Saturday, December 27, 2003

Escaping the ROI trap

A strong ROI is the key to getting management approval for new systems, right? Not always. With the weak economy over the past two years, I've observed a trend in which, many times, executives refuse to approve new system investments no matter how compelling the business case is. I call this the "ROI trap."

What it is
The ROI trap works like this. The user sees a pressing need for a new system and submits a funding request. Executive management reviews the request, agrees that a new system is desirable, but indicates that no funds will be granted without a clear and compelling business case. So the user launches a significant effort to gather data on the projected benefits as well as the expected costs. The user may also enlist the help of an outside consultant and the software vendor, who are all-too-happy to provide an ROI template and participate in the effort to gather data. To avoid surprises, the team interviews executive management to determine reasonable assumptions. The team finally puts together what they think is a compelling business case and makes the presentation to executive management only to see the project shot down, put on hold, or worse--directed to "gather more data."

Why executives don't believe ROI calculations
I've theorized that the ROI trap has to do with the nature of uncertainty surrounding most ROI calculations: that is, the benefits are uncertain, but the costs are absolutely certain. In other words, the decision maker isn't sure of the benefits, but he is quite sure of the costs. So the executive, deep down, doesn't trust the ROI, no matter how compelling it is. In the face of uncertainty, the safe decision is to say no--or, if the decision maker is timid, to ask for more data.

Recently, I've been reading Judgment in Managerial Decision Making by Max Bazerman (2002, John Wiley & Sons), which explains common biases in how managers make decisions. Bazerman's research indicates that people are "naturally risk-averse concerning gains and positively framed questions" and "risk-seeking concerning losses and negatively framed questions." Read that part in italics again, and think about it, because it is the key to understanding the ROI trap.

Bazerman references a study in 1981 where participants were asked to make two decisions. The first decision was between:
  (a) a sure gain of $240, and
  (b) a 25% chance to gain $1000 and a 75% chance to gain nothing.

Result: 84% of the participants chose (a)--the small sure gain rather than the potentially larger gain.

The second decision was between:
  (c) a sure loss of $750, and
  (d) a 75% chance to lose $1000 and a 25% chance to lose nothing.

Result: 87% of the participants chose (d)--the potentially larger loss rather than the smaller guaranteed loss.

Bazerman's research, in plain English, means this: when looking at benefits, people would rather choose a small benefit that is guaranteed rather than a larger benefit that is uncertain. On the other hand, when looking at costs, people would rather choose a greater loss that might NOT happen than a smaller loss that is guaranteed.

Bazerman points out that this is why insurance payments are called "premiums" instead of "guaranteed losses." Think about it. When you buy health insurance you are choosing a small guaranteed loss (the premium) over a great uncertain loss (a large medical bill). But if the premium were designated as a "guaranteed loss," there would probably be a lot less insurance sold, or people would choose higher deductibles (i.e. smaller guaranteed losses.)

In other words, when considering benefits, people generally like to "take the sure bet." But when considering costs, people generally like to say, "I'll take my chances."

Now think about how most new system investments are presented to management. They are presented in terms of guaranteed costs and uncertain benefits, exactly the opposite of what the decision maker finds most appealing. How much more attractive the business case would be if it could be presented with the costs as an "insurance premium" against possible great losses and, at the same time, with some element of "guaranteed benefits."

If Bazerman is correct, then the ROI trap is a threat to many investment decisions. But I suspect that the cash-constrained environment that many businesses have been operating in over the past few years has made the ROI trap more deadly.

How to escape the ROI trap
When you suspect that your new system request is threatened by the ROI trap, I would suggest the following:
  1. Emphasize problems with the current situation and the risks of doing nothing. Frame the business case to highlight the problems, including the worst-case scenario, of staying with the existing system, e.g. loss of vendor support, regulatory non-compliance, inability to meet the needs of the business, need to hire additional headcount, or loss of competitive position. If there are any disaster recovery or business continuity concerns, play those to the hilt. When you're facing the ROI trap, the most likely outcome is "no decision." So, build the case for action first. Otherwise, the rest of the business case will fall on deaf ears.

  2. Structure the deal to reduce fixed costs, especially up-front costs. See if you can move the deal to a subscription model, where many of the upfront software license and implementation costs are amortized over a three or five year period. Where this is not possible, a financing or leasing arrangement can have the same effect. Frame the remaining fixed costs as an "insurance premium" against the problems of the existing system, not as a cost to get future benefits.

  3. Build the ROI around the firm tangible benefits. Even better, show those tangible benefits as a discount against the fixed "insurance premium." For example, show the benefit of not having to pay license fees or maintenance on the existing system--a benefit that is indisputable.

  4. List intangible or soft benefits, such as "improved management decision making," as a secondary category. Let the decision maker himself pull any of those soft benefits back into the primary rationale for the decision. When the ROI trap is threatening, it is better to be criticized for being too conservative than too aggressive.
These tips are no guarantee that the new system will be funded, but they should lessen the chance of your falling into the ROI trap.

Update: Read Part 2 for more on this subject.

Wednesday, December 24, 2003

Companies mum on savings from IT offshore outsourcing

Here's more on the impact of IT outsourcing. Computerworld observes that many large public companies, such as Microsoft, AT&T, and IBM, who are usually quick to trumpet their cost-cutting initiatives, are slow to publicize how much they are saving by moving IT jobs offshore, fearing an anti-outsourcing backlash. Furthermore, major Indian outsourcing firms such as Infosys, Wipro, and Satyam have stopped announcing new customers.
"The problem is that companies aren't sure if it's politically correct to talk about it," said Jack Trout, a principal at marketing and strategy firm Trout & Partners. "Nobody has come up with a way to spin it in a positive way."
The article predicts that as many as 2 million U.S. white-collar jobs such as programmers, software engineers and applications designers will move offshore by 2014.

Tuesday, December 23, 2003

Impact of offshore services on IT job prospects in the US

Stephanie Overby writing for CIO Magazine has some scary scenarios for the future of information technology in the US. Part of the problem is simply supply and demand:
India graduates 75,000 computer scientists each year. The United States, 52,900. China, which currently brings 50,000 new IT workers into the world every year, could eventually provide 200,000 computer science graduates annually, according to Marty McCaffrey, executive director of Software Outsourcing Research.
Read the whole article.

Tuesday, December 16, 2003

Turning software validation into a meaningful exercise

Working with clients in the life science industries, I deal often with the issue of validation of commercial off-the-shelf software. But, because validation is an FDA requirement, companies often treat validation as nothing more than a documentation effort--an exercise in producing a large volume of paperwork that the company can point to during an FDA inspection. So, I've been thinking about what companies can do to make validation a "meaningful exercise," one that adds real value to the system being implemented.

One key point is to understand the meaning of the word validation. Validation is ultimately to ensure that a system meets its requirements. Most validation professionals understand this. But too often the validation team interprets "requirements" as nothing more than "what the users want the system to do." So they conduct a series of interviews to ask users what they want the system to do.

Unfortunately, when users are asked what they want the system to do, most leave out many important things from a regulatory perspective. A better approach, in my opinion, is not to start with what the users want the system to do but what the applicable regulations require the users to do. I have found great value in sitting down with users, walking through the regulations line by line, and asking, "Do you want the system to help you do this?"

For example, FDA regulations for medical device manufacturers require users to ensure that raw materials are only purchased from approved suppliers (21 CFR Part 820.50). If the user wants the system to help him do that, then he probably needs the system to maintain an approved supplier list and prevent production materials from being procured from suppliers that are not approved to supply that material. Once I have established such a system requirement, it is a no-brainer to validate the system against that requirement. I simply test whether I can purchase material from a non-approved supplier. A series of tests such as this, that challenge the system to directly address true requirements, is the only way to uncover design flaws and false assumptions of the developer, implementer, and user.

How much more meaningful is this type of validation in contrast to what I see too often: the validation team writes a long series of test cases in excruciating detail to see whether the user can add, change, and delete a vendor master, whether a user can add, change, and delete a purchase order, whether a user can add, change, and delete a line item, etc., etc.,--but never test to see whether it is possible to order material from an unapproved supplier. No wonder they seldom discover anything interesting. They are not testing the system against its requirements--they are testing it against its design specification. That might be considered a system test, but I would not consider it a meaningful validation.

The lesson: start with the regulations, use the regulations to derive system requirements, and use system requirements to design test cases.

There is much more I could write on this subject, but I'd like some feedback. What is your experience with software validation? How do you ensure that validation is a meaningful exercise?

Thursday, December 11, 2003

Clash of the titans

CNET has a long article on the behind the scenes battle between SAP and Microsoft in the enterprise systems marketplace. The article highlights a $10 million win by Microsoft over SAP at Esselte, a $1.1B office supplies manufacturer. The win is the largest in the short history of Microsoft Business Solutions. While Microsoft is increasingly reaching up into such larger deals, SAP is reaching down with its SAP Business One offering to small businesses, Microsoft's home turf.

The article also highlights what I think is a more significant battle: the fight over for resellers. Resellers are the key to success in the small business ERP market, and SAP, it seems, has been courting a number of Microsoft business partners. SAP, which relies mostly on a direct sales channel, does not have anything close to the reseller channel that Microsoft picked up through its acquisitions of Great Plains and Navision. If SAP were to win over some of those resellers, it wouldn't have the big splash of Microsoft's win at Esselte, but the impact ultimately would be greater.

