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
Salesforce.com: more than an itty-bitty application
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: