QAD hooks up with IBM

Manufacturing Systems reports on QAD's deal with IBM to standardize QAD's eQ supply chain management product on IBM's database, middleware, and Web services products. According to QAD's press release, QAD's eQ applications will now be pre-integrated with IBM's WebSphere Application Server and WebSphere MQ, and DB2 database software." (It should be noted that the deal does not involve QAD's flagship ERP system, MFG/PRO, which is built on the Progress development platform and therefore not easily wrapped around IBM's technology.)

Although Manufacturing Systems treats this as a ground-breaking alliance, J.D. Edwards (JDE) announced a similar deal with IBM in September, which I outlined in my post on Sep. 22. The contrast between IBM's strategy for enterprise applications and Microsoft's is striking. Microsoft is moving directly into the enterprise systems space, with its Microsoft Business Solutions group, whereas IBM is taking the partnership route, bundling its offerings with those of its ISV partners, such as QAD and JD Edwards.

The first time buyer’s mistake

I had an interesting discussion today with a software sales representative who described her efforts to sell a new enterprise system to a small company. Because the company is relatively unsophisticated, its best choice would be a simple system that meets its key needs -- but not too much more -- along with a local value-added reseller (VAR) that can provide support. But the prospect refuses to consider anything other than price. As a result, the prospect is considering a bargain basement system that does not have certain key features and offers only Web-based support. Furthermore, because the prospect views all software vendors as “used car salesmen,” the sales rep cannot convince him that he is heading for trouble.

Selecting a system solely on price is the classic first-time buyer’s mistake. First-time buyers often forget that price is only one factor in success. An enterprise system must meet key functional requirements of the business. It must be able to scale to support the anticipated number of users and transaction volume. It must not be too complicated for employees to learn or use. It must come with adequate support. It must operate with a certain level of reliability. When buyers ignore these other factors, they risk failure and end up spending more than if they had made a sensible choice to begin with. This lesson is so simple that it is almost common sense. But too often, common sense is not so common.

Microsoft-sponsored study on Win2K vs Linux is NOT all good news for Microsoft

Earlier this month, the press gave wide coverage to an IDC white paper, sponsored by Microsoft, which found that (surprise!) Microsoft Windows 2000 (Win2K) is generally less expensive on the basis of total cost of ownership (TCO) than Linux.

The study of 104 U.S. companies analyzed spending trends between Linux and Win2K server environments. IDC found that Win2K is cheaper in four categories of use: networking, file serving, print serving, and security services. But the study did find that Linux has a cost advantage when used for Web hosting.

Microsoft's sponsorship of this white paper may be part of a larger PR campaign, since it comes on the heels of a recently leaked internal memo that indicates Microsoft is changing its tactics from denouncing open source software, such as Linux, to emphasizing the benefits of its own products. In light of Microsoft’s PR strategy, it’s tempting to discount the white paper as just an ad campaign for Win2K. Unfortunately, most reporters aided in that effort by simply repeating the conclusions of the study, as released by Microsoft, without examining the full report itself. So, I decided to get a copy of the full white paper.

Not that Microsoft or IDC makes it easy. Neither party is publishing the full report on its Web site. But eventually I was able to get a copy from Microsoft’s PR firm. [Update, 6/18/2003: I have been informed that the full report is available here on Microsoft's Web site.] After reading the lengthy document, it became clear why Microsoft’s strategy is to focus on the report’s conclusions — because in the body of the white paper, IDC makes at least three observations that are not favorable to Microsoft.

1. Microsoft's advantage in administrative staffing costs is temporary. IDC observes, rightly, that the greatest cost category is people. The authors conclude that Microsoft has the advantage because Win2K is a "mature computing platform," for which there are more IT professionals and system management tools available, leading to lower people-costs. But the authors balance this conclusion with a note that Linux is an "emerging platform" and as Linux gains wider acceptance this gap will close:
   

   …as Linux matures and more packaged software becomes available in the Linux server market, IT professionals will be come more skilled in the efficient installation, deployment, and maintenance of Linux server environments (p. 4)....It is reasonable to expect Linux to support a more mature computing environment over the next few years, gaining better ISV support for commercial applications and packaged database products. System management tools are emerging and can be expected to expand rapidly over the next year or two in capability and installed base. It is also reasonable to expect less customization and scripting to be required for Linux computing over time, as Linux tools mature and become easier to use, thus reducing the TCO for the server environment (p.19).

2. Linux is more reliable. In its analysis of file server TCO, IDC points out that W2K users experience considerably more downtime than Linux users, which drives up the cost of downtime in the TCO calculation.
   

   Taking a closer look at the data, IDC can state that, despite the vast improvements of Windows 2000 over Windows NT, the downtime associated with Linux servers is considerably less—often well less than half the downtime that users experience with Windows 2000 (p. 13).

   IDC explains that this may be partially attributed to the fact that Win2K servers typically carry larger workloads and that the interaction of multiple applications may cause the increase in downtime. Of course, one could argue that the free cost of Linux software enables IT departments to run as many copies as desired, cost-effectively spreading the workload across a greater number of servers. Furthermore, the free nature of Linux encourages its deployment in fail-over clusters, which shields users from drops in availability, as IDC itself points out in its analysis of the cost of downtime (p. 6).
   
   
3. Linux is already cheaper for Web hosting. This is the one point in favor of Linux that did reach the conclusions disseminated by the trade press, although most reporters seem to view it more as a consolation prize for Linux. Nevertheless, Web hosting is the one area where Linux already enjoys a market share advantage over Microsoft, with the open source Apache Web server currently used on about 65% of the active Web sites, to about 25% for Microsoft’s IIS, according to a survey conducted by Netcraft. The fact that Linux has a TCO advantage over Microsoft in the segment where it has the most market penetration does not bode well for Microsoft in segments where Linux holds a smaller but growing share of the market.
   
   In explaining why Linux is cheaper than Win2K for Web hosting, IDC postulates that the cost of other Microsoft components, such as Microsoft SQL Server and Active Directory, are probably being lumped in with the cost of IIS even though those components can be leveraged for use outside of Web hosting (p. 17). This is a plausible explanation, although it inadvertently makes the case for Linux, since when an organization makes the decision to deploy a Microsoft platform for one purpose it tends to adopt Microsoft in other areas because of the tight integration with "common components." IT decision makers know this, and this could be a significant part of the business case for why Linux/Apache is so attractive for Web hosting.

Reading between the lines of the IDC white paper, nearly all the TCO advantages of Win2K over Linux are because Win2K is more established, with more system administrators trained in it and more system management tools supporting it. In other words, Win2K costs less to use because more people use it. At best, this is a temporary advantage, because as IDC notes in several places, Linux has been gaining market share at the low end, or as IDC puts it, on "one or two processor systems that perform relatively simple tasks on the edge of networks" (p. 6).

IDC acknowledges that, at some point, Linux will narrow the gap in trained system administrators and system management tools. This is consistent with Linux being a disruptive technology, as described by Clayton Christensen of the Harvard Business School. According to Christensen, a disruptive technology is one that is intrinsically lower-cost and simpler, but currently inferior to that of the market leader. It first gains market share among the least demanding customers or applications, those who are over-served by the dominant technology. As the functionality and performance of the disruptive technology improves, it moves up-market, gaining market share among more demanding users, eventually displacing the dominant technology. Without saying so, IDC identifies Linux as a disruptive technology, in the same way that mini-computers displaced a segment of the mainframe market, and networks of personal computers running Microsoft operating systems displaced a large portion of the mini-computer market.

Interestingly, in promoting TCO as a positive benefit for its Win2K operating system, Microsoft is making the same argument against Linux that IBM likes to make in favor of its AS/400 (iSeries) platform against Microsoft. A study conducted in 1998 by IDC, showed that users of IBM’s AS/400 enjoyed a lower TCO compared to both Microsoft and Unix platforms, due mainly to IBM’s significantly lower staffing requirements. Now the same argument is being made on behalf of Microsoft over Linux. But, just as the AS/400’s lower TCO did not slow the advance of Microsoft, it is unlikely that Microsoft’s lower TCO, if true, will slow the advance of Linux.

Linux is likely to continue to gain ground as a mainstream alternative to Microsoft operating systems. IT decision makers should evaluate Linux and Microsoft on a case-by-case basis, considering not only TCO but the specific workload requirements, existing and future staffing needs, and the organization’s strategic direction for IT infrastructure.

Possible solution for FDA electronic record audit trail compliance

Earlier today I participated in a Web presentation by DataMirror (NASDAQ: DMCX) regarding their LiveAudit product. The product is aimed at FDA-regulated companies, such as pharmaceutical and medical device manufacturers, which have requirements for electronic record audit trails [21 CFR Part 11.10(e)]. Although I have not yet done a direct evaluation, I can see the appeal of LiveAudit. It works at the database level in real time, allowing selective auditing of specific database files, records, and fields. It supports a variety of database and operating system platforms. Few legacy ERP systems have audit trail capabilities to the extent required by Part 11, and without a tool such as LiveAudit, it is difficult to retrofit an existing system to provide this capability or to jury-rig database logs to do this. Furthermore, because many companies operate in a heterogeneous IT environment, with multiple systems touching regulatory compliance, there is something appealing about having the audit trail operate at the database level and keeping all required audit trails in one place.