Tuesday, December 09, 2003

SCO ordered to put up or shut up

The SCO Group, which owns the IP rights to UNIX, has been stirring up a cloud of uncertainty and doubt about the open source Linux operating system. Earlier this year SCO sued IBM for allegedly incorporating UNIX source code in the Linux kernal. Linux supporters have been frustrated that SCO, for the most part, has been unwilling to reveal the "millions of lines of code" in Linux that SCO claims came from its intellectual property. The problem for enterprise system users is that the confusion undermines any motivation to migrate to Linux.

But the cloud may be about to lift. A US federal court judge has given SCO 30 days to show what proof it has.

Quoted in an Internet Week article, Eben Moglen, professor at Columbia Law School says, "This is the big moment in the factual determination of what's in SCO's hand, if there are facts to support the claim that SCO has made concerning literal copying from Sys V Unix into the Linux operating system kernel -- this is the moment where we find out. Provided that IBM is not prevented by court order from sharing that information, it will be possible for everyone to know what SCO claims is theirs."

This ZDNet article has more details.

Friday, December 05, 2003

SSA's obituary was a bit premature

The Chicago Sun-Times ran an article (no longer available online) on local company SSA Global (SSA), pointing out that SSA, once given up for dead, is now in terms of annual revenue the fourth largest ERP vendor, after SAP, PeopleSoft, and Oracle. Quoting CEO Mike Greenough,
"In the mid-market ...everybody wants to be Number 1. But I'm there, and I don't intend giving it up and I think you can tell from my personality, I'm not the kind of guy who is going to roll over ... People laughed, thought I was delusional two and one half years ago. People thought we couldn't go to $300 million, then they said I couldn't get it to $500 million. We haven't even begun to fight. I just started rounding up the troops."
For more on SSA's strategy, see my article on Sep. 26.

Thursday, December 04, 2003

B2B is hot, outsourcing not

Evans Data, a technology research firm, is reporting two interesting statistics in its Fall 2003 Enterprise Development Survey:
  • B2B is alive! Business-to-business e-commerce projects increased a whopping 40% in the last six months, going from 11th place in last year's survey to first place this year.

  • Outsourcing is so 2002. The survey indicates that outsourcing actually decreased in the last year by more than 20%. There were 56% of businesses outsourcing some development, down from 71% in the year prior. Only 7% of companies report that they are outsourcing a majority of projects, compared to 12% in the previous year.
What does this all mean? Line56 draws its own conclusions. Let me draw mine. I take the decline in outsourcing as a very positive sign. Companies are finally confident that the recession is past. They are less interested in pursuing cost-savings from outsourcing and more interested in taking control of IT and increasing in-house competencies. I see this already in some of my clients that are planning major projects for 2004.

Furthermore, I take the resurgence of B2B as a sign that we are well past the hype phase of Internet commerce and that companies see real payback from connecting electronically to customers and suppliers. Companies aren't pursuing e-commerce because it's cool but because it's good business. The Evans survey points to an increase in projects involving Web services, but I see it also in traditional and Internet-based EDI. I'm sure that some of this is due to Walmart's mandate for Internet-based EDI (EDIINT AS2) on its suppliers and similar initiatives by other major channel masters.

This mainstream adoption of Internet commerce is also seen in the B2C side. This past Thanksgiving-day weekend had retailers reporting a huge surge in electronic orders, with consumers just saying no to long lines at brick-and-mortar stores. E-business is just becoming business as usual.

The full survey is available (at a price) from the Evans Data web site.

Wednesday, December 03, 2003

Could FRx become a back door for Microsoft?

The trade press has written much regarding Microsoft's entre into the enterprise applications space with its acquisition of Great Plains and Navision, along with its development of its own applications such as Microsoft CRM. Such developments are perceived as a competitive threat to application software vendors that partner with Microsoft. But what is not often discussed is Microsoft's presence already as an application provider to over 100,000 companies due to its ownership of a widely used financial report writer called FRx.

FRx Software, which was acquired by Great Plains prior to Microsoft's acquisition of Great Plains, is probably the most widely implemented financial report writer among small and mid-sized businesses. It's a good product. So good, in fact, that a number of mid-tier ERP vendors include FRx as a complementary product or in some cases as their only option for financial reporting. Some of these vendors, such as Epicor, Ross Systems, Best Software, Expandable, Made2Manage, and MAPICS, are constantly going head-to-head with Microsoft Business Solutions (MBS) for ERP sales. Yet they turn around and offer a Microsoft application as part of their own offerings.

Once MBS has sold FRx into an account, it could use the FRx relationship as a back door into the account to sell its enterprise applications, such as Great Plains, Navision, Axapta, and Solomon. Or, they could simply mine the huge installed base of FRx users that already exist. I've not yet heard of MBS resellers attempting to exploit the FRx installed base to sell other Microsoft applications. But, if readers have any stories to share on this subject, please let me know.

Update, Dec. 4: A Microsoft reseller and a Microsoft competitor that resells FRx have both given me some feedback, and maybe my idea is just ahead of its time. The Microsoft reseller writes:
People here seem to agree that this would be a tough back door. One of FRx's selling points is that it doesn't really care what ERP system you're running, it can provide you with good financial reporting. So our going into an FRx account to talk about ERP is sort of contrary to that. As you note, FRx probably got into the account via the company that sold them their ERP system, so there wouldn't be any real MS relationship because of FRx.
My source at a Microsoft competitor has this to say:
We are also a reseller of FRx. I see no attempt on the part of Microsoft to leverage the FRx installed base. In fact I see nothing from Microsoft that would suggest using this as a tool to gain access. I dont think they have a clue on how to do this. The Microsoft application software groups are so removed from each other it is a wonder they even know each other exist. At all the Microsoft shows that I have been to, FRx was never mentioned. I know people at Great Plains and they never bring up FRx either.
Update, Dec. 9: A Great Plains reseller has confirmed what others are saying: "As a VAR we have no visibility into the FRx installed base. Also, I am not aware of any campaign for MBS to go after the FRx installs with an alternate ERP offering."

Friday, November 28, 2003

Lean manufacturing: not a complete solution without information technology

I've been making the point recently that lean manufacturing is not primarily a software initiative (see my posts on Nov. 3 and Nov. 19). However, Bob Gilson, Strativa's practice director for Operational Excellence, has another perspective. Bob worked as a consultant extensively in Japan and Korea and has seen lean manufacturing up close at some of its most successful implementations. I'm going to let Bob speak for himself:
My comments following do not apply to the clearly positive aspects of lean manufacturing, but rather to the zealots who seemingly prefer lean to the exclusion of modern information and planning systems. Having worked on-site at a few of the lean success stories in Asia I can point out several negative outcomes from practicing lean manufacturing without adequate information systems to support it.
  1. The lack of transparency in the financial and inventory systems is well documented and I think under-appreciated here in the USA. The accounting disciplines and integrity of our numbers, in large part forced and enabled by our information systems, cannot be overstated.

  2. The inflexibility, or stated in the positive, the static nature of "lean companies products" (infrequent engineering change) and rates of production, allow for a much less demanding manufacturing environment than most American manufacturers are willing to accept. I can still recall the unsold Lexus automobiles filling up parking lots in Japan to be subsequently dumped in the USA for the cost of interest rates because production rates could not be modified without the system collapsing entirely.

  3. Inventory and many of the quality problems are simply buried in the supplier community.

  4. Finally, and I think most importantly, many lean manufacturing companies in Asia are only marginally profitable. Again, because of the lack of financial transparency it is difficult to ascertain what long term value has been created for those companies.
I completely agree that our systems are made better with an appropriate application of lean techniques. However, I would not trade our total scope of systems in the U.S. for any other in the world.
Clearly then, lean thinking and enterprise systems are complementary elements of a complete solution. As lean thinking is becoming popular in industries beyond manufacturing, such as financial services, its advocates will do well to heed this lesson learned.

Tuesday, November 25, 2003

Oracle questioning PeopleSoft's revenue recognition policy

Back on June 25, I wrote a short post where I wondered why no one was questioning PeopleSoft's "Customer Assurance Plan" from a revenue recognition perspective. As a tactic against Oracle's takeover bid, PeopleSoft has been writing into new license contracts a contingency that PeopleSoft will rebate two to five times the license cost in the event that PeopleSoft is acquired and support for PeopleSoft products is reduced. But accounting standards generally do not allow you to recognize a sale if the customer has the right to rescind the purchase. At a minimum a company is required to fund a reserve to cover the contingency. So I questioned how PeopleSoft could legitimately recognize 100% of the revenue from new license sales that carried the promise of a rebate.

Now Oracle is raising the same question. And PeopleSoft is refusing to comment on whether the SEC is investigating the matter. CBS Marketwatch, in analyzing the situation, quotes Parveen Gupta, an accounting professor at Lehigh University, "Conceptually, the rules are simple. It's OK for you to recognize a sale in case there is the possibility of a refund, as long as you estimate and recognize it as a deduction."

