Outlook brightens a bit for 2010 IT spending

Over at Computer Economics, we've just release the findings from our special November survey of IT decision-makers regarding their IT spending and staffing plans for 2010. See the six year trend chart above, with our 2010 projection.

Although the 2% projected rise for 2010 in IT spending at the median of the sample is surely not a barn-burner, it's a welcome improvement from the dismal results for this year, when IT executives at the beginning of the year expected budgets to be flat. As it turns out, that was certainly optimistic, according to our survey.

From the media alert:

After a year of budget cuts, layoffs, and delayed projects, IT executives are looking forward to 2010 as a period of stabilization and rebuilding. According to the Computer Economics fourth-quarter outlook survey, the typical IT organization plans to raise its IT spending on operations by 2.0% in the coming year.

The in-depth survey of 139 U.S. and Canadian IT organizations shows that more than half anticipate increasing IT spending in the year ahead, with the median budget increase projected at 2.0%. The survey indicates budget cutting and layoffs are in the past for most organizations, although hiring and capital spending will continue to be restrained through at least the first half.

As one might expect, the outlook for 2010 appears upbeat only in comparison to an anxiety-filled 2009. The projected 2% rise is operational spending lags behind the 2.5% rise in 2005, during the recovery in IT spending after the previous recession.

The full report, Outlook Brightens for 2010 IT Spending, also provides detail on what specific actions--both positive and negative--IT leaders have been taking in the past three months to increase or cut IT spending levels. Interestingly, while there are plenty of cost-cutting actions still taking place, there are some positive trends as well. For example, over half of our respondents report that they have refreshed/upgraded computer hardware or started a major new project in the past three months. This is a vast improvement over the results of our survey a year ago, when few organizations were taking such actions.

Outlook for enterprise software buyers
Where does this leave buyers of ERP and other types of enterprise software? Although there are signs of an uptick in spending levels, it is still too early for this to be affecting software vendor financial performance. In other words, vendors are likely to still be hungry for new business. So if you are shopping for software, it's still a buyer's market.

In addition, there are signs in our survey that buyers are still negotiating hard on existing vendor contracts. About half of our respondents indicate they have renegotiated a vendor contract in the past three months. Keep in mind, this means all sorts of IT contracts, not just for software. The increased attention on the value (or lack thereof) of vendor maintenance contracts is likely to continue, regardless of whether the IT spending climate improves.

More information

• The full report: Outlook for IT Spending and Staffing in 2010
• The research byte: Outlook Brightens for 2010 IT Spending
• The media alert: Forecast for 2010: IT Operational Budgets to Rise 2%

Revisting Epicor's Shared Benefits program

I wrote about Epicor's Shared Benefits program about a month ago, when it was first announced. The program, in brief, offers customers to get back half of the savings if Epicor delivers its implementation services at less than estimated, and only pay half of Epicor's hourly rates if Epicor exceeds its estimate. In essence, it's sort of a compromise between a time-and-materials project and a fixed-price engagement.

After my initial post, Epicor wanted to brief me more fully on the program, so I agreed to take a phone call this morning from Craig Stephens, Epicor's VP of Consulting Services, who is based in the UK.

Time and Materials vs. Fixed Price
The problems of time-and-material contracts are well-understood, as many ERP prospects have heard the horror stories of projects that run well over budget. Many therefore jump at the chance to have the vendor take on the implementation as a fixed-price contract. In our buyer consulting services at Strativa, we point out, however, that this can often be a mistake, for two reasons.

• Customers often don't realize that with a fixed price contract, every change in scope becomes a change order. Every assumption must be spelled out in the contract. Furthermore, as the inevitable misunderstandings become apparent during the implementation, the project manager often winds up spending more time negotiating change orders than managing the work itself.
  
  
• Secondly, customers don't realize that a fixed-price contract can often cost more than a time-and-materials engagement, as the vendor immediately jacks up the price by 20% or more as a risk premium for doing the project as a fixed price.

Stephens believes that the Shared Benefits program represents a better approach, reducing the risk of a time-and-materials engagement for the customer while avoiding the risk premium required for a fixed price contract. He claims that Epicor does not include a risk premium when quoting these projects, thereby saving the customer money.

The other point that I find attractive with the Shared Benefits program is the alignment of incentives between customer and vendor. With fixed price contracts, Stephens points out, customers are under little restraint in trying to include additional scope within the fixed price. Under Shared Benefits, customers can still try to interpret the implementation plan to include more work, but they will share in the cost if the project exceeds budget.

Resources for Epicor 9 rollouts
While I had him on the phone, I asked Stephens about Epicor's ability to support its push to roll out its new version, Epicor 9, to new and existing customers, especially in light of workforce reductions that Epicor has taken in the past year in its professional services group.

Stephens indicated that headcount is flat from the previous year and that there are adequate consulting resources on board to support Epicor 9 implementations. He also indicated that much of the functionality in Epicor 9 is an upgrade from Epicor's previous Vantage 8 product, though the financial modules are new and different. Hence the major training effort for Epicor's consultants is in the E9 financials.

In response to my question about documentation, Stephens also assured me that the system documentation was all up to date for the new version and in fact sometimes was developed more quickly than the product itself. As this is so different from what I've heard from my own sources, I'd be interested in any feedback readers have on this issue, or any other matter involving Epicor. Leave a comment on this post, or email me privately (my email address is in the right-hand column).

Innovation in services delivery
As I wrote in my earlier post, Epicor should be commended for at least trying to do something about the problems facing organizations generally in contracting for and implementing ERP. Whether Epicor's Shared Benefits program is an answer remains to be seen as the program is just now being rolled out. Stephens says he expects about 40% of Epicor's new contracts to include the Shared Benefits option and it is the "default" option in writing new business. Over the next few months Epicor should get some early results from this program, which hopefully will demonstrate the success of the concept.

Related posts
Epicor's Shared Benefits program: watch for unintended consequences

Killer combination: open source ERP and cloud computing

I honestly can't understand why this has not gotten more attention. Opentaps, an open source ERP project, is now available on Amazon's Elastic Compute (EC2) cloud. Si Chen, of Open Source Strategies, has put up a Youtube video that shows how anyone can go to Amazon and install a working instance of opentaps in less than 10 minutes.

Although Si plays it straight, if you have any experience at all with ERP, the video is a laugh-out-loud experience. In less than 10 minutes, it's possible to do what would normally take weeks of time and thousands of dollars with traditional on-premise ERP.

Not only so, but it's also faster and cheaper than deploying any of the SaaS enterprise solutions, such as Salesforce.com or NetSuite.

Granted, open source ERP isn't for anyone, but you have to admit--this has major potential for disruption.

Watch the video here (hint--expand to full screen for better viewing):



Update, Nov. 20. I see I have some catching up to do. Another open source ERP project, Compiere, also has a deployment option on Amazon's EC2. There is a basic description of Compiere on EC2 on Compiere's website.

Related posts
Open source ERP and CRM carry strong ROI
Court ruling strengthens legal basis for open source
xTuple: a hybrid open-source ERP development model
The disruptive power of open source
Total cost study for an open source ERP project
Compiere's open source ERP business model and growth plans
Open source ERP gaining adherents
Key advantage of open source is NOT cost savings
Open source: turning software sales and marketing upside down

Oracle layoffs, November 2009

A reader emailed me today indicating he had received word from a friend, who works for Oracle, that Oracle Consulting had a sizable layoff today. He mentioned a specific percentage that I won't repeat here, without some confirmation.

A quick check of my webstats shows a pickup in web referrals today searching under the key words "Oracle layoffs," "Oracle Consulting layoff," and "Oracle layoffs, Nov 2009." (see image on right).

In the past, this type of activity has been a reliable indicator of Oracle's workforce reduction actions.

A check of the layoff blog also shows a few comments today from Oracle consultants who have been terminated--not as many as I would have expected, however.

If anyone has more details, feel free to email me, or leave a comment on this post.

Update, Nov. 14: Several readers have left comments on this post, or previous posts, basically, confirming that yesterday, Friday the 13th, was a real nightmare for many Oracle consultants. There are many more comments now on the layoff blog as well. Read comments below.

Update, Nov. 16: Dennis Howlett picks up on this post and provides further analysis of the layoffs. And, Oracle officially has no comment on the layoff.

Update, Nov. 17: A reader, who works for Oracle Consulting, reports that just prior to the recent layoffs there was a reorganization of the North American consulting unit. This individual, who had been in a management position, has now been put back into a billable role, with a target utilization.

Epicor's Shared Benefits program: watch for unintended consequences

Epicor is holding its Perspectives user conference this week in Las Vegas, and one big announcement this morning was concerning Epicor's new Shared Benefits Program. According to the press release, the program is "aimed at helping companies eliminate risk and avoid excessive cost overruns that can plague conventional enterprise resource planning (ERP) system deployments."

The press release goes on to talk about return on investment, joint responsibility, visibility, and accountability. But when it comes to metrics, the incentives only seem to address the cost side of the equation:

Upon project completion, if the project is under budget, the savings are shared 50/50. Conversely, if the project runs over budget, the customer is billed 50% of the contracted professional services hourly rates for all over-budget costs.

My take
First, Epicor should be commended for addressing this issue. Implementation cost is a big concern for companies of all sizes, but especially among the midmarket firms that Epicor targets, and especially under current economic conditions. I like that Epicor is facing this problem head on with its Shared Benefits program.

However, as with any incentive program, there can be unintended consequences.

• First, if Epicor receives half of the savings for bringing the project in under budget, might that not motivate the project manager to expend as few professional services dollars as possible during the implementation?

• Second, if Epicor has to cut professional services rates by 50% after exceeding the budget, how will that affect the choice of which consultants to assign to the project? Might that not motivate the project manager to utilize someone other than the best consultants? I suspect that, with the rollout of Epicor 9, Epicor's best consultants might be very heavily utilized right now, so you have to question anything that might encourage engagement managers to skimp on services hours.

• Another issue, as I mentioned, is the exclusive focus on costs. On the one hand, this is understandable: benefits from enterprise systems are often difficult to measure, while the costs are clearly recognizable. On the other hand, this could motivate the service provider to focus more on getting the system installed and getting the professional services team out the door, rather than ensuring that the customer achieves real benefits.

To be fair, I don't believe that Epicor wants any of these consequences--that's why they're called "unintended." But it's important for customers to recognize and be aware of how it's possible for such a program to have perverse results.

Again, credit goes to Epicor for trying to put some teeth in its implementation commitments. It will be interesting to see in a year or so what the real results of this program are.

Update, Nov. 11: Dennis Howlett attended the conference and had a chance to ask Craig Stephens, Epicor's VP of Consulting Services, specifically about my concerns expressed in this post. Read Dennis's write up. Stephens is right that my concerns would apply even more to a fixed-price contract, which, of course, have been quite common in ERP implementation deals for ages. Ultimately, it's all about the professionalism and qualifications of the vendor's implementation team, as well as the willingness of the client to bear its part of the responsibility for success.

The inexorable dominance of cloud computing

Cloud computing is not just one more way to deploy information systems. It represents a total shift in how IT resources are delivered and ultimately will replace most of not all internally-maintained IT infrastructure.

At least that's the view of Nicholas Carr, who gave a talk at a one-day conference on cloud computing organized last week in London by Google. If you've read Carr's work in the past, his presentation will be familiar. One main point: the on-premise deployment of systems such as Oracle and SAP today are analogous to the on-premise factory power-plants of the 19th century--ultimately replaced by public electric utilities. So, it will be with utility computing.

Carr also gets a little bit into IT budget ratios, which we track closely at Computer Economics. His analysis is spot on and is a strong argument for why cloud computing ultimately will prevail over on-premise systems.

Near the end of the presentation, Carr presented five models for adoption of cloud computing:

1. Internal clouds: large organizations take advantage of cloud computing technologies by moving their own large IT infrastructures to a cloud computing model.
   
   
2. Cloud as supplement: organizations retain their on-premise systems but use cloud computing to deploy new IT capabilities.
   
   
3. Cloud as replacement: organizations forgoing their own IT infrastructure altogether and going with cloud computing for everything. So far this is appealing, naturally, to smaller businesses.
   
   
4. Cloud as democratizer: cloud computing allowing individuals to have their "own data centers," leading to an explosion in innovation.
   
   
5. Cloud as revolution: cloud computing reducing the cost and increasing the accessibility of data processing, leading to new ways of embedding IT in new products and services.
   

You can view Carr's 30 minute talk here:



What about the major on-premise software providers, such as SAP and Oracle? Can they make the transition to cloud computing? Although both SAP and Oracle have cloud computing initiatives, such as SAP's Business ByDesign and Oracle's On-Demand CRM, I'm not hopeful. They have too much invested in, and receive too much of their margin, from their legacy products.

Consistent with this view, at the end of his presentation, Carr looks at cloud computing as a disruptive technology, a la Clayton Christensen. I was glad to hear that, as I've long felt that cloud computing strongly qualifies as a disruptive technology that does not give hope to the current market leaders in enterprise software. But that's the subject for another post.

From time to time I bring up issues that buyers should be aware of in evaluating SaaS providers--for example, business continuity concerns. But in the long run, I'm convinced these issues will be worked through. The transition will take some time, but the economics are too strong for cloud computing not to prevail. Therefore, even today, buyers should consider every IT decision in light of the options available in the cloud.

Update, Nov 1. Be sure to read the first comment on this post, from former SAP executive Nenshad Bardoliwalla, who essentially confirms my point.

Related posts
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NetSuite a viable alternative for SAP customers?
Cloud computing: can Microsoft turn from servers to services?
IT departments face extinction
The end of corporate computing
Computer Economics: The Business Case for Software as a Service

Out of recession: US economic review and forecast

Maria Simos at E-forecasting has put together an excellent slide show on her firm's forecast for US economic activity, in light of history since the mid-1800s. This is a must-see for anyone interested in where we're headed in the near future.

Bottom line: we're already out of recession.

Some key points:

• US GDP is estimated at 3.6% growth in Q3, marking end of recession
• Six month growth rate in September is at 0.5% growth--first time positive since August 2008
• US leading indicator has gone up six-fold, growth rate above the long-term trend
• US GDP growth will peak in the 3% range, then stabilize at 2% through 2012
• Manufacturing sector growth has already hit bottom and has started to rebound
• Inflation will worsen due to increases in the money supply

There is much more on consumer spending, export and imports, and global trends.

You can view the whole slide show below. (Skip quickly through the first 20 slides to get to the good stuff starting on slide 21.)

Us Economy Historical Review And Forecast General

View more presentations from e-forecasting.com.

Oracle's roadmap for Fusion Apps

In the last part of the last keynote at Oracle Open World yesterday, Larry Ellison finally gave some specifics concerning Oracle's Fusion Applications, its next-generation of business software.

Technology foundation and user interface
These are the areas where Fusion really shines. The product is completely architected from the ground up on Oracle Fusion middleware, with a service-oriented architecture, allowing it to interoperate with existing Oracle applications as well as competitor applications and even custom systems, as long as they adhere to open standards. Fusion apps also incorporate role-based design, embedded analytics, and unified communications features, such as presence-awareness and chat.

The best summary I've seen so far about Fusion apps comes from Forrester's Paul Hamerman.

