.

On the Lawson M3 (formerly, Intentia) side, Infor sees strong synergies with its other manufacturing offerings, specifically with its product lifecycle management and supply chain products which many consider as best-of-breed.

Technology strategy

Here's where things get even more interesting. I wanted to find out how Infor viewed Lawson's M3 technology, which is 100% Java-based, in light of Infor's decision last year to standardize as much as possible on Microsoft.

Well, as it turns out, with the new management team in place, Infor has un-done its decision to standardize on Microsoft for key elements of its technology stack. Infor now prefers to stay "open" on the technology side. It will continue to leverage Microsoft Sharepoint but will leverage open source components for some elements of middleware, such as the Apache web server, OASIS standards for document exchange, and open source reporting tools. The technology stack will vary by product (e.g. Syteline will continue to be 100% Microsoft), but newly developed complementary products will not standardize on Microsoft SQL Server, for example, as had been Infor's statement of direction earlier.

As far as cloud deployments, Infor will continue to leverage the co-location data center services of Savvis and does not see a conflict with Lawson's strategy to host instances of its systems on Amazon's cloud. Infor currently uses Amazon's cloud to handle peak workload requirements, so it is not unfamiliar with Amazon's services.

Interestingly, Infor claims that the Infor/Lawson combination will have over 1 million users "in the cloud." The bulk of these will comprise Infor's current cloud-based users of its asset management and expense management systems, as well users of Enwise, a SaaS provider of HR service delivery and workforce communication solutions, which Lawson itself acquired in December 2010.

Impact on Lawson customers and employees

As with any software industry merger or acquisition, the primary concern is what the impact will be on customers, who have made large investments in Lawson software, and employees, who have invested their careers in Lawson. Concerning customers, Duncan maintains that, if Lawson was going to be acquired, Infor is the best place for its customers. It has committed not only to maintain current development efforts, but to expand them, with some of the 400 software developers it recently announced it was hiring. Lawson customers should see increased levels of investment with Lawson products, not lower.

Concerning Lawson's people, there is little doubt that there will be "efficiencies" (read: layoffs) in back office functions, but no plan to conduct layoffs among software developers. Infor sees no need to consolidate or push development offshore as a way of improving margins.

As in most cases like this, we'll have to wait to see what the real impact is on Lawson customers and employees.

My take

Infor's strategy to focus on specific industries, and sub-industries is a good one. It is quite similar to what Microsoft put forth in its Convergence conference for its Dynamics line of enterprise software products. The world has enough "broad spectrum" software that addresses a whole host of needs that no one company has, and thus carries a lot of unnecessary code, features, and configuration choices. Focusing on the differentiating requirements of specific industries (e.g. bakeries, breweries) is a better choice.

On the other hand, I think Infor's ambition to become a "third-choice" to SAP and Oracle might be a bit premature. In its ERP offerings, Infor is still a large collection of independently developed and maintained products. Lawson just adds two more (S3 and M3) to the portfolio. Nevertheless, there are enormous opportunities for Infor to establish itself as a strong contender in specific industries, short of being a "broad spectrum" provider like SAP and Oracle. There are also opportunities for Infor to position certain of its offerings in a two-tier configuration, with SAP or Oracle running for corporate or shared-services, with Infor offerings running at the plant or local office level. I would like to see Infor develop and promote out-of-the-box connectors with SAP and Oracle financials and shared services, such as order processing. That would strengthen its credibility further and would be quite attractive for many global organizations, which already are running Infor products in some of their locations.

Finally, the technology shift away from Microsoft, while understandable, represents the second or third major change in strategy over the past two or three years. Infor needs to make its technology strategy explicit and assure customers and partners that it plans to stick with it for the long run.

Shifting strategy: Infor casts its lot with Microsoft
Update on Infor's Flex program: customers win
Lawson's cloud services: good start, but no SaaS

What’s new with Microsoft Dynamics AX 2012

2011-04-19T14:49:00.000-07:00

Microsoft held its Convergence conference in Atlanta last week, and one of the big items on the agenda was the scheduled general availability this August for Dynamics AX 2012 (formerly known as Axapta). There are several areas in which this new version of AX is a real advance for Microsoft, positioning AX up-market more and more as a viable alternative to SAP and Oracle for many customers.

First, let’s see some areas where Microsoft is moving the ball forward with AX.

Microsoft Dynamics AX as an ISV platform

With this new release, Microsoft is positioning AX as more than just another ERP offering. It is now pushing AX as a platform for other independent software vendors (ISVs) and business partners to build out narrow industry-specific solutions. AX currently has strong functionality for manufacturing, public sector (in four countries currently), service industries, distribution, and retail (coming soon).

Of course, many other ERP vendors target specific industries. But Microsoft is going beyond this level of focus. It has a major effort underway to recruit ISVs and business partners to extend this industry-specific AX functionality with more narrow solutions to target certain sub-industries.

For example, Microsoft has already signed up Lexis Nexis to build its legal firm solutions on top of native AX functionality for professional services. Likewise, Aldata is providing fashion and apparel industry functionality on top of AX’s retail industry solution. In another example, Microsoft recently purchased intellectual property from Tyler Technologies for the public sector and rolled it into the AX core. Now Tyler is building solutions for the government and government contracting sectors on top of AX.

Few ERP vendors are moving as aggressively to position their products as a platform for other ISVs. Smaller ISVs often do not have the resources to keep their products up-to-date with the latest technologies. By building on top of AX, they can focus their efforts not the part that really counts--the industry-specific part--instead of modernizing legacy code or reinventing the wheel with another general ledger. In one-on-one analyst briefings, Microsoft executives tossed out approximate numbers of ISVs currently in discussion about following the example of Lexis Nexis, Aldata, and Tyler Technologies—if half this number commit to AX as a platform, it will be truly impressive.

International support

There are also improvements for global implementations. Dynamics currently has development centers in Brazil, Russia, India, and China (the so-called BRIC nations). It is rolling in localizations for these countries and others into the core product, which greatly improves its global support. AX traditionally has relied upon local partners to provide customizations, which may still be appropriate in some localities. But too many partner localizations sitting on top of one another can be cumbersome. So, Microsoft’s approach makes a lot of sense to take on more of these international requirements in the core product.

Expanded functionality

In terms of new functionality, there is much to like, with new core ERP features and functions for supplier relationship management and case management, a new constraint-based product configurator, public-fund accounting, project quotation and budget control for service businesses, better multi-entity capabilities, and embedded business intelligence and reporting. There is also a new role-based user interface, and enhanced interoperability with familiar Microsoft tools such as Word, Excel, Outlook, and Sharepoint.

From the first day keynote, it was clear that Dynamics AX has its share of whiz-bang features, thanks to its ability to leverage innovations coming from other parts of Microsoft. For example, Microsoft's Lachlan Cash showed a prototype the new AX visual Kanban display, manipulated by means of the user’s body motion, using Microsoft Kinect, which is technology used in Microsoft’s Xbox gaming console (see photo). Cash pointed out that such an application would be ideal in a down-and-dirty manufacturing plant, where it might not be advisable to have users touching a keyboard and mouse.

There is much more, too much to list here. A "what's new" fact sheet is available that outlines all the enhancements of this new release and is worth a careful read.

Cloud deployment options

During the conference, many observers headlined their reports, in effect, that Microsoft is “moving its Dynamics line to the cloud.” However, the reality is that Microsoft is moving AX to the cloud in stages. At present, prospects can have their AX systems hosted in partner data centers. When the 2012 version is released in August, it will be continue to be available as a hosted solution in partner data centers, with hosting in Microsoft's Azure cloud available with the next major version after AX 2012.

Although options for cloud-based deployment with the AX 2012 version are currently limited to hosting in partner data centers, this should be sufficient for most customers. As pointed out in the analyst briefings, customers today tend to be conservative in moving their core ERP functions such as financial applications off-premise, although they may be interested cloud deployment for selected functions, such as CRM, time and expense reporting, and applications that support the mobile workforce. As Microsoft and its ISV partners build out complementary products on Azure, all customers will benefit, whether they have AX hosted on Azure or continue with on-premise deployment. So, Microsoft still has time to build out its cloud deployment options.

Where does AX fit?

Considering all of the above, Microsoft Dynamics AX is a strong candidate for organizations in the mid-tier and above, especially for those with the following characteristics:

Organizations in sectors targeted by AX, specifically manufacturing, distribution, retail, public sector, and services. These are major industry groups covering a broad swath of business types.
Organizations that have standardized or want to standardize on Microsoft's technology stack, such as Windows Server and MS SQL Server.
Organizations where users want to leverage their familiarity Microsoft's end-user productivity tools, such as Microsoft Office, Exchange/Outlook, and Sharepoint.
Organizations needing an ERP system that can scale globally to multiple international locations without incurring the overhead and expense of an SAP or Oracle.
Or, conversely, organizations that have SAP or Oracle running for centralized functions such as financials and HR, but desire a lower-cost, small footprint solution for local operations or satellite offices/plants—the so-called “two-tier” strategy.

Finally, organizations running multiple legacy systems that want to consolidate to a single modern platform are well advised to short-list Dynamics AX. Its backing by Microsoft in many cases will be enough to warrant AX a closer look. With the enterprise software industry undergoing consolidation over the past decade, Microsoft’s continued investment in AX gives customers and prospects the assurance that AX is not at risk for being acquired and orphaned.

A practical way forward

The enhancements introduced in Dynamics AX 2012 are not revolutionary, but rather reflect the continued evolution of a product that has become the centerpiece of Microsoft’s ERP strategy.

Microsoft’s promotion of AX as a platform is an interesting product strategy, enabling ISVs and business partners to build out more focused industry solutions (the so-called “last mile” of the solution). This approach blends well with Microsoft’s partner strategy, allowing partners to find new ways to make money while increasing the attractiveness of AX as a niche solution in a variety of sub-industries. As more and more prospects choose cloud-based solutions, traditional sources of partner revenue (e.g. hardware sales, networking, etc.) will dry up, and partners will need to provide more of a value-add. Industry-specialization is their ticket.

Microsoft is also moving in the right direction in strengthening AX for multinational organizations. Microsoft’s efforts now make AX a real alternative to SAP and Oracle, either as a complete replacement or as part of a two-tier deployment, with SAP or Oracle operating at headquarters and AX running in satellite locations. For those uncomfortable with a de-facto duopoly at the top end of enterprise ERP, the emergence of Microsoft Dynamics AX as a viable option is a welcome development.

Update, May 18: corrected timing of hosting options for AX 2012.

Update on Microsoft Dynamics products and plans

Take our Technology Trends survey, and share in the final report

2011-03-10T14:36:00.000-08:00

Over at Computer Economics, our Technology Trends Survey for 2011 is now underway, and we are looking for qualified IT executives to take 10 minutes to tell us about their 2011 technology investment plans. The results will be published in our final report this summer.

What's in it for you? If you qualify and complete the survey, we'll send you a complete copy of the final report (a $995 value).

Take the 10-minute Technology Trends Survey Now >>

Thanks in advance for your help!

When smartphones disrupt medical devices

2011-02-07T17:24:00.001-08:00

I'm here at the Medical Design & Manufacturing (MD&M) West conference, one of several shows running concurrently in the Anaheim, CA convention center this week.

Along with the trade show, there is an excellent conference program. I am especially interested the tracks on disruptive technologies in the medical device industry as well as updates on the regulatory environment with the US Food and Drug Administration and other regulatory bodies globally.

Here are some highlights of what I've heard so far.

Global competition for innovation

Tracy Lefteroff of Pricewaterhouse Coopers outlined opportunities and barriers in worldwide medical device innovation, based on a PwC survey.

The results are not good for the US.

The US is becoming increasingly unfriendly to innovation. Israel is the easiest place to get regulatory approval for new medical device technologies, followed by the EU and India. The US ranks lower down the list. So, if you need treatment involving innovative technology, you may need to go outside the US.
The US carries the highest cost per hospital bed, and fewer beds per capita than any other global region--by far.
Industry participants expect that the regulatory environment in the US will become even more restrictive in the future.
On the positive side, the US is still the best place to raise money for new medical technologies and it also one of the easiest markets to enter, once you have an approved product.

There may be hope, however. Lefteroff reports great interest in Washington to see the regulatory environment improve. Why? Jobs in the medical device industry are leaving the US for more friendly jurisdictions, and in the current environment, anything we can do to improve the employment situation is attractive, on both sides of the political aisle.

Disruptive technologies in the medical device industry

Jeff Brown from UBM TechInsights followed with an insightful look at how consumer technologies are disrupting established ways of addressing patient needs. Brown showed as new technologies reach critical mass, their IP is often transfered into other established technologies, disrupting them and driving down the cost and size of the established products. For example, digital camera capabilities increased and the cost dropped to the point that the technology could be incorporated into cell phones. Today, many consumers do not carry digital cameras, as the cameras in their cell phones are "good enough."

Although Brown covered several disruptive technologies in the medical device industry, much of his presentation focused on how smartphones (e.g. Apple's iPhone) are becoming and will become part of future so-called mobile health (mHealth) solutions.

For example:

The AliveCor EKG sleeve turns your iPhone into an electrocardiogram monitor. Note however that the device is not cleared for marketing in the US. More on that issue in a minute.
iStethoscope Expert, a free primitive iPhone application, uses the native microphone in the iPhone to listen to and record your heartbeat.
Hearing aids, which at the high-end can cost thousands of dollars, are about to be disrupted by blue tooth earpieces connected to smartphones.

In these and many other examples, Brown pointed out the tremendous improvement in capability that comes when standalone devices (e.g. hearing aids, stethoscopes, EKG monitors) are replaced by devices that connect to smartphones. They not only perform the same function as the device they are displacing but they can go beyond with their ability to record and store data and to communicate with other devices.

For example, a traditional hearing aid can only do one thing: help you listen better. But a hearing aid that is connected to a smart phone can take advantage of the smart phone's capability to record and store conversations. In fact, a smartphone could take that recorded conversation and convert it into text and email it to you. One can imagine many applications, even for people that are not hearing impaired.

Innovation vs. regulation

Brown briefly covered the regulatory issues that constrain the convergence of new technologies with medical device solutions. Current FDA regulations treats many of these new applications and distruptive technologies as medical devices, depending on their intended use to diagnose or treat disease, or to affect the structure or function of the human body. This classification puts FDA squarely in the middle of commercialization of such products.

As Lefteroff indicated earlier, other jurisdictions are friendlier environments for introduction of these new converged technologies. It may be that some of these solutions will take hold first in developing countries, where their low cost and "good enough" capabilities will allow them to be perfected and proven.

It is ironic that, while the underlying technologies may have been developed by US companies (e.g Apple), their application as medical devices may only come to the US after they have been established and proven in other geographies.

FDA still enforcing regulations for validation of enterprise software

Avoiding project death by ROI

2011-02-06T08:02:00.000-08:00

I had an unusual experience recently: a client demanded an exhaustive ROI calculation for a project, and the client approved the investment.

How to kill a project

Why is that unusual? First, some background. Over the years, my consulting firm, Strativa, has developed a methodology for building the business case for enterprise IT projects (or, any initiative for that matter). We identify the perceived benefits of the new system (for example), trace them back to features/capabilities of the new system, then quantify the direct financial impact. We also identify the time-phased project costs so we can calculate the ROI, whether by a simple break-even calculation or a more sophisticated internal rate of return. The whole methodology is implemented in an elaborate Excel workbook.

Although we are quite proud of this tool, I have noticed a pattern in cases where we use it. Often, when a client demands an exhaustive ROI calculation ("show me the money"), the project does not get approved. This is true even in cases where our calculations show a strong ROI.

Although I am a great believer in the need to demonstrate financial return, I have come to the conclusion that, in practice, too many executives ask for the business case not to determine whether they should make the investment, but to find an excuse for why they should not.

Now, having said that, there are some cases where an organization's capital expenditure processes require a formal business case. Here, the project sponsor requests the business case not as a means to kill the project but merely to get funding for a project that he or she already wants to do. But apart from these cases, what explains the correlation between client demands to see an ROI and projects being killed?

The "ROI Trap"

My hypothesis is that, due to a reluctance to say "no" directly, ROI calculations are often a convenient way to refuse projects that management simply doesn't want to do.

This "ROI trap" can take several forms:

Management argues the project budget is underestimated
Management argues the benefits are overly optimistic
Management argues the benefits cannot be connected to the proposed initiative

That final point is the most subtle. For example, benefits involving increased sales are the most difficult to get by management review. A new sales force automation (SFA) system, for example, might be justified in part by increased revenue from new sales. The rationale would be that sales people today only spend about 50% of their time selling. The rest of their time is spent looking for information, administrative activities, and reporting to management. By providing faster access to information and automating much of this administrative overhead, sales people can spend more time selling, which should result in increased revenue per salesperson.

The problem, however, is that the organization is planning to do all sorts of things to increase sales, such as any number of marketing programs and new product introductions. If sales do increase after the new system is implemented, how will management know that the improvement is due to the new system and not to other things that the organization is doing? Therefore, when presented with a SFA business case that relies in part on increased sales, the easiest thing for management to do is to say, we don't see the connection.

Who owns the business case?

Is there a way out of this trap? We have found that there is one important key to having a business case approved: management ownership of the benefits statement.

Here is how we now prepare the business case for a new system or business initiative. We hold a series of workshops to collaborate with the client's project team and stakeholders around five questions:

What the objectives for the proposed investment?
How will the project meet those objectives?
What financial metrics would improve if those objectives were met?
What are the baseline measurements for those metrics today?
What percentage improvement would be achieved in those metrics if the project is approved?

We often find, however, that even among the project sponsor, project team, and key stakeholders there can be significant disagreement, especially in answering the fifth question. The reason is simple: stakeholders are going on record that they believe the project will yield certain benefits, and if the project is approved they are in effect taking responsibility for meeting those improvements in performance.

A success story

Now, back to our recent client project, which involved selection and approval of a new customer relationship management (CRM) system.

Early in the project, the client made it clear that a strong business case would be needed for a new CRM system to be approved. Based on my past experience, alarm bells went off in my head. What were the chances that this selection would end in "no decision," to the disappointment of the project team and the vendors asked to bid on the project?

Knowing about "the ROI trap," our consultants took a collaborative approach to the business case. Instead of going off in a corner and coming back with the proposed business case, they brought the client's team into the room and asked the five questions outlined above. The CFO was particularly strong in telling the team: if you say these things are benefits, you can expect your sales quotas and budgets to reflect what you say. Translation: they would be held accountable. The CFO even went so far as to ask us to break down the benefits by region, so that the regional sales managers could be held accountable.

The result? A business case that, perhaps, was understated (due to the desire not to set too high a bar) but one that was still quite positive, and most importantly, one that had the ownership of the stakeholders who would be responsible for implementation.

In the end, the project was approved, and contracts have been signed.

Lessons learned

No one likes to be held accountable, and if the business case for a new initiative is the consultant's work only it becomes an easy excuse for stakeholders to escape responsibility. Collaboration is the key: combining the consultant's methodology and industry knowledge with the client's ownership of the goals and metrics. Then, when it comes time to present the business case, it is not the consultant's presentation but the project team and stakeholders arguing in favor of the investment.

Footnote: way back in 2004, I explored the psychological dynamics of the ROI trap, based on the work of Max Bazerman. These are still quite relevant today. See the related posts below for more discussion.

Escaping the ROI trap
Escaping the ROI trap, Part 2

*Image courtesy of Ramberg Media Group.

Apply for Our 2011 IT Spending Survey

2011-01-20T07:07:00.001-08:00

For more than two decades, the annual Computer Economics IT spending survey has been the authoritative source for IT spending and staffing benchmarks for IT executives.

Our 2011 survey is now underway, but we're looking for additional survey respondents.

What's in it for you? We've sweetened the deal this year. If you qualify for and complete the online survey, we'll send you nearly $2,500 worth of research publications, including the composite benchmarks from this year's study.

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IT spending outlook for 2011 and implications for enterprise software

2010-12-13T14:28:00.000-08:00

Over at Computer Economics, our end-of-year update on IT spending and staffing trends is showing some incrementally positive good news.

IT spending outlook

First, based on our Q4 survey of US and Canadian IT end-user organizations, we are forecasting IT operational budgets to increase 2.0% at the median. This might not seem like a big jump, but if it holds (and we'll know when we conduct our annual survey in Q1 2011), it will be an improvement over the past two years, when budgets were flat at the median.

Figure 1 shows the trend for this metric since 2006.

However, don't expect big increases in IT staff hiring, at least in early 2011. Although 27% of IT shops say they've been adding to headcount over the past three months, 14% were cutting headcount, for a net gain in only 13% of IT organizations, as shown in Figure 2.

On the other hand, on a positive note, those IT professionals who are employed are already seeing an increase in their work hours. Over the past three months, a net 47% of IT organizations have been allowing their staff members to work more hours, which could include overtime or cessation of furlough days.

On another positive note, nearly half of all IT organizations have been increasing their work on major projects over the past three months. That, of course, could be a large part of what is driving the increasing staff hours.

Finally, in welcome news for IT staff augmentation firms and contract service providers, a net 31% of IT organizations have been increasing their use of contractors and temps over the past three months. Again, this may be tied to the renewal of major project work.

Implications for enterprise software

For customers and vendors of enterprise software, what does it mean? First, the overall trend for IT operational spending may be moderate, but it is positive. The news on the capital spending side is likewise positive, with over half of our respondents expecting to spending more for IT capital investments. Our full report has details.

Second, the underlying dynamics in IT organizations are shifting. Whereas last year, and the year before, many of our respondents were canceling or deferring major projects, laying off IT staff, and cutting work hours, the picture over the past three months is exactly the opposite. New project work is increasing, new hiring is exceeding layoffs by a small amount, work hours are being extended, and IT contractors are getting the nod. All of these are positive signs.

Bottom line

I wouldn't expect 2011 to be a boom for IT spending--not only in comparison to the late 1990s, but even compared to the 2006-2007 time period, which was sort of a mini-boom compared to today. Still, after the last two to three years, any improvement is welcome.

We know from our previous years' surveys that many organizations cut back dramatically on major new initiatives, including enterprise software projects. As a result, many needed improvements were put off, and users are clamoring for relief. While economic recovery is still weak, organizations that make those investments now will be in much better shape when business conditions improve. In addition, most vendors of enterprise software are still in a deal-making mood: prices for software and for services are still a buyers-market.

Therefore, now is a good time to be making those investments.

The full report, Outlook for IT Spending and Staffing in 2011, is available on the Computer Economics website.

Related posts
Computer Economics: IT Spending and Staffing Benchmarks 2010/2011: IT Ratios and IT Cost/Budget Metrics by Industry Sector and Organization Size

First impressions: Salesforce.com far outgrows its name

2010-12-08T14:22:00.000-08:00

I'm here in San Francisco covering Dreamforce 2010, the annual conference of Salesforce.com (SFDC).

Over the past several years, and especially from the keynotes given thus far, it is apparent that Salesforce.com needs a corporate name change. With roots as SaaS provider of salesforce automation system, the firm's services have expanded to a broad set of applications and applications development platform services.

More on that in a minute, but first, check out the energy and enthusiasm on display here at Dreamforce--from CEO Mark Benioff's on-stage cheer-leading to the vigor of the exposition floor. For example, one small developer told me last night that on the first day of the expo, he walked away with 75 good sales leads. I shot some quick video, which can give you a little window into the vibe, in spite of the dreary, rainy weather outside.

Okay, back to the issue: does SFDC need a name change? Just consider the following:

SFDC's own functionality has been expanded to include customer service applications, bringing its footprint further into complete CRM territory.
Back in 2006, the company opened up its development platform to third-parties, allowing them to build their own commercial applications and sell them via its AppExchange marketplace. The platform itself has since been renamed Force.com. Since then, independent software vendors have developed something like 1000 products on AppExchange, either as extensions to or in addition to Salesforce.com's own products.
Earlier this year, SFDC announced its intent to acquire Jigsaw Data Corp, which provides current data on businesses and contact information, putting SFDC into the data services business.
Earlier this year as well, SFDC introduced its Twitter-like capability, dubbed Chatter, which provides a secure, private social/collaboration environment from within SFDC's services and systems built on Force.com.
Building out its platform-as-a-service (PaaS) capabilities, SFDC earlier this year launched a joint-venture with VMware to provide Java development capabilities as part of its Force.com platform, allowing third-party developers to use Java instead of SFDC's own proprietary development language. Furthermore, just yesterday, SFDC announced its agreement to acquire Heroku, a PaaS provider for the Ruby-on-Rails development platform. Ruby is an increasingly popular development platform for rapid application development, including many social and mobile applications.
Another announcement during the conference this year: SFDC is introducing something called Database.com, which gives developers a cloud-based database capability, even if they are not building on SFDC's own Force.com platform.

This is just a partial list of the ways in which SFDC has moved far beyond salesforce automation to become something of a cloud-based development environment. So, as I said, at some point, I think a name-change would be in order.

For a deeper dive on the Heroku acquisition and the Database.com announcement, see the post from my colleague, Dennis Howlett, Salesforce's Database.com as a game changer now they've acquired Heroku?

Rimini Street to Oracle: don't expect us to roll over

2010-11-29T07:07:00.000-08:00

As everyone knows by now, Oracle won a huge ($1.3 billion) judgment in its lawsuit against SAP/TomorrowNow (TN) for copyright infringement. SAP had acquired its now-shuttered TN unit to provide third-party support for some Oracle business applications in hopes of winning those customers over to SAP. SAP is considering an appeal of the jury verdict, the largest ever in a copyright case.

In the meantime, Oracle has a lawsuit pending against another third-party support provider, Rimini Street. At first glance, Rimini Street "looks like" TN in that both are/were providers of third-party support for Oracle applications. Furthermore, Oracle's lawsuit makes similar allegations--some of it appears to have been cut and pasted from its suit against SAP.

So it would be easy to assume that Oracle's hand against Rimini Street has been strengthened by its win against SAP.

Why Rimini Street isn't TomorrowNow

It would be easy, but it would be wrong. Here's why:

Admission of liability. Nearly from the start, SAP admitted that something was wrong down at its TN unit. By the time the case went to trial, SAP had basically thrown in the towel, admitting not only that TN had violated Oracle's copyrights but that SAP itself knew about the illegal behavior.

In contrast, Rimini Street is making no such admissions. It has from the beginning steadfastly rejected all allegations that it is violating or has violated Oracle's IP rights. In several interviews I've conducted with the firm's executives over the past three years, it has claimed to have established clear policies and standards to prevent such misuse and has offered to have Oracle audit its practices. Oracle has refused such offers, choosing instead to file a lawsuit. So much for allowing Rimini Street to compete fairly.
Counter-punching. From the start, SAP was playing defense against Oracle's allegations. It never counter-sued or alleged misdeeds on the part of Oracle.

In constrast, Rimini Street is fighting back. In a statement sent to me by Rimini Street last week, the firm writes, "While SAP chose not to challenge Oracle's allegations of liability, Rimini Street is aggressively challenging Oracle's allegations and prosecuting its own claims against Oracle."

It goes on, "While SAP chose not to challenge Oracle's allegations, Rimini Street has countersued, accusing Oracle of defamation and using illegal and unfair practices to stifle competition for the lucrative support and maintenance business. Rimini Street intends to stop what it believes are Oracle's illegal actions and is seeking to hold Oracle responsible for its conduct."

In other words, if Oracle thought Rimini Street would simply roll over, it thought wrong.

I suspect Oracle would like to have these two lawsuits run together in the mind of customers, prospects, and the general public. But, Rimini Street appears determined not to let that happen.

SAP's hands were tied against Oracle

The ironic part of the Oracle v. SAP/TN case is that SAP couldn't mount a vigorous defense without shooting itself (forget about the foot!) in the head. SAP, like Oracle, is addicted to its lucrative maintenance business. It is baffling why SAP chose to acquire TN in the first place, for some tactical advantage in converting a few Oracle customers to SAP? While undermining its whole business model for sustaining revenues from its installed base? What was SAP thinking?

So, when Oracle filed suit against SAP, what was SAP supposed to do--counter-sue Oracle for restraint of trade and unfair competition, and thereby conceding to any large hungry system integrator or competitor (think, IBM or HP) that its own installed base maintenance revenues were ripe for picking? Of course, SAP had to defend itself. But it couldn't defend itself too strongly, lest it wind up giving legal precedent to the third-party support industry. As it turns out, as the case proceeded through discovery, Rimini Street announced it would begin offering third-party support services for SAP's customers in addition to the services it was offering to Oracle customers. So, SAP was stuck between the proverbial rock and a hard place.

Rimini Street has no such baggage. It can and appears to be willing to mount a vigorous defense of its own rights to offer third-party support services, based on the contractual rights of customers to self-maintain their licensed software, while respecting the IP rights of OEM software vendors.

Why Rimini Street's case is important

As Rimini Street stresses in its statement this week, "both Oracle and SAP have acknowledged that third-party support is legal." I covered this point back in 2008 in a post entitled, Legal basis for third-party ERP support industry. In a little-noticed letter filed by SAP as part of pretrial discovery, TomorrowNow strongly asserted its legal right to offer third-party support for PeopleSoft customers, and PeopleSoft backed down from its claim that such support was illegal. Furthermore, to my knowledge, Oracle has not gone so far as to argue that TN had no right to offer support. Only that it did so by stealing Oracle's IP.

Rimini Street is strongly claiming not to be infringing on Oracle's IP. If it can back up that claim in court, then, in my opinion, a strong legal precedent will be established for the third-party support industry. Furthermore, if Rimini Street is successful in its counter-claim against Oracle, it will strongly restrict the attempts of vendors to prevent customers from seeking third-party support--which, ironically, SAP itself appears to have tried to do in 2009!

Strange, isn't it? SAP was defending itself as a provider of third-party support for Oracle customers, while at the same time apparently trying to prevent its own customers from using third-party support.

So, SAP was fighting Oracle with one hand tied behind its back. As Rimini Street's statement now points out, "Had SAP availed itself of the claims and defenses pleaded by Rimini Street in its case against Oracle, SAP would have placed its own policies and third party revenues in jeopardy. "

So, why is the Rimini Street case important? Because the rights of customers to not be locked into a single source for maintenance and support needs to be preserved. As I've written many times in the past, when you buy a Lexus, you have the right to take that Lexus to any third-party repair shop. Lexus cannot try to stop you or threaten to void your warranty if you do so. If they tried, the US Department of Justice (DoJ) and 50 state attorneys general probably would file suit. Why should the enterprise software industry be any different?

DoJ is reported to be looking into the Oracle/SAP matter. If so, and while it's learning about this industry, it should also take a look at the restraint of trade and antitrust implications of both SAP and Oracle's behavior in attempting to prevent a viable third-party support industry.

Statement from Rimini Street

Here is the full statement from Rimini Street, sent to me last week.

While SAP chose not to challenge Oracle's allegations of liability, Rimini Street is aggressively challenging Oracle's allegations and prosecuting its own claims against Oracle.

We believe the resolution of the Oracle vs. SAP case does not impact Rimini Street’s case against Oracle and does not change anything in the fast-growing third-party support market.

A few key facts:

Both Oracle and SAP have acknowledged that third-party support is legal. Oracle's claims relate to the specific processes and procedures used to provide support for their products. The processes and procedures used by Rimini Street are very different from those used by SAP.

The only substantive similarity between the offerings of SAP/TN and Rimini Street is that they both provide third party support at 50% off the software vendor's annual fees. As clearly articulated in the court documents and the thousands of pages of process documents provided to Oracle by Rimini Street, every other aspect of Rimini Street’s operations is significantly different that the operations of SAP/TN. Oracle knows this to be true.

We believe the magnitude of the damages award is a result of SAP's peculiar decision to concede liability and ultimately not challenge Oracle's claims. It bears noting that SAP, like Oracle, derives many billions of dollars from maintenance and update services to its customers with profit margins not unlike Oracle’s.

SAP’s practices and conduct in their attempts to chill growth of third party maintenance are similar to Oracle’s. Had SAP availed itself of the claims and defenses pleaded by Rimini Street in its case against Oracle, SAP would have placed its own policies and third party revenues in jeopardy. SAP abandoned these claims and defenses at its own peril, as the size of the damages award illustrates. While SAP chose not to challenge Oracle's allegations, Rimini Street intends to stop what it believes are Oracle's illegal anti-competitive actions and will hold Oracle responsible for its actions.

While SAP chose not to challenge Oracle's allegations, Rimini Street has countersued, accusing Oracle of defamation and using illegal and unfair practices to stifle competition for the lucrative support and maintenance business. Rimini Street intends to stop what it believes are Oracle's illegal actions and is seeking to hold Oracle responsible for its conduct.

Update, 1:40 p.m.: Dennis Howlett has a good post on the long-term implications for customers if vendors can get away with squashing the nascent third-party maintenance industry.

SAP and third-party maintenance: good for me but not for thee
Legal basis for third-party ERP support industry
Oracle slams Rimini Street with lawsuit over third-party maintenance

Oracle applications customers: wedded bliss or battered wives?

2010-11-21T08:34:00.001-08:00

The results of my Oracle Apps customer survey have just been published by Computer Economics, and I've been fielding calls from media representatives on the findings. The most common question: if customers are so unhappy with the quality and cost of Oracle apps support, why do they keep spending money with Oracle? Why do they stay in this relationship?

It's not an easy question to answer. But first, let's summarize several main findings of our study.

Three negatives for Oracle

The Computer Economics Media Alert and Research Byte provide a more complete description of the report. But let me point out three major negatives for Oracle in the findings:

Apps customers unhappy with Oracle support. There is no way to avoid the conclusion that there is tremendous customer dissatisfaction with the quality and cost of Oracle support. Specifically, 42% are dissatisfied with the quality, while 58% are dissatisfied with the cost. This is across the board for all products, including E-Business Suite users, but is especially pronounced among PeopleSoft customers. The respondent comments in this section are devastating.
Fusion apps not top-of-mind for Oracle customers. Oracle’s next-generation applications, dubbed Fusion Applications, are not on the radar for most customers, with only 10% planning to migrate to Fusion. There is substantial difference in migration plans, depending on the Oracle product currently installed.
Oracle apps customers not flocking to Sun hardware. Only 25% of Oracle application customers are currently users of Sun hardware, but among these customers, expectations for increasing support costs are high. Very few Oracle application customers have plans for Oracle’s new Exadata storage systems.

As I said, not good news for Oracle.

But most customers sticking with Oracle

At the same time, despite their dissatisfaction with Oracle support, their lack of interest in Fusion, and their complaints about Sun costs, only 25% of our respondents expect Oracle to have a smaller share of their IT budgets over the next three years. Another 37% indicated such factors as organic growth, purchase of additional Oracle applications, and standardization on Oracle technology would result in Oracle having an even larger share of their IT budgets. The remaining respondents judged Oracle’s share of their IT spending would be about the same in three years.

In other words, whatever their complaints, the majority of Oracle apps customers do not plan on changing course.

So why do customers stay?

This is the big question. If things are as bad as our respondents say they are, why aren't they moving en masse away from Oracle? We didn't specifically ask this question in our survey, but based on many of the comments, I can postulate three types of Oracle apps customers:

Organizations that have standardized on Oracle products. These are like married couples in a committed loving relationship--they may have their squabbles from time to time, but their commitment is secure. These include died-in-the-wool "red stack" customers, those that have committed to do most new development on Oracle database and tools. Most of these customers are running E-Business Suite and have no intention of leaving. These are the ones that are most likely to be considering a migration to Fusion Apps, when they are generally available. These also include users of other Oracle applications, such as JD Edwards, PeopleSoft, and Siebel, who are generally satisfied and see no overriding reason to abandon them.
Organizations that find breaking up hard to do. These are like wives that would like to divorce but decide to stick it out for the kids' sake. They are miserable, but they are going to hang in there, at least for the time being, as making a change is simply too difficult. Many customers have made substantial investments in their current Oracle systems, either in predecessor applications (e.g. PeopleSoft, JD Edwards, Siebel) that Oracle acquired, or in Oracle's own E-Business Suite. In many cases, it's not easy to replace these systems. The apps are deeply embedded as part of how business is done, or if enhancements have been built on top of these apps.
Organizations that don't see an alternative. These are like wives that would like to be married to someone else, but don't see any attractive choices. These organizations are likely to be running Oracle's E-Business Suite. If they are of sufficient size and complexity, they may perceive that there is really only one other choice: SAP, another large Tier I vendor. From what they've heard--rightly or wrongly--that might not be a happy marriage either. And, they don't realize that in many cases, there are other choices, whether as a complete replacement for Oracle or as a partially replacement as part of a so-called two-tier ERP strategy.

Nevertheless, comments from respondents make it clear: a substantial minority of customers are planning to completely or partially replace Oracle in their applications portfolio. They are planning either for a total replacement of their existing apps, or to make new investments with technology from other vendors, around the edges, especially with SaaS solutions.

Make no mistake: Oracle has some great software and some great people. My own dealings with Oracle find that there are many outstanding professionals within the ranks of its applications business and its partners--smart folks that really care about serving customers.

For example, I know quite a bit about FDA requirements for electronic records and electronic signatures, and I find Oracle's approach with its E-Business Suite to be about the best I've seen from any vendor. Furthermore, by many accounts, its next-generation Fusion Apps raise the bar for ease of use, embedded analytics, and enterprise collaboration. I could list many other examples. As in any relationship--for many, being an Oracle customer has its good days and its bad days.

Chances squandered

Ultimately, though, it is hard to avoid the conclusion that Oracle is missing a major opportunity. By its own admission, Oracle makes at least 85% margin on its maintenance and support programs. In fact, it's nearly ALL profit. If Oracle would just take a 2% or 5% hit on that margin and invest it into improving the quality and reducing the cost of its support programs, it could probably reduce the level of complaints and engender tremendous good will among its installed base. Customer retention would not only increase, but it would open the door to additional purchases from these customers. And it would be a positive response to the threat of third-party maintenance.

Postscript: So, is Oracle planning any improvements in its service and support programs? It's possible. Oracle recently brought Charles Rozwat, a respected Oracle executive, back from an extended leave of absence, to head up its worldwide support organization, and he reports directly to co-President Mark Hurd. But I have no idea what changes may be planned. Oracle refused my repeated requests to make Rozwat--or anyone else--available to discuss these matters.

The full report, Go-Forward Strategies for Oracle Application Customers, is available for sale on the Computer Economics website.

Oracle confirms: maintenance fees are virtually all profit
Oracle profits strong, thanks to your maintenance payments

Update on Microsoft Dynamics products and plans

2010-11-11T15:52:00.000-08:00

I'm participating today and tomorrow at Microsoft's Dynamics Fall Analyst Event--a series of briefings at Microsoft's facilities here in greater Seattle area. I won't attempt to do a complete rehash of what was presented, but rather a few key impressions.

CRM is where the action is. Although Microsoft Dynamics ERP products (AX, NAV, GP, SL) were presented, the discussion always seemed to lead off with MS Dynamics CRM. I'm left with the impression that many of the new deals are for CRM, although ERP deals probably carry a higher average price.

Why would this be? It is probably no coincidence that the CRM product is the most recently developed, with the most up-to-date architecture, and the most innovative features, such as new mobility options being introduced in the 2011 version. Such characteristics garner more mind-share from partners and prospects. Some good new features are being introduced in the ERP products as well (e.g. we saw some interesting new features in AX for retail) but one senses that these enhancements do not generate the sort of excitement as what Dynamics is doing with CRM.

It also helps that Microsoft is aggressively discounting the CRM product on a promotional basis, as discussed in a moment.
Microsoft Dynamics serious about going "all in" on the cloud. Traditional on-premise license sales may still account for the bulk of Dynamics sales, but the most interesting developments are in its cloud offerings. These offerings are still in a state of flux--hosted deployments are currently provided by Microsoft partners. But uptake has been good, as evidenced by the four customers Microsoft put forward to tell their stories and take questions from the analysts gathered here. Microsoft's Azure services--primarily platform-as-a-service (PaaS) and software-as-a-service (SaaS) are still being built out. But we had a fairly deep dive into what Azure's data centers look like, and what the build-out of services will include. It's an impressive initiative and an enormous investment by Microsoft.
Microsoft not afraid to compete on price. As just mentioned, Microsoft is offering promotional pricing on its CRM product with online deployment, starting at $34 per user per month. This is well below the entry point for Salesforce.com, generally perceived as the leader in SaaS CRM.

I've often wondered why more vendors don't take this approach, to compete explicitly on price, especially under current economic conditions. As my late business partner, an expert on strategy, told me: there are only two basic business strategies--low-cost leader and differentiation (everything else). But most software providers choose to compete based on their claim to be able to offer something "unique"--something that demands a premium price. The reality, however, is that as the ERP and CRM markets mature, premium pricing for advanced functionality may not be the best path to success. Frankly, many prospects these days just want a good, basic product they can grow with, offered at a reasonable or low price. Never underestimate the power of lowest price.

Now, Microsoft will never concede the uniqueness or superiority of their product offering. Nevertheless, its willingness to compete on price shows that they understand what is really driving deals these days. I've heard that Oracle is also aggressively competing on price for its Oracle CRM On-Demand offering, further confirming where the basis for competition is moving--at least for CRM.

And, it's no coincidence that these two low-priced products are both on-demand offerings. To sustain a low-price strategy you have to have a low-cost delivery model, which only an on-demand offering can provide.
The partner channel continues to be a key to success. Microsoft Dynamics sells nearly all (if not all) of its deals through sales and implementation partners. For all the changes in the products, there is no change in this sales model. Nevertheless, I was interested to find that the Dynamics partner classifications of gold, silver, etc. has become muddled, with the majority of partners listed in the "gold" category. This is upside-down and absolutely of no use to prospects or customers. As in the mythical town of Lake Wobegon, all the children are above average. Or, more directly, if everyone is gold, then no one is gold.

Microsoft realizes the problem with the classification of its partners and is taking steps to address it. However, I had one Twitter conversation with a Microsoft business partner who feels the certification exams are meaningless--a complaint we've heard concerning other vendors as well.

To be fair, some impartial observers consider Microsoft's partner program to be better than most. Nevertheless, as critical as its partners are to Microsoft, it is essential that it put real teeth into its certification and classification processes.

Dynamics is in an interesting, and in some ways, difficult position. It is a business unit of one of the world's largest technology companies, with access to deep pockets and technology that for many organizations is "industry standard." At the same time, many of Dynamics' competitors, such as Epicor, Infor (Syteline), or Syspro, are building on the same technology--which means that the "big" Microsoft enjoys the same or similar pull-through of Microsoft technology, whether the deal is won by Dynamics or one of these competitors. So, in some ways, Dynamics is an independent software vendor (ISV) that happens to be located within Microsoft's four walls.

Current economic conditions are not easy times for Dynamics competitors, however. The new developments across all of Dynamics products show the benefits of being inside those four walls.

I'll update this post, as appropriate, based on additional insights gained tonite and tomorrow.

Related posts
Key success factor for SaaS suites: functional parity
Shifting strategy: Infor casts its lot with Microsoft
Enterprise software: who wants to be the low-cost leader?
Recession prompts great financing deals from IT vendors

Strativa joins Constellation Research

2010-11-09T09:55:00.000-08:00

Effective today, my consulting firm Strativa is now a member of the Constellation Research Group. We will continue to deliver services under the Strativa banner, but in addition, we will now be able to leverage the resources of this brand-new membership research organization and extend our services to its clients.

What is Constellation Research Group?

Constellation is a next-generation research firm, comprising member analysts who take a multi-disciplinary approach to enterprise research topics. Our main mission serves the needs of technology buyers and end-users who seek insight, guidance, and advice in dealing with IT.

The best analysts bridge the gap between theory and practice, and that's what we seek to do. Our research agendas will look at cross-role, cross-functional, and cross-industry trends. Every analyst member of Constellation brings decades of practitioner experience, a strong network of other experts, and a passion to share and serve clients. We take the buyer’s perspective and make the tough calls that clients will expect of us as an independent research firms.

Our research agenda will echo themes that readers of the Spectator are already familiar with, such as enterprise applications, cloud computing, and legacy system optimization, plus a number of emerging trends and technologies such as mobile computing, social networking, business analytics, game theory, and unified communications.

Who are the Members?

We have assembled a really top-notch group of analysts to participate in Constellation. Some of us have already been collaborating on an informal basis for years, so we expect to hit the ground running.

The driving force behind Constellation is R "Ray" Wang, whom I quote often on the Spectator. Ray is a former VP and Principal Analyst at Forrester, and he has a long history with enterprise applications as well as other leading-edge technologies. He headed up the analyst relations program for PeopleSoft, and at Oracle, he served senior product management roles for both the ERP and CRM product lines. He was voted Analyst of the Year for both 2008 and 2009 by the prestigious Institute of Industry Analyst Relations (IIAR).
Phil Fersht is a well-known industry analyst covering business process outsourcing (BPO) and IT services worldwide. He is the founder of the acclaimed global sourcing blog "Horses for Sources." Before that he worked for 15 years at AMR Research (now Gartner Group), Deloitte Consulting, Everest Group, and IDC.
Maribel Lopez brings deep industry knowledge in covering the communications industry. With over two decades of marketing as well as industry analyst experience, she has covered the massive shifts in the communication market. Maribel has worked in marketing at Motorola and Shiva Corp and as an analyst for IDC. She also put in over 10 years at Forrester Research, most recently as Vice President of the tech industry strategies group, covering network and service strategies, enterprise communications, and consumer markets for voice, video, and data.
Oliver Marks is a partner at the Sovos Group. Oliver provides consulting to end-user organizations on the effective planning of collaboration strategy, tactics, technology decisions, change management and roll out. Oliver previously managed the Sony WorldWide collaboration extranet, and has worked with the American Management Association, Sun, Docent/SumTotal Systems, Harvard Business School and McKinsey on major initiatives around knowledge transfer and change management.
Vinnie Mirchandani is another source I often quote here on the Spectator. He is a thought-leader on trends in software, outsourcing, and offshoring. He has personally assisted clients in negotiate technology contracts valued in excess of $5 billion and has advised companies on IT risk management, globalization and sourcing issues. Vinnie is the founder of Deal Architect and is a former Gartner analyst and an outsourcing executive with PricewaterhouseCoopers.
Paul Papadimitriou is a big thinker on online media, its impact on how brands and individuals communicate, and the redefinition of social norms through new technologies. With more than a decade of experience as a lobbyist and business consultant, he delivers intelligence to companies seeking to understand the shift in customer engagement. Paul also advises start-ups, writes about Japan mobile and web trends, and is a sought-after speaker at conferences around the world.
Sameer Patel is a partner at the Sovos Group, and another expert in collaboration technologies. Sameer is a recognized expert in accelerating business performance via the use of collaboration and enterprise social software. He has more than a decade of experience managing initiatives for large organizations to help drive sales and marketing intelligence, partner network optimization, innovation, customer acquisition, and employee productivity via communication and collaboration technologies. Sameer’s clients have included Ingres, Sun Microsystems, Computer Associates, KPMG, McKesson HBOC, WR WrigleyCo., The Sabre Group, Grupo Televisa (Mx), and Cardinal Health.
Alan Silberberg is a leading analyst in Gov 2.0. He speaks on transformational change, crisis/brand communications, and government 2.0 and the crossover into business and technology. Alan has government and private sector experience, having served in the U.S. White House, at Paramount Pictures, and at numerous technology companies as an advisor, founder, or investor. His clients have included the Vatican Global Licensing group and elected officials, as well as many technology start-ups. He is focused on the business side of Government 2.0 and how the technology platforms create commercial ventures and new markets. He is the founder of Gov20LA, a West Coast conference for Gov 2.0 technology.
Not to leave myself off the list: Frank Scavo is the co-founder of Strativa, a management consulting firm providing business and IT advice to end-user organizations. He has over 20 years of experience in IT strategy, IT management metrics, enterprise applications, and business process improvement, serving end-users in a broad range of industries, including manufacturing, life sciences, consumer products, high-tech, distribution, retail distribution, and information services. He is also an expert in benchmarking IT spending and staffing levels for end-user IT organizations. He is also the President of Computer Economics, an IT research and metrics firm, founded in 1979.

Additional analysts are expected to join Constellation in the coming months.

Constellation service offerings

We work with our clients to tailor programs of access through open research, syndicated research, and one-on-one interactive engagement. Sample services include:

Open research, such as blog postings and free reports.
Syndicated research, available on a subscription basis tailored to the client's specific needs. These include in-depth reports, vendor evaluations, multi-analyst trend reports, and webinars.
Direct access, which can be delivered as part of the client's subscription or on an ad-hoc basis. This includes analyst inquiry calls, advisory engagements, and custom projects.

Visit the Constellation Research Group website for more information, or simply contact me if you are interested in possibly becoming a subscriber. My email address is in the right-hand column.

Update: A number of others are reporting on the establishment of Constellation Research Group.

First, here is the announcement from Ray Wang.
Johnny Bentwood, who covers the analyst industry on his Technobabble 2.0 blog has a report.
John Taschek, writing for Cloudblog, looks critically at Constellation in his post, Are Analysts the New Media?
Larry Dignan at ZDNet covers the news in his post, Constellation Research launches, targets 'broken' IT research model.
Barbara French, writing for Tekraki has a report.
Sage Circle's Dave Eckert, who covers the analyst industry, also gives his view.
My colleagues Oliver Marks and Sameer Patel write about Sovos Group joining Constellation in their Pretzel Logic blog.
My associate, Dennis Howlett, who is also an advisor to Constellation, provides his view in his post, Ch-ch-ch-ch-anges: Constellation Research and Horses 4 Sources

Update, Nov. 15. The ranks of Constellation analysts are already growing with the addition of Elizabeth Herrell, who is now our expert on enterprise communications. Her coverage includes unified communications and supporting applications such as messaging, conferencing, presence, and IP telephony. She also covers contact center applications such as ACD, computer telephony integration (CTI), IVR, speech platforms and integrated services, workforce management, quality monitoring, performance management, and proactive notification. Elizabeth is a former Forrester analyst. Read the Constellation press release on Elizabeth here.

Outlook for IT spending in 2011: call for survey respondents

2010-11-08T06:05:00.000-08:00

Is the IT spending recession over, or are there still tough times ahead? Will companies hire IT staff in 2011, or are we facing more layoffs?

To answer these questions, we're looking for IT managers in the US and Canada to participate in a 10-minute survey about their IT budget and staffing outlook.

What's in it for you? A free copy of the final report, which will otherwise only be available to Computer Economics subscribers or to those who purchase the report

Take the 10-minute survey now

Best practices not always best

2010-10-22T11:47:00.001-07:00

This article in Computerworld by my friend Tom Wailgum, The Trouble with Supply-Chain Best Practices, got me thinking again about this whole subject. What are best practices?

The problem, as I see it, is two-fold. First, the term best practices has at least two major and totally different definitions, and second, in many areas of business, there is not generally agreement on what are the best practices.

Two definitions
As just noted, practitioners often use the term best practices in two completely different ways, and you have to be sure you understand the context. The first is in the sense of "the best way to do something." The current definition in Wikipedia is typical:

A best practice is a technique, method, process, activity, incentive, or reward which conventional wisdom regards as more effective at delivering a particular outcome than any other technique, method, process, etc. when applied to a particular condition or circumstance.

For example, conventional wisdom might define a best practice in recruiting new employees as establishing a formal employee-referral program, as this channel often results in the highest quality candidates, lowest cost of recruiting, and best retention rates.

The second definition, which I run into occasionally, has to do with best practices in the sense of metrics. Here, folks use the term not to describe the best way to do something, but the best performance that is attained among peers against some metric. For example, again using the recruiting example, the median retention rate after six months for newly-hired nurses in US hospitals might be (I'm making this up) 75%. But the "best practice" (i.e. the retention rate achieved by the best performing hospitals) might be 92%.

So, when someone asks, what are best practices for recruiting, you have to ask, do you mean what are the best policies, procedures, and practices in recruiting, or do you mean, what is the best performance against some metrics by the organizations that are the most successful in recruiting.

Best practices not always universally applicable
For now, let's go with the first definition. Are there really ways of doing business that are generally accepted as best? In some cases, yes, but in many cases no.

Let me illustrate with an experience I had several years ago. My consulting firm, Strativa, was bidding on a business process improvement project for a mid-size medical device manufacturing firm. Our first meeting with the selection committee went quite well. We outlined our approach to business process re-engineering and business improvement and described some case studies for similar projects.

Based on the committee's recommendation, we then scheduled a one-on-one meeting with the President. That didn't go so well, and it came down to this issue of best practices. After describing our proposed work plan for the project, he asked, "Where do you compare our practices against industry best-practices?" I indicated where such an evaluation could take place. He then asked, what are your sources for best practices? I indicated that there are a number of professional societies that are good sources for best practices, such as APICS, which is the generally accepted source for best practices in materials management. In addition, we would use our own knowledge and experience from other clients as to where this organization could be viewed as having a need for improvement.

We went back and forth on this subject for some time, and I had the feeling that he wasn't satisfied with my answer. In a debriefing session afterward, the VP of Information Systems, who was sitting in on the meeting, confirmed that the President didn't feel our approach to best practices was strong enough.

The VP was sympathetic and still hoping we could win the deal. So I shared with him why I felt that the President's emphasis on best practices might be misplaced.

I said, "Isn't it true that your company uses significant part numbers?"

I had learned earlier that this company had the practice of letting each each digit or character of the product item number stand for something meaningful. For example the first two characters might indicate the product family, the second two might indicate the sub-family, the third digit might indicate the size of the product, the fourth digit might indicate the material, and so forth.

The VP said, "Yes, that's right. We've always done it that way."

"That's not a best practice," I replied.

"Really, says who?" asked the VP.

"APICS," I said. "They've been preaching against the use of significant part numbers since the mid-197o's. The reason is that it creates all kinds of problems. Invariably, as companies grow and their product portfolio changes, they outgrow their numbering schemes. Either the part number becomes extraordinarily long, or people just give it up. If you want to describe the product, use other fields on the item master. You don't need to make the part number work that hard. "

I continued, "Now, here's my point. In spite of what I just said, if we do this project, we're probably NOT going to try to change your part-numbering scheme. You've got it, and it's probably too difficult to change at this time, even though it's not a best-practice. A good consultant will look at what you are doing and will weigh the pro's and con's of changing it. That's how you've got to apply so-called best practices."

You can't just go to some database of best practices and say, here's what you should be doing. You need to apply judgment, based on experience.

Of course, this approach does not scale for large consulting firms, who like to staff business improvement projects with a lot of junior associates. It's much easier to give them a database of best practices and tell them, find out if the client is doing these. If not, recommend they do them. It's much harder to go in and evaluate the situation according to the client's specific situation. But that's the way to create meaningful change.

Best performance not universally attainable
There are problems also with the second definition of best practices: the best performance attained among peers against some metric. The problem is that which is common to all benchmarking exercises: defining the peer group and identifying the reasons for superior performance.

For example, my IT research firm, Computer Economics, publishes metrics on IT spending and IT staffing ratios. In addition, we provide a IT spending benchmarking service where we calculate the client's metrics, compare them to our published ratios, and provide our analysis of the gaps in performance.

Invariably, there is almost always a significant amount of judgment that we need to apply in our analysis. For example, just recently, a benchmark client (a public utility) showed that the number of users per IT help desk staff member was near the 25th percentile in comparison with other organizations of this size. The number of PCs supported by each help desk staff member showed similar sub-standard performance.

However, when interviewing the client, we discovered that the agency had an online permitting system that builders and developers used to submit permit applications. The IT help desk, which normally would only serve internal users, was also serving the general public as users of this application. Knowing our data, we were sure that this was not the case with the majority of our survey respondents.

So this client was well under what we would consider a "best performance" (something at or above the 75th percentile for this metric). But when we factored in the percentage of help desk incidents fielded from the general public, we found that the agency was, in fact, well above the median.

The concept of best practices can be useful, if properly understood and applied with judgment. Certainly, in terms of how to do business, organizations can learn from one another. And in terms of measurements, it is quite useful to have a sense for what levels of performance are achieved by peer organizations, or even by organizations outside of one's own industry.

But in both cases, there's no magic formula.

Related posts
Computer Economics: IT Management Best Practices
ERP implementation: putting processes and people first
Solving the four problems with ERP
Four problems with ERP
Business changes needed to ensure enterprise system success
Large system implementations require organizational discipline

Key success factor for SaaS suites: functional parity

2010-10-13T16:12:00.000-07:00

As we all know, software-as-a-service (SaaS) has been one of the bright spots in the enterprise systems marketplace these days. The advantages are becoming more widely recognized: lower total cost, faster time-to-benefit, little to no capital expenditure, and less pain in system upgrades.

In fact, in some segments of the enterprise market, SaaS is already where most of the action is. For example, in CRM system selection it is difficult not to consider one of the leading SaaS solutions, such as Salesforce.com, Oracle's CRM On-Demand, RightNow.com and others. For HR management systems (HRMS), likewise, we see SaaS providers such as Workday, Taleo, and Success Factors gaining significant market share for net-new deals.

Reaching for full maturity
So, why haven't SaaS solutions completely taken over the enterprise software market, especially for full-suite ERP? Because there is one area where SaaS providers still lag behind: functional parity. For full-suite ERP, there are still precious few SaaS providers. And those that do attempt "full suite replacement" still have major gaps in their functional footprint.

However, the landscape is changing quickly. For example, until recently, we have been reluctant to short-list SaaS providers as full-suite options for manufacturing firms. Those that had ambitions to be full-suite providers simply lacked basic functionality needed for manufacturing, especially vertical-specific requirements. But we are now finding that SaaS providers at least deserve a look. These include the following:

Plex Systems was the first SaaS provider out of the gate with a full-suite ERP offering for manufacturing firms. More on Plex in a minute.
NetSuite is a full-suite provider. But until recently, it has only been a viable option for service businesses, because it lacked many fundamental features for manufacturers, such as standard costing, shop scheduling, capacity planning, and MRP. However, since I last visited this issue, a NetSuite partner, Rootstock, has been building extended manufacturing functionality on top of NetSuite's platform. I've spoken at length to the developers at Rootstock, whom I know from their previous work at Relevant (since acquired by Consona). They are making very fast progress, thanks to the ability to rapidly develop on NetSuite's platform. Rootstock's extensions to NetSuite are claimed to operate seamlessly with NetSuite's core financials and CRM.

SAP is moving in the same direction with its Business ByDesign (ByD) offering. Although SAP has been slow to move the product into general release, you can't fault the objective, which is to become a full-suite offering. I especially like the use-case for large SAP installed-base customers, which have a hard time justifying use of SAP ERP in smaller divisions. Such organizations frequently adopt a "two-tier ERP" strategy, where SAP runs at the corporate office and in larger business units, while a smaller footprint ERP, such as Epicor, QAD, or Microsoft Dynamics AX, runs in the smaller divisions. The use of ByD in this scenario, should be an attractive alternative.

Update: Since this post was first published, I have learned that in FP 2.0 (released Sep. 2009), ByD now has what appears to be very complete functionality for manufacturing operations, including integrated quality control, as well as supply chain planning.
Workday is a SaaS provider, currently serving the HRMS and financials functions, but they have ambitions to be a full ERP replacement, at least for services-based organizations. With Dave Duffield as one of the founders they appear to be following the path that Dave took at PeopleSoft: start with HR, add financials and purchasing, then fill out to become a full-suite offering. Personally, I think Workday is underestimating how long it will take them to get there, but I have little doubt they will reach the goal. And they are going after the large company segment, which is unusual for most SaaS providers.
Update: Infor's Syteline is now being newly launched by Infor in a SaaS deployment model. Based on a lengthy briefing I received from Infor, it appears that Syteline qualifies as a full-suite SaaS offering. The new deployment option uses a single instance of Syteline's application server, with separate databases for each customer. While some might argue that it doesn't fully meet the pure definition of multi-tenancy, it more than makes up for it in functional parity with on-premise ERP suites, which is the point of this post. I'm hoping to write more on this new offering soon, as it appears to be another good option for those looking to go with SaaS for full-suite ERP.
Update: Epicor Express is another full-suite SaaS offering. Running as a pure multi-tenant deployment of Epicor 9, the offering today is supporting about 15 live customers, with another 15 in implementation. Epicor is currently targeting this offering at small job shops, with customer friendly subscription terms and very low fixed-fee implementation services ($7,500, including a defined set of data migrations). But I can see this product being up-sold to larger customers with more complex requirements as well.

The number of SaaS providers with full-suite offerings still pales in comparison to traditional on-premise ERP. Note, however, that I don't consider hosted versions of on-premise software in the SaaS category, such as hosted versions of Lawson's ERP products, or Oracle's E-Business Suite. Single-tenant hosted products simply do not offer the full benefits of SaaS outlined earlier.

Full-suite SaaS gaining traction
Although the number of true multi-tenant full-suite SaaS offerings today is limited, they are rapidly becoming a viable alternative to on-premise products or single-tenant hosted offerings.

The latest example is a big win for Plex Systems, at Invensys Controls, one of three business units of UK-based Invensys plc. This business unit provides components, systems, and services used in appliance, heating, air conditioning, refrigeration, and residential thermostat products. It has locations in 15 countries which include 22 manufacturing sites, two distribution centers, and seven engineering centers--and Plex Online will be implemented in all of them.

It sounded like a pretty big deal for a SaaS provider, so I followed up with Plex to find out more. Here are the details:

Plex will be replacing 11 different traditional on-premise ERP systems in the various locations at Invensys Controls, which has revenue of approximately $900 million.
The win by Plex comes not only against traditional on-premise ERP vendors--SAP, Infor, and Oracle, but also against NetSuite. So, Invensys actually was willing to consider two full-suite SaaS options: Plex and NetSuite.
The decision in favor of Plex came down to two factors: (1) functionality--a single, comprehensive solution that covered all of their functional areas, and (2) the SaaS deployment model with associated benefits of cost-savings, speed of implementation, and scalability.

Interestingly, according to my correspondence with Plex, Infor was de-selected as it did not have a true SaaS offering, and both SAP and Oracle were eliminated for non-response to the RFP. One can only speculate that Invensys may have become focused on going with a true SaaS offering, and neither SAP nor Oracle couldn't come up with one. If so, we may be coming to the point where even organizations as large as Invensys Controls see true multi-tenant SaaS as their preferred deployment option.

If that's the case, why didn't NetSuite win the deal? According to Plex, NetSuite had gaps in meeting key functional requirements. It would appear then that the deal came down to Plex versus NetSuite--two true SaaS offerings. If so, this underlines my point that the only thing holding back full-suite SaaS offerings from taking further market share is functional parity.

Back in the 1990s and early part of this decade, ERP selection often came down to long checklists of functionality, becoming more and more detailed as full-suite offerings matured. Eventually, such long checklists became less useful, especially for large deals, as the Tier I providers (SAP and Oracle) could pretty much check every box. (As a result, in our own ERP selection consulting at Strativa, we prefer these days to focus more on key differentiators and industry-specific requirements.)

Furthermore, in software selection deals we've worked lately, we are seeing much more interest on behalf of buyers in true SaaS deployment than we saw even one or two years ago. As buyers hear about the success of other companies with solutions such as Salesforce.com, the benefits of SaaS are much more well-understood, and the traditional objections (security, reliability, "where is my data," etc.) become less of an issue.

So, as the focus shifts to SaaS for full-suite ERP, we may be seeing functional requirements again becoming the key selection criteria. If the deployment option of true multi-tenant SaaS is superior to traditional on-premise deployment or single-tenant hosted offerings, then the only thing standing in the way of SaaS is functional parity. But, as development platforms such as NetSuite's make addition of new functionality much easier, the functional gaps are being closed much more rapidly than many realize.

Traditional on-premise vendors beware: the full-suite SaaS providers are catching up quickly.

Update, Oct. 15. Updated the post with newly-learned information about SAP's Business ByDesign and rearranged the sequence of solutions. Updated also to clarify Workday's intent to support services-based businesses with a full-suite offering.

Update, Oct. 21. Added information about Infor's Syteline offering in a SaaS deployment model.

Update, Nov. 17. Added information about Epicor Express, which is deployed as full multi-tenant SaaS offering.

Related posts
Ensuring win-win in SaaS aggregation of customer data
Plex Online: pure SaaS for manufacturing
Workday pushing high-end SaaS for the enterprise
Lawson's cloud services: good start, but no SaaS
NetSuite a viable alternative for SAP customers?
A game-changing play in enterprise software
The inexorable dominance of cloud computing
Computer Economics: The Business Case for Software as a Service

Ensuring win-win in SaaS aggregation of customer data

2010-10-08T07:22:00.000-07:00

Proponents of software-as-a-service (SaaS) have been looking for reasons that shared architecture is superior to on-premise solutions. The latest argument is that a multi-tenant system (one where all customers share a common system instance) allows the SaaS provider to aggregate data from many customers and report general economic trends and or other statistics that add value beyond that of the service itself. Such aggregation of customer data is difficult if not impossible for on-premise vendors, which typically do not have ready access to each customer's system. It is also difficult for single-tenant SaaS providers, who would need to build an integration layer to access many separate instances of customer systems.

I first noticed this thought in the recently published book, The New Polymath, by my friend and associate Vinnie Mirchandani.

Vinnie writes in a section about a leading SaaS provider, NetSuite:

"We have some of the best leading indicators on the economy. We can aggregate order value, cash flow, and several other metrics instantly in our base of over 6,000 customers and watch trends," gushes Zach Nelson, CEO of NetSuite.... Soon, those customers will be able to benchmark themselves against aggregated data of their peers. That would obviate the need for mailed-in surveys. That capability has been the domain of benchmarking firms like Hackett, not of the software industry, so that is another innovation NetSuite is working to deliver. Nelson explains: "Take those benchmarks and some of the creative BPO [business process outsourcing] partnerships we are exploring, ...and the industry could see SLAs [service-level agreements] that don’t just monitor technical metrics like systems availability but business process metrics that have been elusive to codify."

Dennis Howlett then picked up the thought in his post on ZDNet last month, where he wrote about the value of SaaS being beyond lower total cost-of-ownership. He wrote (emphasis mine):

I have long argued that multi-tenant architectures offer transformational benefits from the ability to aggregate data. That is not possible in a single tenancy situation. Workday isn’t ready to contemplate that notion just yet any more than any other vendor. Except perhaps NetSuite and a small handful of the very small business apps vendors that are building in these capabilities. I recall a conversation where it was said that NetSuite saw the recession coming before it became public knowledge by virtue of the transaction trends it saw in its customer portfolio. Try doing that from your single tenant application.
How about selling anonymized data to banks, other financial institutions, telcos, insurance companies, healthcare organizations…the list goes on. Why would they buy these data? Application tech vendors tend to specialize in certain business sectors. Multi-tenant SaaS vendors are collecting prime data that has genuine value third parties cannot get.

A bank may see ins and outs of bank accounts but those numbers are meaningless without context. A first step I am seeing is where some vendors are suggesting giving client bank managers shared access to aggregated financial data in real-time. Why? Because the bank can marry what they are told with what they see and so make much better informed lending decisions. Add in the ability to offer comparative trend data and you’ve got something extremely powerful....

Long term, I believe the ability to powerfully slice, dice, form and reform data out of multi-tenant systems will become the place where customers see huge value that is way beyond TCO. If I can benchmark performance in real-time or spot trends and compare, again in real-time, then my ability to take corrective or revenue enhancing action is vastly improved. Do I maintain a competitive edge? Of course because it isn’t the availability of data that matters but the ability to execute plans against what I am seeing.

Does this require careful handling to ensure that confidentiality is not breached? You betcha. But just as in the consumer world we have forgone privacy in the name of getting help from Google, there is no reason to believe the same won't hold true in the enterprise. The upside potential for benefit is simply too big to ignore.

This seemed like a bit of an overstretch to me, so I commented on Dennis's post:

I am fully in agreement that multi-tenancy is in the client's best interest, for the simple reason that there is no way a vendor can deliver the service as cost effectively under a single tenant model.

However...I am having a bit of a problem with this concept of "selling anonymized data to banks, other financial institutions, telcos, insurance companies, healthcare organizations." Whose data is it? It's the customer's. The vendor has no more right to take that data in any form, shape, or level of aggregation than a telco vendor has the right to intercept my phone call. The MT vendor is a carrier of the data, that's all.

I'm pretty sure vendors who want to do this have something in their contracts to allow it. But if I'm a customer of such a vendor, I'd either say no, or demand compensation for it.

Now stirred up about this matter, I tweeted:

Having a problem with @dahowlett's view of MT vendors aggregating and selling customer data.

Seriously, ppl go ballistic about Google showing ads based on content of Gmail. Now it's OK for NetSuite to poke around cust's AR files?"

An off-the-cuff, poorly-chosen example. NetSuite--monitoring Twitter--promptly called me about it, and assured me they are doing no such thing. So, I corrected the record on Twitter: NetSuite is not poking around customers' accounts receivable files.

Actual practices of SaaS providers
That out of the way, the folks at NetSuite then offered to brief me on their actual practices as well as how their customer contracts are written. NetSuite was even kind enough to let me review its standard contract, which I won't directly quote here out of respect for confidentiality. But I did tear into it pretty aggressively. In addition, I interviewed two other SaaS providers (Workday, plus one other) to gain a broader understanding of this issue. As you'll see, the actual practice lags far behind the vision of what's possible.

Obligatory disclaimer: I am not a lawyer, I do not practice law, and nothing in this post should be construed as legal advice.

Here's what I what I've been told, based on interviews with these SaaS providers:

Currently, NetSuite is only looking a customer activity in terms of usage: how many users are being added or removed and how often do they log-in, for example. NetSuite has nothing in place to look at actual customer transaction data (e.g. customer A/R files).
NetSuite has considered the opportunity to let customers benchmark their own key metrics (e.g. average days sales outstanding in A/R) with those of other customers in aggregate, but it has not yet moved forward to do so. If it were to do so, it would allow customers to opt-in or opt-out of this service.
NetSuite's standard contract for customers includes prohibitions against unauthorized disclosure of customer data and against unauthorized "use" of customer data by NetSuite. Anything that NetSuite would do in the future in the way of new services to aggregate customer data would be done in a way that is consistent with its customer contracts.
Workday takes a similar approach. It considers customer data at three levels: (1) performance monitoring--e.g. response time, service levels, (2) usage data--e.g. what features customers use most often in the system, and (3) best practices--e..g. what is the average time for a customer to bring a new employee on-board.
The only customer data that Workday accesses today is performance data, as described above. Workday is considering services that would involve aggregation of customer usage data and best practices, and under Workday's standard customer contract, this would require customers to opt-in.
The third SaaS provider, who will remain unnamed, says the investment community has encouraged them strongly to develop customer data aggregation services, as they see this as increasing shareholder value. This provider has no current plans to develop such services, however.
This third SaaS provider indicated that its standard contract explicitly gives them the right to aggregate customer data and report aggregate statistics. However, this clause often gets stricken by customers in contract negotiations.

Although my research only involved three SaaS providers, it does show that the actual practice today is lagging far behind what is possible in terms of customer data aggregation.

Data aggregation not a new idea
This does not mean that there is no precedent for customer data aggregation, however. NetSuite pointed out to me that ADP, for example, has been reporting employment trends for many years, based on actual customer data in its payroll and HR systems. The description of ADP's National Employment Report shows the value of being able to aggregate a large sample of customer's day-to-day operational data.

In addition, Coremetrics, an online marketing SaaS provider, recently acquired by IBM, aggregates its retailer customers' data to provide its Coremetrics Benchmark, which it describes as follows:

[A] peer-level benchmarking solution that measures online marketing results, including commerce data, against those of the competition. More than 500 leading U.S. retailers, contribute their analytics data to Benchmark. All data is aggregated and anonymized.

Coremetrics also uses this data to provide its widely-quoted next-day flash results of sales from so-called Black Friday. ("Black Friday" is the major shopping day that occurs each year in the U.S. on the day after the Thanksgiving holiday, when many retailers finally can report sales "in the black" for their year-to-date results.)

So, in fact, the aggregation of customer data by SaaS providers is not a new idea. It's just somewhat new to most new enterprise SaaS providers.

My take
I agree there can be great value in reporting statistics based on aggregated customer data. But that value should be shared between providers and customers.

In reviewing SaaS contracts, therefore, customers should consider the following:

Non-disclosure. At a minimum, be sure your SaaS contract ensures confidentiality of your data. Most if not all providers appear already to have addressed this point. But verify.
Fair consideration. If your SaaS provider wants the right to aggregate your data with that of other customers, be sure that there is some quid pro quo for your participation. If the provider is somehow preparing benchmarks based on your data, you should be able to received the benchmarks either at a discount or at no charge in exchange for your participation. If the provider is proposing to sell aggregated statistics to third-parties, and this wasn't contemplated at the time you originally signed up, you should receive a discount against your subscription fees in exchange for your participation.
Opt-out provisions. If you are not comfortable participating in data aggregation, you should have the right to opt out. You should also have the right to opt out of future aggregation after having previously opted-in. This is an important check against providers getting too creative in how they use aggregated data, for example, segmenting the data so finely that it becomes uncomfortably close to identifying specific customers.

There's a lot of innovation going on with SaaS providers these days, as they search for ways to add value. That's great. But SaaS providers are still vendors, and a SaaS agreement can be just as lopsided as on-premise software agreement. As I've said before, "you don't get a pass just because you're SaaS."

Although I count myself as a SaaS proponent, first and foremost I am a customer advocate. Know what you're getting into with a SaaS provider and be sure you agree.

Considering a SaaS solution? Let me know if you would like assistance in evaluating SaaS providers or reviewing proposed agreements. My email is in the right-hand column.

Assessing and rationalizing the IT applications portfolio

2010-09-27T07:41:00.000-07:00

There's nothing like putting out a big hairy number to get media attention, and Gartner has just done that with its new statistic it calls "global IT debt." Gartner defines it as "the cost of clearing the backlog of maintenance that would be required to bring the corporate applications portfolio to a fully supported current release state."

And how big a number is it? According to Gartner's press release, it's approximately $500 billion today "with the potential to rise to $1 trillion by 2015."

A bogus statistic
I first heard about the press release through my associate, Vinnie Mirchandani, who points out that this latest statistic was in keeping with a long-standing Gartner tradition:

Gartner made a name starting in the mid-90s forecasting the estimated cumulative cost of Y2K remediation. I was there – and the big numbers it bandied about helped focus enterprises on the core problem. But it also led to hype, panic buying (and exaggerated market declines on the other side of the peak) and many, many poor IT investments. Since then Gartner has picked on many events – such as the introduction of the Euro between 1999 and 2002 - and piled up potential costs to come up with a single, usually scary, related aggregated IT project cost forecast.

Vinnie goes on to point out five reasons why it may be in an organization's best interest NOT to upgrade applications to the current release. Read Vinnie's whole post.

At this point, the easiest thing for me to do would be to pile on. In fact, my first reaction upon hearing about IT debt was to call the concept "bone-headed."

For example, if IT organizations are incurring a debt, to whom do they owe it? To software vendors? If so, it would betray a very vendor-centric view of IT. Gartner's view also assumes that having a software package up to date on the current release is a desired state--a concept that Vinnie pretty much demolishes.

Rationalizing the application portfolio
But, to be fair, it appears that Gartner is using this statistic to highlight the state of disarray in the applications portfolios of many organizations and to "make the problem bigger."

With that in mind, let's stipulate that application proliferation and unsupported versions is a big problem in many organizations. What, then, should a CIO do about it?

I would recommend a formal process to evaluate the entire applications portfolio and assign them to categories, such as the following:

Retirement Candidates: those applications that can simply be retired, as they may have little current usage or the business value is minimal.
Consolidation Candidates: those that duplicate functionality in other applications. For example, combining two SAP instances, or an SAP system and an Oracle system. Pick one and standardize on it.
Freeze Candidates: those older applications that have little business value from upgrading to the current release. Mixing metaphors here, in Gartner's concept this would be "debt forgiveness." This might be a temporary strategy for an application that ultimately is slated for retirement or consolidation.
3PM Candidates. those older applications that still need to be maintained but have insufficient business value from upgrading. These are good candidates for third-party maintenance. This wouldn't be a full "debt forgiveness" but more like "loan modification." You still need the application but are looking for a cheaper alternative to vendor maintenance.
SaaS Candidates: those that would benefit from moving away from traditional on-premise to software-as-a-service. Such applications do not incur "IT debt" in the future, because the service provider keeps the application up to date at all times, unlike traditional on-premise software that requires customers to upgrade.
Upgrade Candidates: those that do not qualify for SaaS conversion but represent strategic platforms that the customer wants to keep current on some sort of schedule. You should avoid making custom modifications to these applications as much as possible, as it makes them more difficult to upgrade.

Now, this is not an exhaustive list of categories, but you get the idea. You have to know what applications you have and what condition they are in and then come up with a strategy for optimizing the value of each. Of course, the list should also be prioritized to determine the criticality and business value of the proposed changes.

Conducting the assessment
On the other hand, it is not always an easy matter to put applications into the right category. Users may have one opinion on the business value or technical quality of the application, while the IT organization may have another. How to evaluate in-house written systems and modifications to packaged software further complicates the problem, as the IT organization may have considerable pride-of-ownership.

In conducting such assessments, we have found sometimes widely differing opinions about whether the problem is the application itself, how the application was installed or configured, or the business processes that use the applications--or all three. In many cases, therefore, it helps to have a neutral third-party participate in the evaluation.

My consulting firm Strativa has experience in conducting these sorts of assessments. You can also read more on our approach in the blog post I wrote several years ago, Four problems with ERP, and a follow-up post, Solving the Four Problems with ERP.

Email me if this is something of interest to your organization.

Update, Sep. 29. My colleague Dennis Howlett has a good post on ZDnet with further reaction to Gartner's IT debt proposition as well as to Vinnie's and my posts. Read Dennis's entire post.

Oracle Apps User Survey: first look at early results

2010-09-20T08:43:00.000-07:00

Update: the final results of our survey are complete. See this post: Oracle applications customers: wedded bliss or battered wives? The full report, Go-Forward Strategies for Oracle Application Customers, is available from Computer Economics.

Over at Computer Economics, we've been running a survey for customers of Oracle Applications. We've received nearly 100 responses so far, which is enough for us to begin to see some patterns taking shape.

Service and support. There is a lot of dissatisfaction among Oracle customers concerning the quality and cost of Oracle maintenance and support. For example, 48% of E-Business Suite users and 41% of PeopleSoft users express dissatisfaction.

But what really bothers customers is the cost of support: a whopping 63% of EBS users and about half of the PeopleSoft and J.D. Edwards users say Oracle support costs too much.
Stay or leave? In spite of unhappiness with Oracle's support, most Oracle Apps customers aren't going anywhere. About 75% see Oracle maintaining the same or greater share of their IT budgets three years from now.
Fusion what? Oracle has its work cut out for itself in selling its product roadmap. Fusion Apps are not on the radar for most Oracle Apps customers. For example, only 25% of E-Business Suite and PeopleSoft customers are considering a migration to Fusion. This may change for the better after this Open World conference, as Fusion Apps will be getting a lot more attention. It will also help when Oracle's installed base reps are finally able to start demonstrating Fusion, after this conference.

Our survey covers several other areas as well, such as experience with Sun under Oracle, Exadata, and views toward Oracle's litigation of competitors.

Dennis Howlett videotaped me commenting on these results.

We plan to publish the full results in Q4. In the meantime, if you are an Oracle Apps customer, please take the 10-minute survey here. Qualified respondents will receive a free copy of the full final report from Computer Economics.

Related posts
Oracle Open World 2010: First Night Vibe

Oracle Open World 2010: First Night Vibe

2010-09-19T18:22:00.001-07:00

I'm here again at this year's Oracle Open World conference in San Francisco. The conference opened for me with my participation on a panel discussion for Oracle customers, but outside of Oracle's control, moderated by my associate Ray Wang. Lots of dialog there that I need to process.

I'm now listening to opening presentations, in the comfort of the blogger/press room, awaiting the much anticipated keynote by Oracle CEO Larry Ellision.

In the meantime, here's a quick Youtube video of sights and sounds around and in the Moscone center, leading up to the first night's keynote.

Update, 7:00 p.m.--Oracle's View of Cloud Computing
We're now into Ellison's keynote, which is heavily focused on cloud computing and moved quickly to covering the latest developments in Oracle/Sun hardware. At the beginning of his talk, Ellison first developed two definitions of cloud computing:

Virtualized cloud computing infrastructure services, as offered by Amazon.com's Elastic Cloud Computing services, and
Software applications that are offered as a service over the Internet, as typified by Salesforce.com.

Ellison says that Oracle's definition of cloud computing matches Amazon's definition, not Salesforce.com's. By then quickly moving to an overview of Oracle/Sun hardware, his purpose is clear: Oracle wants to be a providers of infrastructure hardware and software to cloud computing providers--both public clouds and private clouds (similar virtualized data center services run by large organizations for their internal purposes).

By implication, then, Oracle does not intend to broadly offer software-as-a-service, as Salesforce.com does. Ironically, Oracle does have some SaaS offerings today, such as its CRM On-Demand, which it inherited from Siebel. But as we all know, such offerings do not carry the high margins of Oracle's on-premise software applications, or the margins it thinks it can get by selling high-end database appliance boxes (i.e. Exadata). In my view, then, Oracle would rather sell the infrastructure (hardware, database, middleware) than the service (SaaS applications delivered over that infrastructure).

There's something to be said about having a clear strategy and executing consistent with it. However, I have to wonder--if SaaS becomes the norm for delivering application functionality in the future, will the hardware/database/middleware market really grow to match Oracle's expectations?

Update, 8:00 p.m: Fusion Apps on the way.
Ellison devoted the last part of his keynote to talk about Oracle's much-awaiting Fusion Applications, which he said would be released to some customers late this year, with general availability in the first quarter of 2011. I won't go into the details at this time. I see now that there's a new section on Oracle's website, with much new detail on what's in Fusion Apps.

Postscript: Oracle Apps User Survey. Our 10-minute Oracle Apps User Survey is still open for responses. If you're a customer of any of Oracle's Application products, take the survey here.

Rumors of the death of corporate IT greatly exaggerated

2010-09-15T07:09:00.001-07:00

I came a blog post recently entitled, Is Enterprise 2.0 Helping to Kill Off the IT Department? (For those not up-to-date on the latest fashions, Enterprise 2.0 refers to the use of tools such as blogs, wikis, RSS, mashups, and social networks to capture and manage unstructured information in business enterprises.)

What set me off about this post was not the part about "Enterprise 2.0," but the part about "killing off the IT department." I've been reading articles like this ever since I started working with IT several decades ago.

About every 10 years or so, some new technology comes along that observers trumpet as so radical and innovative that it will result in nothing less than the death of the corporate IT department. And every time, IT ultimately adapts, though at first it may resist.

The PC revolution
As I recall, the first death knell was sounded when PCs arrived. These started showing up in businesses in a big way in the late 1970s. At the time, I was working as a manufacturing systems analyst for an oil field services firm. I was in the midst of gathering requirements for a custom system that would manage tooling inventory on the shop floor.

One day, I went out to visit the tool crib in one of our plants and found that my users had already built their own tooling inventory system using a TRS-80 PC from Radio Shack. They said they didn't need help from corporate IT. I argued with the manager, "Look, I'm not out here setting up my own tool crib--you shouldn't be out here building your own computer systems." Ultimately, we did end up building the corporate tooling system, but not without a lot of resistance from users who felt that what could build themselves was good enough.

It took more than 10 years--some might say, 15-20 years--for IT to figure out how to adapt to the PC revolution. The first big issue was "connectivity." Users were buying personal computers, then spending way too much time re-keying data from mainframe-printed reports into PC spreadsheets. So, corporate IT was given the task of connecting them while still maintaining security and integrity of corporate data.

The next challenge was to harness all that computing power sitting on the desktop, which brought in the era of client-server computing. Centralized systems would maintain master file data, while desktop systems would be used for data entry and analysis. The strengths of the server computer and the client computer would each be used where they were strongest. Response time would be faster on the desktop PC since only local processing was required, and data integrity would be maintained as master files were kept at the server level. Eventually, you had three-tier (client, application server, and database server) and n-tier systems.

Along with client-server computing, we had to deal with the need for graphical user interfaces. As users became accustomed to the Windows GUI in the late 80s and early 90s, they became frustrated with the character-based interfaces of their corporate mainframe and minicomputer systems. Some users, learning Visual Basic on their own, became better PC programmers than those of us in corporate IT. So we had a whole new set of skills to learn. But corporate IT ultimately adapted.

What corporate IT went through to adapt to the PC revolution was much greater than anything it faces today in adapting to the presence of Facebook, Twitter, and iPhones.

The Web revolution
Just around the time corporate IT figured out how to managed PCs and client-server systems, the Internet changed everything. Again, a new technology served to empower users, who were now able to build their own websites and simple web-based applications, bypassing corporate IT.

But the Internet and Web technologies turned out to be a great boon to corporate IT. The first way it helped was in simplifying system design and system management. In truth, client-server was a very cumbersome way to build and manage systems, with code sitting both on the server and on each client. Web technologies made it possible to create thin client systems, with all business logic sitting at the server tier and the desktop PC used only for user presentation. Web technologies allowed systems to be re-centralized--a return to the host-based computing of the mainframe days, but with GUI.

Second, the Internet made it possible to connecting customers, partners, and suppliers in a way that was much simpler than it was with the old electronic data interchange (EDI) technologies--the so-called e-business revolution. Some of this resulted in the dot-com boom and bust, but much still remains and has become part of doing business today.

Once again, the corporate IT department adapted and survived.

The cloud-computing revolution
Today, we're in the midst of another revolution--cloud computing--which is really just an extension of the Internet wave. As Web-based systems became mainstream, it became possible to move an application system with its entire infrastructure--data centers, servers, databases, application code, network gear, and infrastructure support personnel--out of the corporate data center to a third-party provider.

At first it was a one-for-one replacement, simply picking up the application and moving it offsite--what was called, in the late 90's, the application service provider (ASP) model. Then, providers began to build their own applications that could support multiple customers on a single instance of the application code, so-called multi-tenant systems, or software-as-a-service (SaaS). Some would say this was a return to the old time-sharing or service bureau model of the earliest days of corporate computing.

The rise of SaaS applications, from providers such as Salesforce.com, meant that user departments could go out and buy their own applications as a service, without any involvement from corporate IT.

Earlier this year, my associate Ray Wang did a quick poll of 46 large company CIOs and found only 11 (24%) of them indicating they had SaaS applications running in their organizations. But when he polled the procurement managers from these same organizations, he found that 100% of them reporting the presence of SaaS applications in various business units. Clearly, CIOs in three-quarters of these companies were being cut out of the SaaS procurement decision.

Doesn't this mean the death of the corporate IT department? I don't think so, because nearly every one of these SaaS applications, ultimately, will need to be integrated into an enterprise architecture, just like all those PCs back in the 80's needed to be connected to the corporate mainframe. You can see this happening already. As one respondent in Ray's survey said, "The business heads keep showing up with these SaaS apps and then want us to integrate them. We need to get a handle on all this!”

The architectural role of corporate IT
No one talks about "the death of corporate HR," or "the death of corporate accounting." Why is this thought of "the death of corporate IT" constantly recurring? I think it's because many observers only see corporate IT as a manager of technology. So, every time a new technology comes along that users can deploy for themselves, it would seem to obviate the need for a corporate IT department to exist at all.

Many observers don't realize that information technology--software, hardware, networks--is just one part of "corporate IT." The other major part is designing and managing business processes--especially cross-functional business processes--that utilize technology and developing. This part also includes maintaining the enterprise architecture--the combination of technology and business processes--to support the organization's objectives.

Granted, some IT departments are not very good at the second part. But if they aren't, someone needs to be. I don't care what you call it, or who it reports to. Someone needs to be concerned about the integration of all these systems with one another, and no single user department is in a position to do that.

Back to the beginning
In thinking about these matters, I was reminded of my introduction to corporate IT. My first job was as a programmer trainee at Macy's at Herald Square in New York (as seen in the Miracle at 34th Street). Macy's was one of the first organizations to purchase an electronic computer for business purposes--one of the first National Cash Register (NCR) computers--in the early 1950s.

I reported to some of those first programmers, who were still working there when I started as a trainee in 1974. (In fact, when we had trouble with some obscure piece of logic in those core systems--which had long since been migrated from NCR to the IBM mainframe--these old boys would pull out some dog-eared pages of ancient bubble flow-charts to answer our questions.)

Interestingly, prior to the arrival of its first NCR mainframe, there was no "corporate IT department" at Macy's. Rather, Macy's assigned the responsibility for this new technology to a group that already existed within the organization--it was called (as I believe I was told), the "Systems and Procedures Department."

What was the previous mission of the Systems and Procedures Department? It was to design and maintain all business processes within Macy's. For example, the procedure for handling and accounting for returned merchandise involved several departments and required tight controls. The Systems and Procedures Department designed, tested, and implemented this procedure. When the NCR mainframe arrived, the department simply incorporated computer technology to automate parts of that process.

The "systems and procedures" roots of the Macy's corporate IT department were still in evidence when I arrived in 1974, fresh out of college as a programmer trainee. After two or three days studying programming manuals, bored out of my mind, I was ready for my first assignment--to write a program to print "Holiday Money" (those fake currency certificates that department stores used to mail during holiday season to credit card holders, allowing them to spend them like real money and have the amounts charged to their credit cards).

But rather than give me programming specs, my manager (one of the old guard) gave me my first task: go talk to the users. He said, "Around here, no one is just a programmer--you have to understand the business. Go talk to the users and see what they want. Then write it up and run it by me."

He also told me about a friendly rivalry he had with his counterpart at another well-known department store. From time to time each would visit the other's store and attempt to find weaknesses in the other's business processes.

In fact, just the previous year my manager had discovered a hole in his rival's Holiday Money process! It was possible to return merchandise purchased with holiday money and receive cash back--effectively getting a cash advance on the consumer's credit card, which was a violation of the store's policy. He then notified his rival, who plugged the hole, but lost bragging rights for that round.

Understand, these were not two "business managers." These were two IT managers.

So I learned from my first week on the job: corporate IT is not just about technology. It's about "systems and processes." So, if "systems and processes" pre-dated the introduction of computers to business, it means that this role for corporate IT will survive, even if we get rid of the computers.

Related posts
The inexorable dominance of cloud computing
IT departments face extinction
The end of corporate computing

Oracle Apps User Survey now live

2010-08-27T12:20:00.000-07:00

Our new survey for users of Oracle Applications is now online.