On the other hand, PeopleSoft might be on solid ground. The San Jose Mercury News sought out the two accounting experts that Oracle named to substantiate its position and couldn't get them to support Oracle's position. One declined to be quoted, saying he had not been fully informed of the details of the PeopleSoft's rebate offer. The other, Fin Most, a partner with Ernst & Young, would not comment because Oracle is a client. But his general comment on the accounting treatment of revenue recognition and rebates was somewhat less than a ringing endorsement of Oracle's position: "It is an incredibly complex assessment of what literature to use,'' he said. "And then it's quite subjective and open to interpretation.''

Saturday, November 22, 2003

Epicor merging with Scala--hope for Epicor's future?

Epicor announced this week that it is merging with Netherlands-based ERP vendor Scala Business Solutions. Scala had about $70M in revenue last year, compared to Epicor's $143M for the trailing 12 months. The parties expect the merger to be effective in the first quarter of 2004. More details are on the Epicor press release.

Because Scala's installed base is primarily in Europe and the Far East, Scala is not a household name in the US. Scala has had notable success in penetrating the Eastern European, Russian, and Chinese markets. Therefore, Scala gives Epicor its first serious market expansion beyond North America, Australia, and the UK. Scala is particularly strong in multi-currency and multi-language functionality as a fundamental attribute of its development architecture. Scala also gives Epicor presence in a few key industries, such as construction equipment, pharmaceuticals, and food and beverage. From a technology perspective, both Epicor and Scala are Microsoft-centric, with both on record as intending to comply with Microsoft's .NET architecture. Scala has gone so far as to incorporate Microsoft's new CRM offering into its own CRM product.

Nevertheless, it's hard to get excited about this merger or Epicor's prospects in general. Epicor just acquired ROI Systems a couple of months ago, adding another ERP product to its already crowded portfolio built from other acquisitions. Now Scala joins the mix. On the surface Epicor looks like a Tier III equivalent of SSA Global, which has been rolling up Tier II vendors such as Baan and Infinium. But in SSA's case, one senses some serious money at work and a well-articulated plan that includes complementary products and cross-selling across the multiple customer bases. (See my posts on Sep. 25 and Sep. 26). Maybe Epicor has a similar plan. If so, I haven't heard of it. In speaking with SSA clients, one senses hope that SSA's commitment might extend the life of their existing system investment. In contrast, in the past week, two ROI clients have indicated to me that they are nervous about ROI's future under Epicor.

Am I missing something here? If anyone can sound a positive note on Epicor's prospects, I'd love to hear it.

Wednesday, November 19, 2003

Lean thinking is still more than software

Enrico Camerinelli of Meta Group contacted me recently about my post earlier this month on lean manufacturing. It seems that Enrico, a research analyst at Meta, has been writing along the same lines. In a Meta Group research note he writes:
Companies have rightfully become increasingly skeptical of the "next great technology," and nowhere is this more obvious than in manufacturing, where cost containment and control remain at center stage. Lean manufacturing software is now being hyped by enterprise software vendors as the salvation for all manufacturing problems. However, companies must blend technology with best practices and training programs, while realistically evaluating organizational change, before claiming true implementation of lean manufacturing.
Enrico also points out that while US manufacturers were focusing on technology (MRP and MRP II in the 1970's, followed by ERP in the 80's and 90's), Japanese manufacturers such as Toyota were implementing lean manufacturing concepts with virtually no support from information technology. Today it is generally accepted that the Japanese attained superior performance with their low-tech approach. Today, many lean practitioners remain skeptical of the need to implement information technology as part of a lean initiative.

Nevertheless, Enrico highlights several elements of lean manufacturing that can be enriched by software, such as simulation software (e.g. Tecnomatix) to assist in setup reduction, computerized maintenance management systems (e.g. Indus, MRO Software) to support total productive maintenance, and supplier performance evaluation systems (e.g. SAP, Oracle, QAD) to support quality at the source. Software can play an important role in implementing lean manufacturing, but it is a supporting role. As Enrico points out,
The adoption of lean manufacturing software applications must take place in conjunction with the use of practices that actually enable lean concepts....Clearly, software alone cannot address all the requirements of implementing a thorough lean manufacturing strategy. Companies must focus on best practices and training programs as well as the organizational and infrastructural changes needed to support lean business processes.
I'm interested in continuing this discussion. Has your company had success with implementing lean? How much of a role did software play in the lean initiative?

Monday, November 17, 2003

SAP looks to Sybase as alternative to Microsoft

The Wall Street Journal this morning is reporting that SAP will announce a partnership with Sybase to package its database with SAP's Business One offering to small businesses. SAP Business One is an ERP package that SAP offers separately form its mySAP suite. With Microsoft competing directly for applications sales to small business, SAP clearly is not comfortable relying on Microsoft's SQL Server database as part of its offerings. There's no such problem with Sybase. "Since I never will compete with SAP, this partnership will be pretty tight," says Sybase CEO John Chen. "I never will do applications."

I've been saying for over a year now that Microsoft's aggressive push into the enterprise applications space would have this unintended consequence: motivating the large enterprise application vendors to look for alternatives to Microsoft technology. By partnering with Sybase, SAP not only gets an alternative database but alternative operating systems as well, because Sybase's database runs on Unix and Linux as well as on Microsoft platforms.

The Wall Street Journal (subscription required) has details on the SAP/Sybase partnership. A joint press release on the SAP web site gives additional details, if you read past the marketing fluff.

Wednesday, November 12, 2003

SAP scores big win at Medtronic

SAP is announcing a major sale at Medtronic, a Fortune 500 medical devices manufacturer. The deal includes mySAP Financials, Supply Chain Management, Business Intelligence, Advanced Planning & Optimization (SAP APO), and Compliance Management.

This is not good news for PeopleSoft. Medtronic is a long time J.D. Edwards account, and I'm sure PeopleSoft, which acquired JDE earlier this year, was hoping to keep Medtronic in the fold. Medtronic's decision does not necessarily mean that JDE is being replaced at all levels in all operating divisions. Things rarely move that quickly at companies the size of Medtronic. On the other hand, the SAP press release says that, "the solution will allow Medtronic to migrate its existing legacy enterprise resource systems onto a single SAP platform." It certainly sounds like Medtronic is moving away from JDE.

I'd like to find out more about what was behind Medtronic's decision. If any readers have any insight, please let me know.

Tuesday, November 11, 2003

New California law on data privacy is unclear in the details

California Senate Bill 1386, effective July 1, requires companies to notify California consumers of computer security incidents where their personal data is compromised, specifically, their names in combination with Social Security, driver's license, or credit card numbers. The law is enforceable whenever California consumers are affected, regardless of where the system provider is located. (The law exempts companies that encrypt consumer data, which is a windfall for providers of encryption technology.)

Companies that maintain consumer data have been generally well aware of SB 1386. However, according to Computerworld, the law is ambiguous in several details. For example, the law is not clear about when disclosure is required, saying only that it is needed when "it is reasonably believed" that personal data has been accessed without authorization. The problem is that even when a system is cracked, it is not at all clear what data may have been compromised. Furthermore, although encryption gives companies a safe harbor, the law does not specify what level of encryption is sufficient or whether stored data as well as data in transit need to be encrypted.

The impact of SB 1386 is being felt in industries where consumer data is maintained, such as financial services, health care, retail, and information services firms such as credit bureaus. Until the ambiguities of the law are clarified through case law, companies in these industries are wise to implement a variety of measures to protect personal data, including multi-level network security, encryption, and use of identifiers to substitute for personal information. In other cases, when personal data is not absolutely required, companies may want to simply not store such information.

Saturday, November 08, 2003

Details on Wal-Mart's RFID specifications

The ARC Advisory Group has a good summary on what came out of Walmart's supplier meeting last week. In short, Walmart wants both pallet and case-level tags, and suppliers should include the Electronic Product Code (EPC) on the tag as well on any EDI Advanced Ship Notices (ASN) sent to Walmart.

ARC gives good details on the specific RFI technologies that Walmart is adopting and potential vendors:
In the short term, Wal-Mart will support 96 bit Class 0 and Class 1 tags. In the longer term, Class 1/Version 2 tags will be supported. Class 0 tags are built by Matrics and are programmed in the factory. Suppliers then would need to match the tag to the right product before shipping. Class 1 tags are made by Alien, Texas Instruments, Phillips, and Intermec, they are one-time write/read tags.

Suppliers were cautioned about tag readers. Companies were advised to buy "agile" readers with an upgrade of software that could adapt to new tag protocals, like Class 1/Version 2. This is an endorsement of readers by ThingMagic and AWID (Advanced Wireless Integrated Design). Wal-Mart also advised the use of readers with an integrated design that do not use cables that can be damaged by fork lifts.
Fortunately for suppliers, Walmart is taking a phased approach to the rollout of RFID. According to Greg Gilbert at Manhattan Associates, which provides RFID support in its warehouse management offerings, Walmart's program will start with three Walmart distribution centers in Texas and will expand to other DCs through 2005. Quoted in Information Week, Gilbert says, "If you look at the way Wal-Mart has rolled out any supply chain or compliance initiative in the past, it has always been a very pragmatic, tactical, phased approach as opposed to trying to do it all in a big bang."

Update, Nov. 17: Kara Romanow at AMR gives her take on Walmart's supplier meeting. In a nutshell, "Wal-Mart did not recommend any specific solutions, mentioned no preferred vendors, and did not provide the promised implementation guide. And Wal-Mart executives were adamant about suppliers finding the ROI themselves and not increasing cost of goods."

