The Enterprise System Spectator

Monday, May 20, 2013

NetSuite Manufacturing Moves on Down the Highway

NetSuite held its annual user conference, Suiteworld, last week, and in his day one keynote, CEO Zach Nelson highlighted "NetSuite for Manufacturing."

I wrote about NetSuite's manufacturing functionality last year in my post, NetSuite Manufacturing: Right Direction, Long Road Ahead. Returning to this subject one year later, it is encouraging to see the progress that NetSuite has made. At the same time, there will be twists and turns that NetSuite will face in continuing down this highway.

If NetSuite is going to continue its growth, reported at 28% last year in its core business, it really has no choice but to pursue manufacturing customers. Manufacturers are the largest market for ERP systems and therefore an attractive target for NetSuite's development efforts. Although manufacturers have been slower to embrace cloud computing than many other sectors have, the situation is rapidly changing. In our ERP vendor selection services at Strativa, we find manufacturing companies increasingly open to cloud ERP. Sometimes, in fact, they only want to look at cloud solutions. In other words, NetSuite is at the right place at the right time.

Balancing New Functionality with Need for Simplicity

To more fully address the needs of manufacturing, NetSuite continues to build out its core functionality, with basic must-have features such as available to promise (ATP) calculations, routings, production orders, and standard costing. In some of the breakout sessions, there were indications of that NetSuite is also exploring functionality that goes well beyond the basics: for example, supply chain management (SCM) and demand-driven MRP (DDMRP).

This leads to the first twist and turn that NetSuite will need to navigate: filling out gaps in manufacturing functionality while not over-engineering the system. Oracle and SAP are famous for having manufacturing systems that are feature-rich, requiring significant time and effort from new customers to decide which features to configure and to implement them. Part of the attraction of NetSuite is its relative simplicity and ease of implementation. If NetSuite wants to remain an attractive option for the likes of small and midsize manufacturers, or small divisions of large companies, it will be wise to pick and choose where to build out the the sophistication of the product.

For example, the availability of multi-books accounting (which I discuss briefly in the video at the top of this post) is a good move, as it has widespread applicability to both small and large companies in the manufacturing industries as well as other sectors. But does DDMRP fall into the same category? Moreover, how much SCM functionality do prospects expect from NetSuite, and where does it make sense to partner with best-of-breed specialists, who can better bridge a variety of SCM data sources?

Netsuite's recent success with manufacturers such as Qualcomm, Memjet (discussed later in this post), and others give it real-world customers to validate its product roadmap. It will do well to prioritize new development efforts to the areas where those customers deem most needed. NetSuite may choose, ultimately, to fully move up-market, to become the manufacturing cloud equivalent of SAP or Oracle. But if it does so, there are already a number of other cloud ERP providers, such as Plex, Rootstock, Kenandy, Acumatica, and Keyed-In Solutions, that will be ready to take NetSuite's place serving small and midsize manufacturers.

NetSuite's PLM/PDM Strategy Needs Openness

NetSuite also announced a new alliance with Autodesk to integrate its PLM 360 offering for product lifecycle management with NetSuite's ERP. This is in addition to NetSuite's existing partnership with Arena Solutions.

By way of background, PLM systems manage the entire life-cycle of product development, from ideation and requirements gathering, through design and development, to release to manufacturing, service, engineering change, and retirement. PLM systems take an engineering view of the product and are generally under the domain of the client's product engineering function. PLM systems generally include product data management (PDM) systems as a subset, to manage all of the product data, such as drawings, specifications, and documentation, which form the definitions of the company's products.

Over the past 20+ years, the integration of PLM and PDM systems with ERP has been a difficult subject. In organizations where engineering and manufacturing work well together, basic roles and responsibilities can be defined and proper integration of data can be accomplished. In organizations where such cross-functional processes are weak, PLM/PDM and ERP often form separate silos.

Autodesk's PLM 360 shows very well, and the story about its cloud deployment matches well with NetSuite. However, it is my observation that the majority of manufacturers would do well simply to establish simple integration between their engineering bills of material (within their PLM/PDM systems) and their manufacturing bills of material (within their ERP systems). Making engineering documentation within the PLM/PDM system available to manufacturing ERP users is also highly desired. Furthermore, there are few engineering organizations that have not already standardized on a PLM/PDM system (e.g PTC's Windchill, Solidworks, and others), and they will seldom be willing to migrate to Autodesk just because the company is implementing NetSuite's ERP.