If your organization is a user of ANY of Oracle's applications systems--whether E-Business Suite, JDE, PeopleSoft, Siebel, or others--please help by taking this easy 10-minute survey.

The survey is to solicit the views of Oracle customers on several "hot topics," such as Oracle's maintenance and support programs, Fusion Apps, and the Sun acquisition.

Take the Oracle Applications User Survey Now >>

What's in it for you?
A free copy of the final report, which will otherwise only be available to Computer Economics subscribers or to those who purchase the report.

Only IT professionals directly involved with Oracle Applications should participate in this study. If you are a software vendor, VAR, reseller, or consulting firm, please feel free to forward this request to any Oracle customers you know.

If there is someone within your organization more qualified to take this survey, please feel free to forward this request to them.

Thank you in advance!

Calling all Oracle Apps customers

2010-08-24T13:39:00.000-07:00

I'm getting ready to launch a short survey for Oracle Applications customers. If your organization is a user of ANY of Oracle applications systems--whether E-Business Suite, JDE, PeopleSoft, Siebel, or others--please let me know if you'd like to respond to the survey. It should take less than 10 minutes. My email address is in the right-hand column.

What it's about. We are interested in the views of Oracle Apps customers relative to several "hot topics," such as Fusion Apps, Oracle's maintenance and support, and the Sun acquisition. We will use this information to prepare a special report to be published by Computer Economics.

What's in it for you? A free copy of the final report, which will otherwise only be available to Computer Economics subscribers or to those who purchase the report.

Only IT professionals directly involved with Oracle Applications within their organizations should participate in this study. If you are a software vendor, VAR, reseller, or consulting firm, please feel free to forward this request to any Oracle customers you know.

If there is someone within your organization more qualified to take this survey, please feel free to forward this request to them.

Factors that affect ERP implementation cost

2010-08-23T09:36:00.001-07:00

The CEO of a small software vendor contacted me last week with a simple question. Did I know of any recent research that provided typical ratios for Tier II ERP implementation cost to software license cost? He didn't say why he was asking, but I assume it was in order to position his own customers' experience against some sort of industry benchmark.

My reply was simple. I wrote:

Dear XXX, Unfortunately, I do not have current stats on implementation to license fee revenue. It is something we should survey, as we do get asked this a lot. I usually quote a range from about 75% to 200%, typically. But as you can imagine, discounts on the software license fees affect that, and also the extent of data conversion and interfaces/integrations and modifications. Also the amount of business change being introduced.

A few moments later, I tweeted a short status update, "Chatting with a vendor about implementation cost to software license cost ratios." That triggered an interesting three-way discussion between Dennis Howlett, Martijn Linssen, and myself on the subject.

Martijn has already followed up in a blog post. In short, Martijn's position is that "there is a clear, direct and fairly linear relation between the initial cost of a product, and the additional cost(s) involved servicing it" [emphasis mine]

Not a direct relationship
I agree with Martijn that there is a relationship between the cost of the software and the cost of implementation. But I do not agree that it is a direct relationship. For example, if Company A pays more for SAP than Company B does, you can expect Company A will pay more for implementation. This might be because Company A has more users or is installing more modules. These factors will cause the software cost as well as the implementation cost to be greater for Company A. But what if SAP greatly discounts the software cost for Company A? Will that bring the implementation cost down for Company A? Of course not.

What drives implementation cost?
In fact, I have been in deals where software vendors have basically offered to sell the software at little or no cost. Does that mean the vendor or systems integrator will be willing to support the implementation for little or no cost? Of course not.

This thought experiment essentially proves that the relationship between software cost and implementation cost is not a direct relationship. There is no cause and effect. Rather, based on our ERP selection and implementation project management experience at Strativa, we find that total ERP cost is affected by a number of factors.

First, there are two factors that affect both the cost of the software and the cost of implementation:

Number of users. Software is often priced by the number of users. The number of users is also a factor in implementation cost, as more users generally means more user functions affected, more business processes affected, and more training required.
Number of modules/amount of functionality. Similarly, software is often priced by the scope of functionality included. Software with more functionality is generally more expensive than software with less functionality. Likewise, implementing software that supports a broader set of business functions will cost more.

In addition, there are several other factors that affect implementation cost but do not generally affect software license cost. These include the following:

Amount of data conversion or interfaces required. An organization that can implement the new system cleanly, without a lot of data conversion from the old system and without building interfaces to legacy or third-party systems, will get by with a lot less implementation budget than an organization that requires much data conversion or integration.
Amount of business change required. An organization with well-defined business processes that conform to the business processes defined in the software will generally pay less for implementation than an organization that needs a lot of business process change.
Skills and availability of the internal project team. An organization that has a well-formed internal project team with skilled resources will generally pay less for implementation than an organization that depends mostly on outside contractors to undertake implementation activities. (The organization with the well-formed team is also at less risk of project failure.)
Choice of the implementation consulting partner. An organization that engages the help of a qualified systems integrator (or the vendor's own consulting arm, if so qualified) will generally spend less on implementation than an organization that chooses an SI with lesser skills or a poor track record in delivering services within budget.

There are other factors as well, such as the degree of standardization of business processes among multiple facilities and the organization's track record in managing cross-functional business change projects.

"Complexity" of the software may be a factor
Finally, there is one other factor that is a wild-card, in my opinion. That is, the complexity of the software itself. This may or may not affect software license cost, but it often affects implementation cost.

This may be easiest to define with an example. SAP and Oracle are two well-know, so-called "Tier I" ERP systems. It is generally understood that these systems can support the largest, most complex, most geographically-dispersed organizations. They can support the widest number of industry sectors. They do this by incorporating a great deal of functionality for various industries, business processes, and local regulatory requirements. They are highly configurable. In other words, they are big pieces of software, or as I like to put it, they have a "big footprint."

This complexity comes with a price. It means that to make use of the system in a specific organization, many decisions have to be made during the implementation. These decisions cost time and money to configure the software and test it specifically for the organization's needs. This drives up the cost of the implementation.

SAP and Oracle are well-aware of this issue and have worked hard over the past decade to pre-configure their systems for specific industries and use cases. If a customer fits well into the vendor's pre-configured templates ("accelerators" in Oracle-speak, or "best practices" as SAP calls them), much of the complexity of the software can be hidden from view. Customers that fall neatly into the vendor's template can sometimes achieve very rapid and cost-effective implementations. Both vendors will gladly share references of such with prospects.

But don't the higher-end software packages still cost more than software targeted for small and mid-size businesses? This is not always the case. I have seen situations where SAP and/or Oracle were actually the low-cost bidders. In cases where a software vendor wants the deal, it is not safe to assume that the higher-end package will cost more. For this reason, I don't believe software "complexity" in itself is a consistent factor in either software license cost or implementation cost. As we consultants like to say, "it depends."

Popularity of implementation-to-license cost ratio
So, why do software vendors, customers, or systems integrators continue to use the implementation-to-license cost ratio? Because, as flawed as the ratio is, it does serve to set expectations as to implementation cost. To me, the ratio best works in hindsight. If a system implementation, on average, requires 1.5 times the software cost, a customer better not be assuming that it can do it for half the license cost.

But to really judge the prospective cost of an ERP implementation project, nothing beats doing a detailed estimate based on a realistic work-breakdown structure, with realistic estimates that take into consideration the factors outlined in this post.

Related posts
ERP implementation: plan for the worst
Epicor's Shared Benefits program: watch for unintended consequences
Revisting Epicor's Shared Benefits program
Oracle claiming ultra-fast installs in SMB market

ERP implementation: plan for the worst

2010-08-12T13:40:00.000-07:00

Chris Kanaracus, always on the lookout for lawsuits and regulatory filings related to enterprise software, spotted this case study today: a company that was forced to delay reporting of quarterly results due to problems with a newly installed ERP system.

VAN NUYS, CALIFORNIA -- August 11, 2010 -- Superior Industries International, Inc. (NYSE:SUP) today announced that it is postponing the release of its financial results for the second quarter and year-to-date periods ended June 30, 2010, and its earnings conference call originally scheduled for today, Wednesday, August 11, 2010. The postponement is the result of delays in finalizing the quarter financial close due, in part, to the recent implementation of a new Enterprise Resource Planning (ERP) system. Superior is working diligently to finalize its second quarter results and will provide new dates and times for the earnings release and earnings conference call in a forthcoming news release.

Chris provides further details:

The problems were primarily due to closing a quarter for the first time with the ERP system, along with changes to Superior's legal structure in Mexico, it added.

The company recently implemented a product from QAD, CIO Ross Perian said in an e-mail. He did not respond to requests for further details on the project, which went live on March 29, according to another SEC filing.

Fortunately, according to Chris, it appears that only a five day extension will be necessary. And it pales in comparison to some of the catastrophic ERP failures reported over the past decade.

My take
There are several unanswered questions, and several take-aways from this mini-case study.

According to Chris's digging, the new system went live on March 29. That's over four months ago, more than one quarter. How did the firm manage to close the previous quarter? Or, was it running the old system in parallel for purposes of financial reporting?
The firm had four months since it went live on the new system to test the quarter-end close routines. Did it do so? If so, what were the results? Did it have any forewarning that there were problems? I have personally witnessed QAD implementations that took less than three months. Four months in QAD-land is a long time. What was the project team doing during this time period?
Was there a contingency plan? Did anyone ask and answer the question, what will we do if the new system can't close the quarter?
QAD's MFG/PRO is a mature product. The financial close routines should simply work. Did the firm modify the vendor's source code or make other non-standard configuration changes to the system?

Finally, if I were the top executive, I'd be asking some tough questions about the new system's readiness to close out the fiscal year.

I don't mean to pick on Superior or QAD in particular. The fact that only a five day extension appears to be required is a good sign that the project team was not far off from success. Still, this is a publicly-held company, which doesn't need these sort of SEC filings.

Our latest Technology Trends study at Computer Economics this year shows that, among 19 technology investments, ERP is among the most risky IT initiatives. Yet, we've had 20+ years to learn how to do it right.

Unfortunately, it seems we keep learning the same lessons over and over again.

Related posts
Philly pulls plug on failed Oracle project
What went wrong with HP's SAP migration?
Four problems with ERP
Solving the four problems with ERP

Countering aggressive software maintenance terms

2010-07-20T09:55:00.001-07:00

There are two developments this week on the analyst front, dealing with the issue of software maintenance contracts. First, Gartner issued what it calls a "code of conduct" for vendors in crafting maintenance contracts. Second, my fellow Enterprise Advocate Ray Wang wrote a hard-hitting blog post dealing with what he calls "all-or-nothing" vendor maintenance agreements.

Code of Conduct
Gartner's press release on its code of conduct is quite detailed, outlining specific points that vendors should address in software contracts. In short, Gartner addresses the following points:

The right to regular, appropriate, predictable updates to software products
The right to clearly defined response times and stratified IT support levels based on application criticality and other business factors
The right to reasonable, predictable percentage ranges for yearly maintenance fee increases--or decreases--as well as long-term caps on increases in maintenance costs
The right to end or change support at any time for products that are not in use
The right to reasonable, predictable levels of support throughout product and contract life cycles
The right to reasonable, clearly defined maintenance and support for legacy systems
The right to explicit statement and approval of support details at the line-item level

There's not much to argue with in Gartner's recommendations. They provide a common-sense checklist for evaluating any software vendor maintenance relationship.

If I see any lack in Gartner's code of conduct, it is that it fails to mention the third-party maintenance option. Gartner is completely silent on this point. Some vendors these days are attempting to preclude customers from seeking service and support from third-parties. A customer-friendly maintenance contract should explicitly allow customer the right to go to a third-party provider for software maintenance, without jeopardizing warranties or future support.

"All-or-Nothing" Tactics
Ray's post drills down more deeply on one tactic that he sees vendors adopting these days--that is, forcing customers to put all software licenses under contract, and paying up any back maintenance, when buying new licenses.

Ray writes:

Conversations with 11 enterprise apps customers in the past two months indicate stricter enforcement of vendor "All or Nothing" maintenance policies. “All or Nothing” maintenance policies often require customers to put all licenses on maintenance or receive no maintenance from the vendor. These policies also prevent customers from reducing the number of licenses covered by maintenance. The rationale for these policies – customers could potentially apply the patches, bug fixes, and upgrades for covered licenses to the uncovered licenses.

At first glance, it all sounds fair and reasonable. But Ray points out four cases where such clauses can cost an organization dearly. For example, one division of a large company may drop maintenance on a software product. When another division then goes to buy additional seats for the same software product, the vendor invokes the contract to demand that the entire company pay up all maintenance, or forgo buying new seats. Read Ray's entire post to see how easily an organization can run afoul of such contracts.

Ray has some good advice for negotiating hard against such tactics, and--in contrast to Gartner--includes consideration of third-party maintenance options as a counter-tactic.

My take
Ray and I and other Enterprise Advocates Vinnie Mirchandani and Dennis Howlett, have been beating the drum for years on this issue of software maintenance contracts (see the Related Posts at the end of this post for a sample). The situation over these many years has not gotten better. In fact it could be getting worse. As traditional vendors see new license revenues shrinking in the current IT spending recession they become even more adamant at pursuing revenue from their installed customer base. This motivates them to push maintenance fees even harder. There are a few exceptions, such as RightNow's Cloud Services Agreement, Infor's Flex program, and Microsoft Dynamics' separation of maintenance fees from support fees. But the big players--SAP and Oracle in particular--show no signs of softening their approach.

I am coming to the conclusion that there are only two things that will ultimately shift the balance of power to something that is more equitable between vendors and customers. Unfortunately, both of them involve the legal system.

A thriving third-party software maintenance industry. As long as customers have no choice in maintenance providers, there can be no competition. But the best existence proof for third-party maintenance--Rimini Street--is now mired in a lawsuit by Oracle. Oracle fired the first shot, but Rimini Street appears to be itching for a battle by filing an aggressive counter-suit. That's good news. Hopefully this case will be decided in a way that provides legal precedent for the right of third-parties to offer software maintenance that does not infringe on the OEM's intellectual property rights.
Antitrust rulings by the US Department of Justice and the European Union. Although the enterprise software marketplace is not a monopoly, when a customer commits to a certain vendor the vendor-client relationship at that point becomes less of a free market. The customer has committed enormous amounts of time, effort, and business process design that is now intricately linked to that vendor. Undoing such a decision is expensive--even prohibitive. Therefore, there needs to be some legal protections for customers once they commit to a vendor relationship. The tech industry is no stranger to such antitrust rulings in the past (e.g. the ruling against IBM, forcing it to unbundle mainframe hardware from operating systems, which provided the legal framework for the plug-compatible industry comes to mind). A legal requirement for vendors to unbundle software licenses from maintenance services and maintenance services from support services is one area crying out for similar rulings.

In the meantime, customers need to fight back. Gartner's list and Ray's recent post provide good ammunition.

Related posts
Rimini Street, SAP, and the future of third-party maintenance
Rimini Street to provide third-party support for SAP
Legal basis for third-party ERP support industry
Flash: SAP backs down on 22% maintenance fees
SAP postpones its maintenance fee price hike
Enterprise software: who wants to be the low-cost leader?
Attacking and defending software vendor maintenance fees
SAP and third-party maintenance: good for me but not for thee
SAP maintenance fees: where is the value?
Mad as hell: backlash brewing against SAP maintenance fee hike
Why vendors resist negotiating software maintenance fees
Pushing back on software vendor maintenance fees
SAP under the spotlight for "broken promises"
Vendor software maintenance programs: top 10 wish list
Mad as hell: backlash brewing against SAP maintenance fee hike
Oracle confirms: maintenance fees are virtually all profit
Oracle profits strong, thanks to your maintenance payments
Vendor maintenance fees: just say no
High software maintenance fees and what to do about them

Shifting strategy: Infor casts its lot with Microsoft

2010-06-23T07:30:00.001-07:00

Infor came out with two significant announcements this morning. Based on a briefing that Infor gave me yesterday, they point to a major strategic shift in direction. Infor's 70,000 customers should take note.

Two announcements
First, Infor announced something called Infor ION, which is a set of software services for application integration, document-based communication, and business process management, across Infor's own applications and non-Infor systems. Infor ION subsumes (my word) Infor's previous work on Open SOA, which was aimed at integrating Infor's existing applications portfolio. Infor is promoting ION as an alternative to "high cost middleware implementations." ION is currently in development, scheduled for release in Q4.

Second, Infor is moving all new product development to Microsoft's technology stack. The elements of the stack include Windows Server, MS Single Sign-On, MS Reporting Services, SQL Server, Silverlight, and Sharepoint. Infor will continue to develop its applications that run on other platforms, such as its IBM Series i and mainframe applications. But all new development will be all Microsoft.

It also means that Infor will deliberately abandon development of its own technology and tools. For example, in the briefing Infor said it was walking away from its own workflow engine development, its own Clear UX user-interface (which it had acquired), and its own efforts to build portal technology using open-source.

A strategic shift for Infor
These two announcements, taken together, represent a major change in product direction for Infor. Here is my evaluation:

Infor is right to give up trying to be a tools developer. There are very few application software vendors that successfully develop proprietary tools or technologies. (The only successful vendor, to my knowledge, is SAP, with its ABAP language--but that's only because ABAP dates from the early 1990s, when client/server development tools were not adequate for what SAP needed. Oracle is another, but Oracle is a technology/tools vendor first and an apps vendor second. Same with Microsoft.)

There are major benefits for Infor in walking away from tools development. First, it frees up product development funds to focus on the thing that Infor customers really need: continued development, enhancement, and integration of Infor's applications portfolio. Second, by using Microsoft standard technology, it should also allow Infor to get there quicker with its ION integration and business process management framework. Third, it allows Infor to more easily recruit and retain product development and implementation personnel, as they will be working with technologies that are broadly supported in the marketplace. Finally, it is more attractive for customers, who won't need to have their IT personnel trained in another set of tools.
Alignment with Microsoft is the probably the best choice. It's something of a surprise, as Infor has mostly been thought of as more IBM-centric than anything else. But Microsoft is a better choice than IBM for standardizing its technology. Our research at Computer Economics shows that nearly every data center has Microsoft Server in its OS mix. The same cannot be said for any other operating system. This is especially true in the small company and mid-market, where Microsoft Windows averages more than 70% of the data center processing workload. Coming to its installed based with new products based on the Microsoft stack is an easy sell--not so if the stack were IBM's.

Does this bring Infor into competition with Microsoft's own Dynamics enterprise software business? No more so than for any of the many other Microsoft-based vendors, such as Epicor. Furthermore, there is a huge upside for Microsoft, as the partnership represents a potentially bigger footprint for Microsoft among Infor's 70,000 customers.

I do have one area of question, and that is concerning leadership. It's an open secret than Infor has lost several key executives recently, most notably Jeff Ralyea, formerly VP of product management and Bruce Gordon, formerly Infor's CTO. These individuals were key architects of Infor's Open SOA strategy, which is now incorporated in Infor ION.

Does Infor have the right team in place now to move forward? Infor assured me that it does. The product strategy is being headed up by Soma Somasundaram, Senior VP of Global Product Development, who has a long history with Infor, going back to when it was Agilisys. He will work closely with Jeff Abbot, who is now in charge of both product marketing and product management. In terms of developers, Infor assures me that the bench is deep, with resources worldwide.

As indicated earlier, ION is still in development with release planned for Q4. That will be a key milestone to evaluate the success of Infor's new strategy. In the meantime, I believe the strategic direction is right. But execution is key.

If you are an Infor customer or Infor partner, please let me know your view on these announcements. Is Infor on the right track? Leave a comment on this post, or email me confidentially.

Update, June 27: Fellow Enterprise Advocate Ray Wang weighs in with a good detailed analysis of Infor's move.

Related posts
Update on Infor's Flex program: customers win
Infor juices up its maintenance program value with Infor Flex
Infor's opportunity: value in maintenance and support
Infor using SOA to breath new life into old apps

Open source not immune to ERP vendor consolidation trend

2010-06-16T09:24:00.000-07:00

The enterprise software vendor consolidation trend has now reached the open source corner of the market, with Consona's announcement that it is acquiring Compiere, Inc.

Background on Compiere and Consona
Compiere was one of the first open source ERP developers. I interviewed Compiere's founder and then-CEO Jorg Janke back in 2006 and wrote an extensive post about the product. At the time, Compiere was facing a rebellion from some of its community "freelance" developers, who took the open source code base and forked a separate development project, dubbed Adempiere. Read the whole post for background on Compiere. And read the many comments also, which give good insight into the issues and challenges of managing an open source project.

Since that time, Janke was replaced by Don Klaiss as CEO and eventually departed from Compiere altogether. Compiere continued to demonstrate some success in the market, however, as I noted in 2009 with its win of a very large deal at La Poste, a $27B (USD) global postal processing organization.

Consona, which is Compiere's new owner, has been rolling up smaller ERP vendors for some time. Originally the parent of Made2Manage, it changed its name to Consona in 2007 and has since acquired several other ERP and CRM systems for the SMB market, notably Intuitive, Onyx, Encompix, DTR, Cimnet, and Axis. Consona, along with most or all of the traditional on-premise enterprise software vendors, has had a tough several years due to the recession.

Issues in the Announcement
A couple of issues I note in the announcement this morning. First, the press release references 130 customers of Compiere today. But in 2006, Janke indicated to me that Compiere had about 250 customers. What happened to the other 120?

Secondly, what happens to Compiere's open source offering? Though founded as an open-source project, Compiere had been focused largely on its own proprietary enhancements, add-ons, and services--in other words, making money. As I noted in my 2006 post, this was one of the factors that led to some of Compiere's community forking the code to the Adempiere project. Now with Compiere's ownership under Consona, how much effort will the new owner put into continuing development of the open source code base?

Benefit of Open Source
In a sense, it doesn't matter as much as it would if Compiere's original code base was proprietary. One of the tenents of open source is that no matter what the owner of the code does, the users of the code continue in their rights to use, extend, enhance, and distribute the code. The Adempiere fork of Compiere is evidence of this.

To my knowledge, this is the first instance of an open source ERP/CRM developer being acquired by a vendor of proprietary software. It will be interesting to see whether Compiere's users are helped or hindered by this acquisition.

Update, 12:45 p.m. Read the comments on this post for more insights on Compiere's architecture. Plus, Ned Lilly has a really good post on the Consona/Compiere acquisition. Ned is in a particularly strong position to comment, as he leads another open source ERP project, xTuple (formerly OpenMFG). Ned's ironic conclusion is that Compiere "failed as a company" not because it was open source, but "because it turned its back on open source." But, please, read the whole thing.

Update 2:30 p.m. I have been educated by three Adempiere developers regarding the inherent multi-tenant architecture of Compiere and have therefore edited this post to remove my previous comments regarding Compiere's lack of multi-tenant capabilities. I was clearly wrong there. See the comments section on this post for details. Thanks, guys!