Tuesday, November 04, 2003

RFID spreading to the auto industry, but competing standards threaten adoption

At a wireless conference in Las Vegas last week, Tony Scott, CTO at General Motors Corp., predicted that the auto industry will adopt radio frequency identification (RFID) technology for supply chain applications. "It will happen," Scott said, after his keynote speech. He predicted adoption in the automotive supply chain by 2008, a little less aggressive than the schedule laid out by Wal-Mart and the US Department of Defense (DoD) for similar applications.

But there might be one problem. Scott indicated that GM is working on a new RFID standard with MIT's Auto-ID Center. At the same time, according to Computerworld the US DoD's standard will be based on a specification from the International Standards Organization (ISO), while Walmart will adopt the standard being developed by EPCglobal, a group within UCC. So, if we end up with three competing standards, it could pretty much kill the economies of scale needed to drive RFID tag prices down to where widescale adoption is cost-effective.

For more information on RFID and initiatives by DoD and Walmart, see my post on October 11.

Update, Nov 5: Wal-Mart is meeting this week with its largest 100 suppliers to plan implementation of RFID. Suppliers attending include Kraft Foods, Procter & Gamble, Tyson Foods, and Unilever. Technology providers will also be there, including IBM, Intel, Microsoft, Philips Semiconductor, and SAP. CNET has the story.

Update, Nov. 8: Forrester identifies some of the obstacles in Wal-Mart's RFID initiative in this CNET article.

Update, Nov 9: I've just learned that MIT's Auto-ID Center has licensed its RFID technology to EPCglobal and is turning over future development to that group. Therefore, there should be few if any standards conflicts between Walmart's program and that of the auto industry. ARC Advisory Group has a short research note on the subject. But, the potential conflict with DoD's adoption of ISO standards still remains.

Monday, November 03, 2003

Lean manufacturing doesn't really need software, but software can help

One mistake that companies make is thinking that every business improvement initiative requires software. Lean manufacturing is focused on inventory reduction and elimination of waste so that process variability can be reduced, lead times can be shortened, and productivity can be increased. None of this at its core requires new software. In fact, advocates of lean manufacturing sometime try not to make significant changes to software, to avoid the risk of turning the effort into an IT project. You can accomplish lean manufacturing without software, but you can't do it without lean thinking.

Nevertheless, software can play a role in support of lean manufacturing. For example, automated systems can:
  1. Provide process modeling tools to map the value stream and simulate changes before they are implemented.

  2. Calculate key metrics and drivers for lean, such as kanban sizes and takt time.

  3. Enable rapid collection of process data, such as statistical process control data and yield data.

  4. Establish and maintain repetitive schedules, which are often used when implementing lean, in place of traditional order-based scheduling systems.

  5. Eliminate wasted motion associated with managing and distributing paperwork, through electronic document management systems.

  6. Provide an "electronic kanban" between trading partners--a electronic demand-pull notification that a downstream node in the supply chain requires replenishment.

  7. Support a corrective action system, to record defects and other anomalies, analyze root causes, and track corrective and preventive actions to improve the overall performance of the quality system.
There are a number of software vendors that provide functionality in support of lean manufacturing. As I noted on October 8, PeopleSoft is acquiring JCIT's Demand Flow system, an early innovator in lean manufacturing. Oracle and QAD have also introduced functionality specifically in support of lean. In addition, there are several niche software vendors that, similar to JCIT, provide point solutions in support of lean. These include CellFusion, Exemplary, Factory Logic, Invistics, and Softbrand's DemandStream offering.

Thursday, October 30, 2003

Green screen refuses to die

Users of J.D. Edwards World software are petitioning JDE's new owner, PeopleSoft, to start investing more in continued enhancements to the character-based, host-based version of its software, formerly known as "World." This murmuring from the silent majority of JDE users shows how difficult it can be for vendors to get installed base users to change.

In the 1990's, nearly every software vendor was moving away from so-called "green screen" architecture to GUI, client/server, and later browser-based versions of their products. JDE was no exception, launching its "One World" product line with its "configurable network computing" (CNC) architecture. The only problem was that an enormous number of users were perfectly happy with their green-screen version. In fact, for some types of data entry, green-screen is actually more efficient than a graphical user interface.

I recall speaking at one JDE user group meeting in 2000 where I asked for a show of hands to see how many users were on One World. Out of a group of 100, there might have been 5-6 hands raised. Then I asked how many were planning to migrate to One World. Another 5-6 hands were raised. I know that One World has been more widely adopted since then, but it shows to what extent companies are reluctant to replace perfectly good systems just to get a technology change. Perhaps JDE was guilty of having a green-screen product that simply worked too well.

There's no doubt that PeopleSoft's preference is to put most of its R&D dollars into its PeopleSoft Enterprise and its EnterpriseOne (formerly JDE One World) products, while keeping the World users paying maintenance dollars. It just looks like the World users have a different idea. Therefore, PeopleSoft is in a tight spot. If it invests more in the green screen version, it takes money away from its future to support its past. But if it does not invest more in green screen, it risks these users considering alternatives other than PeopleSoft.

Computerworld has the story on the action being taken by the JDE World user advisory committee.

Update, Nov. 4: I've gotten feedback from several experienced JDE implementation consultants regarding this post. Here's what one has to say:
Frank, I can tell you that not every company currently running JDE World [the green screen version] can upgrade to One World. Some don't have the IT infrastructure to support such a change. Others simply don't need the "better" functionality that One World provides. I agree with you that some applications are faster and easier in the green screen version. I am one who hopes that PeopleSoft will continue to enhance JDE World Software. I think it still offers many companies a competitive advantage.
Another JDE consultant has a similar view:
I was at the PeopleSoft Connect Conference. At the sessions I attended, Peoplesoft clearly stated it would not only support JDE World Software but would enhance the product. One speaker did say that JDE World Software would not get all the features of Enterprise One but would have some additional functions added. It appears that PeopleSoft's support for the World product may be more aggressive than JDE was even planning. To support that theory I know of at least one new sale of World in the last few months. This is something that JDE has not done since about 1998.
I'm interesting in hearing from other JDE users and consultants. Should PeopleSoft pull the plug on JDE's green screen version? Or should PeopleSoft continue to enhance the product?

Wednesday, October 29, 2003

Intentia wraps its apps around IBM--is there a Linux connection?

Intentia, a Swedish-based ERP vendor, is joining a number of other enterprise application vendors in embedding IBM's technology offerings with Intentia's Movex applications. According to the press release, "Intentia will pre-integrate its Movex applications with IBM’s WebSphere Application Server, WebSphere Portal-Express and DB2 Universal Database. As such, every order from a medium-sized business will be shipped with IBM's enterprise-proven technology embedded inside the Intentia application suite."

Other major software vendors have made similar moves. See, for example, my post on QAD's partnership or JDE's partnership with IBM). It's getting to the point that major enterprise software vendors can be divided into two main groups: those that are aligned around Microsoft's technologies, such as .NET, and those that are aligned around IBM's. I suppose Oracle is the exception that makes the rule.

One interesting twist with Intentia, however, is the Linux connection. The press release says, "Intentia will also develop an optimized version of Movex for Linux, a low cost and reliable platform that continues to gain momentum in the mid-market." Hopefully, Intentia will follow through on this statement. Other applications vendors have announced Linux strategies but then don't seem to do much with them. For example, earlier this year PeopleSoft made a big deal earlier about its Linux strategy, but at its PeopleSoft Connect conference in September I could not find a single presentation on Linux.

I would love to see Intentia succeed with Linux. Over the past two years, Intentia has completely rewritten its entire Movex suite to Java, making it, to my knowledge, the only ERP offering a 100% Java-based system. Java fits very well with Linux. Since IBM's commitment to both Java and Linux is well known, Intentia should be right at home in the IBM fold. Intentia has over 3500 customers in 40 countries, but I'm guessing that over 90% of them are still running Intentia's pre-Java AS/400-based system. Therefore, Intentia needs to quickly complete the Linux optimization and get a few good reference accounts for it. If successful, Intentia could become an interesting alternative for companies that would like a greater share of their data center infrastructure on Linux.

Friday, October 24, 2003

Ellison mistakes APICS conference for Oracle user group

Earlier this month, I noticed that the Spectator was getting hits from Google with search terms "Ellison" and "APICS" and sometimes "Las Vegas." Yesterday I found out why. It seems that Oracle's CEO Larry Ellison gave a keynote speech at the APICS International Conference in Las Vegas earlier this month, and people have been trying to find details on what happened. There doesn't seem to be anything in the business press about Ellison's speech. So I checked with two individuals that I knew were in the audience. Their reports to me were consistent with each other.

According to my sources, Ellison appeared "unprepared" and gave a 20 minute "meandering, off-the-cuff," promotion of Oracle's view of a single, centralized, universal database for the entire enterprise. One source said the points were virtually identical to those that Ellison gave to an Oracle user conference in the UK several weeks ago. "People were walking out in the middle of the presentation in droves," he said.

Those that stayed were not much friendlier. During the question period, one audience member, who claimed he had been speaking at APICS international conferences for over 20 years, chided Ellison for turning his keynote presentation into an Oracle sales pitch, something prohibited by APICS rules for speakers. (APICS's position, which is similar to that of other professional societies, is that if you want to make a sales pitch, buy a booth.)

According to one source, the general consensus after Ellison's performance was that--compared to other keynote speakers such as former Burger King CEO Barry Gibbons, Steelcase SVP Mark Baker, and Hilton Hotel's Anthony Nieves--Ellison looked "amateurish."

Friday, October 17, 2003

Siebel loses $59M and responds by going on a shopping spree

During the same week that Siebel reports a loss of over $59M it also announces that it is buying two other software companies: Upshot, a hosted CRM provider, and Motiva, an incentive compensation software vendor.

The loss of over 18% of revenue is especially troubling as business is definitely picking up among other major software vendors, such as SAP, which just announced increased positive earnings in the most recent quarter and a jump of 35% in revenue in the U.S. market.

Siebel evidently sees the hosted CRM market as a threat to its CRM franchise, especially at the low end of the market, where most of the real opportunities are today. CRM, and especially the sales force automation (SFA) part of CRM, is one of those applications that is natural for the Application Service Provider (ASP), or hosted, model. Users are mostly sales people in the field and the Internet based architecture works well for them. Siebel was already moving in this direction with its CRM OnDemand offering. Siebel's grab for Upshot just moves things along quicker.

Siebel's acquisition of Motiva is a smaller deal ($3M) that just fills out functionality for Siebel's offerings.

InfoWorld has an article on Siebel's weak financial performance. eWeek has details on Siebel's latest acquisitions. Information Week has a report on SAP's continued strong performance.

Wednesday, October 15, 2003

Beware the baffling bump in license revenue

I got a little insight recently into why the quarterly revenue of one well-known mid-market software vendor has been increasing lately, for no apparent reason. My source says that the vendor has been putting the squeeze on its existing clients for additional license revenue.

Here's how it's done. Several years ago, this vendor introduced a license audit program into its software distribution and began phasing out support for previous versions of its package. Now, according to the terms of its license agreements, it is ordering clients to run the audit program and report back usage statistics. Invariably, the vendor can find a few unpaid user seats here and there as grounds to declare the client in violation of its agreed terms and condition and demanding that they pay for those extra seats.

To be fair, most software vendor license agreements contain a clause giving the vendor the right to audit compliance. As new customers have become more difficult to acquire these past few years, vendors are tempted to enforce such rights in order to squeeze as much marginal revenue as possible from their existing customers. Although this approach will bump revenue in the short run, the strong-arm tactics can't be going over well with customers. And certainly, the revenue lift is not sustainable.

Tuesday, October 14, 2003

Yet another update on Project Green

A Spectator subscriber attended the Microsoft Business Solutions (MBS) partner conference in New Orleans last week and sent me some additional information on Microsoft's Project Green (formerly known as NextGen):
Frank, here is what I learned in New Orleans last week (not as much as I hoped but something). Microsoft announced that they will support and enhance Axapta through 2012. I was told that the NextGen product IS being built to Axapta functional specs, and that it's a fair statement to say that an Axapta user of today would readily recognize the software. And Microsoft is developing a bridge to ease the implementation of NextGen in an Axapta site.
My earlier posts on Project Green (on Sep. 29, Oct. 2, and Oct. 6) generated a lot of traffic to the Spectator, especially after someone on a Microsoft Navision user message board linked to them. Clearly MBS users and even the resellers are not as well informed about future directions as they would like to be. Microsoft needs to put out a white paper or something regarding Project Green.

Saturday, October 11, 2003

U.S. DoD mandates supplier adoption of RFID

The U.S. Department of Defense (DoD) has ordered its entire supply base to begin use of radio frequency identification tags (RFID), effective January 2005. DoD's mandate follows a similar mandate by Wal-Mart on its largest 100 suppliers. Since these two mandates are going to drive rapid adoption of RFID technology over the next few years, let's take a quick look at RFID and what it means for manufacturers and distributors.

What is RFID? RFID technology allows products to be identified at a distance, by means of a tag that, when energized by radio waves, responds with identification information. You've probably already seen RFID in another application. It's the same basic technology used in proximity access control cards, which unlock a door when waved in the general area of a card reader. RFID tags in supply chain applications are similar except that the RF signal is stronger, allowing goods to be identified at a greater distance. The RFID standard being adopted by DoD is the same as that being adopted by Walmart, so there will be only one standard for suppliers to comply with. The new standard is called the Electronic Product Code (EPC), which is under development by the Uniform Code Council (UCC) and EPCglobal, a new organization under UCC.

Benefits of RFID. Once the RFID tag is affixed to the product, case, or pallet, any participant in the supply chain can use RFID readers to automatically identify and track them, untouched by human hands. The ultimate benefits are huge for productivity savings, increased data accuracy, timeliness, and visibility. At the risk of over-simplification, shipments into a warehouse could essentially announce their arrival and trigger matching against advance ship notices or purchase orders. Likewise, shipments out of a warehouse could identify themselves and trigger pick confirmation and advanced ship notice to the consignee. Manual effort in taking physical inventory would be greatly reduced. Think of it as bar-code data collection on steroids.

Costs of RFID. RFID isn't cheap. The DoD and Walmart mandates will require large investments in RFID infrastructure by suppliers. Since the infrastructure must be in place before applications can be developed to take advantage of it, suppliers themselves will see little immediate return on this investment, other than being able to continue to do business with DoD and Walmart. According to one estimate, fitting out a single warehouse for RFID could run $100,000, not counting the cost of integrating RFID readers into existing warehouse management systems to complement bar-code readers or manual transaction entry.

Furthermore, early adopters--those who are under DoD and Walmart mandates--are going to pay the most. Suppliers who can wait will save, as the cost of the technology drops with economies of scale. Walmart is shooting for a price of $0.05 per tag, but even that price will probably drop as volume increases. Tags today reportedly have a failure rate of 20%, which tells me that chip manufacturing processes are not yet mature. Still, as with any electronic component, yields will improve dramatically as volume increases, and tag costs eventually will fall. The cost of readers should fall as well.

What's the impact? DoD's mandate covers nearly everything purchased by the military, from munitions to commissary items, estimated at a whopping 45 million items supplied by over 20,000 suppliers. DoD's deadline is less than 16 months away, in January 2005. (Coincidentally, Walmart's first deadline is the same date.) Most observers doubt that DoD's deadline can be met, so there may be some extensions granted. However, because the benefits are so great, the mandate will not go away.

Despite the high implementation costs, the mandates by DoD and Wal-Mart are a huge endorsement of RFID and likely to trigger widespread adoption of this technology over the next several years. So, even if your firm is not a supplier to DoD or Wal-mart, you should still begin to research RFID technology. It is likely that in the not-to-distant future, someone downstream in your supply chain is going to start asking for RFID, and if your competition is ready to deliver, and you are not, you could be at a serious disadvantage.

Computerworld has a short article on the DoD's mandate. InternetWorld has a recent article on Walmart's mandate. For more in-depth material, check out the RFID Journal's extensive site.

Thursday, October 09, 2003

Friends in Southern California...

If you're in the area next Tuesday afternoon, October 14, come over to the Crowne Plaza Hotel in Irvine. I'm giving a pre-dinner clinic at the American Society for Quality (ASQ) meeting on the subject, "Enterprise Systems in an FDA Regulated Environment." You can't beat the price: ASQ clinics are free to the public. If you want to stay for dinner, though, you'll need to pay.

Details are on the flyer at the ASQ Orange Empire web site.

Wednesday, October 08, 2003

PeopleSoft strengthens its manufacturing offerings by acquiring Demand Flow

At the APICS International conference this week, PeopleSoft (PSFT) announced it has acquired JCIT's patented Demand Flow software, a product based on lean manufacturing concepts. PeopleSoft will integrate Demand Flow with PeopleSoft's supply chain offerings. The acquisition is consistent with PeopleSoft's intent over the past year to become a serious player in manufacturing and supply chain management, by hiring industry experts such as Patrick Quirk out of i2 and Carol Ptak, past president and CEO of APICS. Ptak in particular has been positioning PeopleSoft's manufacturing offerings in the larger context of demand-driven planning and execution. She says, "Companies that focus internally on inventory and cost can no longer compete. Manufacturers must become demand-driven to survive." Acquiring Demand Flow puts more muscle behind that message.

PeopleSoft's press release does not indicate whether that means Demand Flow will be integrated with the J.D. Edwards products as well as with PeopleSoft Enterprise, but that would surely make a lot of sense. JDE has more current clients in the manufacturing sector, which would provide quicker cross selling opportunities for the Demand Flow offering.

Monday, October 06, 2003

Microsoft Project Green details emerging

Doug Burgum, head of Microsoft Business Solutions (MBS), has been giving out more details on Project Green lately. In a nutshell:
  • Project Green is an entire new code base that will replace current code for Great Plains, Navision, and Solomon (I'm assuming Axapta is in meant to be in that list). It will be released along with Microsoft's new OS version, dubbed Longhorn.

  • Burgum admits that MBS has not wanted to talk much about Project Green in order not to upset current customers and partners. This explains why, until now, not many customers knew about it. In an interview last week, Burgum said, ""We have large installed bases of happy customers who continue to buy add-on modules." He also said that MBS will continue to sell and support the current-generation applications for years.

  • Project Green will be built on top of a new integration and tools layer that Microsoft is developing, called Microsoft Business Framework (MBF). The next-gen applications will sit on top of MBF, which will sit on top of Microsoft's .NET. Details on MBF are sketchy to me at this point, but it appears that MBF will provide integration and perhaps even some core functionality that is common between the applications. The platform will be open in the sense that Microsoft business partners will be able to write additional applications on top of MBF.
InternetWeek has more on Project Green, and CRN has more on MBF.

The Microsoft Momentum partner conference is in New Orleans this week, and discussion of Project Green is on the agenda. One Spectator reader plans to be there and indicates that he will brief me on details.

Thursday, October 02, 2003

Feedback regarding Microsoft's Project Green

I've been getting feedback regarding my post earlier this week on Project Green. Readers are making four main points:
  1. Microsoft Business Solutions (MBS) resellers have known about Project Green (formerly known as "NextGen") for at least a year now, so it's old news.

  2. Customers of Great Plains, Navision, and Axapta are not at risk from Project Green because Microsoft is planning to offer free upgrades to existing customers, as long as they are current on maintenance payments.

  3. Microsoft plans to use the functionality of Axapta as a starting point for requirements for Project Green.

  4. Microsoft will offer conversion routines to make it easy to upgrade from existing products to Project Green, so that it will not be like implementing a whole new system.

I welcome this feedback, and here's my response. On the first point, it may be old news to MBS resellers but I don't think the implications are well understood by MBS customers and prospects. On the second point, if I were an MBS customer I would still have a concern: if I want to stay current, I am still facing a major upgrade or conversion in 2-3 years. Even if the license cost of the upgrade is zero (which it should be if I'm paying maintenance fees to Microsoft), the implementation costs could be substantial and the process could be disruptive to my business. On the third point, I can't find any public indication that Axapta is being used as the starting point for Project Green requirements, so it's just a rumor as far as I can tell. On the fourth point, we'll just have to wait to see how difficult or easy the upgrade path will be. Generally, it's not easy for vendors to transition a customer base to a whole new technical architecture. Perhaps Microsoft will do better than others have in past attempts.

Wednesday, October 01, 2003

Where does Oracle go from here?

Joshua Greenbaum has an interesting piece in Datamation regarding Oracle's future, where its greatest threat is IBM:
The blowing wind that Ellison worries about most, in my opinion, comes from IBM. Sure, Microsoft is out there too, but IBM is the one that understands the enterprise market and can give Oracle a genuine run for its money. The triple threat that IBM presents -- high-end business consulting, database and systems software, loss-leader hardware sales -- has to keep Ellison up at night. Other companies, like SAP, compete directly with Oracle. But only IBM threatens to dominate.
In response, Greenbaum expects Oracle to attempt an acquisition of a high end services business, similar to IBM's acquisition of PriceWaterhouseCoopers, and even an acquisition of a weakened Sun Microsystems, to answer IBM's hardware bundling.

In Josh's view, an acquisition of PeopleSoft by Oracle does nothing to solve the IBM problem. Many or most PeopleSoft clients are already running Oracle's database, so the cross-selling opportunities are not so great.

Tuesday, September 30, 2003

Pass the Kleenex

At an SAP conference in Switzerland this week, CEO Henning Kagermann said that Oracle's chances of acquiring PeopleSoft are "now less than 50%." However, "desperate pricing" as a result of uncertainty surrounding the deal are hurting SAP. Kagermann says that in 40% of the deals where SAP competes, SAP loses on price.

Kagerman says, "If the whole industry starts to compete on price, price will never come back."

InternetWeek has more.

Monday, September 29, 2003

Is Microsoft upstaging Great Plains, Solomon, Navision, and Axapta with "Project Green"?

By now, we all know that Microsoft (MSFT) has entered the enterprise applications space with its acquisition of Great Plains and Navision. These two acquisitions gave Microsoft four enterprise suites--Great Plains, Solomon, Navision, and Axapta--which it sells through Microsoft Business Solutions and its reseller channel. But what is not widely known is that Microsoft, at the same time, has been working on an entirely new product line, code named "Project Green," that will be tightly integrated with Microsoft server and desktop operating systems. Microsoft CRM, released in January, is an early deliverable from Project Green.

Project Green addresses one concern that I've had about Microsoft's acquisition of Great Plains and Navision--that neither vendor's products were totally aligned with Microsoft's technology. For example, Axapta, which is arguably the product with the greatest breadth of functionality, is written in a language called X++, using a development environment called MorphX, and can run on both MS SQL Server and Oracle databases--not exactly what one would call a pure Microsoft architecture. In fact, my recommendation has been that if you are looking for an ERP system built today wholly on Microsoft technology, such as Visual Studio .NET, you'll need to look outside of Microsoft to a product such as Syteline from MAPICS.

But Project Green changes all that. Microsoft clearly is not waiting for incremental upgrades to Great Plains, Solomon, Navision, and Axapta to deliver those applications under pure Microsoft technology. In parallel, it is starting from scratch and plans to begin releasing the new Green apps in 2005 in parallel with Microsoft's next-generation operating system, known as Longhorn.

Although this strategy is entirely rational from Microsoft's standpoint, it might not be so welcome if you are an existing user of Great Plains, Solomon, Navision, or Axapta. After all, if Microsoft is starting over from scratch, what does that mean for the future of your applications? Users of Axapta's CRM application might already be asking this question, after Microsoft in January launched its own CRM product. As the years go by, which CRM will Microsoft invest in: Microsoft CRM or Axapta CRM? To ask the question is to answer it.

So, why did Microsoft even bother to buy Great Plains and Navision if it was planning to write new applications from scratch? The answer, in my opinion, is that Microsoft was buying not the technology of these vendors but their customers. In this regard, Microsoft's approach is similar to that of SSA Global's: it is cheaper today to buy an existing customer base than it is create one through new sales. (See my post yesterday.)

InternetWeek has more analysis of Project Green.

Friday, September 26, 2003

SSA's strategy: acquire customers and technology on the cheap

Line56 has a lengthy analysis of SSA Global's acquisition strategy, largely favorable, based on impressions from its recent user conference in Orlando. Line56 sums up the strategy as, "Today it is cheaper to acquire customers than to sell to them, and it is cheaper to buy technology than build it." Without a lot of fanfare, the company has been taking advantage of weaknesses in current market conditions to acquire software vendors that have substantial customer populations. In the process, it has been laying out a roadmap to preserve the technology investments of those customers. Customers these days, not eager to undergo large scale conversions to new systems, are warming to the message. As a result, SSA Global has now become the fourth largest ERP vendor, behind SAP, Oracle, and PeopleSoft.

Separately, is reporting that SSA has already finalized an agreement to acquire another ERP vendor (unnamed) but will not announce it until March 2004 because of the need to first integrate Baan into its offerings. In an interview, CEO Mike Greenough indicated that SSA's next acquisition will be of a privately held ERP vendor and will extend SSA's user base in a new vertical market. He further indicated that there are five to six other ERP vendors that SSA could go after. The report notes that Greenough is already on the record as stating an interest in both Manugistics and i2.

Read the whole article on for more details.

Thursday, September 25, 2003

SSA Global plans to consolidate product lines

SSA Global (formerly SSA GT) has finally announced plans to merge its dozen or so products into two main product lines. One product line will bring together all of the iSeries (formerly AS/400) systems, including BPCS, Infinium, and several systems acquired from Computer Associates, such as PRMS and KBM. The other product line will bring together the Unix based products, such as the recent Baan acquisition as well as several other products acquired from CA. Integration will be based on open standards wherever possible, using Java 2 Enterprise Edition (J2EE) and IBM Websphere. SSA expects the migration to take two to four years. However, the company is still promising to maintain support for older products indefinitely.

I've been expecting this move for some time now. There's no way SSA Global can be successful by maintaining so many separate product lines. As SSA's Cory Eaves says, "There's no need for us to support 12 different general ledger systems or 12 different accounting systems. It just doesn't make sense; it's not economical for us."

Rationalizing the portfolio and consolidating to two families should allow SSA to leverage product development resources across a larger base of customers and should make it easier to accommodate future acquisitions into these two families.

CNET has a good summary of SSA's direction.

Tuesday, September 23, 2003

Corporate IT spending picking up for outside services

If you are an IT services provider and you're wondering whether business over the past two years has really been as bad as it seems, check out this research note from Computer Economics (CEI). From 1999 to 2002, large companies cut spending on outside IT services nearly in half, from 10.5% of their IT budgets to 5.7%. During the same period, mid-size companies cut such spending even more, from 10.4% to 5.2%. So, even if total corporate IT budgets remained relatively flat this period, spending on outside services was cut roughly in half.

But the worst may be over. According to the same study, spending in 2003 is projected to jump to 7.1% for large companies and 6.3% for mid-sized organizations. And, in 2004 spending is expected to rise to levels not seen since 1999: 8.3% for large organizations and 7.5% for the mid-tier.

CEI defines large organizations as those with over $750M in annual revenue and mid-sized organizations as those between $250M and 750M. Outside services includes contract services (e.g. help desk), project consulting, and temporary staff augmentation but does not include outsourcing of entire data centers or application development groups.