A cautionary note, however, is in order. LiveAudit is not a complete solution for 21 CFR Part 11. It only addresses the audit trail requirements. For example, it does not pretend to address requirements for electronic signatures. Part 11 requires that regulated entities enact a set of technical, procedural, and administrative controls over the use of electronic records and electronic signatures. DataMirror’s LiveAudit only addresses one of several technical requirements, and, of course, it cannot address the procedural or administrative controls required by Part 11. Therefore, companies regulated by FDA should do a comprehensive Part 11 audit and develop an action plan to address all significant gaps in compliance. DataMirror’s LiveAudit may then be considered as part of the solution.

For more discussion on Part 11 compliance, see my posts on Oct. 16 and Nov 16.

The IBM/Rational acquisition from Rational's perspective

Following up on my post last week, IBM's offer to buy Rational Software is attractive also from Rational's perspective. Along with many other technology vendors these days, Rational has a "partnership problem" with Microsoft. Although Rational has long been providing tools for application development on Microsoft platforms, it has found itself more and more in competition with Microsoft as Microsoft is strongly promoting its own toolset, Microsoft Visual Studio.NET. With Microsoft looking to take more of the tools business for itself, Rational needs to pair up with someone on the same scale, someone with a large corporate client base, in order to regain market share. IBM fills the bill.

Since the deal was announced last week, the trade press has been overwhelmingly positive about it. BusinessWeek has additional analysis.

On a personal note

Starting this week, I will be contributing as a research analyst to Computer Economics, a research firm well-regarded for its annual survey of information systems and e-business spending as well as its analysis of ROI and total cost of ownership. The organization is over 20 years old, and it claims over 80% of the Fortune 500 as clients. I will be writing on trends and management issues in the use of enterprise systems--in other words, pretty much the same focus as this web log.

One reason that I like Computer Economics is that its independent perspective is the same as that of my consulting firm, Strativa. As indicated on their web site,

"Unlike most research organizations, Computer Economics takes pride in being totally unbiased and rejecting any association, sponsorship, or joint-venture with vendor organizations. This allows us to assist our clients in maximizing their purchasing power with their vendors, making the best e-business strategy decisions, and effectively planning for online market opportunities."

IBM’s strategy in acquiring Rational Software

IBM announced today that it is buying Rational Software, one of the leading developers of software engineering tools, for approximately $2.1 billion in cash. Rational has annual sales of about $650 million, with over 3,400 employees, and customers in 89 countries. According to IBM's press release, IBM intends to merge Rational into the IBM Software Group as a new division, joining IBM's WebSphere, Lotus, Tivoli, and DB2 products.

Rational is well-regarded as the originator of the Unified Modeling Language (UML), designed by Rational's Grady Booch, Ivar Jacobson, and James Rumbauch, that is used for object-oriented analysis and design (OOAD). UML is now an open Object Management Group (OMG) standard, and it has been adopted by many software developers and tool vendors. One incredible statistic: Rational claims that 98 of the Fortune 100 use its products, which have grown to include a variety of tools for system modeling, analysis, design, coding, and testing, such as Rational XDE, Rational ClearCase, Rational RequisitePro, Rational Unified Process, Rational Rose, Rational Purifyplus, and Rational Suite TestStudio.

So why is IBM buying Rational Software? I see four reasons.

1. The price is right. The Rational acquisition continues what appears to be IBM's campaign to use the current slump in technology asset valuation to assemble an impressive collection of tools for application development and integration. The Rational acquisition follows on the heels of IBM's acquisition earlier this year of Crossworlds and Holosofx, which I discussed in my Sep. 16 post.
   
   
2. It increases revenue and earnings. On the surface, IBM would appear to be interested in going after a larger share of the development tools market, which according to IDC will grow at 11.5% through 2006. On the other hand, Rational's $650 million in sales seems like a drop in the bucket when compared to IBM's $80 billion. So there must be more to it than IBM’s simply buying market share.
   
   
3. It leverages services. I suspect that a more strategic reason is IBM’s interest in the application development services that can be pulled through after sales of tools. IBM already uses sales of Websphere to pull through significant work for the IBM Global Services unit. The addition of Crossworlds, Holosofx, and now Rational just continues this strategy.
   
   
4. It strengthens IBM's position with software developers in its battle against Microsoft. Software developers are a key constituency that must be won in order for IBM to ensure that its other technologies, such as Websphere and DB2, gain market share. But 60-70% of software developers currently use Microsoft tools, giving Microsoft a natural advantage in promoting its .NET platform. IBM's acquisition of Rational is probably the best thing it could do in this regard, acquiring one of the premier names in software development tools. Interestingly, Rational is agnostic when it comes to platforms, with tools that support with J2EE, Microsoft, Linux, and other platforms. So, IBM gets additional points by supporting openness and freedom of choice for developers.

Winners in the trend to consolidate enterprise software spending

BusinessWeek is running a long article with good case studies on the trend for companies to use fewer vendors and fewer packages as a way to cut overall costs. It points to a Giga Information Group forecast, which says that sales of core ERP software will grow 4.8% annually through 2006, but that sales will be driven not so much by a desire for new technology but by the trend for customers to consolidate to fewer software vendors. Among larger companies, the winners will be the Tier I vendors such as SAP, Oracle, and Peoplesoft, at the expense of point solutions such as i2 and E.piphany.

However, among mid-size companies BusinessWeek indicates that the likely winner will be a single vendor: Microsoft. In my opinion, this latter conclusion is a bit more speculative in that Microsoft does not yet dominate the mid-tier in the same way the Tier I ERP vendors dominate the Fortune 500. In the $13 billion ERP market, Microsoft Business Solutions will only have about $500-600M of it this year. And, each of the Tier I vendors have explicit strategies to target the mid-market. For example, earlier this year SAP introduced its SAP Business One offering, a separate product which allows it to sell into smaller companies. And for years here in southern California, I have seen Oracle selling its full suite to companies with fewer than 100 users. In addition, Oracle offers a hosted version of its full suite as well as its Oracle Small Business Suite (formerly, Netledger), which are both aimed at the start-up or small business market.

Microsoft Business Solutions is setting the stage for big-time channel conflict among resellers

Everyone knows that Microsoft is moving aggressively to enter the enterprise applications market, with its acquisition of Great Plains and Navision earlier this year, as well as its development of its own enterprise CRM systems and other applications. This is old news.

But what is not generally recognized is that Microsoft is heading for trouble in how it is signing up resellers. Anecdotal evidence indicates that Microsoft is showing no restraint in how many resellers it signs up in a given geography, as if the more the merrier.

This was the mistake that Baan made in the late 1990s, when it signed up many resellers without considering that they might be competing against each other. During this period, I was doing a software vendor selection where three Baan resellers were attempting to sell to my one client, and none of them would back off. Apparently, even Baan couldn't control the situation because they eventually told me that I should make the decision on which reseller to use.

I see the same thing happening shortly with Microsoft, as its Great Plains, Navision, and Axapta resellers watch Microsoft merrily signing up additional resellers down the street.

Whoever is in charge in Redmond/Fargo needs to understand that selling enterprise applications is not the same as selling Win2000, Exchange, or SQL Server seats. These are complex sales with long lead times. One of the little secrets of selling enterprise applications in the mid-tier is that although the reseller channel is key, it is also limited. There are not many good or great reseller organizations. When you find good ones, you don't turn around and undercut them by creating competitors next door.

For more discussion, see my post on Axapta and my post on unintended consequences of Microsoft's move into enterprise systems.

ERP vendor consolidation continues, with MAPICS acquiring Frontstep

Frontstep (FSTP), formerly Symix, is the latest casualty of the downdraft in spending on enterprise systems, agreeing to a buyout by ERP vendor MAPICS (MAPX). MAPICS has been holding up better than many in this economic climate, profitable in the last three quarters on flat sales of $128 million in the trailing 12 months. The two vendors do have much in common. Both focus strongly on mid-tier discrete manufacturing firms, and each vendor has a significant client base. The combined entity will reportedly have something in the neighborhood of 10,000 customers, so on the surface the acquisition might seem like a good thing.

But what is curious about this transaction is the rationale. MAPICS is one of the oldest vendors selling on the IBM iSeries (AS/400) platform. Although its acquisition several years ago of another vendor, Pivotpoint, gave it offerings in the Unix/NT/Oracle markets, MAPICS is still strongly identified with IBM. Frontstep, on the other hand, just completed a major rewrite of its flagship product, Syteline, abandoning its Progress database roots in favor of 100% pure Microsoft technology.

With Frontstep rapidly running out of cash, it's easy to see why Frontstep would agree to be acquired. But the question is, what is MAPICS thinking? The first explanation might be that MAPICS wants Frontstep's client base for its maintenance revenues. But Frontstep's clients are vulnerable right now, having just been told they will need to migrate from Progress to Microsoft SQL Server at some point in the future. I've already received one call from a Frontstep client, asking for my opinion on this. So those maintenance revenues might not be so secure. The more likely explanation is that MAPICS wants to diversify its products to include a Microsoft-centric offering. Frontstep bet the farm on its migration to Microsoft technology and it looks like it lost the farm in the process. But if MAPICS was planning to develop a Microsoft-centric product anyway, it would be a lot cheaper and faster to simply buy it from Frontstep than to build it themselves. The question now is whether MAPICS can sell it, first to Frontstep's own installed base and then to the rest of the mid-market.

Generally, major software vendors that have tried to grow by acquisition frequently have found themselves with too many packages to support on too many platforms. Epicor is one example. Unless MAPICS has some grand scheme in mind that I haven't thought of, I don't see how this acquisition makes sense.

Buzzword alert: Web services

What are Web services? A Web service is a program that can be remotely invoked by another program means of an Internet protocol, such as HTTP. The term is unfortunately ambiguous, because the word "Web" does not refer to "Web sites" but to the Web transport protocol (HTTP) that is typically used by Web services to communicate with each other. Hence, Web services are a way of implementing a distributed computing model across heterogeneous computing platforms. If you've ever visited Amazon's Web site and entered a FedEx tracking number to retrieve delivery status, you've seen a Web service in operation. In this case, the Web service is provided by FedEx, which the Amazon's Web site invokes to retrieve your package tracking information. Another live example you can play with is Microsoft's MapPoint, which is actually Microsoft's first commercial Web service. If you have a Web site or other application that needs mapping information, you can sign up for MapPoint and pay Microsoft by the transaction. In both examples, you've got information delivered from remote systems on demand by means of Web services.

Web services are an innovation around which fierce competitors (e.g. IBM, Microsoft, Sun, H-P, Oracle) are cooperating to develop open standards for the common good. Some key standards include XML (Extensible Markup Language), SOAP (Simple Object Access Protocol), UDDI (Universal Discovery and Description Initiative), and WSDL (Web Services Description Language). Application development frameworks for Web services fall into two main categories: those that are based on the Microsoft .NET Framework, and those that are based on Java 2 Enterprise Edition (J2EE). Nevertheless, because Web services are standards-based, those developed under Microsoft .NET should have no problem interoperating with those developed under J2EE.

Many enterprise system vendors (e.g. SAP, Siebel, Oracle, Peoplesoft, J.D. Edwards, Microsoft Business Solutions, Frontstep), are working to allow parts of their systems to operate as Web services, to some extent or another. For the enterprise system vendors, the big hope is that Web services will greatly reduce the difficulty of integrating systems internally and between trading partners. Integration in the past has been accomplished either by writing custom interfaces, implementing complex and costly enterprise application integration (EAI) software, or by setting up EDI or XML links. As Rodger Beard wrote me recently,

I view the emerging Web service application architecture as a paradigm shift within the IT industry, and a shift that ultimately will impact basic general business processes in a most fundamental way. I feel Web services is very significant, analogous and maybe even more significant than the movement from mainframes to client server computing in the late 80's....All hype aside, this new architecture permits, and indeed readily facilitates the inexpensive, incremental automation and integration of inter-company, cooperative business processes. The practical possibilities for further process automation, leveraging the cheap hardware now available, is truly mind boggling to me. Not only are Web services applications (and applets) quick to develop, a piece at a time, but they inherently incorporate Internet based data communication protocols--sort of like "EDI on steroids," and without all that startup baggage that EDI has always featured.

It remains to be seen whether Web services will live up to these expectations. Thus far, most development of Web services has been taking place behind firewalls, as some IT departments are experimenting with the technology to build simple interfaces between internal systems. There is a general consensus that the standards are not yet fully developed to the extent needed to handle complex integration logic between business partners, specifically in providing security and multi-step transactional workflow.

For a more detailed discussion on the status of Web services adoption, see Ed Yourdan's article on the Cutter Consortium site.

Time for a system refresh project? BusinessWeek has a short article on the trend away from large projects to implement completely new systems toward smaller projects to repair and improve existing systems. The article says, "Unlike the 1990s' craze of spending millions for new gear and armies of consultants who worked on extended contracts, the trend now is toward shorter, less expensive deals that make the most use out of existing IT resources."

My own observation is that many companies use less than half of the functionality available to them in their enterprise systems (e.g. ERP, supply chain, or CRM applications). There are many reasons for this: incomplete implementation the first time around, new users who are not as well trained as the original users, small changes in business processes, and creative users who develop their own little "side systems." I have often felt that companies would benefit greatly from organizing once every two or three years a small project to assess the use (or non-use) of their existing systems and to formulate corrective actions to improve their use. Such corrective actions can include additional education and training, business process redesign, custom report development, elimination of side systems, and implementation of unused functionality. My own experience in helping clients carry out such system refresh efforts indicates that the benefits are real. More companies should do this.

QAD acquires major international alliance partner

QAD, one of the better known Tier II ERP vendors, is acquiring one of its major alliance partners, TRW ISCS, for a mere $1 million in cash and transaction/integration costs of $4-5 million. According to the press release, QAD expects the unit to generate annual revenue in the range of $13-15 million and be accretive to earnings by the second half of fiscal 2004. If so, this appears to be a good deal for QAD. TRW ISCS was what was left of Largotim, one of the top QAD alliance partners. Largotim was acquired by BDM in the late 1990s. BDM, in turn, was acquired shortly thereafter by TRW. With QAD now acquiring the TRW unit, the cycle is complete.

QAD has traditionally focused on development of its flagship product, MFG/PRO, and left nearly all of the implementation services and much of the sales effort to its alliance partners. But with the slowdown in technology spending, QAD has been moving more and more into direct sales and services. With its large installed base, this is a wise move, and the acquisition of TRW ISCS just accelerates the trend. The same technology slowdown no doubt led to the fire-sale price QAD was able to negotiate. As the enterprise software sector begins to emerge from the doldrums, I expect to see other vendors acquire some of their more attractive yet weakened partners. This positions the surviving vendors to take a larger share of each new deal, instead of having to share it with a partner.

"Rich client" looks promising, but tools are still immature

I've gotten quite a bit of feedback on my post last month about the trend toward "rich client." David Harding, principal of FulcrumPoint Technologies, confirms that pure thin-client solutions leave something to be desired. With experience in developing fat-client, thin-client, and rich-client solutions, Dave says,

"I find it a marvel that people are finally coming to the conclusion that thin-client did not speed up development and that to really get a decent client/server application, the client had to be part of the equation. Besides, if you want to build any sophistication in the interface and distribute processing so as not to overload the servers, a “rich” client is the better, and sometimes only, choice. That is not to say that thin-client apps can’t be a great way to create applications with limited functionality. However, javascript is not ready for primetime (in any flavor) and Java is a promise that Sun just can’t seem to agree on how deliver. The arguable truth is that each technology has its own strengths and weaknesses, and each should be used only when the individual strengths can be leveraged. Every time I hear that a single technology (e.g. thin client, Java, artificial intelligence, add your favorite technology de jour here…) is going to render all its predecessors useless, I have to laugh.”

However, even though the rich client architecture looks promising, some of the tools used to develop such applications are still rough around the edges. Commenting on his experience so far with Microsoft Visual Studio .NET using “managed code” and Webforms, Dave says,

.NET has some cool stuff, but the promise and the reality are still a good distance apart. Performance is an issue now more than ever. Having to download components (.NET components), marshal data across the network, deal with text based API’s and re-learn all of the standard (and new) development tools (e.g. C++, C#, Visual Basic, etc.) make working with these great new technologies a chore… not to mention that they are still in their infancy (read that: filled with fun and interesting bugs that are difficult to determine if it’s a bug or a design issue by the programmer). But still we press forward...

What does all this mean for vendors of ERP, SCM, CRM, and other enterprise applications? If the trend toward rich client architecture continues to build, it means that vendors will have to face one more platform migration. Many of them have not yet fully made the transition from fat client to thin client. Unfortunately, once they get there they may find that the goal line has been moved once again.

Business success is more than regulatory compliance. I spent this past week in Chicago, leading a workshop on software validation for the medical device industry, and we had extensive discussion on FDA regulations for Quality Systems (21 CFR Part 820), as well as electronic records and electronic signatures (21 CFR Part 11). Participants included a group of software developers from Europe, as well as a group of senior ERP consultants from the US. As we worked our way through the regulations section by section, line by line, I realized once again the extent to which, from a business perspective, regulatory compliance is just one aspect of business success. To be successful, a medical device manufacturer, or a pharmaceutical manufacturer, must do a lot of things right. It must bring in revenue, manage costs, meet delivery commitments, maintain quality, and a host of other things. But FDA compliance only addresses one of those dimensions: quality. FDA doesn't care if you properly forecast demand, increase sales, control your costs, accurately plan material, or manage capacity--in fact, FDA doesn't even care if you stay in business. By law, FDA only cares about one thing--that as long as you are in business, you design and make product that is safe and effective.

Sometimes I think that companies lose sight of the fact that, although regulatory compliance is mission-critical, you are not in business to be compliant. You are compliant to be in business. But to be successful, you must do much more.

Let's have a moratorium on vendor/package name changes.

One Spectator reader called yesterday to ask what I knew about MAS 500 from Best Software. Let's see, Best offers the MAS 90 and MAS 200 products, popular Tier III systems. One might assume that MAS 500 must be a new upgrade of MAS 200. Wrong. Here's the story. MAS 500 is the new name for Best Enterprise Suite. Best Enterprise Suite was acquired by Best when it bought Sage Software, which referred to the package as Sage Enterprise Suite. But Sage originally referred to the package as "Acuity," which is how most people still remember it. So here's the bottom line: MAS 500 is the old Acuity product that Best acquired from Sage. It has nothing in common with MAS 90 or MAS 200, except the similar name. With so many software vendors being acquired, and so many package names being "re-branded," it's becoming very difficult to keep them all straight, even for those of us who evaluate systems for a living.

