Saturday, August 31, 2002

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,, Cyclone Commerce, GE GlobaleXchange Services, Harbinger, Netfish, Microsoft, SeeBeyond, Sterling Commerce, TrailBlazer, and webMethods. AMR has more details.

Thursday, August 22, 2002

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.

Tuesday, August 20, 2002

Implement EAI, or just roll your own? Enterprise Application Integration (EAI) is a class of IT solutions that allow any number of business systems to be integrated and managed as components of seamless business processes. Business processes managed under an EAI solution can be wholly within an organization, or they can be extended to customers, suppliers, and business partner systems--the holy grail of B2B. Over the past several years, EAI offerings from vendors such as IBM (Crossworlds), Neon, TIBCO, Vitria, and webMethods, have greatly increased in power and functionality, and they provide a practical solution to the real problem that many large and mid-size companies face with trying to manage a variety of packaged applications and legacy systems. Nevertheless, EAI solutions can be expensive and time consuming to implement. Therefore, we recommend the following guidelines when deciding whether a full-blown EAI solution is warranted.

(1) Point-to-point interfaces should be developed where only a small number of interfaces are required, either because the company is small or because systems are mostly from a single vendor. Furthermore, point-to-point interfaces may be the best solution when the focus is mainly short-term, with integration needed quickly and short term expense must be minimized.

(2) On the other hand, a true EAI solution is the best choice where many interfaces are needed, either because there are multiple systems in place or the company is taking a best-of-breed approach. EAI is also a good choice when a company is planning mergers and acquisitions that will further add to the complexity of systems. Finally, an EAI solution is often the best choice when total cost of ownership is considered. The licensing and implementation cost of the EAI system will add expense up front, but long term the savings will come as future interfaces are less costly to develop and maintain.

Friday, August 16, 2002

US HHS removes most onerous conditions of HIPAA privacy rule, but the rest of HIPAA remains unchanged. The US Department of Health and Human Services has announced that it will publish the “new” final HIPAA privacy rule, effective August 14. The initial rule, published in 2000, included a heavy administrative burden on covered entities (mainly, medical providers and health plans) to obtain written consent from patients to use their medical information for routine heath care delivery, which it defined as “treatment, payment, and health care operations.” The new rule only requires that patients be given a notice of their privacy rights, and medical providers are only required to make a “good faith” effort to obtain patient written consent, which can be difficult when some patients simply refuse to sign anything. It is important to note that although the HIPAA privacy rule has been softened, this in no way affects any of the other HIPAA provisions, such as those regarding electronic data interchange or information security. There has been some amount of “denial” among many health care providers that HIPAA might just “go away.” Nothing could be further from the truth. As deadlines for HIPAA compliance approach in 2003 and 2004, we expect a great deal of action in the health care industry to upgrade or replace non-compliant systems.

Wednesday, August 14, 2002

Why software vendors all want to be last to demo. A sales executive from one mid-market software vendor recently told us of a study that they did internally to see if there was a correlation between competitive wins and their position in the demo schedule. It was not clear how many deals they looked at. Nevertheless, they found that the vendor who was scheduled last to demo won the deal in 60% of the cases. Although we doubt most vendors have attempted to quantify this phenomena, most vendors recognize a subtle advantage in being last, because: 1) the prospect team learns more about their own needs through the demo process and is clearer in their requirements with the last vendor, 2) the prospect is tired out by the demo process and doesn't challenge the final vendor on many points, and 3) the last vendor gets to have "the last word" before the prospect makes a decision. Partly to avoid this "everyone wants to be last" problem, we recommend that companies buying software conduct demonstrations in two passes. Use the first pass to cover the entire set of key requirements with each vendor. Then make a second pass to cover any special issues with each vendor. If there is still a problem with both vendors wanting to be last, you then let one be last for the first pass and the other be last for the second pass.
Poor software quality--stand up and refuse to take it anymore! Information Week has a good report on the current state of packaged software quality (still generally abysmal) and what buyers are doing about it. The article outlines problems at several companies, including Integrated Health Services, where poor quality forced a two year delay of a financial system implementation; American Power Conversion, where poor quality of a supply chain package brought APC’s shipping to a halt; and TMP Worldwide (parent of, where an ERP implementation was delayed by a year because of bugs. These experiences are indicative of a larger problem. A recent study by US NIST found that poor software quality cost the US economy $60 billion a year. "Few products of any type other than software are shipped with such high levels of errors," the report says.

Fortunately, one of the byproducts of the current slump in technology spending is that buyers are finally in a position to minimize the risk by making some demands of technology vendors. Here are three practical things you can do. (1) During the evaluation phase, ask for a free demo period, to allow you to shake down the system in your own test environment. It’s surprising what you’ll find when the car is driven by you, instead of a pre-sales consultant. (2) During vendor due diligence, go beyond perfunctory reference checking to get a thorough and balanced view, as we discussed earlier. (3) During contract negotiations, insist that contingencies be spelled out to cover situations where poor software quality delays the project. For example, hold back a final payment to be made only after the software is running in a production environment for a certain period of time. Take this concept even further and break up large software purchases into phases, with license fees paid phase by phase, to ensure that the software delivered in one phase is actually working before paying for software for the next phase.

Tuesday, August 06, 2002

Yet more light at the end of the tunnel

After the optimistic report from IDC last week regarding IT spending, Forrester Research is now projecting that North American IT spending will increase 2.3% over 2001. This is based on Forrester's survey of companies with annual revenues over $500M. Most encouraging, 55% of respondents indicate that their executives are now willing to "spend what it takes" on IT, up from only 20% at the beginning of 2002. Retail, consumer service, insurance, and transportation industries are sectors that show the greatest postive signs, while high tech firms actually show a drop in projected spending. In addition, firms under $1B in annual revenue appear more likely to increase spending than larger firms. CIO Information Network provides more details on the Forrester study.

In addition, a separate report from the US Department of Commerce also sounds a positive note on IT spending, saying that US businesses are now spending more on IT than any time since late 2000.

Monday, August 05, 2002

RosettaNet merging with UCC. Two industry groups focused on B2B business process integration, RosettaNet and the Uniform Code Council (UCC), are merging. The move should strengthen both organizations since each focuses on different industries: RosettaNet on electronic components, IT, and semiconductors; and UCC on food and beverage, government, general merchandise, healthcare, and industrial/commercial sectors. RosettaNet in particular could use the help. Although backed by some major players, such as Intel, Cisco, and Ingram Micro, implementation between trading partners has been slow-going. The UCC web site has more details on the merger.

Saturday, August 03, 2002

Customers to Microsoft Licensing 6: thanks, but no thanks

According to CNET, it appears that most customers have let pass the July 31 deadline for signing up for Microsoft’s new licensing plan for business customers. The new plan, called Licensing 6, requires customers to commit to two or three year maintenance contracts that guarantee them the right to upgrade to new versions at no additional charge.

Without the maintenance contract, the next time you upgrade you pay full price. However, customers seem to be saying that they would rather pay full price later--if and when they decide to upgrade--rather than pay Microsoft now for upgrades they may want to defer.

Further stacking the deck toward Microsoft is the fact that Microsoft makes no commitment on when it will release new versions, and it does not have a good track record on delivery commitments when it does make them. It is even possible that Microsoft may not release any new versions during the contract period, meaning that the customer would pay for Licensing 6 and get absolutely nothing in return.

As noted previously, Microsoft’s latest money grab has the unintended consequence of making the business case for Linux that more compelling. In fact, a March survey by Sunbelt Software, a Wisconsin consulting firm, showed 38% of Microsoft customers are considering switching to other products.

Friday, August 02, 2002

Whom do you trust? With the spotlight shining on accounting firms and securities analysts for conflicts of interest, let’s talk about another potential area of conflict: software vendor references. Although references play a crucial role in the software selection process, companies often do not recognize the incentives that vendors give to clients in order to secure them as references. Vendor incentives can be indirect benefits--such as first-class treatment, special consideration on product development--or they can be direct paybacks, such as license discounts, free services, free admission to vendor conferences, or even a check in the mail. In some cases the incentive is explicit, with the vendor actually stipulating in the contract that the client must take a certain number of reference calls in return for certain discounts or other concessions.

With such potential for conflicts of interest, what should a software buyer do when looking for references? First, although it may take some effort, get as many back-door references as possible so that you do not have to rely solely on vendor provided references. In the case of vendor provided references, feel free to ask about what the client is receiving in return for serving as a reference. And in all cases, go beyond perfunctory questioning to dig more deeply into vendor performance. Finally, if possible, supplement the traditional CIO-to-CIO reference with user-to-user and programmer-to-programmer contacts, where there might be more candor on the real situation.

CIO Magazine has a good article on the subject.