Sunday, September 21, 2003

PeopleSoft/JDE combination: off to a strong start

Last week, I attended the PeopleSoft Connect conference in Anaheim, as an industry analyst representing Computer Economics. My main objective was to size up the just-completed acquisition of J.D. Edwards by PeopleSoft, and also to gather information regarding the offerings of the newly combined entity on the life science industries, a particular interest of mine.

On the first objective, the combination of J.D. Edwards and PeopleSoft seems off to a good start, with just one small concern.

Expansion, not consolidation. PeopleSoft is spinning the deal not as a "vendor consolidation" but as an "expansion," with the two vendors complementing the other's industry strengths and customer installed base. The story is that PeopleSoft targets large enterprises, whereas JDE targets the mid-market. PeopleSoft strength is in vertical industries such as healthcare, financial services, education, and people-oriented services (e.g. professional services), while JDE focuses on manufacturing/distribution, asset-intensive industries, and project-oriented service businesses (e.g. construction).

Intellectual property. Conference speakers continually emphasized the "IP" ("intellectual property") that the two companies bring to each other, to the extent that by the end of the week the term was becoming a bit tired. Simply put, the deal brings together some really smart people, from both companies, that are experts in certain industries and business functions. For example, PeopleSoft has undisputed thought leadership in human capital management and supplier relationship management, and JDE claims experts in supply chain management and project accounting.

Buzzword aside, PeopleSoft is right to focus on this point. Successful mergers in the software industry are delicate efforts. The major assets have feet, and keeping those assets from walking out the door is no doubt a prime objective. Based on my interviews with both PeopleSoft and JDE representatives last week, I think the odds for success are good. In one-on-one discussions, managers show a genuine excitement about the merger. Many presentations during the week were delivered jointly by PeopleSoft and JDE experts, who demonstrated respect for each other and acknowledged the expertise each brings to the deal.

Product rationalization. PeopleSoft is going out of its way to strongly signal that it intends to continue development and support for all three product lines: PeopleSoft Enterprise (the PeopleSoft 8 product line), EnterpriseOne (the network-based JDE One World product), and PeopleSoft World (the host-based JDE World Software, which runs on the IBM iSeries platform). The last thing PeopleSoft wants to do is give any hint to any JDE customer that they will see reduction in support or development dollars. This is understandable. However, at some point, PeopleSoft will have to make some choices. Does it really make sense to put as much development resources into the JDE HR module when PeopleSoft's functionality is so much stronger? I note that PeopleSoft has already put the PeopleSoft tools developers and the JDE tool developers into one group, headed by Jesper Andersen, recently brought over from Pivotal. Evolving into one tool set would be the start of any effort to reduce duplication between the product lines. Ultimately, it makes a great deal of sense for the three product lines to share some common functionality, such as HR and business analytics. But PeopleSoft can be excused from talking about such choices at this early stage.

A questionable branding decision. My one concern is with PeopleSoft's decision to rename the former JDE One World product as PeopleSoft EnterpriseOne. The problem is that the name implies that the product is for small companies, even an entry-level system. As evidence, I submit that the name is similar to SAP's offering for small companies, SAP Business One. Furthermore, PeopleSoft may be inadvertently contributing to this misunderstanding with its own (and to my mind, artificial) distinction between PeopleSoft's strength in large companies and JDE's success in the mid-tier. To my mind, there is no intrinsic limitation in JDE's One World product scaling to large organizations. The fact that JDE has had success in the mid-tier does not preclude the use of One World by large organizations, and in fact JDE claims a number of large enterprises as clients. One World is a multi-entity, multi-facility, multi-currency system with world-class functionality. Hopefully, at some point, PeopleSoft will re-brand the product to remove the implication that it is for "small companies."

Concerning the merger of PeopleSoft and JDE, so far so good.

Wednesday, September 17, 2003

On a personal note

I will be speaking at the joint dinner meeting of APICS and ISM in San Diego, next Wednesday, Sept. 24, on the subject, "Enterprise Systems in an FDA Regulated Environment." If you'd like to attend, you can find details on the San Diego APICS web site and also on the San Diego ISM web site. I'd love to see you there.

Sunday, September 14, 2003

The case against case studies

Among software sales reps, it's common wisdom that case studies are an essential part of the sales pitch, with few drawbacks. Buyers like them because hearing about another company gives them something they can identify with. The sales executive likes them because he can highlight the strong points of his package in the form of a story. Case studies are key to the sale, right?

After listening in on a software sales presentation last week, I'm not so sure. This well-known vendor used a case-study as the focus of a two hour meeting and failed miserably. The basic problem was that the prospect couldn't identify with the company in the case study. For example, the prospect sells direct to consumers, but the case study was from a wholesale distributor. The prospect does all drop shipments from suppliers to customers, but the case study involved shipment from inventory. So, from the get go, the prospect did not identify with the case study, which raised questions in the prospect’s mind about package functionality.

Then, instead of directly answering these questions, the vendor suggested that the prospect continue listening to the whole case study and implied that perhaps the prospect might consider changing the way they do business. Needless to say, this did not go over well.

In a debrief later with the CFO and Controller, I suggested that this vendor needed more time to learn about the prospect's business. But the Controller told me that the salesperson had spent several hours interviewing her and the IT director. Therefore, there can only be two explanations. Either the sales team was incredibly dumb, or they thought that using a case study would relieve them of the need to address feature/functions point by point. I suspect the latter.

Ironically, I have evaluated this package in the past, and I suspect that this vendor has good functionality in those areas where the buyer has concerns. Unfortunately, the buyer didn't get to hear about it because the vendor was so intent on presenting his case study.

So, here's some free advice to those laboring to sell software in this difficult economy:
  • Force yourself to identify the top 3-5 characteristics of the prospect's business that either are unique or that the prospect thinks are unique. Verify with the prospect before the meeting that you are on the money. Prospects love to talk about their business, and you'll score points by showing an interest.

  • In the sales presentation, demonstrate that you understand these 3-5 characteristics and focus on how your solution meets the client's needs in these areas. Give the prospect something substantial to chew on.
What about case studies? By all means, use them, as long as they are relevant to the prospect's business. And please, offer them as a side dish, not as the main course.

Thursday, September 11, 2003

Chinadotcom rolling up enterprise system vendors?

Less than a week after announcing its acquisition of Ross Systems, Chinadotcom is announcing its acquisition of Industri-Matematik International Corp (IMI) a vendor of supply chain management systems. As with Ross, IMI is being acquired by Chinadotcom's subsidiary, CDC Software.

IMI is a well-regarded name in SCM solutions for consumer product distributors, with an enviable client base that includes GE, AT&T, Starbucks, Campbell Soup, Dial, Frito Lay, and Kelloggs. Six month revenue ending June 30 were nearly $22M. Unlike many other enterprise system vendors, IMI is profitable.

Is this the beginning of a trend? Chinadotcom makes it clear that Ross and IMI are just the beginning of an acquisition strategy. In its press release, CEO Peter Yip says, "The acquisition of IMI fits our overall strategy of developing and assembling a suite of related premium enterprise software solutions that allow for synergistic cross selling opportunities as well as the ability to enhance mid and long term profit by transferring key cost centers to China."

In other words, as was the case with Ross, moving software development to China is also part of the plan for IMI. Why just provide outsourcing for the software developer when you can buy the developer outright? With weaknesses throughout the technology marketplace, it's a buyers market with few disadvantages and lots of upside.

The Chinadotcom press release has the details.

Tuesday, September 09, 2003

Ellison's analogy hints at Oracle's attitude toward PeopleSoft customers

In a recent interview with San Francisco Chronicle editors, Oracle's Larry Ellison made an interesting, but telling, analogy in talking about Oracle's takeover bid for PeopleSoft. Ellison objected to the questioner's use of the phrase "hostile takeover." Ellison said,

The use of the word "hostile" I find utterly fascinating because the question is: hostile to whom? If you're renting a house in Pacific Heights, and I go to the owner and offer him $10 million for an $8 million house, that offer is not hostile. As a renter, I may feel that's not a welcome offer, but all we're doing is giving the owner a choice. So we want to go directly to the shareholders. The only people who consider this hostile are the renters, the managers who don't own the company, whose jobs in fact will be lost.
Let's see, Larry sees three parties as stakeholders in the deal: the owner of the house (PeopleSoft shareholders), the bidder (Oracle), and the renters (PeopleSoft managers). Hmmm...who is missing in this analogy? Maybe...PeopleSoft customers?

A better analogy might be a bagel shop in Pacific Heights that is being taken over by Winchell Donuts with the intention of turning it into a donut shop. The bagel shop owner gets his price, Winchell's gets the store location, and the bagel shop managers lose their jobs. But there is one more stakeholder in this analogy: the neighborhood customers that want bagels, not donuts.

PeopleSoft's customers have a legitimate concern that Oracle's intention is not to better serve them but to eliminate an Oracle competitor. Ellison's poor choice of an analogy just reinforces that perception.

Friday, September 05, 2003

Ross Systems gets "Shanghai’ed"

Ross Systems, a process-manufacturing ERP vendor, is being acquired by Chinadotcom and will operate as a part of its CDC Software unit. It's an perplexing move. Ross’s iRenaissance suite is one of the few ERP packages focused purely on process industries, such as food and beverage and chemicals. Although, like most enterprise software vendors, Ross been through some hard times recently, it has become profitable in the last few quarters. Just three months ago, it signed up Chinadotcom as a reseller in the Far East. Now, it's selling them the store.