Update, 2:47 p.m. Josh Chalifour did some analysis of activity (or lack thereof) on Compiere's user forums and finds a disappointing lack of care and responsiveness from Compiere toward its community. Not a good sign and hopefully something that the new owners at Consona can remedy.

Update, June 21: I just discovered that Jorg Janke has been maintaining a website, Compiere from the Source, and he is planning to write "a very detailed three part blog about Compiere history and potential future." Check it out.

Related posts
Big win for open source ERP project Compiere
Compiere's open source ERP business model and growth plans
Consona layoff
Open source ERP and CRM carry strong ROI
Total cost study for an open source ERP project

Beware the malicious insider

2010-06-10T12:22:00.000-07:00

Over at Computer Economics, we've published a new special report entitled, Malicious Insider Threats: Countering Loss of Confidential Information, Fraud, Sabotage, & Other IT Security Threats Posed by Trusted Insiders.

Most organizations are aware of the IT security threats posed by outsiders. Countermeasures such as firewalls, antivirus software, and intrusion detection systems are all aimed at these threats. Yet these measures do little to counter an even greater threat--that of malicious insiders within the organization.

As our study shows, however, many organizations do not treat these threats seriously. Such threats include fraud, sabotage, and theft or loss of confidential information caused by trusted insiders. These threats go beyond negligence. They represent purposeful action on the part of insiders to act in opposition to the interests of the organization, whether for financial gain, retribution, or some other motivation.

This report, based on a survey of 100 IT executives and security professionals that we ran last year, covers four categories of malicious insider threats: accessing confidential information without authorization, disclosing confidential information, executing fraudulent transactions, and sabotage of the organization’s systems, network, or data. For each category we report how seriously organizations perceive these threats and how frequently these threats actually result in violations of security. We then examine the extent to which organizations implement four best practices for controlling user access and 12 best practices for mitigating threats from IT personnel. Finally, we analyze the extent to which organizations take action to counter malicious insider activity by monitoring of insider email, keystrokes, computer files, and Internet traffic.

Read an excerpt of the full report, in this free research byte: Malicious Insider Threats Greater than Most IT Executives Think.

Plex Online: pure SaaS for manufacturing

2010-04-09T13:58:00.000-07:00

As software-as-a-service (SaaS) providers continue to prosper against traditional on-premise enterprise software vendors, I've been frustrated by the lack of SaaS solutions for manufacturing companies. There are a number of SaaS providers of CRM solutions, HRM and other point solutions, of course, that can work for manufacturing firms. But where is there a complete ERP, deployed as SaaS, for manufacturing operations?

Let's look at some possibilities:

NetSuite is true SaaS, but not a fit for most manufacturing companies, as by NetSuite's own admission, it targets services businesses and lacks many fundamental features for manufacturers such as standard costing, shop scheduling, capacity planning, and MRP. (A promising start-up, Rootstock, is building extended manufacturing functionality on top of NetSuite's platform, but it is a new effort and only now being rolled out beyond its initial beta customers).
Workday is another true SaaS provider, with ambitions to be a full ERP replacement. But like NetSuite, Workday will not target manufacturing companies. Today, Workday only offers HRM and some financial systems functionality.
The on-premise ERP industry leader, SAP, has its Business ByDesign (BBD) offering, which has been stuck in beta for years. But like NetSuite, BBD is not targeting manufacturing companies. Furthermore, its initial deployment was as a single-tenant system (a separate instance of BBD for each customer), not a true multi-tenant SaaS offering, which services many customers on a single instance.
Other on-premise ERP providers, such as Oracle, Microsoft, Lawson, IFS, and so on, are missing-in-action when it comes to SaaS for manufacturing. The most they offer are hosted versions of their on-premise software, like Lawson does. When they do offer true SaaS, it is only for niche functionality, such as CRM, as an adjunct to their on-premise software.

To my knowledge, there is only one true SaaS provider that offers a complete ERP solution today for manufacturing companies, and that is Plex Online, from Plex Systems.

Plex's PR folks have been after me for a long time to give me a briefing. I finally took some time today and spoke by phone with Mark Symonds, Plex's President and CEO. Here are some of the key points from our discussion.

Why so few SaaS solutions for manufacturing?
I asked Mark, why there are so few complete SaaS solutions for manufacturing firms? He responded that he wished there were more, as it would validate the delivery model Plex provides. He also indicated the difficulty for traditional on-premise vendors, those that have the domain knowledge, to transition to SaaS. It's not easy to completely rearchitect an on-premise solution to a multi-tenant model. In addition, giving up the initial license fee model for a subscription model, which usually goes with SaaS, is a financial disincentive for the on-premise providers to make the switch.

Plex was fortunate, however, in that when they first re-architected their formerly on-premise system to SaaS, they were able to keep new customers paying up front license fees. This allowed them to fund their development, until Plex converted to a subscription model a few years ago.

What about green-field SaaS providers that don't have an installed customer base to contend with? Well, manufacturing systems are not an easy place to start, as they are a super-set, to use Mark's term, of what's required for services businesses. Which may explain why the pure-play SaaS providers have started with the services sector.

Is Plex really pure SaaS?
The term SaaS is thrown around so much these days, I wanted to ensure that Plex Online was a true multi-tenant system. Mark assured me that it is. The system was developed beginning in the year 2000, and all new features are implemented once in the system for all customers, who can choose to "opt in" to the new functionality according to their needs. Plex also allows a high degree of configuration for individual customers and provides a visual composition environment to allow customers to create their own custom displays and reports.

The Plex literature does not call attention to the technology platform, but I did determine that the system is built on Microsoft technologies. There is a Microsoft SQL Server database on the backend, with Active Server Pages as the original development platform. New functionality being developed in C#.net. Having started development ten years ago, the technology platform appears a bit of a hybrid and a bit dated in spots, in my view. But, it works.

Plex currently runs two instances of the system, for load balancing purposes--which is not uncommon among other SaaS providers, such as Workday. I was impressed that MS SQL Server is able to scale to this degree, with hundreds of customers on each instance, and Mark indicated that scalability has not been a problem. The client user interface is all browser-based, utilizing HTML, dHTML, Javascript, and XML. The hardware platform is all HP Wintel servers.

Support for large manufacturing organizations
I had heard from Plex's PR folks that the company has recently been having some success selling into larger organizations, over $1 billion in revenue. I was interested to find out whether these represented true multi-facility, multinational organizations, or whether these were merely plant-level implementations where a traditional on-premise vendor was handling the primary corporate requirements (i.e. a two-tier ERP strategy).

Mark assured me that some of these were complete ERP replacements (although Plex is working with some larger organizations in a two-tier ERP strategy as well). For example, Inteva Products is a company of 3,600 with 17 facilities on three continents. Originally a part of Delphi Interiors, it spun off in 2008 as a separate company. Looking to replace its SAP system, Inteva chose Plex Online. The implementation in 14 global locations took just twelve months. It's a good story and an "existence proof" that Plex can address companies of this size.

The challenge of international requirements
I've seen manufacturing firms struggle with systems that do not truly support multiple facilities for material planning and costing. Is Plex a true multi-facility system? Mark indicated that Plex does allow a single company to run a separate material plan for each plant and to transfer material between plants with correct accounting for costing methods that may differ between plants.

Multinational companies may need to set up multiple tenants within Plex, but these are to accommodate different tax and regulatory requirements (localizations) not for multi-facility requirements. On this point, I questioned how Plex, as a small vendor, was able to support localizations for so many international locations. Localizations are currently provided for Mexico, Canada, China, German, the UK, and Japan ("to some extent"). Mark's response indicated that localizations are handled on an opportunistic basis--when a customer needs them, they provide them with support from Plex's partners, such as Plante & Moran , BDO Seidman, and Baker Tilly.

Prospects considering Plex should not assume, therefore, that Plex can handle all international requirements. Be specific on what's required and be prepared for Plex to propose additional time to develop the localizations needed.

Dealing with medical device and pharma manufacturers
I was especially intrigued by Mark's claim to be addressing the needs of life science companies. Based on my experience dealing with FDA regulatory requirements, I was interested to know if Plex was able to address buyer concerns about demonstrating control of system configuration. Normally, buyers have little or no say about how or when a SaaS provider makes changes to a multi-tenant system. Mark indicated success in this area, by giving customers the ability to "opt in" to system changes, as discussed earlier, and by submitting to customer qualification of Plex as an approved vendor. Plex's certification of its operations as compliant with SAS 70 Level II also helps.

My take
Whatever Plex is doing, it seems to be resulting in some good financial performance over the past three years. As a privately held firm, Plex does not publicly report performance. But Mark indicated 33% growth in the top line for 2008, 14% for 2009 and a good outlook for 2010. In a timeframe when nearly all on-premise enterprise software providers are showing negative license sales growth, Plex's results are outstanding.

Do I have any concerns about Plex as a provider? Only that buyers should check functional fit. Plex's roots are in the automotive industry, though it is now expanding into other areas such as life sciences, food and beverage, and aerospace/defense. The functional footprint may have some gaps, depending on the industry. Due diligence is always advised. The ability to support international requirements in specific locations should also be verified, as discussed earlier.

That said, I think Plex is on the right track. I only wish other SaaS providers would address the needs of the manufacturing industry.

Update, May 10: Fellow Enterprise Advocate Dennis Howlett provides his take on Plex. Dennis delves into many details I didn't go into, so please read his post.

Related posts
Lawson's cloud services: good start, but no SaaS
Workday pushing high-end SaaS for the enterprise
NetSuite a viable alternative for SAP customers?
SaaS contingency plans need more than software escrow

Lawson's cloud services: good start, but no SaaS

2010-03-31T14:12:00.001-07:00

Lawson announced a new cloud computing program today, but it's only an incremental step in the right direction.

Extension of Lawson's existing managed services offering
For some time, Lawson has been providing managed services to customers of its traditional on-premise ERP and talent management on-premise software. Under that program, Lawson hosts its software in one of its partner's data centers and provides application management, patch management, and other service that are traditionally the responsibility of the customer. The customer buy a perpetual license to Lawson's software but lets Lawson operate it, for a fee.

The new program adds a few new twists.

First, instead of hosting in a partner's data center, Lawson will now deploy its software on Amazon's Web Services Infrastructure (a virtual data center, if you will). In addition, Lawson is now offering a subscription option, whereby the customer can lease the software and pay for it on a monthly basis, along with the costs for Amazon's infrastructure charges and Lawson's managed services.
At the end of the subscription period (somewhere between one to four years) the customer will now have an option to either continue the subscription or convert to a perpetual license, with an unspecified credit given for the period of subscription--sort of a "lease-to-buy" option.
Using Amazon's cloud, Lawson is now also offering a 14-day test-drive option at an (assumed-to-be) nominal charge, whereby the prospect can work with the software for 14 days using their own business processes and data.

Close but no cigar
After speaking with Jeff Comport, Lawson's senior VP of product management, however, I feel there is less here than meets the eye.

Meeting the PR need. In my opinion, Lawson's cloud services, now give Lawson something to say when analysts, press, and prospects ask, "What are you doing about the cloud?" Beyond that, there's not much here beyond traditional software offered on a hosted basis--something that vendors have been doing since the ASP days of the late 1990s.
Flexibility. Lawson's press release points out the advantages to customers in being able to automate the provisioning or setup of additional Lawson software instances (e.g. for testing changes or upgrades) or to meet spikes in business volume. But these are features of Amazon's cloud infrastructure, not of Lawson's software.
Subscription pricing, no doubt, is something new, but that's just a contract option--it has nothing to do with how the software is designed, deployed, and maintained. And whether it actually saves money, or simply spreads it out over time--well, that will depend on the terms of the deal.
The 14-day test drive is a bit too short for my taste. Jeff positioned the test drive as something more than a demo but less than a full blown conference room pilot. I can see why Lawson would want to cut its presales expenses by shortening the demo cycle, but I'd rather see an option to do a full-blow prototype. I prefer RightNow's approach--unlimited capacity to do a 90 day pilot test. But that's hard to do cost-effectively without a multi-tenant offering, which RightNow has but Lawson doesn't.
No SaaS offering. As just mentioned, nothing in Lawson's announcement today has anything to do with software-as-a-service. It is simply the same Lawson software, deployed as a single instance, in Amazon's cloud. Every patch or regulatory update that's needed has to be applied to each customer separately--either by the customer or by Lawson. Customers still need to go through periodic version upgrades. The cost savings are only those reflected in the lower cost of the infrastructure (the smallest element of ERP TCO)--and even that will depend on how much of those savings Lawson keeps for itself, as opposed to passing on to the customer.

Lawson backpedals on "Collapse of SaaS"
So does this mean Lawson's CEO, Harry Debes, is retracting his 2008 proclamation that the the SaaS market would collapse in two years?

This "on demand", SaaS phenomenon is something I've lived through three times in my career now. The first time, it was called "service bureaus". The second time, it was "application service providers", and now it's called SaaS.

So, in Harry's mind, "SaaS" equals "application service providers." Well, what Lawson is now doing with Amazon looks an awful lot like an application service provider.

How does Lawson avoid calling its new program a retreat from Debes' earlier proclamation? The press release vaguely alludes SaaS competitors as offering "commodity software," while positioning Lawson's approach of offering "single-instance ownership and control" as superior.

I'm not convinced. The overhead and expense, even with Lawson's new offering on Amazon's cloud, will be far above what SaaS providers experience. True multi-tenant SaaS providers, such as Salesforce.com and NetSuite, make changes once, and the entire customer base experiences them instantly. This is especially a benefit to users of HRM and financial management systems (two of Lawson's horizontal sweet spots), where regulatory changes are not optional.

Don't get me wrong. Lawson's moving the infrastructure layer to Amazon's cloud services is a good move. In the absence of a strategy to offer true software as a service, prospects now will at least have the option of a low-cost and flexible cloud infrastructure. And for prospects that find Lawson meets their needs in terms of functionality--this may well be the best option for them.

Furthermore, Jeff is right--there are very few if any true SaaS alternatives for full-blown ERP functionality for larger companies. NetSuite, Plex, and others are focused on the SMB market. SAP's Business ByDesign is still not yet in general release, and when it is, it will also target the SMB space. Workday is targeting larger organizations, but it's stated desire to be a full ERP replacement is probably years away.

So Lawson still has time. But during this time, I just wish Lawson would establish a clear direction to at least offer some of its strong HRM and financial management systems, for example, as a true service. If it doesn't do so, it may find its lunch being eaten by the cloud-based providers such as Workday and Intacct. It may not happen tomorrow, but it will happen.

My fellow Enteprise Advocate Vinnie Mirchandani also weighs in: Lawson: I'm OK, you are not OK.

Fellow Advocate Dennis Howlete, has a similar view to mine and Vinnie's on ZDNet: Lawson teams with Amazon for cloud ERP--ahem.

Update: I pinged Naomi Bloom, who is an expert on HRM, and HRM SaaS providers in particular about this post, and she unleashed a string of Twitter messages on this subject, which I'll quote here:

When PeopleSoft made client server de riguer, suddenly every old mainframe product was recast as client server. Remember screen scraping?
As I'm reading all the posts on Lawson's hosting their ERP and TM apps "in the Amazon cloud," I'm having deja vu.
Anything can be hosted, anything can be surrounded with managed services. But don't be fooled. True Saas is the future.
Lawson had better rearchitect and quickly. Let's hope our old friend Jeff Comport knows this and is hustling big time to make it happen.
If you have a terrific, modern multi-tenant product, it's a business decision to run it single tenant, cloud or on-premise.
If all you have is older, single tenant software, best you can do is find lower cost hosting/managed services. I rest my case!

Rimini Street sues Oracle for unfair competition and other abuses

2010-03-29T08:24:00.000-07:00

This just in: Rimini Street is fighting back against Oracle's lawsuit by filing its own lawsuit against Oracle for copyright misuse, defamation, disparagement, trade libel, and unfair competition.

Note: this post has been updated with further information gathered today along with extended excerpts of the Rimini Street court filings.

Background: Rimini Street offers third-party maintenance services in competition with Oracle's own applications maintenance and support services. Oracle sued Rimini Street in January for copyright infringement in a case similar to its suit against SAP's now discontinued TomorrowNow unit.

Rimini Street's press release
I am waiting for a copy of the actual filing and a briefing by Rimini Street. In the meantime, here is the text of the press release on this matter from Rimini Street (lightly edited)

Rimini Street Sues Oracle
Rimini Street, Inc., ... today announced that it filed suit against Oracle in U.S. District Court for the District of Nevada by presenting counterclaims alleging copyright misuse, defamation, disparagement, trade libel, and unfair competition under the California Business and Professions Code. With its filing, Rimini Street aims to end Oracle’s five year campaign of anticompetitive tactics against Rimini Street that most recently includes a baseless lawsuit. Additionally, Rimini Street announced today that it filed its response to Oracle’s complaint, showing Rimini Street’s business processes and procedures are entirely legal and vehemently denying Oracle’s false and malicious allegations.

Rimini Street is Oracle’s Primary Competition for Annual Support Services
Rimini Street is Oracle’s fastest-growing and leading competitor for the annual support of Oracle’s Siebel, PeopleSoft, and JD Edwards software products. In 2009, Rimini Street saw growth of more than 270 percent in year-over-year revenue, doubled its global workforce to 160 professionals, and accumulated nearly $150 million in sales backlog serving hundreds of Global, Fortune 500, mid-market, and public sector organizations around the world.

Oracle has a Long History of Trying to Stifle Rimini Street Competition
Oracle and its predecessors began a systematic campaign to disrupt and halt Rimini Street’s business since the inception of the company in 2005. As Rimini Street’s success grew, so did Oracle’s apparent determination and efforts to disrupt Rimini Street’s growth. Rimini Street’s response to Oracle’s complaint details examples of Oracle’s business interference over many years including:
Initially, beginning in September 2005, Oracle’s efforts consisted of numerous hostile letters. Over the years, Rimini Street responded to each letter, explained the appropriateness of Rimini Street’s practices and procedures, and repeatedly offered to meet and discuss any questions or concerns Oracle might have about Rimini Street processes and procedures.

In June 2007, Oracle interfered with authorized work on behalf of Rimini Street clients by changing its website usage terms. Rimini Street wrote Oracle about the anticompetitive tactic against Rimini Street and informed Oracle that the change was likely a breach of Oracle’s client license agreements, which expressly prevent service rights degradation. As such, the changes were not enforceable.

In December 2008, Oracle escalated its tactics by intentionally blocking Rimini Street’s IP addresses and interfering with Rimini Street’s authorized work on behalf of a large client switching from Oracle to Rimini Street support. After correspondence from both the client and Rimini Street demanding Oracle cease and desist, Oracle stopped the interference.

Most recently, in January 2010, Oracle once again escalated its anticompetitive tactics, this time through litigation. Oracle filed a baseless lawsuit against Rimini Street, choosing to ignore Rimini Street’s numerous invitations for dialogue, offer to view internal Rimini Street information, and even the opportunity to engage a third party auditor.
Oracle Chooses Competition in the Courtroom Rather than the Marketplace

In February 2009, Rimini Street sought to stop Oracle’s campaign of anticompetitive actions once and for all by again requesting and finally being granted a call with Oracle representatives. On the call, Rimini Street offered to share Rimini Street internal information and/or work out an agreement that would utilize an independent third party auditor reporting back to both parties to confirm Rimini Street’s compliance with its standard processes and procedures. Oracle never responded to any of Rimini Street’s proposals.

Instead, Oracle filed a baseless lawsuit against Rimini Street in an apparent effort to try and protect its 95% dominant market share and monopoly-like 92% gross margins on the annual support of its products.

Rimini Street Vehemently Denies Oracle’s False Accusations

Rimini Street’s business processes and procedures are entirely legal, and Rimini Street vehemently denies Oracle’s accusations. Rimini Street has implemented extraordinary processes and procedures to assure the proper use of Oracle’s intellectual property as detailed more fully in Rimini Street’s response to Oracle’s complaint. For example:
Each client authorizes Rimini Street to perform work on its behalf

Rimini Street only delivers Oracle software and support materials to each client who is entitled to receive such materials

Rimini Street uses separate data “silos” for each client and has policies against co-mingling data

Rimini Street is authorized by its clients to possess and use copies of their Oracle licensed products to provide services to them, just like IBM, AT&T, Accenture, CedarCrestone and virtually every other hosting service provider working with copies of their client’s licensed products

Rimini Street's answer and counter-claims against Oracle
In their motion to dismiss Oracle's suit, Rimini Street lawyers argue, generally, that Oracle has not been specific in detailing how Oracle has been harmed by Rimini Street's, or what specific actions Rimini Street committed that caused harm to Oracle. Again and again, the response argues that "Oracle’s allegations do not even attempt to identify which facts might support Oracle’s otherwise conclusory regurgitation of statutory language."

In addition, Rimini Street filed a motion to dismiss claims against Seth Ravin, CEO and founder of Rimini Street, claiming that Oracle had failed to point to any specific acts that Ravin committed that would hold him personally liable.

But the real punch comes in Rimini Street's counterclaims against Oracle. I have reproduced most of Rimini Street's "Answer and Counter-Claims" at the end of this post. Please read through this, as it outlines the Rimini Street's case much more clearly than I can summarize.

My Take
Many of us have been hoping for a vigorous response by Rimini Street and it appears this is what Rimini Street is doing. As I've pointed out in the past, this case is going to bring increased legal scrutiny of Oracle and other major software providers in terms of how they lock in customers to their maintenance and support programs. Oracle runs a risk in filing this lawsuit. If Oracle does not prevail against Rimini Street, the case will strongly establish the legal basis for the third-party support industry.

Update: Dennis Howlett weighs in, and includes a terse statement he received in response to his request for comment from Oracle. Though the response is minimal, it does appear to go beyond Oracle's policy of not commenting on litigation.

Update, 3:00 p.m.: In a call with Seth Ravin this afternoon, he expressed confidence in his firm's prospects both in refuting Oracle's allegations and odds for prevailing against Oracle in Rimini Street's counter-claims. If Oracle had been betting on a response from Rimini Street along the lines of the mea culpa response it got from SAP/TomorrowNow, it bet wrong.

Update, 3:30 p.m.: I have no idea if this is related to Rimini's counter-claim against Oracle, but the U.S. stock markets are up today about one-half percent, while Oracle's stock price is down about one-half percent.

Update, Apr. 5: Fellow Enterprise Advocate Ray Wang weighs in, with his analysis and encouragement for ERP customers to seek anti-trust class action with the US Department of Justice and the European Union against software vendors who hinder third-party maintenance providers from providing services.