What Fusion will include
Those counting on Fusion to be a comprehensive successor for Oracle's existing products, however, will be disappointed. According to Ellison, when Fusion first reaches general availability, it will not provide the breadth of functionality currently available in Oracle's existing portfolio. This has been self-evident, but now Oracle has made it official.

Specifically, Fusion will only address the following horizontal functions:

• Customer Relationship Management
• Project Portfolio Management
• Governance, Risk, And Compliance
• Human Capital Management
• Financial Management
• Procurement
• Supply Chain Management

Ellison specifically mentioned manufacturing (both process and discrete) and public sector as two sectors that would not be addressed by Fusion Apps, at least initially. But it would also appear that any Oracle customers or prospects looking for industry-specific functionality (e.g. retail, life sciences, etc.) would not find Fusion to be a complete solution.

The roadmap: "Fusion + Other Stuff from Oracle"
Here's the big disappointment. In nearly the last sentence of his keynote, Ellison indicated that Fusion apps would be available "next year." That would be 2010. So literally, Oracle could release Fusion apps next December--14 or 15 months from now--and still meet Ellison's timetable. Until then, for most customers, Fusion is just a roadmap.

As Hamerman puts it,

Although Oracle asserts that the apps are “code complete,” the product is in what Oracle calls “in-house beta.” Customers have been brought in to test applications installed on Oracle premises as part of this program. There are no live customers currently, but early adopters are signing on as we speak.

On the other hand, you could spin the Fusion timetable in positive light. The fact that software sales are depressed right now as a result of the recession means it is a good time for Oracle to be making this transition. In addition, I would rather see Oracle take the time to get it right with Fusion than rush it into general availability only to suffer a loss of credibility when new customers encounter problems.

But even when Fusion does reach general availability, most Oracle customers will need to consider Fusion apps along with industry-specific modules from existing Oracle products. Unless an organization only needs the horizontal functionality in the bullet points listed earlier, we're talking about Oracle selling Fusion apps in combination with other Oracle products. A manufacturing industry prospect would need to buy Fusion apps plus manufacturing modules from Oracle's E-Business Suite or J.D. Edwards, for example. A retail industry prospect would need to buy Fusion apps, plus Oracle's Retek products. "Fusion + Other Stuff from Oracle" will be the roadmap, at least until Oracle can roll all that industry-specific functionality into Fusion.

Compounding the problem, Oracle's existing products are a moving target. From other information gleaned during Open World presentations, it's clear to me that Oracle's development organization is not standing still with its current portfolio. For example, I saw some very deep CRM functionality recently introduced for municipal government in Oracle's E-Business Suite. I don't know when Oracle would be able to incorporate such functionality into Fusion.

From the quick screen shots and demo scenarios presented during Ellison's keynote, it appears Fusion apps will be a great product. But the limited functional coverage of the initial release for Fusion means, as I noted, that most Oracle customers and prospects will need to sign up for Fusion in combination with other, existing, Oracle products. For existing customers, the more straightforward path would be to simply stay with Oracle's existing products, for which Oracle has promised to continue support under its Apps Unlimited program. And new sales prospects may find "Fusion + Other Stuff from Oracle" a muddled sales pitch.

Update: Merv Adrian blogs that he was less impressed with the Fusion news than with the news on Oracle's database and BI offerings.

Update: Jim Holincheck has a good post with lots of details about the functionality included in the Fusion's Human Capital Management (HCM) module.

Related posts
Live from Oracle Open World 2009

Salesforce.com: more than an itty-bitty application

I'm spending a couple of days at the Oracle Open World conference this week and decided to find out a little bit more about Salesforce.com and its relationship with Oracle. Why? A couple of weeks ago, Oracle's CEO Larry Ellison made some not-so-kind comments about the term "cloud computing" in general, and Salesforce.com in particular.

Ellison said,

"Let's look at [Salesforce.com's] technology," he said. "They buy computers. They rent a room. Uh, they put the computers in the room. They buy electricity and plug it in. They then buy an Oracle database to run on those computers and then they buy Oracle middleware to build their applications. Oh, excuse me, and then they build this little itty-bitty application for salesforce automation. ... Most of the technology at Salesforce.com is ours."

Stripping away the hyperbole, let's break down Ellison's analysis. He thinks that the value of Salesforce.com is in its IT infrastructure, most of which is provided by Oracle. The CRM application is just a small part of the total solution and therefore a small part of the value that Salesforce.com's customers receive.

What's wrong with this picture
Let's stipulate that in terms of lines of code, the application layer is a small part of the overall technology running at Salesforce.com. I don't know what the percentage is, but let's assume it's 5%. Does that mean that the application only contributes 5% of the value that customers derive from Salesforce.com? I don't think so. Strip away the application, and Salesforce.com customers get nothing. Furthermore, it would imply that all a software vendor needs to do is build its application on Oracle technology and it will deliver value. That argument, of course, is ludicrous.

Of course, Oracle technology can be used to build on-premise solutions as well as software-as-a-service (SaaS) solutions, such as Salesforce.com. Is there anything special about SaaS in terms of delivering customer value?

Cloud computing delivers innovation
Yesterday, to answer these questions, and also to have a little fun, I took my Flip video camera and set out with my fellow Enterprise Advocate, Vinnie Mirchandani, to see how cloud computing was represented at Oracle Open World.

There are a lot of vendors on the exhibit floor offering cloud computing and SaaS solutions. But finding one willing to go on camera to talk about this subject wasn't easy. So, I was happy when Kendall Collins, Chief Marketing Officer at Salesforce.com, agreed to an interview. I'll let Kendall speak for Salesforce.com in this four-minute clip:



What is striking to me in this short clip is the single example of how cloud computing delivers value in a way that's just not possible with an on-premise system. The salesforce-to-salesforce functionality that Kendall describes above is only possible when multiple organizations are resident on a multi-tenant system. To achieve this sort of functionality with an on-premise system would either require extensive EDI links, or custom systems using Web APIs. In any event, it would most likely take an organization years to develop such a system using on-premise deployment.

This doesn't mean that cloud computing is the best solution to every problem. Many SaaS providers do not yet have the out-of-the-box functionality to match an Oracle E-Business Suite, for example. But that may be changing. As SaaS becomes a more accepted means of software delivery, these solutions will become more mature, displacing on-premise systems in more organizations.

And this might prove to be the real threat to Oracle, which might explain Ellison's hyperbole on this subject. It's possible that years from now, Oracle will be mainly known as an infrastructure provider to the Salesforce.coms of the world, who deliver the real value.

Update, Oct. 14. Bruce Richardson reports on the presentation by Marc Beniof, CEO of Salesforce.com at Oracle Open World.

Live from Oracle Open World 2009

I'm attending a couple of days at Oracle's user conference in San Francisco this week. Tonight, Larry Ellison and Scott McNealy took the stage as a united team representing Oracle and Oracle's latest acquisition, Sun Microsystems.

Larry Ellison, true to form, spoke mostly about Oracle's competition, specifically IBM, claiming Oracle's database running on Sun processors are faster than IBM's DB2. He reassured Sun's customers that Oracle would invest even more in Sun's products than Sun has. And, he also said the right things about continuing to invest in MySQL, Sun's open source database management system.

So, for Oracle and Sun fans: plenty of red meat. For the rest of us, we'll need to wait to see how the Oracle/Sun combination plays out in reality. And, those of us on the enterprise software side of the house would really like to hear about Oracle's progress on its Fusion applications roadmap.

In the meantime, take a look at what its like at the Moscone Center in San Francisco, with thousands of Oracle Open World attendees streaming into the Ellison-McNealy keynote.




Update: On Monday, several analysts present at Oracle Open World recorded videos of their first impressions of the conference:

Here's Vinnie Michandani:



And Ray Wang's take:



Finally, here are my thoughts:

NetSuite a viable alternative for SAP customers?