So who is Chinadotcom? Based in Hong Kong, it was originally a Web hosting provider. But it has been turning itself into a software developer and offshore services provider, competing with the large India services firms. Therefore, I suspect that cost savings from offshore software development is the driving force at work here. In the Chinadotcom press release, CEO Peter Yip hints at this: "Ross Systems is expected to achieve certain cost savings and synergies by outsourcing to our low cost software development center in Shanghai and developing synergies in various aspects including cross selling within the chinadotcom group of companies."

There is a nearly universal trend for enterprise system vendors to move software development offshore, avoiding high programming costs in the U.S. and Europe. Ross, selling itself to an offshore provider, just takes this trend to the next level.

Thursday, September 04, 2003

FDA finalizes guidance for 21 CFR Part 11

FDA has just released the final version of its guidance document "Part 11, Electronic Records; Electronic Signatures - Scope and Application." At first glance, there are not many changes from the draft guidance that FDA released in February. I do note, however, that FDA has clarified that users of legacy systems (systems in use prior to Aug. 20, 1997) are not totally off the hook. The guidance now says, "You [must] have documented evidence and justification that the system is fit for its intended use (including having an acceptable level of record security and integrity, if applicable)." The term "documented evidence," in my opinion, points to some level of system validation to ensure that the system is trustworthy and reliable.

The final guidance document is available on the FDA web site.

For more background on 21 CFR Part 11, see my post regarding the draft guidance in February. For perspective on how software vendors are addressing Part 11, see my post on Oct. 16, 2002.

I will be speaking on this subject later this month at the joint meeting of APICS and ISM in San Diego.

Tuesday, September 02, 2003

2003: a dismal year for IT budgets in large organizations

According to a research note by Computer Economics, 44% of large companies (over $750M in revenue) reported declines in their IT budgets in 2003--the highest number of declines reported since Computer Economics began tracking this statistic in 1989. At first glance, it doesn't look so bad when one notes that 40% of large companies reported budget increases. But a more careful look shows that the magnitude of the cuts are greater than the magnitude of the increases. In other words, in 2003 more companies cut budgets than increased budgets and the magnitude of the cuts was greater than the magnitude of the increases.

But hope springs eternal. Computer Economics is forecasting a recovery next year.

Sunday, August 31, 2003

All over, except for the shouting

In an interview with CNet, PeopleSoft CEO Craig Conroy says he's no longer concerned about Oracle's hostile bid for PeopleSoft. He points to the fact that, so far, Oracle has received tenders for only 8% of PeopleSoft's stock, and also to PeopleSoft's shareholder rights provision and staggered board of directors--corporate measures that make it all but impossible for Oracle to achieve success. Indeed, at this point, no one I know thinks that Oracle will win.

In a related note, prospective buyers are getting a bit tired of the takeover actions of the big software players. I attended a software demo recently for a prospective buyer. After the initial introductions, one executive in the back of the room spoke up, "I just have one question. Who are you buying, and who's buying you?" Enterprise system investments are supposed to last at least 7-10 years. Therefore, customers are looking for stability and predictability in their software vendor relationships. Amidst all the noise about who's buying whom, vendors had better remember that the ultimate stakeholder in these deals is the customer.

Tuesday, August 19, 2003

Who's next on SSA's shopping list?

According to Michael Dominy, senior analyst with the Yankee Group, SSA may target additional vendors in the supply chain management space, following its acquisition of EXE Technologies announced yesterday. Quoted in an article in the Daily Deal, Dominy specifically mentions Adexa, Prescient Systems, and Optiant. Adexa (formerly known as Paragon) is a supply chain vendor with strength in the automotive and high tech electronic verticals. In 2001, Freemarkets nearly acquired Adexa for $340M but called it off due to weak market conditions. Adexa would certainly go for less today. Prescient Systems is a small (50 employees) supply chain planning vendor focused on the consumer products vertical. Early in 2003, Prescient announced it had doubled its license revenue over the previous year, bucking the negative trend generally. Optiant (formerly SupplyChange) is small (42 employees) provider of supply chain analytics and optimization solutions. With overall supply chain technology spending flat, niche vendors such as Adexa, Prescient, and Optiant are probably better off as part of a larger portfolio, such as SSA's.

Update, Aug. 22: ARC Advisory Group's John Moore speculates that MAPICS (MAPX) may be SSA's next target, based on the fact that General Atlantic Partners (GAP), which owns 25% of SSA, also has a "sizeable stake" in MAPICS. However, in my opinion, MAPICS is not acting like a company that wants to be acquired. It just made the strategic move to acquire Frontstep, giving it a full product suite based on Microsoft .NET architecture. And it has lowered its cost structure, allowing it to maintain profitability even in these weak market conditions (see my post on August 5). Although GAP's 30% stake in EXE Technologies was, no doubt, a major factor in SSA's acquisition of EXE, GAP only owns 6% of MAPICS--not enough to ensure a deal, although they surely could initiate a discussion. Watch whether GAP tries to increase its stake in MAPICS. That would be a sign that a deal might be coming.

Monday, August 18, 2003

SSA is buying EXE Technologies

EXE is a well-regarded provider of supply chain execution and warehouse management systems. The company was formed as the result of the merger of Dallas Systems and Neptune Systems in 1997. The company went public in 2000. In the most recent quarter, EXE had a loss of $822,000, on revenue of $19.8 million. SSA GT is offering just over $47M for EXE, significantly less than its last year's sales of $70M.

EXE Technologies is generally considered one of the Tier I players in the warehouse management space, although it has been losing ground to Manhattan Associates over the past three years. I evaluated EXE's EXceed offerings a few years ago and was quite impressed with their functionality. But with EXE's weak financial position, the acquisition by SSA makes sense. SSA makes no secret of its strategy to acquire weaker vendors. And EXE surely has been having a rough go of it these past few years. On the other hand, SSA already has a good warehouse management system in its portfolio, in Warehouse BOSS. But Warehouse BOSS is limited to the IBM iSeries (formerly AS/400) platform, whereas EXE claims deployment across all of IBM's hardware platform. In fact, IBM is a strategic partner for EXE. This fits well with SSA's strategic alignment with IBM.

There's a press release on SSA's Web site. The same press release appears on the EXE web site.

Interestingly, starting early this morning, before any news reached the wire, the Spectator suddenly began getting web site referrals from Google for users doing searches with the words "SSA," "exe" and some variation of the word "acquisition." Obviously, the word got out before the announcement.

Saturday, August 16, 2003

Wal-mart suppliers face October deadline for Internet-based EDI

In about two months, many of Walmart's suppliers will reach Walmart's deadline for adopting Internet-based EDI (EDI-INT, AS2), in place of older VAN-based EDI. Many of these suppliers have already made the switch, mostly with help from a few software vendors that provide interoperable solutions, such as iSoft (which Walmart uses), Webmethods, bTrade, Cleo Communications, Cyclone Commerce, IPNet, and Sterling Commerce. As I've written previously, Walmart's mandate is a huge shot in the arm for such software providers. And as I predicted last September, other retailers (Home Depot, Lowe's, and others) have followed Walmart's lead in converting to Internet-based EDI, creating strong incentives for adoption of these standards throughout the retail supply chain.

Internet e-commerce is not getting a lot of buzz in the trade press these days, but in fact it's becoming a way of life for many companies.

CNet has an update on the trend.

Thursday, August 14, 2003

Word on the street: IT spending is up, but not across the board

In discussions with technology sales people here in Southern California, I'm hearing mixed reports regarding corporate IT spending. The bottom line is that IT spending is picking up, but not in all areas. Here's the buzz.
  • In the mid-market, spending on new ERP and CRM systems continues to be slow. Most mid-market companies are still attempting to extend the life of existing systems with add-on's or complementary products and are only buying new ERP systems when existing systems are clearly inadequate. There is a pick up of mid-market activity is some verticals, such as life sciences, health care, and defense contractors, but among many verticals, such as high tech electronics, there is not much appetite for large investments.

  • With large companies, on the other hand, spending is stronger. But it revolves around streamlining IT processes and cost savings. Specifically, there is a lot of interest in anything that reduces space requirements, such as blade servers.

  • Data center facilities are now hot properties. Nationwide there is strong demand for new data center space. The need is driven by several regulatory mandates: HIPAA, which drives increase in electronic records in healthcare, Federal Reserve regulations that require banks to have backup sites outside the region of existing data centers, and Sarbanes-Oxley requirements for stronger internal controls such as audit trails, which increase demand for data storage. One source mentioned a case where several banks got into a bidding war for an empty data center facility that came on the market.

  • Phoenix and Nevada appear to be strong markets. This is being driven by the high cost of doing business in California and the proximity of Arizona and Nevada, which makes them attractive as backup/recovery sites.

  • When companies go shopping for new application systems, they are showing strong interest in Linux-based systems, mostly because of perceived cost savings. Consistent with this, enterprise system vendors such as Oracle and PeopleSoft are promoting Linux because it allows them to lower the cost of hardware and operating systems in the deal, leaving a larger share of the budget available for software licenses.
Certainly, we're not in the technology boom times of the 1990s. But that doesn't mean IT spending is moribund. It's just happening in different directions today.