This is another turn of the highway that NetSuite must navigate: will it offer standard integration to a variety of PLM/PDM systems, or will its answer to engineering integration be, "Go with Autodesk or Arena?" I do not believe that an Autodesk- or Arena-preferred, strategy is the best.

Case Studies Encouraging

To validate its progress in the manufacturing sector, NetSuite reported on several case studies.

• At the large end of the spectrum there was Qualcomm, the $19 billion manufacturer of semiconductors and other communications products. Although Qualcomm has Oracle E-Business Suite running throughout much of its operations worldwide, in 2011 CIO Norm Fjeldheim chose NetSuite for use in smaller divisions, based on the need for implementation speed and agility. As part of that strategy, Qualcomm  has now gone live with NetSuite in a newly launched division in Mexico. This is a nice "existence proof" for a two-tier ERP strategy in a very large company.

• At the smaller end of the spectrum there was Memjet, a manufacturer if high-speed color printer engines. Martin Hambalek, the IT director at Memjet, did a short on-stage interview during Nelson's day one keynote. Although the company has just 350 employees, it has engineering and manufacturing operations in five countries. Unlike Qualcomm, Memjet runs NetSuite as its only ERP system worldwide, showing NetSuite's capabilities for multinational businesses. Notably, Memjet is also a customer of Autodesk for its PLM 360 system, mentioned earlier. In my one-on-one interview with Hambalek later during the conference, I learned that he is the only full-time IT employee at Memjet: evidence that a full or largely cloud-based IT infrastructure requires many fewer IT resources to maintain.

Customer stories are the best way to communicate success, and these two NetSuite customers substantiate NetSuite's progress.

Rethinking the Services and Support Strategy

As much as ERP functionality is important to manufacturers, there is another element of success that is even more important: the quality of a vendor's services and support. It struck me during the keynotes that, apart from an announcement of Capgemini as a new partner, there were no announcements about NetSuite's professional services. 

More ERP implementations fail due to problems with implementation services than because of gaps in functionality. Functional gaps can be identified during the selection process: but problems with the vendor's implementation services are more difficult to discern before the deal is signed. Furthermore, functional gaps can often be remedied through procedural workarounds. But once the implementation is underway, failures in implementation services are difficult to remedy. Sometimes, such failures wind up in litigation.

In this regard, NetSuite's rapid growth has a downside: it stretches and strains the ability of NetSuite's professional services group to spend adequate time and attention on its customers' implementation success. In advising prospective ERP buyers, I have much more concern about what their implementation experience will be than I do about any potential gaps in NetSuite functionality.

One solution is to build a strong partner channel of VARs, resellers, and implementation service providers to complement or even take over responsibility for post-sales service and support.

During the analyst press conference, I asked Zach Nelson about this point. NetSuite is building its partner channel, but how does it decide what work should go to its implementation partners and what part should be retained for NetSuite's own professional services group?  Nelson's answer reflected a traditional view, that whoever brings the sales lead to NetSuite should get the services. In other words, if a lead comes through NetSuite's own sales team, NetSuite should get the services work. If the lead comes through a partner, the partner should get the services.

As an advisor to prospective buyers, my own view is that NetSuite should rethink this strategy. The party that happens to find the prospect may not be the best party to deliver the services. In fact, NetSuite may be better served by passing off implementation services to local partners that are willing to spend more time with the customer on-site than NetSuite's own professional services group may be able to provide.

At the end of his answer, Nelson indicated that he would actually prefer that NetSuite not be in the professional services business. If so, this is good news. Let NetSuite focus on developing and delivering cloud ERP, and let a well-developed partner channel compete to provide hands-on implementation services. What professional services NetSuite does provide would be better focused on providing support to those partners. 

Just before leaving the conference, I gave Dennis Howlett my initial thoughts in this video interview on NetSuite Manufacturing and multi-book accounting.

Disclosure: NetSuite paid my travel expenses to attend its user conference. They also gave me a swag bag.

Update: in an email exchange, Roman Bukary, NetSuite's head of manufacturing and distribution industries, comments on NetSuite's PLM strategy:

The fact that today we have a partnership with Arena and Autodesk is not a matter of “just” these two, it’s a matter of those vendors who have a smart, complementary cloud strategy and our own bandwidth to recruit and enable partners. For my $.02, we have an open strategy with the goal to change the kind of solution modern manufacturing can leverage today

Related Posts

NetSuite Manufacturing: Right Direction, Long Road Ahead.

Labels: Acumatica, Autodesk, cloud, Kenandy, Keyed-In Solutions, NetSuite, PDM, Plex, PLM, Rootstock, SaaS

by Frank Scavo, 5/20/2013 08:35:00 AM | permalink | e-mail this!



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Thursday, March 28, 2013

Does SaaS Save Money?

According to a soon-to-be-published survey by Computer Economics, IT decision-makers appreciate the benefits of SaaS, such as speed, agility, and scalability. But there is one benefit that they do not rate highly. They do not see that SaaS saves money.

Please read to the end of this post to see how I plan to quantify this issue with some hard data.

One Client’s Impression

This finding was reinforced in my mind last week, when I reconnected with a past client of my consulting firm, Strativa. We had helped this high tech manufacturer three years ago with a new CRM system selection, and the company had chosen Salesforce.com. Now the CIO wanted to pick my brain about options for upgrading other parts of his applications portfolio.

In the course of the conversation, the CIO made an interesting observation. “Frank, we think we made the right choice with Salesforce, and we believe cloud systems are the way to go. But I’ve got to tell you, they aren’t cheap.”

I indicated that I had been thinking about this subject recently and asked him to tell me more.
“Well, when you count the per-user fees, plus the platform costs, plus the partner apps that you want to implement, it can add up to a lot of money year after year,” he explained. “And, of course, you still have the up-front implementation consulting fees.”

Changing the Subject

Later in the day, I posted a couple of tweets about this conversation, and the reaction from some of my followers was interesting. “The real benefits of SaaS are in flexibility and agility,” replied one follower. “You shouldn’t be looking at TCO,” replied another.

I'm always amused when analysts and consultants want to tell customers what questions they should be asking or not asking. As if some questions are off limits.

Now, as a proponent of cloud computing, I’ll put myself right up there with the best of them. However, I would like to know: how does the total cost of SaaS compare to on-premises systems? Moreover, if SaaS is more expensive, isn’t that useful information for IT decision makers?  Of course it is. If a customer is going to make a technology decision, the customer should have all the information needed. Certainly, cost is one of the factors he or she should be taking into account.

Four Theories

So, let's consider: why might a customer think that SaaS doesn't save them money? Off the top of my head, there are at least four possibilities.

• Theory 1: SaaS does save money, but customers don’t realize it. In other words, perhaps customers do not fully appreciate the cost of staffing and supporting on-premises systems, such as the cost of implementing future upgrades. These are costs that are eliminated or greatly reduced with SaaS. But since customers do not fully recognize those costs, they do not count those savings. Or, because of the cost, they might be avoiding upgrades of on-premises systems and not recognizing the price their organization is paying by not staying current.
   
• Theory 2: SaaS does save money, but you only realize those savings when you completely eliminate your on-premises systems. If you still have most of your systems on-premises, moving just one of them to the cloud doesn’t eliminate your data center or data center staffing. So, you are not able to realize the cost savings from eliminating the data center. 
   
• Theory 3: SaaS does save money, but vendors don’t pass along those savings to customers. In other words, SaaS applications are cheaper to for vendors to develop, deploy, and maintain, but SaaS providers are just matching the prices of on-premises vendors and enjoy extra profits.
   
• Theory 4: SaaS is more expensive than on-premises systems, but it’s worth it. Perhaps SaaS does not save money, but the value of SaaS in terms of flexibility, agility, and scalability are so overwhelming that it’s worth it to customers to pay extra.

Now, these four theories are not mutually exclusive. For example, SaaS may save money (Theory 1) and also allow vendors to appropriate some of the cost savings as extra profit (Theory 3). Or, a mix of on-premises and cloud systems do not save money (Theory 2), but its still worth it for customers in terms of agility (Theory 4). Furthermore, the answer may be different for different SaaS applications. For example, perhaps cloud CRM saves money, but cloud ERP doesn't.

More Data Needed

But, the general question is still unanswered. Generally, from the customer’s perspective, does SaaS save money?

To answer this question, Computer Economics has launched another survey. As part of our annual IT spending and staffing survey, we are looking for organizations that have moved most or all of their applications portfolio to the cloud. In other words, we are looking for customers that have no internally supported data center, or at least, a minimal set of on-premises systems. We are asking these customers to take part in our regular annual survey, and we will compare the IT spending ratios of these select customers against our standard industry ratios for IT spending and staffing. We will also interview these customers to learn more about their experience with SaaS and the perceived value as well as challenges.