Expect end of year deals on enterprise applications, but read the fine print. Paul Hamerman, a research director for Giga Information Group, has some good recommendations on making year-end deals for new software this year. Q4 is typically a good time for buyers to negotiate with vendors for new systems, because of the vendors' need to meet sales targets. However, because few vendors expect the market to roar back in 2003, it is going to be hard for them to convince prospects that favorable terms will disappear after December 31. Furthermore, watch out for deals where the vendor throws in several "free modules" that you "might need later." Such modules might be free in terms of upfront license costs, but they are frequently included at list price when calculating maintenance fees. Hamerman points out that in such cases the vendor has simply gotten you to agree to pay him an additional recurring revenue stream. I have often felt that companies frequently buy too much software up front. Structure the deal to only buy the modules that you plan to implement over the next 12-18 months. You'll save on maintenance fees, and you'll also have stronger leverage with the vendor during implementation, because he'll know that future purchases will depend on how well he delivers on the stuff you've already bought.

And, never pre-pay for implementation services. One more thought: if the vendor offers a discount on implementation services if you prepay for them, don't take it. You've lost all leverage if services are substandard. And since the vendor already has your money, guess which consultants he'll put on your project.

SSA cornering the market on AS/400 enterprise software. SSA just announced that it is acquiring Infinium (formerly Software 2000), a vendor of financial systems for the AS/400 (IBM iSeries). Infinium's 1,800 customers are located mostly in North America in process manufacturing, gaming, hospitality, and healthcare. Infinium products include modules for human resources, payroll, financial management, CRM, materials management, process manufacturing, and corporate performance management.

This latest announcement follows on SSA GT's acquisition earlier this year of Computer Associates Interbiz group, which was CA's collection of enterprise system acquisitions, such as PRMS, KBM, MK, MANMAN, Warehouse BOSS, CAS, Masterpiece, and Maxcim. Last year, SSA bought MAX International, a small company ERP system.

Most of the systems in SSA's portfolio are AS/400-based, with its original flagship product, BPCS, being one of the major AS/400 ERP systems through the 1990s. SSA's strategy appears to be to acquire as many of the remaining AS/400 packages as possible and continuing to receive the maintenance revenue stream from their installed base clients. (SSA is the only ERP vendor I've seen that actually has a page on its Web site aimed at parties interested in being acquired). A number of SSA's clients are large multi-national companies that SSA would love to keep in the fold. It remains to be seen whether SSA can keep existing clients satisfied to the extent that it is not worth the effort for them to switch.

HIPAA privacy compliance may be taking back seat to EDI. In 2003, medical providers will face HIPAA deadlines for privacy regulations as well as mandated use of EDI for submitting claims for payment. But for those that can't meet both deadlines, the lesser of two evils might be to let privacy compliance slip and be sure to get electronic transactions implemented in time. The risk analysis is simple, according to Jeremy Pierotti, consultant with Partners Healthcare Consulting. "The chances of being inspected by the Centers for Medicare and Medicaid for privacy violations are low, but the chances of not getting paid for submitting a non-standard claim are high," he says. Health Data Management has more.

Manhattan Associates emerging as leader in warehouse management systems

Manhattan Associates just announced its 2002 Q3 results, coming in with net income of $6M, a 30% increase over same quarter last year. More impressively, the profit increase didn't come just by cutting expenses. Revenue rose 8% to nearly $43M. In this market, those are excellent results, and Manhattan has been putting up strong numbers on the board since the late 1990s.

The standalone WMS market is highly fragmented, with hundreds of niche vendors. Manhattan's main competitor has been EXE Technologies, a well-established vendor with whom it was evenly matched a couple of years ago. But that has all changed, as Manhattan Associates has continued to grow through the recession, while EXE has shrunk. Other major WMS players include Catalyst, HK Systems, McHugh, and Optum. But none has been able to turn in results similar to Manhattan's.

Separately, Manhattan last week signed a letter of intent to buy Logistics.com, for about $20M. The addition of Logistics.com transportation management systems and services will extend Manhattan's core WMS products, allowing it to provide a more comprehensive supply chain planning and execution suite of offerings.

Buzzword alert: "rich client"

No, it doesn't mean a client with a lot of money. But first, some background. Until recently, software vendors spoke of client/server presentation schemes as falling into two main categories: "thin client" and "fat client." A thin client architecture is one where business rules and processing logic reside at a server level and the desktop client machine is used only for user presentation. Because a thin client architecture typically makes use of a Web browser, or other general purpose GUI presentation program (e.g. Citrix ICA client), no application program code need be installed or maintained on the client machine. Hence, the client is said to be "thin." Fat client, on the other hand, is an architecture where application programs are installed on each desktop machine.

The advantage of thin client is that it is simple to administer and maintain. But, as anyone who uses browser-based applications knows, thin client systems do have some drawbacks. They are typically slower, especially when deployed over a wide-area network, since even routine data validation requires processing at the server level. Furthermore, they can be cumbersome, since the browser interface (even using DHTML) does not have as many capabilities as a native Windows application. The fat client architecture overcomes these limitations by doing much processing locally, and by taking advantage of the GUI functionality of the desktop operating system (e.g. Windows). On the other hand, a traditional fat client system is difficult to administer because you have to maintain program code on each desktop.

Software developers are looking for an alternative. Hence, the term "rich client." Now it might be tempting to treat the term "rich client" as simply a synonym for fat client and leave it at that. And, I'm afraid that's what many application vendors are going to do--simply rename their old fat client systems as "rich client." But the real concept of a "rich client" goes farther. Rich client, as its proponents maintain, is an attempt to capture the benefits of a thin client architecture without the limitations. How? By using presentation technology that is more feature-rich than a Web browser but still allows the application logic to reside at the server level.

The main contenders for rich client development platforms include Macromedia Flash MX, which takes advantage of the fact that Flash is already installed on the majority of user desktops, Microsoft's .NET Framework, using features such as managed code and Windows Forms, and Sun Java WebStart.

Additional candidates for a rich client development environment include Droplets, an application platform for Java and C++ development, Sash Weblications, an IBM toolkit from Alphaworks, the Altio client applet and presentation server, the Spidertop Bali development tools for Java, and the Curl Surge Lab Integrated Development Environment (IDE).

For more details on the trend toward rich client, see Ted Neward's post in his weblog on the O'Reilly Network.

Update: For a follow up discussion on tools for rich client, see my post on Nov. 17.

Getting tough on ROI. InformationWeek has a good article that explores various methods that companies are using to evaluate the return on investment from IT projects. Among the companies with best practices for managing ROI:

1. Schneider National, Inc., which categories IT projects according to whether they reduce costs, increase revenue, or simplify business processes, allowing management to use a different set of criteria in justifying each category of project.
   
   
2. Schlumberger, which uses worst-case, likely case, and best-case scenarios, allowing management to focus on those factors that reduce the risk of realizing the worst-case.
   
   
3. Vanguard, where executives meet in "sunlight sessions" to debate and challenge the projected benefits of a proposed IT initiative, allowing overly optimistic assumptions to be caught before the project is approved.
   

The article also includes a case study of Citibank, which used a complex valuation simulation tool to trace the potential impact of an executive portal project on Citibank's stock price. Although such an approach has certain appeal, I believe that the complexity far outweighs the benefits for all but the largest companies. In my experience, most companies would benefit simply by doing a reasonable cost/benefit calculation at project initiation, verifying the assumptions, managing risks, and measuring the results after implementation.

Siebel makes strategic bet on Microsoft

CRM vendor Siebel is the latest major player to pick sides in the Web services platform battle between open J2EE standards and Microsoft's .NET Framework. Although Siebel will continue to support and interoperate with J2EE-built applications, it is putting the bulk of its development effort into .NET. In addition, Siebel will optimize its applications for Microsoft server operating systems and its SQL Server database. In return, Microsoft has agreed to make its Biztalk integration server compliant with Siebel's Universal Application Network (UAN). This will allow existing Siebel installs as well as other software that is UAN-compliant to interoperate via Biztalk. The new version of Biztalk is expected to ship in early 2003.

Siebel's move to get close to Microsoft is in contrast with other large enterprise systems vendors, such as SAP, which is a strong supporter of J2EE, and J.D. Edwards (JDE), which is in near total alliance with IBM, another strong supporter of J2EE. Siebel's move is not without risk. Microsoft is rolling out its own small/mid-tier CRM solution. Even though Siebel sells mainly to larger organization, at some point Siebel may find itself competing with Microsoft for CRM deals in mid-size companies.

Furthermore, by identifying with Microsoft, Siebel risks alienating those large company prospects that have standardized on J2EE as well as on non-Microsoft databases and operating systems. Reportedly, the bulk of Siebel customers (65%) run over Oracle databases, with 25% on MS SQL Server, and the remaining 10% on IBM's DB2. How will all those Oracle and DB2 shops feel about Siebel's favoring Microsoft technologies?