NetSuite has been getting some attention recently in the press and among my blogger friends for its PR campaign to offer itself as an alternative to SAP. The opportunity? A good number of SAP customers--approximately 70%--are on older versions, such as R/3 4.6 and 4.7 that are nearing end-of-support. These customers must either upgrade to a more recent version, forgo maintenance and support, or migrate to some other system.

That's where NetSuite is offering itself with its Crossroads Initiative as an alternative to SAP.

The terms are attractive: Zach Nelson, NetSuite's CEO, has been touting the special promotional offer: basically, to provide a NetSuite license in year one for the price the customer is now paying in SAP maintenance fees, followed by a 50% discount on NetSuite's then-current list price in year two and beyond.

Functionality gaps
Sounds like a great deal. But is NetSuite really a viable alternative for most SAP customers? I think the answer is no, for at least two reasons:

• My primary concern is the issue of functionality. In a recent evaluation for a distribution company, my consulting firm Strativa found significant issues with NetSuite functionality. These gaps did not involve esoteric requirements, but basic needs involving inventory allocation, available-to-promise, returned material, controls over changes to sales orders, and other issues. Furthermore, this client is not a large company, but rather has well less than $100 million in annual revenue. It is unlikely that any company large enough to be running SAP would find NetSuite to have functional parity.

• Second, NetSuite is reported to be well behind the curve in terms of supporting requirements of multinational organizations, especially those with localization needs in international sites. Many SAP clients fit this description.

Some counter that NetSuite's sweet spot is really with services business, not product-based businesses. My response is, that may be so, but that caveat sure doesn't appear in any of NetSuite's marketing materials for its SAP Crossroads Initiative.

Where NetSuite fits
It would appear then that NetSuite would only be a viable alternative for organizations with very simple requirements, perhaps basic financials with some sales or CRM needs. Or, small services-based firms. Such companies really have no business being on SAP in the first place. NetSuite may be targeting SAP in its marketing efforts, but in reality it is most likely going to show success with small companies that are outgrowing Quickbooks, or existing customers of Sage, Best, Exact, and other Tier III system providers.

To be fair to NetSuite, I think they've done a great job in moving the ball forward for software-as-a-service in the enterprise systems space. NetSuite's multi-tenant architecture is a terrific platform for other developers, such as Rootstock, to build upon and extend NetSuite's core offering. If there is any hope for NetSuite to close the functionality gap with SAP, Oracle, and other mature providers, it is likely to come from such efforts in NetSuite's partner community to develop industry-specific functionality.

There's no shame in serving small businesses. That's the natural starting point. As Clayton Christensen describes, disruptive technologies (such as SaaS) always start with success in the low-end of the market, then move up-market as the technology matures.

And long-term, I agree with Nicholas Carr that SaaS solutions (or cloud-based systems, on-demand systems, utility-computing, or whatever you want to call them) are likely to replace on-premise systems for the majority of customers. The economics are simply too powerful.

But in the meantime, unless an SAP customer was too small to be on SAP in the first place, it's unlikely they will find NetSuite a viable alternative.

Update, Oct 1. To all NetSuite customers that have converted, or are in process of converting, from SAP: I would really like to hear from you, confidentially if needed. Email me at the address shown in the righthand column.

Update, Oct. 2. David Stover, CFO at AKSA commented on this post and responded to my invitation for further dialog. As it turns out, David's experience is a good example of where NetSuite does in fact provide an alternative to SAP. David's firm, a manufacturer of textile fibers, was previously a user of SAP, as dictated by the firm's corporate parent. When the firm was then spun off, David realized that SAP was simply too big and too costly, without the support of the previous corporate parent. In a quest to cut costs, David then embarked on a search for a simpler solution and wound up on NetSuite.

To illustrate the point, of AKSA's 200 employees, 100 of them previously were using SAP. Now, under NetSuite, only 20 employees need to use the system. The remainder, who are mostly production people, get their information from reports or Excel worksheets. In my words, David de-automated the operation, allowing it to run on a much simpler system.

In our discussion, however, David did confirm my basic point in this post regarding NetSuite functionality gaps, mentioning one perfect example. NetSuite doesn't do standard costing, something that is a requirement in many if not most manufacturing firms. It only does average costing. So David wrote some custom scripts in NetSuite to work around the problem, a solution that would probably not be acceptable for many manufacturing prospects.

So, in my opinion, David's experience can be summed up as follows:

• There are companies out there running SAP that don't need to be
• Such companies can and should look for simpler solutions, and NetSuite is one of them
• NetSuite is not the functional equivalent of SAP, but to serve customers such as AKSA it doesn't need to be.
  

I'd still like to hear from other customers that have made the switch from SAP to NetSuite. If you have a story, contact me. My email is in the right-hand column.

Update, Oct 8. My fellow Enterprise Advocate, Dennis Howlett, has a lengthy post following up on my post here. Dennis goes into great detail regarding NetSuite's progress in addressing the localization issues, which I only mention generally above. Read Dennis's entire post, as he has done significant primary research on this matter and other matters involving NetSuite.

Related posts
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Workday: evidence of SaaS adoption by large firms
All not sweet with NetSuite
Computer Economics: The Business Case for Software as a Service
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SaaS contingency plans need more than software escrow

Although I'm a supporter of the software-as-a-service (SaaS) model of application delivery, there's one area that still make me nervous: contingency planning. What happens if my SaaS provider goes out of business? Or, one day decides he doesn't want me as a customer? How do I ensure continuity of my system? How do I get my data?

Furthermore, it doesn't take a business failure of my SaaS provider for there to be issues about my getting full access to my data. What if I want to switch providers? I wrote a post on this last year, entitled: SaaS: plan to get out before you get in. It's now 10 months later and I still have the same concerns.

Last month, Ben Kepes suggested that software escrow is part of the answer. Traditionally, software escrow is a service whereby a trusted third-party has access to the vendor's source code and the customer's software license agreement allows the customer to gain legal access to said source code in the event of business failure by the vendor. Ben writes:

Others have noted escrow services as being valuable in the event that a vendor goes under, providing,as they do, certainty over data ownership. However there is a bigger issues with the ability of escrow services to cover the IP of a third party application and therefore give ongoing certainty around the functionality of a third party integration. As Escrow Associate points out;

Some agents make the process even simpler by ensuring the integrity and currency of the source code with software escrow verification services. In a SaaS environment, these testing services can also recreate the hosting environment and provide access for end user testing. These services protect both providers and subscribers, because they know that the escrow account contains useable code.

He also points to Escrow Associates as a provider of software escrow services is now starting to offer escrow services specifically for SaaS providers.

Now, I will admit, I do not know much about the services provided by Escrow Associates or any other escrow agent specifically targeting the needs of SaaS customers. But here are some concerns that I would have if I were doing contingency planning for a critical SaaS application:

1. Does the escrow provider periodically test its ability to transfer both the software and all customer data to its backup hosting site? Access to the software is one thing: access to a completely operational system with my data is another thing.
2. What levels of service can I expect from the escrow provider in terms of access to my recovered system: 24 hours, 48 hours, a week, a month?
   
3. What actions do I need to take as a customer to ensure access to the escrowed version of the system. For example, do I need to make DNS changes?
   
4. What level of performance can I expect from the escrow provider? Is the escrow provider prepared to offer the same service levels as the SaaS vendor was giving?
   
5. Can I test my business continuity plan periodically with the escrow provider?
   

These are questions I came up with in just about five minutes. You can see the point. It's not just a matter of getting access to the escrowed software, or even to my data, but a matter of having continuity of access to a completely working system.

I'm waiting for the first example of a prominent or even not-so-prominent SaaS provider ceasing operations to see how this sort of thing gets handled in practice. It's probably already happened, but I'm not aware of it. A few cases, and I believe these business continuity needs will become more clear.

Read Ben's post and also be sure to read the many excellent comments, which also express similar concerns to those I mentioned above.

Update, Sep. 9: Be sure to read the comments on this post, which contain much additional discussion.

Update, Sep. 15: See additional discussion in the comments section on Vinnie's post, in response to this post, especially the comment from Laef Olson of RightNow Technologies, a SaaS provider, who points out the need for financial and operational transparency as a way of giving SaaS customers time to make a transition if required.

Update, Sep. 16. Jeff Gordon provides additional clarity to evaluating the continuity needs of various applications.

Related posts
Addressing business continuity issues with SaaS providers
SaaS: plan to get out before you get in
All not sweet with NetSuite

Four technologies offering best investment profile in 2009

Over at Computer Economics, we've released our new study, Technology Trends and IT Management Best Practices 2009/2010. It's based on our annual survey, which also produces our IT spending and staffing benchmarks.

For the first time this year, we not only analyzed each technology in isolation but also in comparison with each other, looking at adoption vs. current investment levels as well as risk versus reward (cost versus payback). In doing this we found four technologies that stand out as having the strongest investment characteristics: server virtualization, storage virtualization, unified communications, and cloud computing.

You can read a summary of these findings on our website.

You can also download the first nine pages of the full report, free.

The full report also analyzes adoption trends for 10 selected IT management best practices.

Optimizing ERP support staffing in smaller companies

I had an interesting analyst request today. An IT manager for a midsize company recently purchased our Computer Economics ERP Support Staffing Ratios report and wonders how the ratios would apply to a smaller business.

He writes:

We purchased the study "ERP Support Staffing Ratios". It was very helpful. Question - We are implementing an new ERP system, and bringing it up a little at a time. We are trying to get a benchmark for the minimum ERP IT support staff that would be required; regardless of the size of the user base.

Alternatively stated, if a company implemented a comprehensive ERP system, but only had 50-100 users, there is probably a minimum core staff the would be required to support it.
If you could take a look at the information underlying the study and try to shed some light on this for us, it would be very helpful. For example, what seems to be the typical (median) staffing ratio for the smaller user population groups?

Smaller firms are at a disadvantage
I responded that the report itself gives the answer, as the number of users per support staff member in small companies (under 200 users) is less than half of the number for organizations with 200 to 500 users. (Actually when you go to over 500 users, the number almost doubles again). In other words, there are tremendous economies of scale in ERP support staffing. In small companies, you need twice the number of support staff per 100 users as you do in midsize companies. (Buy the full report if you want the actual stats.)

Now, having said that, I would say, based on my experience, that when you get into the smaller companies, it all depends on what system you are implementing. I have seen or heard of MS Axapta or QAD sites of 50-100 users that are effectively managed by one full time IT person. But you rarely see that with Oracle or SAP, for example. Our report shows that Tier I systems simply have a bigger footprint, requiring more ERP support staff.

Think outside the FTE box
At the same time, smaller organizations should be thinking about outsourcing much of their ERP support. They simply do not have the scale to have a full-time apps programmer, plus a fulltime DBA, and a full-time help desk person. And these roles are not really suitable for a single person. A better approach would be to go ahead and staff the help desk but contract out the DBA work and apps work (e.g. applying patches or upgrades). Many small companies are too reliant on one or two IT staff members, and when they leave or become disgruntled it can be a real problem. If you get the right contractors, this also provides for better coverage and may actually provide for longer continuity of support personnel than relying on full-time employees.

The full report on ERP Support Staffing Ratios is on our website. A free executive summary is also available.

Related posts
ERP support costs: the offshore model

2009 IT spending and staffing benchmarks

Over at Computer Economics, we've released our new IT Spending and Staffing Benchmarks 2009/2010 study, in this, its 20th year of publication.

The current economic recession has had significant impact on typical IT budget and headcount ratios. Our new study, based on our 2009 survey provides updated metrics for planning and benchmarking IT spending and staffing levels.

Some of the key findings:

• Sectors showing the sharpest decline in median IT operational spending include discrete manufacturing, process manufacturing, and retail. Median IT budgets are down 5.5%, 2.5%, and 1%, respectively in those sectors.
  
  
• Certain sectors, however, are continuing to show positive growth in their 2009/2010 IT operational budgets. These sectors include banking and finance at 4.9%, healthcare providers at 4.7%, professional and technical service firms at 4.0%, and utilities and energy at 1.3%.
  
  
• 46% of all IT organizations plan to reduce headcount this year, compared to 27% that are increasing headcount. Another 27% of IT organizations report their staffing levels will remain the same as last year.
  
  
• However, some sectors are showing continuing growth in IT staffing. For example, nearly 63% of survey respondents in the healthcare provider sector reported they were increasing IT staff this year.

The annual study is based on an in-depth survey of more than 200 IT executives who provide detailed breakdowns of their budgets, staffing, and technology adoption plans for the 2009-2010 period. The survey sample includes a roughly equal number of small, medium, and large enterprises. The respondents are stratified according to 12 industry sectors to provide a representative sample of IT organizations across all industries.

A free executive summary is available on the Computer Economics website.

FDA still enforcing regulations for validation of enterprise software

IT organizations in the medical device industry take note. A business associate calls my attention to a recent U.S. Food and Drug Administration (FDA) warning letter to a medical device firm for "failure to validate computer software for its intended use" under 21 CFR § 820.70(i). The systems in question are based on packaged enterprise software. The letter is reminder that when such systems are implemented in regulated industries, it is incumbent on the user organization to ensure that such use is validated.

This is all in the public record, so I have no problem providing the specifics.

The letter, dated May 29, 2009, is addressed to UltraRad Corporation, a provider of picture archiving and communication systems (PACS). PACS are regulated by FDA as medical devices, because they are "intended for use in the diagnosis of disease or other conditions or in the cure, mitigation, treatment, or prevention of disease, or is intended to affect the structure or function of the body." As a medical device, UtraRad's products must comply with the Quality System Regulation (21 CFR Part 820) or QSR for short.

The Violation
FDA's warning letter, based on an inspection carried out in February and March of this year, points to a number of violations of the QSR. From the perspective of enterprise software, however, the most interesting citation is the one concerning software validation:

4. Failure to validate computer software for its intended use according to an established protocol when computers or automated data processing systems are used as part of production or the quality system as required by 21 CFR § 820.70(i). This was a repeat violation from a previous FDA-483 that was issued to your firm. For example:

A) Your firm uses off-the-shelf software (HEAT Help Desk) to manage customer support service calls and to maintain customer site configuration information; however, your firm failed to adequately validate this software in order to ensure that it will perform as intended in its chosen application. Specifically. your firm's validation did not ensure that the details screen was functioning properly as intended. The details screen is used to capture complaint details and complaint follow-up information which would include corrective and preventative actions performed by your firm when service calls are determined to be CAPA issues.

B) Off-the-shelf software (Microsoft SharePoint) is being used by your firm to manage your quality system documents for document control and approval. However, your firm has failed to adequately validate this software to ensure that it meets your needs and intended uses. Specifically. at the time of this inspection there were two different versions of your CAPA & Customer Complaint procedure, SOP-200-104; however, no revision history was provided on the SharePoint document history. Your firm has failed to validate the SharePoint software to meet your needs for maintaining document control and versioning.

Implications for IT
Note that the two software packages--HEAT and Sharepoint--are widely implemented across various industries. HEAT, from Front Range Solutions, is a commonly-used system for help desk support. Sharepoint, of course, is Microsoft's collaboration and content management server. Neither of these systems are specific to the medical device industry. As such, IT professionals--especially those without a background in regulatory affairs--may not recognize the risk they incur when implementing these systems in a regulated environment. In fact, the software vendors themselves may be unfamiliar with the compliance needs of their customers in regulated industries.

One common misunderstanding is that the customer's responsibility for compliance can be met by the vendor somehow "validating" its software. Vendor claims notwithstanding, vendors cannot sell you "compliant software" or "FDA validated software." Terms like this in vendor marketing literature should be a red flag that the vendor does not have a clue.

Technically, it is not the software itself that is validated, it is the software in its intended use that should be validated. One customer may be using the software in a way that is altogether inappropriate in a regulated environment, while another customer may be using the software in a way that fits its intended use. Although a software vendor can support its customers' compliance--by providing evidence of software quality, for example--ultimately it is the responsibility of the user of the system to ensure that the system itself, and how it is implemented and used, are appropriate. UltraRad, according to the FDA warning letter, failed to do so.

FDA warning letters citing failure to validate commercial off-the-shelf software (COTS) are not an everyday occurrence. This one, which so clearly cites this violation is a good reminder of the responsibility of regulated organizations that implement such systems.

For more guidance on this subject, see Validation of Software for Regulated Processes (TIR-36) from the Association for the Advancement of Medical Instrumentation (AAMI). I served on the AAMI committee that wrote this report in 2007, and it provides a good overview and recommendations to industry on an approach to comply with FDA regulations for these types of systems.

Related posts
Turning software validation into a meaningful exercise
A quality systems view of 21 CFR Part 11
Oracle unveils new electronic signature functionality for FDA regulated manufacturers
FDA finalizes guidance for 21 CFR Part 11
FDA drops the other shoe on Part 11
FDA signals change in approach to Part 11
Possible solution for FDA electronic record audit trail compliance
Business success is more than regulatory compliance
Buzzword alert: "Part 11 compliance"

ERP vendor pricing: lifetime customer value

Dennis Moore has an interesting post on pricing of ERP systems, specifically on why a vendor might be willing to accept less than the maximum amount that a customer is willing to pay.

He lists a number of reasons, such as:

• Ability to accelerate a deal into the current time period, which helps the vendor meet certain financial goals or pushes the salesperson into the next tier of commissions.
  
• Use of the customer as a reference, which helps the vendor in future deals
  

Read Moore's entire post on this subject, as it is a good primer on how vendors think about deals.

Lifetime customer value
In addition, I would add another thought: vendors today increasingly look at deals in light of the total lifetime value of the customer. Lifetime customer value includes not just the upfront license fee but the margin on any professional services, plus (and this is the biggie) the ongoing maintenance revenue stream.

I think that SAP and Oracle in particular view pricing of the initial license in terms of covering their costs of sales and getting the customer into the maintenance revenue stream where they really make their money over the lifetime of the relationship.

In addition, gaining the initial sale puts the vendor in the position to sell that customer additional products and services in the future.

The concept of "total customer value" explains why Oracle, for example, has been gobbling up other vendors: Oracle is buying customer relationships and it is also acquiring products that they can sell into other customer relationships. It's faster and cheaper than selling new customers one at a time or developing new products from scratch.

Think: total cost
What does this mean for buyers? Just as the vendor considers the lifetime customer value, the buyer should consider the lifetime vendor cost, or the total cost of ownership. Understand that the initial license cost is usually the smallest part of the total cost: implementation costs, ongoing maintenance fees, and ongoing cost of internal personnel and contractors needed to support the system make up a much larger percentage. (For details on what it takes in terms of internal staff to support an ERP system, see our research at Computer Economics on ERP Support Staffing Ratios).

Anything you can do to manage these costs, or drive contract terms that limit the vendors ability to increase them will pay off much more than haggling over a few percentage points in discounts on the initial license fees.

Related posts
Why the recession is good for Oracle
Total cost study for an open source ERP project

No recession for Rimini Street third-party maintenance business

Rimini Street, which offers alternative maintenance and support contracts for Oracle and SAP customers, reports today that its books in the first half of 2009 increased four-fold over the same period last year. It gets better: second quarter bookings increased six-fold over the same quarter last year.

In further evidence of a surging business, Rimini Street reports:

• A four-fold increase over last year in its J.D. Edwards client base
• US-based staff growth of almost 25%, while expanding its support operations into Europe and Asia-Pacific
• Signing up its first SAP clients, complementing its support for Oracle JDE and Siebel customers
• Delivery of tax and regulatory updates ahead of the "primary software vendor’s planned release date for similar updates"

It's remarkable to do all this in a time of economic recession. But the recession may in fact be helping Rimini Street's business as Oracle and SAP customers are pressed to look for alternatives to inflated maintenance fees from these two vendors.

I also note Rimini Street's report of a strategic investment from private equity firm Adams Street Partners. The money will be used to fund Rimini Street's global expansion. Apart from this, however, to me this is a serious endorsment of the third-party maintenance model in general, and Rimini Street in particular. No doubt, Adam Street did their due diligence. If they came to the conclusion that third-party maintenance is a worth investment target, will others be far behind?

I hope not. I would like to see other private equity firms funding other third-party maintenance providers as well. The more the better.

Rimini Street's press release has details.

Update, July 31: Bob Evans at Information Week has an excellent article on the excessive nature of Oracle's and SAP's 22% maintenance fee practices and the door that this has opened for Rimini Street, and hopefully others. One tidbit:

Some CIOs object, usually in language most charitably described as "colorful," that because the world's two largest enterprise software companies have built such wildly successful cash cows out of their support and maintenance businesses, SAP and Oracle have completely lost sight of the customer connection in that context. Most grating of all to these CIOs have been public comments made separately by top-level executives at the two companies indicating quite explicitly that whatever customers might or might not think about the 22% fees, that revenue is indispensable to the stock valuation of each company and so cannot be changed.

This article should be required reading for any enterprise software buyer or CIO.

Related posts
Rimini Street, SAP, and the future of third-party maintenance
Rimini Street to provide third-party support for SAP
Legal basis for third-party ERP support industry

Infor juices up its maintenance program value with Infor Flex

Infor announced enhancements to its software maintenance offerings today. The program, dubbed Infor Flex, allows customers at little or no license costs to upgrade to the latest, SOA-enabled versions of their Infor products or to exchange those products for other, newer products in Infor's portfolio.

I won't spend more time describing the program, as Infor has a good blog post on Infor Flex with embedded presentations. On balance, I would say it is a good move on Infor's part.

As I've written in the past, with its huge installed base, Infor has an opportunity to differentiate itself from its competitors in terms of its maintenance program. Many of its customers are on older legacy products, which Infor or its predecessor companies acquired over the past several years. Some of them pay maintenance, others don't. Most of them are going to do something in terms of new systems in the coming years. Infor has some decent up-to-date products in its portfolio, such as Baan and Syteline. But how can they compete against SAP, Oracle at the high end, or Microsoft, Lawson, IFS, and others in the mid-tier? The only way is to make upgrading or exchanging the customer's legacy products a no-brainer. This is what Infor Flex is intended to do.

It remains to be seen whether this program will succeed in moving significant numbers of its installed base to its newer products. On the one hand, I spoke to one early adopter of Infor's Open SOA products a couple months ago, and he was very positive about the experience. He also spoke well of Infor's maintenance and support services. This is a good sign and it says more to me than any number of vendor press releases and statements about future direction.

On the other hand, by my observation, Infor gets "outsold" by other vendors, even in situations where it is the incumbent supplier. Current economic conditions are likely limiting its ability to more aggressively and thoroughly present its leading products, such as Baan and Syteline. Hopefully, the new Infor Flex program will provide a more compelling value proposition, allowing Infor to win more deals where it already has a customer relationship.