Related posts
Oracle slams Rimini Street with lawsuit over third-party maintenance
No recession for Rimini Street third-party maintenance business
Rimini Street, SAP, and the future of third-party maintenance
Rimini Street to provide third-party support for SAP
Legal basis for third-party ERP support industry

Extended Excerpts of Rimini Street's Answer and Counter-Claims to Oracle
The full PDF may be downloaded, from ZDnet.
....
I. FACTUAL BACKGROUND
1. “We believe we should be the ones to support our customers, . . . . If you’re a third party support provider offering multivendor support, we’re coming, we’re coming.” (Juergen Rottler, Oracle’s Executive Vice President of Global Customer Services, threatening third-party support vendors that compete with Oracle).1 Oracle made this public threat just one day after filing its Complaint against Rimini Street.

A. Rimini Street Vehemently Denies Oracle’s Knowingly False Accusations.
2. Oracle maliciously alleges that Rimini Street’s business is an “illegal business model,” an “illegal scheme,” and that there has been “massive theft of Oracle’s software and related support materials by Rimini Street.” These accusations are false, and Rimini Street vehemently denies them.

3. Rimini Street’s business processes and procedures are entirely legal, and Rimini Street has not committed “massive theft,” or any theft at all. Rimini Street is authorized by every one of its clients to perform work on their behalf, and, as a matter of process and procedure, has delivered Oracle Software and Support Materials2 only to clients who were entitled to them and only within the scope of that client’s entitlement.

4. Far from Oracle’s “massive theft” allegation, Rimini Street has implemented extraordinary processes and procedures to assure the proper use of Oracle’s intellectual property. For example, Rimini Street performs a unique download of Oracle Software and Support Materials on behalf of each client that authorizes and requests such service. Rimini Street maintains downloaded material only on behalf of the client for whom the download was performed. And, as a matter of process and procedure, each client is assigned a separate data “silo” where Oracle Software and Support Materials for only that client are maintained. Rimini Street does not co-mingle the independent downloads of clients.

5. With respect to Oracle’s complaint about Rimini Street possessing copies of Oracle customer licensed software, Oracle customers authorize Rimini Street to possess and use such copies. Not only is possessing and using the copies legal, it is an industry standard for third party vendors like IBM, AT&T, Accenture, CedarCrestone, and countless others who work with the same Oracle customer licensed software. Oracle is well aware of Rimini Street’s authorized possession and usage of customer licensed software because Oracle itself delivered the software to Rimini Street for hundreds of its customers.

6. Oracle is fully aware of Rimini Street’s processes and procedures. If Oracle had genuine concerns about Rimini Street’s use of its intellectual property, Oracle could have accepted Rimini Street’s numerous offers since September 2005 to openly and transparently review and discuss Rimini Street processes and procedures, or Oracle could have even accepted Rimini Street’s invitation to review internal materials and Rimini Street’s invitation to have a third-party independent auditor review Rimini Street’s compliance with its processes and procedures.

7. Instead, Oracle chose to ignore the fact that Rimini Street’s processes and procedures are legal and supported by industry-leading practices. Oracle initiated this baseless litigation as another anticompetitive tactic to try and slow Rimini Street’s fast-paced growth and protect Oracle’s dominant 95% market share and monopoly-like 92% gross profit margins on the after-market support of its products.

8. Rimini Street will aggressively defend against this baseless litigation and has counterclaimed herein so as to end Oracle’s five year campaign of illegal anticompetitive tactics against Rimini Street and to hold Oracle accountable for its actions, related costs and damages.

B. Oracle Prefers Competition in the Courtroom Rather than the Marketplace.
9. Oracle is the world’s largest enterprise software company. Rimini Street provides after-market support services for enterprise software applications—including software applications licensed by Oracle.

10. Rimini Street is Oracle’s fastest-growing competitor for the after-market support business of Oracle’s Siebel, PeopleSoft and JD Edwards enterprise software products. Hundreds of Fortune 500, mid market, small and public sector organizations around the world have already made the switch to Rimini Street’s innovative, award-winning and highly-praised support model. Rimini Street has been forecasting significant continued year-over-year growth based on sales pipeline data.

11. Rimini Street’s success and growing industry acceptance as a proven alternative to Oracle’s much more expensive after-market support offerings is now threatening Oracle’s market control and pricing power. In response, Oracle has now turned to the courtroom instead of choosing to compete in an open and fair market. Oracle’s strategy is to use this calculated litigation to protect its share of the after-market support business for Oracle software products and preserve or increase its profit margin on those services.

12. With a staggering $800 million in quarterly losses in its core businesses, Oracle’s power, profits and financial strength can only be maintained if it can continue coercing its customers into paying exorbitant annual fees for after-market support of its products.

C. Rimini Street is Oracle’s Primary Competition for After-Market Support.
13. In 2009, Rimini Street saw growth of more than 270% in year-over-year revenue, more than doubled its global client base to nearly 300, added substantial new international clients, accumulated nearly $150 million in sales backlog, and more than doubled its global workforce to 160 professionals. Rimini Street achieved a 95% annual client renewal rate and more than a 99% client satisfaction rating.

14. One reason Oracle’s support customers switch to Rimini Street support is a 50% annual fee savings. Rimini Street is able to spend more money on each support client and offer lower fees by simply eliminating the excessive profits Oracle demands from its support customers. Also, due to Rimini Street’s dramatically different support model that includes no required upgrades or updates for a minimum of ten years, Rimini Street clients can achieve a total operating cost savings up to 90% over a decade compared to Oracle’s support model.

15. In addition to significant savings, Rimini Street’s different support model provides clients with “concierge” level, ultra-responsive service. Unlike Oracle’s generic call center approach, Rimini Street assigns each client a named, highly experienced Primary Support Engineer. Support services are available 24x7x365 with guaranteed 30 minute response time anywhere in the world and 90% guaranteed live call answering during the day. Rimini Street’s track-record of meeting these service level commitments and providing excellent service is well documented by leading industry analysts who work with Rimini Street clients, media interviews with Rimini Street clients, client side-by-side live service comparisons, client satisfaction surveys, and hundreds of client reference calls made by Rimini Street prospects.

16. Rimini Street’s different support model also includes many innovative services at no additional charge that go beyond the features of Oracle’s standard support. The additional Rimini Street services include performance support, interoperability support, and support for application customizations. The inclusion of these services represents significant cost savings for Rimini Street clients compared to the additional consulting fees Oracle would generally charge its customers for similar services.

17. Another benefit for Oracle clients who switch to Rimini Street support is a more robust and timely tax, legal and regulatory service spanning up to 190 countries for PeopleSoft and JD Edwards products. Rimini Street’s tax, legal and regulatory update design and development operation is led by veteran tax specialists, attorneys, executives, and engineers who bring a blend of international tax, legal and regulatory expertise. As part of Rimini Street’s commitment to the highest quality deliverables, Rimini Street’s tax, legal and regulatory development process has been audited from scoping to delivery for Sarbanes Oxley 404 process compliance by a Big Four accounting firm.

18. Rimini Street has already delivered more than 5,000 high-quality tax, legal and regulatory updates to its clients over the years, and is currently responsible for the accurate processing of billions of dollars in transactions a month. Further, Rimini Street has delivered every one of its tax, legal and regulatory updates to clients ahead of Oracle’s planned delivery date for its equivalent updates since the inception of the company. Rimini Street clients praise the quality, comprehensiveness and timely delivery of Rimini Street’s tax, legal and regulatory updates in media interviews, client references for prospects, and press materials.

19. Rimini Street respects the intellectual property rights of Oracle. As detailed herein, Rimini Street takes extraordinary efforts, in both process and procedure, to ensure that Oracle’s intellectual property rights are respected by Rimini Street employees working with Oracle Software and Support Materials.

D. Oracle has a Long History of Trying to Stifle Rimini Street Competition.
20. The present lawsuit is only Oracle’s latest effort to stifle the competitive threat posed by Rimini Street.

21. Rimini Street began operations in September 2005, offering a competitive aftermarket support offering for Siebel Systems software products.

22. At about the same time Rimini Street began operations, Oracle Corporation announced that it intended to acquire Siebel Systems. Oracle completed the acquisition of Siebel Systems shortly thereafter.

23. Rimini Street added support offerings for Oracle’s PeopleSoft products in April 2006 and Oracle’s JD Edwards products in September 2006.

24. Since shortly after Rimini Street’s inception, Oracle began a systematic campaign to disrupt and halt Rimini Street’s business. Initially, Oracle’s efforts consisted of numerous hostile letters, some of which were published in the media as early as 2005 as examples of how Oracle was trying to forestall after-market competition from a just-launched Rimini Street.

25. Over the years, Rimini Street responded to each Oracle letter, explained the appropriateness of Rimini Street’s practices and procedures, and repeatedly offered to meet and discuss any questions or concerns Oracle might have about Rimini Street’s processes and procedures.

26. As Rimini Street’s success grew, so did Oracle’s determination and efforts to disrupt Rimini Street’s growth. Since the inception of the company, Rimini Street used automated download tools to help its clients identify and take delivery of the large volume of Oracle Software and Support Materials they paid for and were entitled to possess and use (potentially tens of thousand of files for a single customer). Using such automated tools was necessary because Oracle refused to help its customers identify and take delivery of such large volumes of materials.

27. In June 2007, Oracle attempted to intentionally interfere with Rimini Street’s authorized client downloads by changing its website terms and conditions to no longer allow use of such automated download tools. Rimini Street wrote Oracle when it became aware of the change, warning that Rimini Street believed Oracle’s actions were not only anti-competitive against Rimini Street, but also constituted a breach of its license agreements with Oracle clients that have protections against reductions in service rights resulting from changes by Oracle in support terms and conditions. As such, the reductions in service rights were not enforceable.
28. Oracle’s efforts escalated in December 2008 when Oracle began interfering with Rimini Street’s performance of an authorized download for a large client switching from Oracle to Rimini Street support by blocking Rimini Street access to the Oracle support websites. After correspondence from both the client and Rimini Street demanding Oracle cease and desist its accessblocking tactics, Oracle stopped the interference.

29. At this point, as a good-faith attempt at conflict reduction with Oracle, Rimini Street unilaterally agreed to cease using automated download tools in January 2009 and notified Oracle’s representatives of this decision in early February 2009.

30. Further, to prevent Oracle’s anti-competitive actions from occurring in the future, Rimini Street asked for and was finally granted a call with Oracle representatives in early February 2009. On the call, Rimini Street offered to share Rimini Street internal information with Oracle and/or to work out an agreement that would utilize an independent third party auditor reporting back to both parties to confirm Rimini Street’s compliance with its standard processes and procedures. Oracle never responded to any of Rimini Street’s proposals.

E. Oracle Ignores Truth, Turns to False Allegations
31. Ignoring Rimini Street’s open invitation to view internal information, engage a third party auditor, or even hold additional dialogue, Oracle filed this baseless lawsuit in an attempt to disrupt Rimini Street’s growth and damage Rimini Street’s business through false statements and disparagement.

32. For example, Oracle maliciously casts Rimini Street as a “sham” company that steals Oracle Software and Support Materials and resells them at half the price Oracle charges. Oracle further disparages Rimini Street’s business by branding it an “illegal business model” and “illegal scheme.” Similarly, Oracle falsely states that there has been “massive theft of Oracle’s software and related support materials by Rimini Street.” As Oracle is well aware, these characterizations of Rimini Street’s business are not only completely false, but they could not be further from the truth.

33. Rimini Street has informed Oracle that, as a matter of process and procedure, Rimini Street’s clients are only delivered the Oracle Software and Support Materials to which they are legally entitled. In fact, Rimini Street performs a unique download of Oracle Software and Support Materials from Oracle’s web sites on behalf of each of its clients who: (a) requests and authorizes Rimini Street to download from Oracle on their behalf a unique set of Oracle Software and Support Materials the customer is entitled to use based on their licensed products and Oracle Annual Support product coverage; and (b) represents they are presently an Oracle Annual Support customer whose Oracle Annual Support period has not expired.

34. Oracle is further aware that each of Rimini Street’s clients has a unique data “silo” for storing clients’ Oracle Software and Support Materials. Therefore, the clients’ Oracle Software and Support Materials are not physically co-mingled together. Despite its awareness of Rimini Street’s processes and procedures, Oracle states that Rimini Street has “stockpile[d] a library” of Oracle’s intellectual property “to support its present and prospective customers.” Such a “library” has never existed at Rimini Street, and Oracle is aware of that fact and could easily have confirmed it by simply accepting Rimini Street’s offer of third party verification.

35. If Oracle really had genuine concerns about the use of its intellectual property and its aims were to simply find the truth and to protect its intellectual property, Oracle has had unlimited opportunities over nearly five years to dialogue and work directly with Rimini Street per the numerous open invitations extended in Rimini Street letters to Oracle. But, as the facts demonstrate, that is not Oracle’s objective. Instead, Oracle’s goal is to forestall after-market product support competition from Rimini Street. Litigation is Oracle’s strategy.

36. While Oracle attempts to disparage Rimini Street and falsely cast this case as being about a “massive theft” that does not exist, the truth is this case is only about Oracle’s attempt to protect its 95% dominant market share and monopoly-like 92% gross margins on after-market support of its products.

RIMINI STREET’S COUNTERCLAIMS
For its Counterclaims against Plaintiffs, Rimini Street states as follows:
….
COUNT ONE—DEFAMATION, BUSINESS DISPARAGEMENT AND TRADE LIBEL
42. Rimini Street repeats and incorporates by reference the averments set forth in Paragraphs 1–41 as though fully set forth herein.

43. Oracle has responded to Rimini Street’s success, not through fair marketplace competition, but with incendiary and unfounded allegations that Rimini Street and its employees are thieves carrying out a “corrupt” and “illegal business model.”

44. On information and belief, defamatory statements have been published and republished by Oracle and its agents to members of the media and analyst community, Rimini Street’s customers and potential customers, as well as to the public at large. For example, an Oracle representative contacted a senior analyst for an influential analyst firm and made statements insinuating that Rimini Street’s practices were illegal. Similar allegations of illegality were made to other analysts, analyst firms and members of the media, reflecting an attempt by Oracle to severely tarnish Rimini Street’s standing in the industry. On information and belief, Rimini Street expects discovery will illuminate a pattern of similar defamatory communications by Oracle representatives.

45. Oracle’s false and disparaging statements were intended to harm Rimini Street’s standing in the business community and, ultimately, to hinder Rimini Street’s ability to conduct and grow its business.

46. Oracle published its disparaging statements about Rimini Street’s business maliciously, knowing such statements are false or with reckless disregard to their falsity.

47. Dating back to the launch of Rimini Street in 2005, Oracle and Rimini Street have had a long history of communications. Given these interactions, Oracle is well aware that Rimini Street’s business practices are not illegal as Oracle has alleged and published.

48. And, Oracle has had no basis to believe in this stated illegality of Rimini Street’s business practices. Oracle attempts to equate Rimini Street’s business with that of TomorrowNow, an unrelated and different third-party support vendor owned by SAP AG, another vendor of enterprise software. Oracle filed suit against TomorrowNow and SAP AG in 2007. Although Oracle’s present Complaint against Rimini Street is highly similar to Oracle’s Complaint against SAP AG, et al., in Case No. 07-CV-1658 in the Northern District of California, Oracle is well aware of the significant differences between Rimini Street’s practices and procedures and those of SAP’s TomorrowNow. For instance, Rimini Street does not have or make available a “single repository” of downloaded Oracle Software and Support Materials as Oracle states. Nor does Rimini Street mixed or consolidated Oracle Software and Support Materials such that unique downloads for one client are co-mingled with unique downloads from other clients, and support materials are not indiscriminately downloaded and stored for general use.

49. Oracle is further aware that Rimini Street performs a unique download of Oracle Software and Support Materials on behalf of each client that requests such service. Each client (authorizing Rimini Street to act on client’s behalf) warrants to Rimini Street that it has the rights to access Oracle’s support web sites and take possession of the requested Oracle Software and Support Materials. Rimini Street then maintains downloaded material only on behalf of the client for whom the download was performed. To safeguard against improper use of downloaded materials, as a matter of process and procedure, each client is assigned a separate data “silo” where Oracle Software and Support Materials for that client are maintained, and Rimini Street does not co-mingle the independent downloads of clients.

50. Rimini Street delivers to each client only the software and support material that each client is entitled to receive, which often are quite voluminous and can consist of thousands or even tens of thousands of materials.

51. Oracle is further aware that Rimini Street has consistently released its own independently-created regulatory and tax updates before the release date of Oracle’s equivalent update, forestalling any arguments that Rimini Street copied Oracle’s updates.

52. Finally, Oracle cannot truthfully claim that Rimini Street is not authorized to possess copies of Oracle’s software. First, every Rimini Street client contract authorizes Rimini Street to possess or access copies of the client’s licensed software. Second, as Oracle is well aware, it is common industry practice by other third party consulting venders such as IBM, AT&T, Accenture, Navisite, WTS, CedarCrestone, and virtually every other hosting service provider to possess and work with copies of their client’s licensed software products. Third, until recently Oracle itself directly mailed or made available to Rimini Street through authorized downloads, as an authorized agent of Oracle’s licensees, copies of the clients’ licensed Oracle software. Oracle and Rimini Street personnel worked closely together over the years in the software order-to-ship process for hundreds of clients. Here again, Oracle had full knowledge that Rimini Street’s actions were authorized by Oracle’s customers. Far from acting as “fraudulent thieves,” Rimini Street has acted legally, openly (and often with Oracle’s full cooperation), and in accordance with the agreements held by Rimini Street’s clients.

53. Oracle is aware of the falsity of its statements because it was directly informed by Rimini Street of the true facts. Further, Rimini Street offered to allow Oracle to employ a neutral third party to audit Rimini Street’s compliance with its processes and procedures. Instead of undertaking this reasonable confirmatory exercise, Oracle purposely and recklessly made the above identified false and disparaging statements regarding Rimini Street.

54. Rimini Street has been damaged by Oracle’s conduct as complained of herein, in an amount to be determined at trial. On information and belief, Oracle’s false and disparaging statements regarding Rimini Street’s business have directly led to economic loss on the part of Rimini Street through specific loss of sales.

COUNT TWO—DECLARATION OF UNENFORCEABILITY FOR COPYRIGHT MISUSE
55. Rimini Street repeats and incorporates by reference the averments set forth in Paragraphs 1–54 as though fully set forth herein.

56. Oracle claims to own a valid and enforceable copyright in, or have exclusive license to, all of their software applications and software and support materials.

57. Oracle disseminates Oracle Software and Support Materials via electronic transmissions over a computer network. Oracle’s Software and Support Materials websites contain “browser-wrap” or “click-wrap” agreements.

58. Oracle has admitted that its software licensees have every right to use third-party maintenance and support vendors (such as Rimini Street). However, Oracle has attempted to use the design of its support website and terms of its “browser-wrap” or “click-wrap” agreements on various Oracle web sites to forestall such legal competition from Rimini Street and to interfere with a customer’s ability to select a support vendor other than Oracle. This attempt to influence competition in an area beyond the scope of Oracle’s copyrights constitutes copyrights misuse.

59. Instead of simply providing its customers each of the support files they are entitled to possess under their respective licenses and unexpired Oracle annual support, Oracle requires customers to self-identify and individually download each such file from Oracle’s support material web portal. This portal contains millions of files to sort through and all are accessible to every client, regardless of which products a customer has licensed or whether or not a product is covered by an unexpired Oracle support agreement. Oracle provides no assistance to its support customers in the identification of all Oracle Software and Support Materials such customer is entitled to possess and use.

60. Though Oracle’s support material web portal does not provide a method for customers to easily identify and download all the files they are entitled to possess and use, Oracle has changed its web site terms to prohibit the use of automated tools that can help an Oracle customer identify and download a significant volume of Oracle Software and Support Materials to which an Oracle licensee and support customer is entitled. Further, Oracle’s “click-wrap” agreement has once again been changed, and now includes a provision that prohibits access to and download of support materials unless such access or download “is in furtherance of the relationship between customer and Oracle.” This provision is another clear example of Oracle’s systematic use of anticompetitive tactics to try and maintain a stranglehold over its customers by effectively requiring them to either continue purchasing after-market support only from Oracle or forego critical support materials to which they are entitled and for which they have already paid.

61. Through its various license agreements and changing web site access and use terms and conditions, Oracle is attempting to use its copyright in a manner adverse to the public policy embodied in copyright law.

62. The requirements Oracle places on the ability of customers (or their agents) to obtain licensed software and support materials gives Oracle a substantial and unfair advantage over its support and maintenance competitors, and these requirements constitute a misuse of copyright by Oracle.

63. Rimini Street has been directly harmed by Oracle’s anticompetitive misuse of its copyrights and license agreements.

64. Rimini Street is therefore entitled to a declaratory judgment finding Oracle’s copyrights to be unenforceable until that time that Oracle discontinues use of the terms that led to misuse of its copyrights.

COUNT THREE—UNFAIR COMPETITION—CAL. BUS. & PROF. CODE § 17200
65. Rimini Street repeats and incorporates by reference the averments set forth in Paragraphs 1–64 as though fully set forth herein.

66. Oracle has engaged in fraudulent business acts or practices by false and misleading statements, deceptive business practices, ever-changing contract terms and policies, processes, and procedures.

67. As evidence of Oracle’s fraudulent business practices, on information and belief, Oracle caused false and disparaging allegations to be published and republished by Oracle and its agents to members of the media and analyst community, Rimini Street’s customers and potential customers, as well as to the public at large. These allegations were made with Plaintiffs’ intent to, and are likely to, deceive members of the public.

68. Oracle has also employed unlawful and/or fraudulent business practices in its dealings with industry analysts, reporters and Rimini Street’s customers and potential customers. For example, Oracle has provided false and misleading information about Rimini Street to customers with which Rimini Street had established a potential business relationship.

69. The acts and conduct of Oracle constitute fraudulent conduct as defined by California Bus. & Prof. Code §§ 17200, et seq.

70. As a result of Oracle’s actions, Rimini Street has suffered irreparable injury, and Rimini Street’s standing in the business community has been harmed. Unless Oracle is enjoined, Rimini Street will continue to suffer irreparable harm and Oracle’s conduct will continue to harm Rimini Street’s standing in the business community, and ultimately hinder Rimini Street’s ability to conduct and grow its business.

71. Oracle should be compelled to disgorge and/or restore any and all revenues, earnings, profits, compensation, and benefits they may have obtained in violation of California Business & Professions Code § 17200 et seq., including, but not limited to, returning any revenue earned as a proximate result of the unlawful publication of the deceptive statements made to the public.

Update on Infor's Flex program: customers win

2010-03-25T10:37:00.000-07:00

Infor's Dennis Michalis stopped by my office for coffee and a chat this morning, and it gave me a good opportunity to see what sort of progress Infor has made in rolling out its Infor Flex program to customers.

By way of background, Infor Flex was introduced in June 2009, to allow customers to upgrade to the latest, SOA-enabled versions of their Infor products or to exchange those products for other, newer products in Infor's portfolio--at little or no license costs.