Through this study, we hope to be able to answer three main questions. First, do companies that have gone largely to cloud computing spend less on IT than those that have not? Second, how does the mix of IT spending differ? Finally, where do customers see the business value of SaaS?

We already have a handful of respondents and the initial data is quite interesting. But we need more. If you are a company that has implemented all or most of your business applications in the cloud, please apply to take our survey. As an incentive, survey participants will receive $2,500 of free research reports.

Apply for the Computer Economics Survey >>

Photo credit

Labels: cloud, SaaS, Salesforce.com

by Frank Scavo, 3/28/2013 01:31:00 PM | permalink | e-mail this!



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Wednesday, March 27, 2013

Microsoft Dynamics Move Up-Market: What’s Missing?

In December 2012, I wrote about four market forces that are pushing Microsoft Dynamics onto large enterprise turf. I also outlined several case studies in which Microsoft was having success with large multinational organizations. Now, more recently, I attended the Microsoft Dynamics annual user conference, Convergence, and had an opportunity to interview Microsoft executives and customers to see what further progress Microsoft was making in its move up-market.

Bottom line: Microsoft has many of the necessary elements in place to continue its move into large enterprises, but it still needs to fill several major functional gaps in its product offerings.

Continued Evidence of Success

In recent years, Microsoft has had several implementations of its Dynamics AX and Dynamics CRM systems in large enterprises. These include Carrefour S.A, the world's second largest retailer, Nissan Motor Company, Shell Retail, and others.

Now, at its Convergence conference, Microsoft highlighted two more large company success stories:

• Dell Computer is the world's third largest PC manufacturer as well as a leading provider of a variety of IT products and services, with revenues of $57 billion. Dell is in process of consolidating its manufacturing ERP systems onto Microsoft Dynamics AX, with Oracle E-Business Suite continuing to run in headquarters and for certain corporate shared services.
    
• Revlon is the well-known cosmetics company with worldwide revenues of nearly $1.5 billion. Revlon consolidated 21 ERP systems to a single instance of Microsoft Dynamics AX.

Another key success factor for the large enterprise market is the ability to provide direct support. In this regard, Microsoft's reliance on its partner channel is often not sufficient for large companies. To address this need, Microsoft has been building up its Microsoft Services unit, which provides consulting and premier support not only for its Dynamics business applications but also for Microsoft's entire portfolio of offerings. The Microsoft Consulting Services (MCS) Dynamics unit has reportedly doubled its headcount over the past year, and it can provide everything from high level program and partner management services to hardware support in conjunction with its large OEM partners, such as IBM and HP. For large customers, Microsoft can even take responsibility for service levels of the deployed applications.

Three Major Functional Gaps

These case studies, along with Microsoft's direct services capabilities, indicate that Microsoft has had some success in the large enterprise market. But are these exceptions, or are Microsoft's offerings mature enough to routinely take business away from the Tier I ERP and CRM players?

The answer is, not yet. Microsoft as an organization has the global presence and the resources to do so, but the Dynamics business applications at present lack functionality in three critical areas. Until these are filled, Microsoft will be limited in the number of deals where it can be short listed against Oracle and SAP.

1. Human Capital Management (HCM). Microsoft Dynamics AX today does have some HCM functionality for core HR, talent management, benefits administration, and employee/manager self-service. In addition, it does provide payroll for US and Russia. However, those who have studied this functionality do not view Microsoft's HCM offerings as competitive with SAP, Oracle, Workday, or other first tier HCM providers. In the SMB market, Microsoft could get away with these deficiencies, as many prospects either do not include HCM in their acquisition plans or are satisfied to work with a Dynamics partner for any gaps in functionality. In the large enterprise space, however, this is often not an acceptable strategy. This is especially true when the Microsoft partners for HCM are only regional players.
    
2. Customer Service. The Dynamics team prides itself on the success of its Dynamics CRM offering, built from scratch to be a serious competitor to Salesforce.com, SAP, and Oracle. However, Dynamics CRM is not a full CRM offering. Its functionality is limited largely to sales force automation and now marketing automation (thanks to the 2012 acquisition of Marketing Pilot). Dynamics CRM lacks a full set of functionality for customer service and field service. So, when prospects are looking for a solution that gives them a 360-degree view of the customer—both new customers and existing customers, for both sales and for after-sales services—they quickly scratch Microsoft from their short lists. If they really want to go with Microsoft, they look to Microsoft partners to provide the needed functionality. Again, this approach may work for Microsoft's traditional SMB market—although even there, the lack of a customer service module is still a limitation.  But in large global enterprise deals with thousands of users, most prospects take a quick look at Microsoft and move on to more robust providers.
    
3. Supply Chain Management (SCM). Microsoft Dynamics AX today only offers traditional material planning functionality, so-called MRP and MRP-II systems. There are no supply chain execution modules for warehouse management, transportation management, or logistics. Neither is there supply chain planning functionality for demand forecasting, sales and operations planning, constraint-based scheduling, supply chain optimization, or event management. Again, in the SMB market, many prospects are doing well if they can implement basic MRP, and those who need more are often happy to consider partner solutions. But in the large enterprise space, prospects often expect this functionality to be part of the core offering.

Partner solutions work best when they address narrow industry needs—for example, law firm practice management from Lexis Nexus, or complex manufacturing functionality from Cincom. But for broad horizontal systems, such as HCM, customer service, and supply chain management, prospects expect the ERP or CRM system to be able to provide that functionality directly. Partner solutions at this point are simply a band aid.

The good news is that Microsoft recognizes these deficiencies and intends to deal with them over the course of the next few years, although, for the most part, it is not giving out details publicly. The one area where Microsoft has indicated specific plans is in the supply chain area. Later this year, it intends to announce new capabilities for Dynamics AX for warehouse and transportation management, along with demand management. This is a good start. In the other two areas—HRMS and customer service—Microsoft executives only indicate that they realize these needs and intend to address them in future releases of Dynamics AX and Dynamics CRM.

Priorities, Priorities

The large company case studies illustrate that Microsoft Dynamics has an expanding presence in the large enterprise market. Nevertheless, it would be unusual to see Dynamics fully replace Oracle or SAP for customers in this space. That said, Microsoft still can be successful in the large enterprise space, if prospects see SAP and Oracle playing a restricted role: pushing them back into a corral to serve only their core financials and perhaps core HRMS needs. Outside of this corral, Microsoft Dynamics can then become the operational system platform for such organizations.

If this is the case, the lack of HR functionality does not need to be an immediate impediment for further Microsoft progress up-market. Baring some major acquisition by Microsoft, it is unlikely that Microsoft Dynamics will have the richness of HCM functionality needed to displace SAP or Oracle in the HCM space. Any future Microsoft development in HCM will be more appealing to midsize organizations than to the large enterprise market.

Likewise, Microsoft’s lack of supply chain functionality does not need to be a major impediment. Manufacturing, distribution, and retail prospects will still need to fill their SCM requirements with a third-party solution. Fortunately, there are good offerings from Microsoft partners for warehouse management and transportation management. Furthermore, even many SAP and Oracle customers look to best of breed solutions, such as E2Open and Kinaxis, for supply chain planning systems. So, the lack of Microsoft SCM offerings does not need to be a show stopper.

The weakness of Microsoft’s customer service and field service features in the CRM product, however, is more problematic. When looking at CRM, most large enterprises want more than salesforce automation. Microsoft’s acquisition of Marketing Pilot for marketing automation fills one gap. A similar acquisition or internal development of after-sales service functionality is probably the most urgent need if Microsoft is to further succeed in the large enterprise market.

A Fiercer Battle

What could go wrong with Microsoft's up-market ambitions? First, SAP and Oracle are not going to let themselves be passively corralled within corporate headquarters. Both vendors have major programs to further develop and serve line of business system requirements: SAP with its acquisitions of SuccessFactors, Ariba, and its line of business cloud applications; Oracle with its Fusion Applications.

Second, there are other providers that have the same up-market ambitions as Microsoft. For example, Infor, which is headed up by former Oracle co-President, Charles Phillips, fully intends to be a credible alternative to SAP and Oracle, and it already has a much broader footprint of applications than Microsoft has. Likewise, Workday from the very beginning took aim at the large enterprise market for HCM, financials, and operations management for services firms, and it is already a major thorn-in-the side for SAP and Oracle.

Microsoft’s success in the large enterprise space, therefore, is not guaranteed. But its success so far is encouraging, and if it continues to fill out its functional footprint, it will become a strong contender.

Postscript: Other analysts have good reporting on the Convergence conference. Ray Wang has an event report summing up the main news. Esteban Kolsky's has a good post on Microsoft Dynamics CRM as well as a good video interview with Dennis Howlett. 