CRN has more analysis of the Siebel/Microsoft announcement.

Epicor picks up Clarus e-procurement products for a song

Last week, Clarus announced that it's selling its core products to Epicor for a mere $1 million in cash. Clarus is/was a best-of-breed vendor of indirect e-procurement systems such as applications for expense management, private trading exchange (PTX), reverse auctions, and electronic settlement (electronic bill presentation and payment). Clarus was in the same space as major e-procurement players, such as Ariba and Commerce One, and Clarus had a few big name accounts and partners, such as Microsoft.

Epicor, formed from the merger of Platinum and Dataworks a few years ago, has gotten a reputation on the street for carrying too many products in its portfolio. Most were acquired by Dataworks, prior to the merger with Platinum. These days, Epicor is focusing on actively developing and marketing only a few of them, specifically its "e by Epicor" product line (based on the Platinum products), its Avante, Vantage, and Vista manufacturing systems (based on the Dataworks offerings), and its well-regarded Clientele products for customer service and technical support. At first glance, it would appear that Epicor is continuing its tendency toward product proliferation with its acquisition of the Clarus products. Nevertheless, if Epicor can integrate the Clarus products horizontally across its other offerings, the acquisition will look like a smart move a few years from now. Especially at the fire-sale price it's paying. AMR provides a good analysis of the acquisition.

ERP does improve business performance, if implemented correctly

HBR Working Knowledge has a good interview with Harvard Business School's Mark Cotteleer regarding his survey on the effect of ERP on company performance. In the most recent survey, 86% of IT executives describe their ERP implementations as successful and over 60% report that the benefits exceeded expectations. On the other hand, 14% of implementations are "troubled or abandoned," and 40% either just met or fell short of expectations.

Recognizing, as Cotteleer says, that "successful" and "painless" are not the same thing, what makes some companies successful while others fail? The answer is in how ERP is implemented. Cotteleer goes on to describe some useful maxims for successful implementations, including: "stay the course" (i.e. give users time to get used to the new system before rushing off to resolve non-critical issues); "the devil is in the data" (e.g. "Over the years we have witnessed pitched battles erupt over, for example, how to define units of measure"); and "know the difference between understanding something and liking it."

On that last point, Cotteleer says, "Implementations get bogged down when ... project managers focus on finding a way to make everyone happy. Sometimes that way does not exist. Managers should recognize that and move on when needed."

SAP sales and earnings are ... up

Swimming against the tide of diminishing earnings from enterprise application vendors, SAP this week reported 2002 Q3 net income of $198 million, compared with $36 million for the same period in 2001. Interestingly, while product revenue overall was up 3% to $1.65 billion, revenue from CRM sales was up 19% while SCM was down 3%. SAP's press release has more details.

SAP is clearly benefiting in this weak market from its large installed base and dominant position worldwide to maintain license revenues at the expense of most other ERP vendors such as Peoplesoft, which just reported an 11% drop in Q3 net profit and a 20% drop in license revenue. SAP is also getting some uplift from sales of SCM and CRM products, at the expense of stand-alone supply chain and CRM vendors such as i2 and Siebel. For evidence just look at Siebel's quarterly results this week, where it reported a whopping net loss of $92 million on a 34% drop in license fees.

Buzzword alert: Part 11 compliance

Over the past few years, a number of software vendors selling into the pharmaceutical and medical device industries have been claiming that their systems are "Part 11 compliant." Here's some background. In 1997 the US Food and Drug Administration (FDA) issued its final rule on the use of electronic records and electronic signatures, publishing it in the Federal Register under 21 CFR Part 11. Hence, the term "Part 11." Essentially, Part 11 provides criteria by which companies regulated by FDA can use electronic records and electronic signatures as equivalent to paper records with handwritten signatures in meeting FDA regulations. Furthermore, FDA investigators have started to inspect companies' computer systems for compliance to Part 11. In some cases, companies may find it easier to replace legacy systems than to remediate them. This has created a market opportunity for software vendors serving FDA-regulated industries.

However, some software vendors, hoping to win a piece of this business, make claims about their systems that go too far. Here are a few examples, without naming the vendors: "[Package name] is fully compliant with 21 CFR Part 11." .... "[Vendor name] has developed proprietary software utilizing 128-bit encryption technology that fully complies with 21 CFR Part 11." .... "This solution is 21 CFR Part 11 compliant and will provide an immediate solution to using electronic signatures with minimum investment and minimal impact on legacy systems." .... "[Package name] is 100% compliant with the US Food and Drug Administration (FDA) final ruling on Electronic Records and Electronic Signatures referred to as 21 CFR Part 11." And my personal favorite: "Are you concerned about Title 21 CFR Part 11 FDA regulations governing electronic records and electronic signatures? Don't be. The FDA edition of [package name] is fully compliant."

The basic problem is that these claims imply that the packages themselves are "compliant," whereas FDA regulations and guidance make it clear that it is the end users and their companies that must be compliant. One package may be easier than another to implement in a compliant fashion. But compliance is much more than buying and implementing a certain package. In a recent meeting with one software vendor (the minutes of which are public record), FDA representatives made the following simple and clear comment: "During the meeting we discussed the appropriateness of representing software as 'part 11 compliant.' We explained that the term is a misnomer because people who are subject to part 11 are responsible for compliance with the rule and because achieving compliance involves implementing a collection of administrative, procedural, and technical controls. We suggested that where software has technical features that are required by part 11, it would be appropriate to map those features to particular part 11 controls and then let prospective customers determine for themselves the potential suitability of the software in their own circumstances."

Open source ERP

A couple weeks ago, I asked to hear from anyone who knew of a truly open source ERP system. I didn't get any responses, but I did come across a research note by Paul Hamerman of Giga Information Group on Compiere, which appears to fit the definition. Compiere's license agreement, which is modeled after that of Mozilla and Netscape, provides source code to users at no charge. However, the product is built over the Oracle database, and Compiere is an Oracle database reseller. So the company evidently is giving away the Compiere source code and pulling through Oracle license sales as well as training and implementation. It's an interesting approach, although one would imagine that companies looking for "free software" would be reluctant to turn around and buy Oracle database seats. I also wonder how many small and midsize firms, which would be the natural market for Compiere, would be willing to invest in the requisite effort to keep up on patches and fixes. The whole open source movement, to me, makes more sense for operating systems, tools, and utilities, which can leverage a much larger development community. It would seem that the higher you go up the technology stack toward complex business applications, such as ERP, the more difficult the open source model would be to sustain. I would like to be wrong on this one, but I'm still waiting for an "existence proof."

Wal-mart still pushing its suppliers to Internet EDI

There was more news this week on Walmart's Internet EDI initiative. Both IBM and Sterling Commerce announced that they have been selected by Wal-mart to provide integration and network services for 8,000 of its suppliers as they move to Internet EDI (EDI-INT AS2 standards). According to the IBM press release, IBM was chosen because of its global reach, its experience in the apparel, consumer products, and retail industries, and its implementation services. IBM will also provide VAN services as a backup contingency to EDIINT. In addition, IBM points out that it has built AS2 support into its WebSphere integration products, allowing Walmart suppliers who use Websphere an easy migration path to AS2.

According to the Sterling Commerce press release, Sterling will serve in a similar capacity, giving Walmart and its suppliers a choice of two such providers. Sterling, of course, is a major EDI provider, and one of the companies that helped develop the AS2 specification.

One of the early barriers to Internet-based EDI is that the Internet by itself does not provide the level of data security and reliability that is required for B2B commerce. This is why EDI traditionally uses value added networks (VANs) for transport. The AS2 standard eliminates this barrier by providing, among other things, a reliable and secure Internet messaging protocol, using public key encryption (PKI). When I reported on Wal-mart's EDI AS2 initiative on Sept. 17, the Spectator started to receive a large number of search engine hits for that post, probably from all those Walmart suppliers that are no doubt highly interested in what hoops they will need to jump through for this major customer. As I noted previously, the positive impact of Walmart's action for Internet commerce cannot be understated. It is the sort of "supplier mandate" that could greatly speed up general adoption of Internet-based EDI and B2B commerce in general.

More thoughts on Home Depot's priorities. My associate Lewis Marchand sent me some comments on my post regarding Home Depot's data warehouse/business intelligence project. Lewis specializes in business intelligence applications, so I was interested in his feedback. He says, "It definitely surprises me that a firm this size has not gone to BI before, given the complexity of their business. What they are proposing is huge and they are certainly going for broke." He also points out that Home Depot's plans to implement BI systems in three separate areas is aggressive. "I would think they would concentrate on areas with the greatest potential return first, which for them of course is their supply chain."

Who knows? Home Depot has over 250,000 employees in 1500 locations. Perhaps it has found that employee performance improvement, satisfaction, and retention is currently the key constraint to success, and therefore a priority for business intelligence. Or, more likely, Home Depot believes that developing BI applications in the HR area is an easier first step than doing so in the supply chain planning function. Either way, it will be an interesting case to watch.

Everyone agrees: it's a tech buyer's market. Earlier this week, Gartner CEO Michael Fleisher told 5,000 IT executives at the Gartner Symposium ITxpo that if they are planning to buy anything, now would be a good time to do it. "This is, quite simply, the best market ever for technology buyers," said Fleisher. While pointing out that the IT industry is suffering from overcapacity and the absence of any "killer application" on the horizon, he forecast that "there is essentially no chance for a tech recovery in 2003." He also predicted that 50% of all technology brands will disappear by 2004. CRN has more details on Fleisher's talk.