I would like to see this program succeed. In these days, customers need more alternatives, not fewer.

Update: I see Vinnie has already posted his view on Infor Flex. Read Flex should also include down, not just up. Vinnie points out that the "flex" option is only for more product and services, not less. A good point, but Infor is reluctant to give customers an option to pay less than they're paying now. Of course, Infor is not alone in this reluctance.

Update: Dennis Howlett weighs in, in his usual style: curmudgeonly. Read the whole piece, at least to see how Dennis can manage a reference to Hulk Hogan when talking about ERP.

Related posts
Infor's opportunity: value in maintenance and support
Infor buying SoftBrands, owner of Fourth Shift
Enterprise software: who wants to be the low-cost leader?

Infor buying SoftBrands, owner of Fourth Shift

Looks like the vendor consolidation trend in ERP is not yet over. Infor announced this morning that it is buying SoftBrands, for $80 million. Softbrands adds two new products to the 50+ ERP systems in Infor's wide-reaching portfolio of enterprise software.

SoftBrands may not be a well-known name, but one of the two products in its portfolio is better know: Fourth Shift, a Tier III ERP system that has been around for some time and has a fairly extensive installed base among small and mid-size manufacturing firms.

What's most interesting about this deal at first glance is that Fourth Shift has had a partnership relationship with SAP since 2004 to offer Fourth Shift as a small plant solution to SAP Business One customers. Business One is SAP's small company ERP system, which does not have extensive manufacturing system functionality of its own.

Whether SAP is going to be willing to extend this relationship with Infor going forward remains to be seen. SAP views Infor's installed base as a target for its own sales efforts, so a continued partner relationship with Fourth Shift may be awkward. Loss of the SAP relationship would no doubt be a significant loss to Fourth Shift, but Infor surely must have considered this risk already.

SoftBrands' other products are systems for the hospitality industry, which it picked up in 2006 with its acquisition of Hotel Information Systems (HIS).

Details on the deal are in Infor's press release.

Update, Jun 15. Jason Carter, in a series of Twitter direct messages to me, raises some interesting question: why didn't SAP buy SoftBrands? It would seem an obvious way for SAP to build out its functionality for Business One. If SAP wasn't in the bidding, what does that say about SAP's commitment to Business One? If SAP was in the bidding, why did Softbrands go with Infor?

Related posts
SAP plugs hole in Business One

Gartner Mid-Market ERP Magic Quadrant: Should Have Stayed in Retirement

Back in 2007, I noted that Gartner had retired its mid-market ERP Magic Quadrant (MQ). As my source said at the time, the reason was that as a result of consolidation there were not enough vendors left in midmarket ERP to populate the quadrant.

Well, apparently Gartner found some more vendors and has now brought the mid-market ERP MQ back from retirement.

As soon as Gartner had issued its latest Magic Quadrant for Midmarket and Tier 2-Oriented ERP for Product-Centric Companies, resellers for Microsoft Dynamics AX (Axapta) were touting its position in the so-called "leaders quadrant." In fact, according to Gartner, MS Dynamics AX is the only product worthy to occupy a place in the leaders quadrant, a fact that Microsoft itself was quick to proclaim in a press release today.

A quick look at the MQ itself, however, shows some problems. In fact, it is difficult for anyone familiar with these vendors to understand how Gartner could come up with this evaluation. For example:

• QAD and Syspro show a better "ability to execute" than any SAP or Oracle product
  
• Epicor Vantage shows a better "completeness of vision" than any SAP or Oracle product

Perhaps the answer is in how these criteria are defined. Gartner does list the factors it considers.

• Ability to execute: product/service, overall viability, sales execution/pricing, market responsiveness and track record, marketing execution, customer experience, and operations.
  
  
• Completeness of Vision: market understanding, marketing strategy, sales strategy, offering (product) strategy, business model, vertical/industry strategy, innovation, geographic strategy.

This is not meant as a slam on either QAD, Syspro, or Epicor, but how is it possible that QAD or Syspro in the current economy can have the "overall viability" to allow them to execute better than SAP or Oracle, with their fat maintenance revenue streams? And how is it possible for Epicor to have a better geographic strategy than SAP or Oracle? Gartner does not release individual scoring for each vendor for each factor, so perhaps it scored these vendors better on other criteria.

Nevertheless, my issues with Gartner's Magic Quadrant for Midmarket and Tier 2-Oriented ERP for Product-Centric Companies are several fold:

• As indicated above, the positionings make no sense to anyone familiar with these vendors.
  
  
• Gartner's criteria for evaluation are almost certainly going to be different from the criteria of a specific buyer. For example, if I run a manufacturing company with operations solely in the U.S, why do I care about worldwide geographic presence?
  
  
• As a buyer, is "completeness of vision" really one of the two primary criteria in evaluation? How about fit to my functional requirements and industry? On this note alone, IFS and Lawson, with their industry-specific focus are being shortchanged in this version of the MQ.
  
  
• The MQ is incomplete in terms of vendors. Specifically, as Vinnie Mirchandani pointed out in a private Tweet to me, Gartner has conveniently left out the pure SaaS vendors, such as NetSuite and Intaact, from this MQ.
  

Furthermore, the MQ does damage in the sales cycle as vendors are quick use the MQ in their sales presentations, if their position is favorable, with the implication that prospects ought to choose them because of it. First-time buyers, especially in small or midsize companies, may not understand the misuse of the MQ in this way.

To be fair to Gartner, the fine print at the bottom of its study says:

Gartner does not endorse any vendor, product or service depicted in the Magic Quadrant, and does not advise technology users to select only those vendors placed in the "Leaders" quadrant. The Magic Quadrant is intended solely as a research tool, and is not meant to be a specific guide to action.

Nevertheless, I think this MQ does more harm than good. In my opinion, Gartner should have left it in peace to enjoy its retirement.

Update: Quick on the trigger, Vinnie weighs in.

Update, Jun. 11: Dennis Howlett finds plenty of other shortcomings in this MQ

Update, Jun. 12: Thomas Wailgum, blogging for CIO Magazine, is dripping with sarcasm concerning both Gartner and Microsoft.

Update, Jun 19: Gartner's Jim Holincheck responds.

Related posts
Gartner retires mid-market ERP magic quadrant

Oracle layoffs, June 2009

Go to latest news on Oracle layoffs, November 2009.

---

Based on the large number of search engine referrals to the Spectator this morning, it appears that another layoff is underway at Oracle. As it turns out, a surge in such hits in the past has been an early indicator of layoffs, as news spreads within the organization and people search for more information.

If you have information or more details on what functions are affected, and numbers of terminated employees, please post a comment to this post or email me. Anonymity is honored, as always.

Update, Jun. 10: I have just received confirmation on one point made by the second and third comments on this post. At least one Oracle sales rep here in Southern California has been laid off and replaced by someone working out of (get this) India. I'm not sure how an India-based salesperson is supposed to rep product in Southern California.

The downside of vendor consolidation

Consolidation is generally an excellent strategy for reducing the cost of IT while maintaining or even improving service levels. Server consolidation, storage consolidation, data center consolidation, and applications consolidation are all examples of strategies that organizations use to accomplish these objectives. Our research at Computer Economics on consolidation consistently points to strong return on investment experiences of organizations that undergo server consolidation, storage consolidation, data center consolidation, and applications consolidation.

Vendor consolidation may also be included in the list. Reducing the number of IT suppliers has a number of benefits: fewer contracts to administer and volume discounts are two obvious examples. But vendor consolidation has one big downside: risk of vendor lock-in.

Vinnie Mirchandani has an excellent post on this subject this morning, Why I am not an Apple Fanboy. He writes,

The benefits of vendor consolidation are grossly overrated. Split your dollars across many vendors. Also, vendors often misinterpret long term relationships as license to pull lock-in shenanigans. Benchmark them constantly and refresh your vendor base periodically.

This is especially true in the case of enterprise software, such as ERP, CRM, business intelligence, and supply chain management systems. Once these systems are in place, it is very difficult to switch. Hence, enterprise software vendors promote the concept of vendor consolidation, with all of its benefits to the customer, realizing that it is also of immense value to the vendor that remains. Nowhere is this better seen than in the drive by major vendors, such as SAP and Oracle, in charging their software maintenance fees at 22% of original software license cost.

Larger firms especially have options. It is still the exception, rather than the rule, for large companies to standardize on a single enterprise software vendor. Most have two or more vendors, whether by design, or more likely as the result of mergers and acquisitions. What I am suggesting, which is contrary to conventional wisdom, is that there is some benefit to this situation. Rather than consolidate to a single vendor, rationalize the choices made and consolidate to no fewer than two.

There are several ways this strategy could be maintained. For example:

• Consolidate to a single vendor for worldwide financials, but standardize operational systems on another vendor's platform. Always leave the option open to replace one with the other.
  
  
• Consolidate to a single vendor for centralized CRM and order management, while allowing one or two different vendors to provide operational systems at the plant level, perhaps one for large plants and one for small plants.
  
  
• Revive a best of breed approach. Leave HR, asset management, and other non-core systems outside the scope of the primary vendor's implementation.
  
  
• Test vendors' touted SOA capabilities to build composite applications. If these capabilities really are what vendors say they are, they ought to allow "seamless integration" with third party applications.
  

Vendor consolidation does have merit in supplier relationships that do not lend themselves to vendor lock-in. Think supplies, such as laser printer toner. Or, temporary staffing. Or, equipment leasing.

But when it comes to enterprise applications, beware of vendor consolidation.

Rimini Street, SAP, and the future of third-party maintenance

At last year's SAP SAPPHIRE conference, Rimini Street indicated its intention to expand into third-party maintenance for SAP customers. Now, right on schedule, at this year's SAPPHIRE event, Rimini Street is announcing the availability of its support services for SAP customers, building on its similar offerings for Oracle's J.D. Edwards, PeopleSoft, and Siebel customers. It's a good move for Rimini Street and hopefully provides further validation for the third-party maintenance model.

I spoke with Rimini Street's CEO, Seth Ravin this morning about the launch. Seth indicated that his firm already has several SAP customers on board, with strong interest from many others driven by SAP's increasing prices for its own maintenance program. SAP has since backtracked on its forced march to Enterprise Support, but its original stated intention to increase maintenance fees to 22% of original license cost appears to have been enough to start SAP customers looking for alternatives.

The mood is nowhere better evidenced than by the response of German SAP users. Until now, few competitors dared challenge SAP on its home turf. But that changed when 30 CIOs invited Rimini Street to present to them in Berlin, according to Ravin. Rimini Street already has several of them as early adopters of its SAP support services.

Spread Thin?
Seth assured me that his resources are adequate to support multiple ERP vendors. Each product is supported by a separate leader and dedicated resources. In the case of Rimini Street's SAP unit, the leader is Shawn du Plessis, a "16 year SAP veteran who has held leadership roles across more than 15 major SAP full life cycle implementations with global companies such as Nestle, Sebastian International and Siemens," according to Rimini Street's press release.

But the launch of its SAP offerings has forced Rimini Street to go global. It has put up a German version of its website, and it plans to hire local resources in Europe and the Far East, complementing its workforce that until now has been limited to North America. Contrary to the practice of SAP and Oracle, it does not believe in an offshore service delivery model.

Flexible Contract Options
Seth indicated that the phrase "flexible contract options" in his press release does not refer to tiered pricing options. Rather it indicates flexibility in the contracting period. Most customers sign up for a five year term, but others buy into ten or even 15 year periods. Others adopt shorter periods, for "gap coverage," while they migrate from one system to another. Flexibility refers to the ability to tailor the contract length to the actual need. I also note that Rimini Street provides support for customer modifications or extensions to the base system, something that goes beyond what SAP or Oracle offer to their own customers. Generally, modifying base code "voids the warranty" with SAP or Oracle, as so to speak.

Why Not More Third-Party Maintenance Providers?
Why haven't there been more players like Rimini Street rising up to meet the market demand for third-party maintenance? Seth believes there are significant barriers to entry. In the case of SAP or Oracle, a potential service provider has to be willing to take on two powerful multinational organizations. Existing business partners of SAP and Oracle, those that are best qualified to offer third-party maintenance, are reluctant to offer services that compete with the parties that they rely on for sales leads, training, product access, and general good will. Finally, it takes significant resources, including funding, to build a 24/7 support organization, much of which must be built before the first customer is brought on board.

My Take
I agree with Seth that the barriers to entry are significant, though not insurmountable. The Tier I enterprise software market is ripe for disruption by third-party maintenance providers. With SAP and Oracle realizing gross margins in the neighborhood of 90% on their maintenance business, the economics are simply too strong for third party maintenance providers not to rise up.

Rumor has it that there are smaller, niche players besides Rimini Street already offering third-party maintenance contracts "under the radar," on a case-by-case basis. But they are reluctant to publicize their offerings out of fear of incurring the wrath of their business partners. Oracle's lawsuit against SAP and its former TomorrowNow unit, which provided third-party maintenance for Oracle products, only heightened these fears.

As I've written before, it may take one or two antitrust lawsuits before larger service providers feel comfortable venturing into meeting this market need. Interestingly, today's Wall Street Journal notes that the U.S. Department of Justice plans to step up antitrust actions against illegal monopoly conduct. One can only hope that one of the first markets they explore is enterprise software maintenance and support.

Related posts
Rimini Street to provide third-party support for SAP
Legal basis for third-party ERP support industry

i2 doubles up on patent litigation, sues Oracle

i2 is in a litigious mood these days. In 2007, i2 sued SAP for infringement of seven U.S. patents awarded to i2 between 1998 and 2006. SAP settled that case in 2008 for $83.3 million.

Now a Spectator reader calls my attention to i2's lawsuit against Oracle for allegedly infringing on 11 of its supply chain management patents.

i2's civil complaint against Oracle is on i2's website. The complaint was filed in the US District Court for the Eastern District of Texas, the same court that i2 chose for its SAP litigation and one that is generally regarded as friendly to patent litigants.

i2's complaint against Oracle does not indicate which Oracle products i2 believes infringe on i2's intellectual property. The 11 i2 patents are listed below, and some of these appear to be the same patents that were the subject of i2's lawsuit against SAP:

• Extensible Model Network Representation System for Process Planning (two patents)
• Planning Coordination Systems for Coordinating Separate Factory Planning Systems and a Method of Operation
• System and Method for Allocating Manufactured Products to Sellers (two patents)
• Computer Security System
• System and Method for Remotely Monitoring and Managing Applications Across Multiple Domains
• Intelligent Order Promising
• Generating, Updating, and Managing Multi-Taxonomy Environments
• Value Chain Management
• Extreme Capacity Management in an Electronic Marketplace Environment

I have no idea whether i2's case against Oracle has merit. But it's not a good sign that the only area where i2 appears to be growing these days is in patent litigation. My source notes that in the first quarter i2 layoffs hit sales, marketing, and services pretty hard. Layoffs may continue in Q2 and affect the R&D group as well. It would seem, therefore, that the one area where i2 is allocating additional budget and headcount is in the legal group.

Update, May 4: Vinnie Mirchandani follows up with his view, which is pretty funny, about the state of software industry today. Must read his short post.

Related posts
i2 layoffs underway, March 2009
JDA calls off merger with i2
SAP: If you can't beat 'em, sue 'em