I was bullish on the program when it was announced, as I saw it as a win-win for Infor and its customers: customers get to move to a newer platform with newer expanded capabilities and Infor keeps customers, or gets them back on maintenance, and has a chance to sell them new stuff in the future.

But what have the results been in practice in the nine months since Infor Flex was announced? As it turns out, Dennis is the right person to ask, as he is now the General Manager for Infor Flex (in addition to his work in charge of all Infor partners worldwide).

Driven by customer needs
Dennis explained that the program originated from needs of Infor's customers running on IBM's Series i (formerly, AS/400) platform, to whom Infor's sales folks were trying to sell Infor's SOA-enabled products for asset management, business intelligence, performance management, and the like. The problem, of course, is that many of these Series i customers were on older versions of Infor's LX (BPCS) or XA (Mapics) or other legacy products and SOA-enablement of these products is only available on newer versions.

The challenge, then, was to encourage these customers to upgrade to newer versions. But customers were resisting that path, as there would be additional license fees for migrating to newer platforms in many cases, and cumbersome migration projects would be required to figure out and migrate the many custom modifications that these customers had made to the legacy code. (Side note: I did such an evaluation years ago for a BPCS customer and found they had made well over 1,000 modifications, making an upgrade nearly impossible to justify).

In other words, customers wanted the new stuff, but balked at the cost and effort required to upgrade to the latest version of their legacy systems that would work with the new stuff.

No new license fees, expedited migration path
So, Infor Flex was introduced to make the license cost a non-issue. Infor is letting customers upgrade to newer versions or convert to a different Infor product (like-for-like) with no additional license fees. Infor also promises to keep the customer at whatever maintenance fee level the customer is paying today.

In addition, Infor put together "service kits" to make migrations to the new versions less tedious. Having done these migrations in the past, Infor's professional services group was in a good position to package up conversion programs and use offshore resources where appropriate to handle some of the routine tasks of migration. It could then offer upgrade support on a fixed fee basis.

Results to date
Dennis was high on the results of the program. There have been something like 260 customers so far that have signed up for Infor Flex, and another 60 or so that are technically not within the revenue recognition rules for Infor Flex but nevertheless have similar deals. This would all be since last June, about 9 months ago.

In addition, Infor Flex deals are moving quicker through the sales pipeline, indicating that much of the "friction" in customer decision making has been eliminated by the favorable cost and risk attributes of Flex.

All of which means, of course, that Infor's sales force is making money.

Dennis was also positive on the impact for customers: in upgrading an old customer from ERP Lx (BPCS) for example, he estimates that 80% of customer modifications can be eliminated. And Infor's Open SOA capabilities add value in facilitating integration -- customers are seeing how easy it is to integrate with Infor's newer SOA-enabled products and with third-party systems. Many of these customers don't even realize they are using SOA, but they are realizing the benefits.

Infor is a privately-held firm, so financial results are not publicly reported. But Dennis indicated that Infor is very pleased with the results to date: not just in the license revenue for the new stuff they are able to sell to existing customers, but especially in what Infor Flex is doing to improve customer retention on maintenance contracts and even in winning old customers to come back onto maintenance. For a firm like Infor, which has a huge installed base of legacy customers, moving the needle just a little on these metrics has a huge payback.

My take
As I wrote in the past, Infor has a chance to be one of the "good guys" when it comes to maintenance and support programs. Infor customers running older versions often think they have no choice but to shop for a completely new vendor if they want newer capabilities. Info Flex should give such customers reason to take a second look at Infor.

Update, Mar. 26: In follow up correspondence with Dennis, I'm hearing about some interesting deals Infor is currently working to bring former customers back on maintenance, in at least one case for a company that has "not paid Infor a nickel" in 15 years.

Related posts
Infor juices up its maintenance program value with Infor Flex
Infor's opportunity: value in maintenance and support

Workday pushing high-end SaaS for the enterprise

2010-03-16T12:22:00.000-07:00

Software as a service (SaaS) has made great strides in recent years, especially in small and midsize businesses (e.g. NetSuite) and for departmental applications, such as salesforce automation (e.g. Salesforce.com) and customer service (e.g. RightNow.com).

Now Workday is showing that SaaS also has a place in core applications of large organizations. I first noted this trend about two years ago, when Workday announced its wins at Flextronics and Chiquita, both of which are still named accounts for Workday today.

So, I jumped at the chance to get a briefing on Workday's latest release, Workday 10. This post will document a few of the key points I found of interest.

By way of background, Workday was co-founded in 2005 by Dave Duffield, founder of PeopleSoft, after Oracle acquired PeopleSoft. The firm's original focus was on Human Capital Management (HCM), though it is now expanding its footprint. More on that at the end of this post.

Scalability. Workday now claims 133 customers live on its system, up from the 40 I noted in May, 2008. It's not a large number, but it includes several mega-customers, as noted earlier. Flextronics, for example, has already implemented for 16,000 users in the US and Canada and is now rolling it out to another 30,000 in Mexico, on the way to its eventual goal of 200,000 users live on the system. This shows the ability of SaaS and Workday in particular to scale to vary large numbers of users in a multi-tenant environment. Workday does run multiple instances of its system, but only for purposes of load-balancing--which makes sense in light of some massive customer counts. The back-end of the system is Workday's own proprietary object management server, which uses MySQL as a persistent data store, which would seem to be a very large implementation of that open source database management system.
User-Friendliness. Workday's user-interface is really, really slick. At one point, I had to stop the demo to verify that this is indeed a browser-based system. It is, based on Adobe Flex, with many features of its UI not seen often in on-premise systems.
Protection of Customer Data. I noted that much of the information managed by Workday is extremely confidential, such as succession plans--especially for publicly held companies. Does Workday still get push-back on security and privacy concerns? The team indicated that those issues still need to be addressed in the sales cycle, although buyers are often coming to the table with a higher level of comfort with SaaS than they did in the past. Nevertheless, from a due diligence perspective, buyers still look for evidence that their information will be secure.
Extensibility. I know from experience that large-scale HCM implementations can often required extensive customizations to accommodate customer-specific work rules, such as those resulting from union contract negotiations. Can Workday accommodate such changes in a multi-tenant system? The team assured me that it can. They claim the system has been designed with a rules framework, with predefined business processes that can be configured--not just at the customer level, but at the organization level within customer. This is another sign that Workday has large enterprises in its sights. They contrasted Workday's approach to customizations with that used by PeopleSoft, which did not ensure that changes would carry forward to future versions of the software.

Lowering Total Cost of Ownership
Can Workday keep up with demand? It would appear so. Implementation is currently handled by a combination of Workday's own professional services group along with major partners.

Workday watches implementation costs and schedules closely, shooting for implementation services not to exceed 50% of the three-year subscription costs of the system. This is a significant savings over traditional on-premise implementation costs, which can run multiples of the initial software license cost. I know it's not apples-and-apples--but do the arithmetic and tell me this is not a major advantage for Workday.

I mentioned earlier that Workday thus far has been focused on HCM, with intentions of an expanded footprint. Consistent with this strategy, it is rolling out Financial Management this year with the goal of becoming a complete ERP suite alternative in 2011 and beyond. I noted that this was the same development path taken by Duffield at PeopleSoft. The Workday team agreed, indicating that -- like PeopleSoft -- it is starting with people at the center of the system, then rolling out to the other entities of the enterprise. Like PeopleSoft, its first foray beyond financials will be in procurement.

Gunning for SAP and Oracle?
Ultimately, Workday intends to offer full-ERP capabilities, though most likely for service-based businesses. This is a bit of a disappointment, as I would love to see a player with Workday's resources tackle the manufacturing sector as well.

Nevertheless, Workday would appear to be a nascent threat to the traditional on-premise Tier I vendors, Oracle and SAP. They are no doubt already seeing Workday in some deals for HCM and will probably begin to see Workday encroaching on their turf in financials. Another SaaS player, NetSuite, already has been campaigning for a slice of SAP's business for smaller units. In contrast, Workday has a real shot at displacing SAP and Oracle in larger units or even for corporate applications of HCM. How much longer will it be before Workday is competing head to head with SAP and Oracle for complete ERP replacement in large organizations with legacy versions of these Tier I systems?

Hopefully, not too long.

Update, Mar. 26: Ray Wang has a good summary of Workday 10 features and how they move Workday one step closer to being a full ERP replacement.

Update, Mar. 29: Read Naomi Bloom's writeup on Workday 10. Naomi is a top HRM consultant and knows her stuff.

Related posts
Workday: evidence of SaaS adoption by large firms
Dave Duffield debuts new on-demand ERP
NetSuite a viable alternative for SAP customers?

A game-changing play in enterprise software

2010-03-03T14:01:00.000-08:00

Finally, someone is showing some innovation in how enterprise software is sold and contracted. No, it's not the two big guys of traditional on-premise software, SAP or Oracle. And it's not the market leader in cloud-based systems, Salesforce.com. Rather it's a smaller player, farther down the list: RightNow.com, a SaaS provider of customer service applications.

According to RightNow's press release, the firm is introducing something called the RightNow "Cloud Services Agreement (CSA)." If this catches on, it is very good news for software buyers.

What it is
RightNow points out that although cloud computing promised to fundamentally change how software was purchased and delivered, the benefits have not yet been fully delivered on the "business engagement side of the promise." RightNow’s CSA addresses this problem by providing the "guaranteed-pricing benefits of a traditional Master Services Agreement (MSA) without the pain – hidden costs, escalating maintenance bills, lock-in, and shelfware."

Here's how it works (as paraphrased from the press release):

Annual Usage Alignment Up or Down. Traditional software contracts force clients to anticipate their future needs, in terms of the number of seats. RightNow's CSA allows clients to re-balance usage up or down based on what they actually need from year to year.
Three Year Price Commitment Plus Three Year Renewal Price Cap. Traditional agreements are often written with hidden fees and escalation clauses, which are difficult to understand from the customer's perspective. For example, SAP now says it is going to start enforcing cost-of-living escalation clauses, which many SAP customers are not even aware of. RightNow's CSA, in contrast, essentially gives customers a simple fixed price for six years while only requiring them to commit to the first year.
Annual Termination for Convenience. With traditional software agreements, once the contract is signed, the client is locked in, putting the client in a position of weakness relative to the vendor. Allowing customers to walk away each year restores the balance of power in the relationship, motivating RightNow to continually deliver on client expectations.
Annual Pools of Capacity. Traditional agreements force clients to buy enough seats or capacity to cover their peak usage, even if most of that capacity is unused most of the time. RightNow's CSA provides clients with an annual "pool of usage" over a 12-month period. This allows clients to accommodate seasonality and fluctuations in their businesses without having to pay extra for spikes.
Cash Service Level Credits. I especially like this point. Many Saas provider contracts are weak in terms of penalties for failing to meet service level agreements. With many providers, SLAs are weakly written or only offer token concessions to customers. But RightNow’s CSA looks like it has real teeth. If RightNow falls short of the service levels guaranteed in the client’s customer care package, it will refund a percentage of the client’s subscription fees.
Unlimited Capacity for 90-Day Pilots. Here's another good point relative to other SaaS providers. RightNow is allowing clients, under its standard engagement process, to try out the product for up to 90 days before they have to commit to a contract. This is far better than signing a long-term contract, then getting into the implementation and finding out that, for whatever reason, there is not a fit. This is far more than allowing the customer to do a pre-sales "proof-of-concept." This means the customer could essentially attempt implementation and then back out if it doesn't go well.

As a bonus, it appears that the CSA is not just for new customers. RightNow will allow existing customers to convert to the CSA when their existing contracts are up for renewal.

In summary, as the press release points out, the CSA simplifies the contracting process. This reduces the amount of negotiation that is typical of enterprise software deals. Bottom line: "the company and its clients can spend less time negotiating contracts and more time achieving faster results."

What it means
Enterprise system initiatives for customers are notoriously risky. Our most recent Computer Economics study on technology trends, for example, shows that over half (51%) experience ERP TCO that is greater than budget. Even worse, 20% of organizations experience negative ROI--i.e. from a financial perspective, they would have been better off not doing the project. The results for CRM are somewhat better but still poor. RightNow's move addresses the risk problem in two ways: increased flexibility and lowering costs for customers.

It's good to finally see a vendor stepping up to the plate to compete on cost, and not just the up-front costs. On-premise vendors have been discounting their up-front license fees for years to win specific deals. RightNow is moving price competition to long-term costs, where the real money is. We’ve already started to see it some on-premise vendors, such as Infor and Microsoft Dynamics, emphasizing their maintenance and support programs as a way of differentiating themselves from SAP and Oracle. Now we’re starting to see it in the cloud.

RightNow's announcement not only differentiates itself from SAP and Oracle but also from some of the cloud providers. Cloud-based vendors, such as Salesforce.com and NetSuite may be up-to-date in terms of technology (SaaS, PaaS, muli-tenant, etc.) but in many respects the way they sell, negotiate, and contract with customers is not much different from how SAP and Oracle deal with customers. Perhaps it's because most of their executives grew up in the traditional on-premise world, where customer lock-in is considered a positive thing.

If you have a minute, check out this video, where RightNow ridicules Oracle, SAP, and even Salesforce.com for their approach to software agreements. I'm usually not fond of these sorts of PR efforts, but I think this one could touch a genuine nerve with software customers these days.

Moving to a true form of utility computing
Rightnow's move brings it closer to a model of pure utility computing, where the customer pays only for what he uses, as is the case with electrical utilities. Sure, your electrical utility levies some base charge to cover the cost of provisioning and maintaining the customer's connection. But most of the cost of electrical service to the customer is usage-based. You use more, you pay more. You use less, you pay less.

If software is truly being delivered as a service, then, it is logical that the industry would move in the direction of usage-based pricing. In the case of SaaS providers, the only reason they haven't moved in this direction is their desire to lock in customers to maximize revenue--a legacy from the on-premise world.

Pushback from the usual suspects
Is RightNow risking some loss of revenue short-run with this? Yes, but it's such a game-changer that I don't think that matters in the long run.

Some of my associates are asking whether Wall Street analysts will push back on RightNow.com. After all, if customers can flex their usage up or down, won't that introduce revenue uncertainty into RightNow's business model and thus lower the firm's valuation?

My take is that this question is extremely short-sighted. These are the same financial analysts that cheer for Oracle's 90+% margins on its maintenance business, all the while Oracle customers are plotting to set up "Oracle-free zones" within their organizations. If RightNow is successful--as I hope it will be--any uncertainty in future revenues from existing customers will be more than made up for by increased revenues from new customers. The new contracting model is simply that much more attractive.

In the meantime, the next time my firm does a consulting project for a customer to select a customer service system, guess who's moving to the top of the list?

Other voices
Two of my fellow Enterprise Advocates have already weighed in on the significance of RightNow's new deal for software buyers. Dennis Howlett agrees that RightNow is shifting the needle on enterprise value, while Vinnie Mirchandani says it as a step in the right direction. Read both posts as they provide additional perspectives on this important development.

There is also good analysis in Phil Wainewright's post, RightNow promises and end to SaaS shelfware.

Update: Two more very good posts: Barney Beal's Software buyers are the big winners in RightNow’s cloud services pact and Paul Greenberg's RightNow's New Customer Service Agreement Genuinely Important.

Update: Fellow Advocate Dennis Howlett has a longish piece including a narrated slide presentation of his analysis on RightNow's CSA. Worth listening too.

Disclosure: In case you're wondering, I do not have and have never had any relationship whatsoever with RightNow.com, they haven't paid me a penny, and in fact, I've never even spoken or corresponded with them. I just like what they're doing this week.

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Victory in court for open source software

2010-02-23T15:28:00.000-08:00

My friend Jeff Gordon, an expert on software licensing, alerted me to an important decision that came down today, greatly strengthening the legal basis for open source software licenses. The case, which I've been following for some time, was filed by one Robert Jacobson, who manages an open source project for model railroad enthusiasts, claiming copyright infringement for use of his code in a competing product.

I first wrote about this case in 2008, when a lower court ruled that the license in question was "intentionally broad" and therefore could not be used as the basis for copyright infringement. The U.S. Court of Appeals, however, overruled the lower court and "determined that the terms of the Artistic License are enforceable copyright conditions."

Jeff's post is here, summarizing the latest ruling. He writes that "the end result is a huge win for open source developers as a result of three key findings by the District Court:"

Violation of an open source software license constitutes copyright infringement, not just breach of contract (this was first upheld by the Federal Appeals Court in 2008 in this case).
Use of open source code without attribution is a violation of the Digital Millennium Copyright Act.
These violations entitle the Plaintiff (Jacobson) to monetary damages – which, as they’re based on violations of copyright law, are potentially much more substantial than those which may have been limited by contract law.

Jeff helpfully points to a post on ConsortiumInfo.org that provides much more detail on the ruling. There's also a 2008 article from PC Magazine that gives more background on the facts of the case.

My take
For open source enterprise applications to compete successfully with proprietary software vendors they need investors to fund their efforts. But potential investors need the assurance that the work they fund will be protected from IP theft. This case gives real teeth for enforcement of open source license terms and conditions, which should encourage investors to be more willing to fund such efforts.

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SAP pushes back on Gartner for its ranking of Business Objects

2010-02-18T07:17:00.000-08:00

SAP is complaining about Gartner's latest Magic Quadrant, which shows its Business Objects product line ranked way down the line for "ability to execute," behind Oracle, Microsoft, IBM, SAS, and Microstrategy.

From Information Week:

When vendors make it into the top-right "leaders" quadrant of a Gartner Magic Quadrant (MQ) report, they generally don't complain. But SAP isn't thrilled with the "ability to execute" positioning of SAP BusinessObjects in the 2010 Gartner MQ for Business Intelligence Platforms, which was released early this week.

"If you look at the results, it's nonintuitive and nonsensical that we would have less ability to execute, than, for example, Microstrategy," said Franz Aman, SAP's vice president, intelligence platform product marketing.

You can read the entire Magic Quadrant at no charge on Gartner's website.

Magic Quadrants may have their deficiencies
Now, I'm no fan of Gartner's Magic Quadrants, as I've discussed previously. In a nutshell, I don't find MQs useful to buyers for the following reasons:

Gartner's criteria for evaluation are almost certainly going to be different from the criteria of a specific buyer.

MQs measure things not of interest to buyers. For example, as a buyer, is "completeness of vision" really one of the two primary criteria in evaluation? How about fit to my functional requirements and industry?
MQs often leave out vendor that a specific buyer ought to be considering, as Gartner typically only evaluates vendors above a certain size threshold. The MQs by definition favor established, even legacy, vendors.
Vendors use MQs in their sales presentations, if their position is favorable, without noting all the caveats that Gartner includes. First-time buyers, especially in small or midsize companies, may not understand the misuse of MQs in this way.

But this MQ calls out specific problems with SAP
Having said that, I think SAP is asking for trouble in bringing attention in particular to this MQ, because Gartner had specific reasons according to its criteria for ranking SAP as it did in terms of "ability to execute." The reasons? SAP's problems after its acquisition of Business Objects in transitioning support to its own support systems as well as apparent issues with how it is dealing with acquired customers.

As Gartner points out in cautionary notes regarding SAP (emphasis, mine):

For the third year in a row, customer survey data shows that customer support ratings for SAP are lower than for any other vendor in our customer survey. Overall customer experience scores that include support, sales experience and software quality are also at the lowest levels. These results are not unusual in the aftermath of an acquisition. To address these challenges, SAP has put in place programs to address customer issues with support and to address, more broadly, the customer experience.

Gartner points out, however, that SAP is not alone in problems stemming from an acquisition of a BI player. Oracle had some of the same problems with its acquisition of Hyperion, while IBM with its acquisition of Cognos is currently in the same boat as SAP:

Customer turmoil from acquisitions typically follows a life cycle. Initially, there is significant customer concern because of uncertainty about product road maps and commitment. This is followed by the actual execution of the acquisition transition in which support, contracting, pricing, sales territory alignments and products are often changed. This transition process takes time and is not easy on customers. Successful acquisitions at some point complete the transition and reach a new "normal" for customers.While Oracle, which acquired Siebel and Hyperion in 2005 and 2007 respectively, seems to be successfully exiting the back of this curve, as shown by significantly improved Magic Quadrant customer survey results this year over last, weak customer survey results for IBM and SAP suggest that they are still in the throes of this transition. This heightened level of customer dissatisfaction revealed in the customer survey is reflected in these vendors' Ability to Execute positions.

On a side note, it appears that SAP may be attempting to squeeze additional revenues from some of the Business Objects customers that it acquired, leading to client dissatisfaction. This also affected Gartner's ranking of SAP's ability to execute:

Usage terms, not previously defined in older contracts for virtualized deployments, have led to confrontational experiences with SAP for some Business Objects customers. In the middle of 2009, SAP added virtualization definition and a migration path to new contracts. Installed base customers with old contracts could still be subject to additional fees from an audit.

If the issue around SAP's support for Business Objects rings a bell, it's because I covered these problems back in July 2008, when I wrote about SAP's botching up support transition for Business Objects:

The problems are confirmed by postings on the Business Objects Board (not affiliated with Business Objects or SAP). As of this writing, there are seven pages of posts, showing a complete lack of coordination for the migration of support. It sounds like a deadline-date-driven migration for which SAP was not prepared.

This is not the first trouble SAP has had in its relationships with Business Objects customers. Things got so bad earlier this year that Business Objects emailed its customers to apologize for "issues related to poor service including delayed deliveries of the company’s technology."

If SAP is going to make major strategic acquisitions in the future, it is going to have to learn how to make them painless for customers.

Bottom line
The fact that Business Objects customers are still having support problems--two years after they found themselves in SAP's customer base--suggests that SAP should spend less time trying to disprove Gartner's findings and more time getting its own support systems and processes in order.

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IT workers seeing meager 1.8% pay raise in 2010

2010-02-15T12:48:00.000-08:00

Over at Computer Economics, we've just released our new 2010 IT Salary Report. Bottom line: salaries at the median are increasing but not by much:

During two years of turmoil, the great recession of 2008-2009 brought budget cutting and layoffs across most IT organizations, large and small. But the picture is brightening for IT workers, and our 2010 IT Salary Report finds that IT organizations are budgeting to give the typical IT worker a 1.8% boost in pay.

By historical standards, the 1.8% median pay raise is meager....But in light of still-high unemployment rates, the finding indicates IT executives are responding to the need to retain their best workers and boost damaged morale.

The first chapter goes on to describe pay raises by job classification. Interestingly, workers at the bottom rungs are actually getting higher pay raises than IT executives and managers this year.

The full study provides 2010 total compensation ranges for 70 specific IT job positions in 73 U.S. metropolitan areas. Salary ranges are further broken down by organizational size for each job position within each metropolitan area. To aid in analysis, all salary statistics are provided at the 25th percentile, median, and 75th percentile.

You can download the entire first chapter and a sample of the salary data presented for one of the positions at no charge.

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