Along the same line, Dylan Tweney, writing for Business 2.0, announces the death of the million dollar software deal.

Home Depot is on a shopping spree for data warehouse and business intelligence tools. Home Depot announced last week that it is planning a huge roll out of a data warehouse capability that will cost tens of millions of dollars. Business intelligence applications will be rolled out in three phases: 1) HR applications to provide analytical dashboards and metrics to improve employee performance, satisfaction, and retention, 2) inventory planning applications to give material planners near-real-time access to point-of-sale (POS) transactions to better manage supply, demand, and store assortments, and 3) supplier access to the inventory and sales data, so that trading partners can better manage demand and logistics. The system will be built on IBM's DB2 database running on an IBM AIX box with sixty (60!) terabytes of storage.

This opportunity at Home Depot is an exception to the trend away from large complex software deals. Perhaps it is indicative of Home Depot's need to catch up with competitors such as Wal-mart (Walmart) that already have large analytic capabilities in place. It will be interesting to see what sort of creative deals vendors put together in order to play in this pond. Still on Home Depot's shopping list: extract, transformation, and load (ETL) tools as well as business intelligence (BI) tools for data analysis. Although, to my knowledge, no specific vendors have been mentioned as being on Home Depot's short list, expect all the major BI vendors as well as select supply chain vendors (e.g. i2, Manugistics) to want a piece of this deal. Since the data warehouse is being built on IBM's DB2 database, it is possible that IBM's Datawarehouse Manager would be considered, as well as one or more of the major ETL vendors, such as Informatica (PowerMart/Center), Ascential (Datastage XE), and SAS (Warehouse Administrator). Some leading vendors of analytic tools include Business Objects (BusinessObjects), Cognos (PowerPlay and Impromptu), Information Builders (WebFOCUS), MicroStrategy (MicroStrategy 7), Computer Associates (Eureka Suite), Sagent (Sagent Solution Platform) and Hummingbird (BI/Suite).

Buzzword alert: "open source"

Over the past month or so, I've noticed some ERP and supply chain software vendors refer to their products as "open source," when in truth all they are doing is making their proprietary source code available to clients, something that many software vendors have been doing for years. You buy a license for Package X, and the vendor provides some (or even all) of the source code so that you can modify it, but only for use within the licensing entity. That last condition is what makes proprietary code propietary. When you license proprietary software, you have no right to redistribute the product, even if you have the source code. Open source, on the other hand, is a specific licensing model whereby the author(s) of the software freely distribute the source code along with the rights to redistribute it. The details of various open source licenses, such as the GNU General Public License (GPL), are more complicated, but that's the gist. For a more information on the meaning of "open source," see the definition on the Open Source Initiative (OSI) web site. Examples of true open source software include the Linux operating system and the Apache web server. To my knowledge, no vendor of significant ERP or supply chain management application systems licenses their system on an open source model. If you know of an ERP or SCM system that is truly open source, please e-mail me.

First look at Microsoft's Axapta ERP system

Yesterday, we got a quick demo of the Axapta product, courtesy of mcaConnect, a new nationwide Axapta distributor. Microsoft obtained Axapta through its acquisition of Norwegian vendor Navision earlier this year. Axapta has not had very much market presence to this point in the US, with few people even having heard of it prior to 2001, when Navision obtained it through its acquisition of Damgaard in the Netherlands. However, Axapta has a fairly strong presence in Europe, where it is positioned toward mid-tier manufacturing firms. In the US, Microsoft Business Solutions is targeting Axapta at mid-tier manufacturing firms of $50-800M in annual sales. Based on what we saw, however, we think Microsoft would do best to aim at the lower end of that range, because the product is a mixed bag in terms of features and functions. It appears to have strong functionality in certain areas, such as a rule-based dimensional product configurator, a knowledge management module (including balanced scorecard), customer/supplier/employee survey instruments, an integrated project management module, and a Web self-service capability. On the other hand, the product is weak on multi-plant operations. For example, although it supports multiple warehouses for inventory control, it does not allow multiple facilities for planning and scheduling (i.e. multi-plant MPS and MRP). That last point alone could disqualify Axapta from many upper mid-market deals.

From a technology perspective, the Axapta product is built using its own development environment called Morphx, that generates a language called X++ (a blend of C++ and Java). I would speculate that, at some point, Microsoft may want to rewrite Axapta using its own development toolset (Visual Studio). But for the short term, Microsoft will probably be content just to run the X++ code through its .NET SDK so that it can operate within Microsoft's .NET framework. It is interesting to note that, because of their use of MS Visual Studio, other mid-market ERP vendors such as Frontstep (formerly Symix) and Made2Manage, are actually "more Microsoft than Microsoft" when compared to Axapta. And I would be surprised to see this change any time soon. It is not a trivial exercise to rewrite an entire ERP system in a new development tool set. Microsoft is more likely to devote new Axapta development efforts to address any gaps in functionality that will be required for it to compete in the US against more established players and to provide integration to Microsoft's new CRM solution. So, my advice to prospective buyers is this: if having Microsoft standing behind your ERP system is important to you, consider Axapta. But if a Microsoft-standard development environment is what you are looking for, look elsewhere for now.

Which brings us to the bottom line: the strongest point in favor of Axapta, of course, is that Microsoft is behind it. When considering the financial viability of many of the other mid-market ERP vendors, many buyers will find this a strong plus. Another strong point in Axapta's favor is its distributor network. There are reportedly 50 resellers in the US with rights to sell the product, of which about 20 are actively building Axapta sales and service groups. Many of these are former distributors of competing ERP Tier II or III products that have fallen on hard times. These resellers are experienced in selling and servicing the mid-market, and they are hungry. We have only seen Axapta in one deal so far in southern California (which it won), but we expect to see it more often as these distributors gain traction.

Large system implementations require organizational discipline

Drew Rob, writing for Datamation, has a good case study of a $22 million implementation of Peoplesoft ERP and procurement applications at the City of Los Angeles. Although there were significant issues and complaints about the new system, a post-implementation audit found that nearly all of the problems were with users and entire departments not adhering to City policies. The project team implemented the new system "by the book," but it appears that large numbers of users hadn't been reading the book to begin with. As Robb points out, "Those complaining … were actually moaning about their own processes. PeopleSoft [was implemented] in accordance with mandated city policies and processes. Yet many within the city were not in compliance."

I often complain about the poor state of software quality. However, this case study illustrates that large system implementations often fail not because of software deficiencies but because of lack of organizational discipline. Nevertheless, this story does have a happy ending. After additional post-implementation work to improve organizational disciplines, the City of LA was able to cut check processing staff in half, cut warehouse staff by 40 heads, reduce inventory from $50M to $15M, and give each City vendor a single point of contact. Furthermore, LA saved $5M a year in contract consolidation and significantly improved the number vendor discounts taken for timely payment.

Read about the case study in Datamation.

Vendor pricing practices stuck in 2000

Tom Smith, writing for InternetWeek, has a nice rant on enterprise system vendor pricing pratices. Here's a sample: "Vendors like to say the economy is the root of their problems, practically the root of all evil. What an easy, self-serving excuse. They should drop the self-pity and focus on what can help their business: software quality, customer care, realistic ROI promises and-most important-simpler, better, and more transparent pricing."

I also discussed vendor pricing in a post on Sep. 7.

All criticism aside, I generally appreciate Forrester's research

I especially like their quarterly survey of e-procurement adoption, which they do in conjunction with the Institute for Supply Management (ISM). The latest one is from July, and there's a summary on the ISM Web site.

Memo to Forrester

Last month, Forrester Research published a research brief, entitled "Memo to VCs: Invest Apps Dollars Here." I didn't want to spend the $295 for the report, so I took a look at iSource's summary of it. Forrester sees an increase in technology spending in the second half of 2002. So far, so good. But I'm puzzled when the authors list five "solutions to specific business pains," where they see increased demand for IT spending. Here are three of them that I question, specifically.

1. "First, the analysts highlight event-driven adaptive software that can help alert companies to problems in their supply chains, like machinery failure at a supplier or a change order from a customer. Solution providers such as Exemplary and Factory Logic offer solutions that tie ongoing 'execution events' back into supply chain plans, allowing companies to modify their operations in real time as events unfold."
   
   Memo to Forrester: most of the companies I know are still trying to implement the supply chain management software they already have. Heck, a few of them would even consider it a breakthrough if they could get MRP implemented!
   
   
2. "...Forrester's analysts suggest that companies will look to augment their enterprise resource planning systems with 'organic applications,' Web services libraries combined with intelligent agent technologies..."
   
   Memo to Forrester: I evaluate enterprise systems for a living and I have no clue what you are talking about. And, I would wager that 99% of CIO's don't, either. Really now, which companies are asking for this?
   
   
3. "...in light of the Enron and WorldCom debacles, companies will look to applications that use smart data-mining and exception-based alert technologies to detect possible financial irregularities. Providers like PaceMetrics and Searchspace are offering solutions that can model strategic decision risk or detect aberrations that could indicate fraud...."
   
   Memo to Forrester: "smart data-mining" wouldn't have done anything to uncover the problems at Enron and Worldcom. The problem was with the top guys, the guys that are going to be looking at all those "exception-based alerts" you are advocating. Sadly, there's no technology that will make a CFO or CEO honest.
   

Unfortunately for enterprise system vendors, most companies are still trying to digest the software investments they made over the past 5-7 years. Yes, many companies will probably increase spending on information technology over the next 6-12 months, but it will not be in the areas that Forrester suggests. It will be largely in the areas of application integration, implementation, upgrades, and incremental enhancements that deliver additional value from the systems that they already have.

J.D. Edwards now firmly in IBM’s camp

If it already wasn’t clear, JDEdwards is now firmly aligned with IBM with its announcement that it will standardize all of its offerings on IBM middleware and infrastructure technology. According to the press release, "J.D. Edwards 5 applications will be pre-integrated with IBM’s WebSphere Application Server and Portal with embedded security, Lotus collaboration tools, and DB2 Universal Database (DB2 UDB)." The technical integration should be complete by the end of 2002, with client roll-out starting in 2003.

It is tempting to say that JD Edwards is just going further down the path it is already walking. After all, the overwhelming majority of JDE’s installed base is already using IBM AS/400 (iSeries) servers (although that’s because many of them have still not upgraded from the older host-based version of JDE, known as "World Software"). Furthermore, a few months ago, JDE already designated IBM DB2 as its preferred database platform. But this announcement goes a lot farther. JDE is actually bundling IBM products into its own offerings. You buy JDE, and you’re getting DB2, Websphere, and Lotus. Sure, JDE says you can still run Oracle or MS SQL Server for the database, but how many prospects are going to want to pay twice for database infrastructure? Sure, JDE says that you can still use webMethods for application integration, by why bother when IBM’s Websphere is already in the bundle? You can even use MS Exchange for messaging, but why not take advantage of the Lotus tools included in JDE’s offerings?

A casual observer might think that JDE is at risk in the mid-market by losing out on deals where prospects want to build on Microsoft technology. But that’s really not the case. Microsoft itself is moving aggressively into the enterprise systems space, with its acquisition of Great Plains and Navision. JDE probably felt that conflict with Microsoft is unavoidable. In the mid-market today, I already see Great Plains and JDE competing in the same deals. It can only get worse for JDE, especially as Navision’s Axapta product--with manufacturing functionality stronger than Great Plains--starts to get traction in the U.S. If a prospect wants Microsoft technology in its enterprise systems, its going to be tough to not consider buying straight from Microsoft. So, all things considered, there’s something to be said for JDE staking out a clear, unambiguous position. JDE is now true-blue, Big Blue. It has nothing to lose and everything to gain by letting IBM give it a bear hug.

JDE on Linux—you heard it here first

The only thing missing from JDE’s latest announcement is a clear statement of direction regarding Linux. Back in June, JDE did announce that it would offer its CRM product on Linux. But to my knowledge it has made no such announcement regarding the rest of its products. Offering its entire suite on Linux would be a next logical move for JDE, further aligning its strategic direction with that of IBM. Since in JDE's traditional market, use of Linux is still somewhat limited to niche services (Web servers, file/print, messaging, etc.), such a general statement from JDE might still be premature. But I think it’s coming, at some point.

Killer app for Web services?

InternetWeek has an article on Nobilis Software, a 40 person software start up that is offering what just may be the first "killer app" for Web services. The company has just launched a tool that allows power users to create simple enterprise-wide web services applications that use nothing more than the Microsoft Office applications that most users already have on their desktop.

In the real world, many internal business processes such as budgeting, forecasting, and expense reporting are performed by users creating Excel worksheets and emailing them back and forth to each other and eventually rolling them up into a master worksheet. These are the sort of informal, cumbersome processes that consultants try to automate with ERP systems.

However, the Nobilis tools essentially allow such informal processes to be formalized and integrated by means of Web services. Users keep on working with Excel worksheets (or whatever other MS Office document is needed), but Web services are used to define the business rules and to handle the workflow and data integration. It's an idea that resonates with a number of principles: it is simple, it is cost effective ($99 per user desktop), it uses technology that businesses already have, and it doesn't ask users to change the way they are already doing things. If Nobilis's idea catches on, we might see a significant jump in the adoption of Web services.

As a side note, don't think that Nobilis's innovation is a potential breakthrough for Microsoft's .NET framework--Nobilis has built its Web services platform using J2EE. A CRN article has the details.

What exactly is AS2?

A couple of weeks ago, Walmart announced that it will mandate that its entire supplier base move from traditional EDI over value-added networks (VAN) to Internet-based EDI using a standard known as AS2. After I wrote a short post on the implications for B2B adoption, the Spectator began to get a significant number of search engine hits on the keywords “Walmart” and “AS2,” indicating that a lot of people would like to know more.

So, what is AS2? AS2 is short-hand for EDIINT AS2 (Electronic Data Interchange-Internet Integration Applicability Statement 2). The AS2 standard, developed from work by the Internet Engineering Task Force (IETF), provides a reliable and secure Internet messaging protocol, using public key encryption (PKI). Although AS2 can be applied to any Internet messaging format, Wal-mart is using it at this point for electronic data interchange (EDI). Wal-Mart is currently testing AS2-based EDI with several of its primary suppliers, but it is moving rapidly to spread the standard to the rest of its suppliers. The impact of this directive is enormous, with more than 14,000 Wal-mart suppliers transacting over $200 billion in sales this year. Many of them are no doubt scrambling to learn about AS2 and to decide how to comply with Walmart’s heavy stick.

Fortunately, there are several vendors offering AS2 solutions. First, iSoft's Commerce Suite Software uses the AS2 standard to provide trading partner management, public key infrastructure (PKI), and an infrastructure for IP-based secure communications. This allows data transmitted to be digitally signed, secure and non-repudiated. Walmart itself is using iSoft’s products in building out its AS2 infrastructure and it is also promoting iSoft as its vendor of choice. For Wal-mart suppliers, iSoft is offering a canned solution with no license fee, starting at $300 per year for support. I would expect to see many Wal-mart suppliers simply take this offer as an easy choice. However, because AS2 is a public standard, other vendor solutions should work equally well. Suppliers can continue to use their current EDI vendor, if it supports AS2—or another vendor such as IPNet or Cyclone Commerce, which also provide AS2 solutions for Wal-Mart suppliers.

Even though these solutions appear to be cost effective, some smaller suppliers may be reluctant to implement AS2 if Walmart so far is their only customer accepting it. In this case, smaller suppliers may want to check whether their current VAN provides an AS2 gateway to connect to Walmart. With Wal-mart’s clout, I would not be surprised to see most of the VANs eager to provide this capability, rather than lose traffic.

By the way, I expect other major retailers such as Kmart, JCPenney, and Sears to follow Wal-mart’s example. When compared to the cost of traditional VAN-based EDI, the cost savings of Internet-based EDI are simply too attractive.

IBM acquires Holosofx to enhance its integration offerings

IBM has announced acquisition of Holosofx, a business process modeling products firm, which it will use to enhance the business process management capabilities of its Websphere product.

I've used Holosofx products in the past. The products--BPM Workbench, BPM Server, and BPM Monitor--go beyond simple process mapping to full-blown process modeling and simulation. Earlier this year, IBM acquired Crossworlds, one of the first Enterprise Application Integration (EAI) vendors. By combining Crossworlds and Holosofx with Websphere and its MQSeries messaging platform, IBM is creating an extended platform for enterprise integration.

The direction is timely. Over the past year, companies have been shrinking back from fork-lift replacements of legacy systems, in favor of a more piece-meal approach. Because of this, the need for integration has never been greater. As the Holosofx press release points out, companies already spend about 40% of their IT budgets on integration. EAI solutions, such as Websphere/Crossworlds/Holosofx provide an integration infrastructure, sitting as a layer above individual application systems, to provide both the integration as well as business process management functionality that cuts across multiple applications and organizational units.

Holosofx was founded in 1990, with headquarters in southern California and a development lab in Cairo, Egypt. Holosofx was used by RosettaNet in developing specifications for their Partner Interface Processes (PIP), so it already has strong ties to the high tech and IT industries. In addition, it is currently in use at big name clients such as Morgan Stanley Dean Witter, AETNA, SBC, First Union, Toyota, and Telstra. Beyond, IBM its partnerships include Rational and Filenet.

More information can be found at Holosofx's web site.

2002 ROI leaders and laggards

A new study by Nucleus Research, a vendor-neutral research firm, indicates which IT initiatives have the highest and lowest ROI, based on thousands of ROI studies that the firm has done worldwide. The study found that the highest ROI is currently coming from the following:

1. E-business integration platforms, using EAI solutions such as BEA Weblogic and Microsoft Biztalk. Other EAI vendors include NEON, SeeBeyond, TIBCO, Vitria, webMethods (Active Software), Peregrine (Extricity), Iona (Netfish), and IBM (Crossworlds). Although the study did not clearly indicate, I would expect both internal application integration as well as external integration with trading partners to be high ROI opportunities, as indicated by the high degree of interest in this subject among CIOs in the trenches. (See my post on August 22).
   
   
2. E-learning solutions, due to "reduced costs for travel, human resources overhead, regulatory compliance and customer support costs," along with second tier benefits, such as increased employee performance that directly impacts profitability. The study found that most companies could gain significant returns from even modest investments in e-learning technology. I wrote about this point in terms of web-conferencing and listed some vendor solutions back in June.
   

In contrast, the study found that the lowest return came from three types of initiatives:

1. E-commerce and B2B marketplaces. The study found that companies are currently off better by investing in specific integration strategies with key partners.
   
   
2. Monolithic CRM. The study found that companies investing in large CRM projects are unlikely to achieve a positive ROI, because consulting and software costs often outweigh returns and a long deployment process slows payback. Most companies are better off investing in smaller CRM initiatives and expanding them as warranted.
   
   
3. Standalone content management. The study found that the high cost of content management solutions are not warranted for most companies. Those companies that do acheive positive ROI on content management projects are doing so as part of a broader strategy with tight integration.
   

Additional details on the study can be found in the firm's press release.

The dark side of reverse auctions. Reverse auctions, where the buyer posts a requirement and sellers compete for the business, are becoming more popular for two reasons: Internet technology allows reverse auctions to be conducted without regard to geographic location of the participants, and software or services are now widely available to facilitate reverse auctions. Leading software solutions include Moai, Emptoris, eBreviate, Ariba, Commerce One, and Procuri. Examples of online marketplaces that support reverse auctions include Covisint, Elemica, Forest Express, Quadrem, World Wide Retail Exchange (WWRE), E2Open, and Transora.

Nevertheless, there is a dark side to reverse auctions. The main objection is that reverse auctions focus on a single dimension of the trading relationship: price. Unless the buyer takes specific actions to account for differences in supplier quality, lead times, flexibility, or service, suppliers are forced to sacrifice everything for the sake of lowest price. This seems like a step backward in an enlightened supplier relationship, and it reinforces the worst tendencies in some industries that have traditionally fostered adversarial relationships between trading partners. The second objection is that in many reverse auctions, suppliers can see each other’s bids but not their identities. This makes it possible for an unscrupulous buyer to game the system by inviting unqualified suppliers into the auction, thus driving prices unreasonably lower.

Although in some supply chains, reverse auctions can be a wake-up call to a complacent supplier base, the negative effects on supplier relationships should not be ignored. Therefore, buyers should limit the use of reverse auctions to purchase of commodity products, where there is less emphasis on the relationship and more on minimizing cost of the transaction. In cases where buyers really want to use reverse auctions in the context of strategic supplier relationships, it is essential that they take explicit steps to address dimensions other than price. HBS Working Knowledge has a good article on the subject.

Analyzing the analysts. Here's a new twist. A group called ResearchRate is conducting a customer satisfaction survey of IT analyst firms, such as Gartner, Aberdeen, Cahners, Giga, Meta Group, and Ovum. Of course, the analyst firms are usually the ones who are conducting surveys on others. Although it's nice to see the analysts on the receiving end, I have my doubts about the reliability of the survey. The survey instrument is accessible publicly on the Web, allowing anyone and every one to fill it out. What's to prevent an analyst firm from lining up its friends, relatives, and neighbors to stuff the ballot box? As far as I can tell, one person could even fill it out multiple times, using different email addresses. Nevertheless, if you use analyst research and you have about 15 minutes, you might want to participate in the survey. There's even a drawing for five $100 cash prizes.

Is this for real? Oracle moving to simplify and clarify its pricing schemes. Those of us who evaluate software vendors for a living know that one of the most difficult questions to get answered from a vendor is, what will it cost? The problem is that major software contracts usually bundle or unbundle a number of elements, such as the software license itself, maintenance, implementation consulting, training, and outsourcing services, each with its own price basis and formula. Add in various terms and conditions as well as deadline-specific discounts or promotions, and it can be extremely difficult to compare one vendor with another. It often takes a detailed analysis to “normalize” proposals from two vendors so that an apples-to-apples comparison can be performed.

Now, in what we hope will start a trend among vendors, Oracle has published a complete guide to its software pricing and licensing schemes. Although most or all of the information was already available in one form or another, the 55 page Software Investment Guide pulls it all together and makes it available on the Web. Furthermore, the Guide is under the management of a new Global Pricing and Licensing Group within Oracle that is chartered to establish “uniform corporate policies for Oracle's customers and partners, with overall objectives of implementing Oracle's pricing and licensing strategies worldwide.” If this is for real, it would indicate that Oracle's pricing schemes may be rationalized and simplified in the future. Of course, the whole effort means little in situations where the sale includes deal-specific discounts, terms, or conditions. But Oracle is moving in the right direction, toward rationalizing, simplifying, and make transparent its pricing structures. We hope that other vendors follow.

B2B adoption is getting a shot-in-the-arm from Wal-mart’s mandate to suppliers. While the financial markets continue to hammer the stocks of B2B companies, some recent events are pointing to better prospects for B2B adoption, contrary to what I wrote on July 2. Specifically, Wal-mart (Walmart) is now mandating to its suppliers that they must only use EDI software that is UCC-certified for interoperability to connect to Wal-mart’s supplier network, one of the largest in the world. Wal-mart, of course, is doing this out of its own self-interest. But the positive implications for B2B in general are clear. Wal-mart drives thousands of suppliers to use compliant connection software or trading exchanges, which brings critical mass to vendors of such systems or operators of such exchanges, which makes such offerings more attractive to other retailers. As a result, B2B adoption rates increase as wider use of standards makes the cost of participation lower and the value greater for all buyers and sellers. Vendors that should immediately benefit from this trend include any that are working closely with the Uniform Code Council (UCC) and the Voluntary Interindustry Commerce Standards (VICS) Association initiative for Collaborative Planning, Forecasting, and Replenishment (CPFR), such as iSoft (Wal-mart's partner), i2, IPNet, JDA, Logility, Manugistics, SAP, and Syncra. Other vendors will benefit, including those that have been certified for the EDI Internet (EDIINT AS2) part of the standards, such as HP/Compaq, bTrade.com, Cyclone Commerce, GE GlobaleXchange Services, Harbinger, Netfish, Microsoft, SeeBeyond, Sterling Commerce, TrailBlazer, and webMethods. AMR has more details.

CIO roundtable report from the trenches. Earlier today, I met with group of about 15 CIOs in southern California in a roundtable meeting to discuss the subject of Web integration with back-end enterprise systems, including the use of enterprise application integration (EAI) technology. As a whole, these companies have made good progress, and the CIOs discussed a number of interesting experiences and issues involving Web development and integration.

1. Single ERP, or integrate multiple systems? One CIO pointed out that an EAI approach might be most appropriate for large multidivisional companies that need to maintain multiple systems. In many cases, it may make more sense to migrate to a single enterprise system (e.g. SAP, Oracle, J.D. Edwards), thereby lessening the need for integration. On the other hand, over the past few years there have been a number of well-publicized failures with large-scale ERP implementations, and as an alternative CIOs should at least give the case for EAI some consideration.
   
   
2. Contract Web developers or grow your own? The CIOs generally indicated that many Web initiatives simply can't wait for internal staff to be trained in new technologies. Therefore, most of the CIOs are choosing to contract with outside developers, but at the same time they also assign them to mentor internal staff. In this way, the internal staff can maintain and enhance Web applications in the future. However, some CIOs pointed to the limited availability of training options, especially in the case of IBM’s Websphere, as a constraint to training internal staff.
   
   
3. Web-based systems replacing internal systems. One CIO told the story of rolling out a Web-based ordering system for customers, only to find that internal sales users then requested to be put on the same system. Another CIO indicated that his company did a successful roll out of a Web-based ordering system by introducing it first to the sales force. Then, after the new system was refined and accepted by the sales force, it was rolled out to customers.
   
   
4. Does Web services technology make point-to-point integration more appealing? One CIO suggested that web services (i.e. XML and SOAP) can be used to facilitate integration between disparate systems. Although Web services do theoretically lower the cost of maintaining and developing point-to-point interfaces, they do not in themselves provide the overall business process management capability that a full EAI solution offers. Nevertheless, it will be interesting to see how the adoption of Web services affects market demand for more extensive EAI technology.
   
   
5. Security and privacy. Interfacing web applications to internal systems often requires additional measures to protect company or customer confidential information. One CIO pointed out that much good material on this subject can be found on the Web related to the health care industry, which has been addressing issues of security and privacy related to HIPAA regulations.
   
   
6. Cleaning up data and increasing discipline. In some cases, internal data accuracy may appear adequate for internal use, but it is woefully insufficient for customers. Therefore, and companies should clean up the data before making it available for customer inquiry. On the other hand, opening some data to customers may be just what’s needed to force the organization to improve discipline. When one CIO’s company gave customers the ability to check order status via the Web, it put pressure on sales people to confirm promised ship dates, who in turn put pressure on manufacturing to meet schedule dates.
   
   
7. Who pays for EAI? One CIO pointed out that in many companies IT initiatives are paid for by the department that uses or benefits from them. But when an IT infrastructure investment is needed, such as an EAI solution, it is sometimes difficult to get budget approval because it is a shared cost. The high cost of EAI solutions is definitely an obstacle to budget approval. Companies need a way to justify such infrastructure investments for the benefit of all functional groups.