Update, April 4: I edited the paragraph on HCM, under the heading for "Three Major Functional Gaps." The original paragraph stated that Microsoft has no offering for HCM, which was not accurate. 

Related Posts

Four Needs Pushing Microsoft Dynamics into Large Enterprises

Labels: Dynamics, Infor, Microsoft, Oracle, SAP, Workday

by Frank Scavo, 3/27/2013 01:46:00 PM | permalink | e-mail this!



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Saturday, March 02, 2013

Supply Chain Management Delivers Positive ROI Despite Challenges

Over at Computer Economics, I've just published a new report in our technology adoption series. The report, entitled Supply Chain Management Adoption Trends and Customer Experience, finds that the total cost of ownership for SCM systems often exceeds budget.

Nevertheless, the payback on SCM systems is so good that most companies achieve a return on their investment within two years, despite the challenges in managing costs.

As shown in Figure 1, the full report compares the adoption, investment, ROI and TCO rates of supply chain management systems against the rates for 13 other technologies from an annual Computer Economics survey on technology trends.

Based on survey responses, SCM and the 13 other technologies are given numerical ratings on the levels of adoption, investment, ROI and TCO. Then, SCM technology is categorized as having low, moderate, or high rates relative to other technologies in the survey.

• Adoption Rate: SCM adoption is moderate compared to other technologies in the study. That means the percentage of organizations that have SCM solutions in place is within the middle third of the range, defined by the technologies with the highest and lowest adoption rates in the study. It does not include organizations that have plans to implement the technology for the first time but have not yet done so. The moderate-to-low adoption rate for SCM is due in part to the fact that this technology does not have widespread application in some industry sectors, such as financial services or information services.  
  
  
• Investment Rate: The percentage of organizations investing in SCM technology falls just shy of moderate and earns a low rating. Investors include organizations that plan new implementations or enhancements to existing systems within the next 18 months. Once again, the relatively low investment rate is because the technology does not have relevance in some industry sectors.
   
• ROI Success Rate: Among organizations that have adopted SCM, the experience is positive. The survey shows that, compared to the other technologies in the survey, SCM has a moderate ROI success rate, bordering on the high side. The percentage of organizations at least breaking even on their investments within a two-year period is at the high end of the middle range when compared to other technologies surveyed.
   
• TCO Success Rate: However, compared to the other technologies covered in the survey, the TCO success rate for SCM is on the low side. As with many enterprise applications, there is a danger of underestimating total cost of ownership. We define TCO success as actual costs coming in at or under budget.

Interestingly, the ROI success rate is more positive than the TCO success rate. This indicates that the business case for SCM systems is strong: Some adopters must be achieving positive or breakeven ROI in spite of exceeding their budgets for SCM projects.

Competitive pressures, globalization and increasingly complex offshore manufacturing relationships are spurring organizations to expand their supply chain management (SCM) systems, which encompass a wide variety of technologies and capabilities.

The full study quantifies the current adoption and investment trends for SCM systems as well as the benefits that are driving companies to expand their SCM implementations. We assess these trends by organization size, sector and geography. In terms of economics, we look at the ROI and TCO experience of those that have adopted SCM along with current investment per SCM user. The report concludes with practical advice for those considering investment in SCM technology.

Labels: ROI, scm, supply chain management, TCO

by Frank Scavo, 3/02/2013 09:48:00 AM | permalink | e-mail this!



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Cloud Confusion on The Motley Fool

As I've written in the past, financial analysts may provide good advice for investors in the tech sector. But their analysis is not very useful to buyers of technology products and services. It's not that they don't have insights, but they are writing for a different audience: investors, not customers and prospects.

Some parts of the financial press are another story. Some financial media reporters so poorly understand the tech industry that neither investors nor prospective buyers should listen to them.  

I saw an example of this today on The Motley Fool, in a story entitled, Is Oracle's Cloud Really Fake? In it the contributor, Richard Saintvilus, takes issue with an Infoworld article by David Linthicum that criticizes Oracle's most recent "cloud" announcement as "faux IaaS."

The Motley Fool is a website aimed at the individual small investor. It provides both free content as well as paid subscriber material. It also makes money from advertising. Therefore, generating page views is a key objective, with much of its content generated by freelancers, as appears to be the case here. So, the quality of its content varies.

Apologies to in advance to Saintvilus, who reached out to me on Twitter after I sniped at his story. He asked for specifics, so here you go.

Oracle Late to the Cloud

Staintvilus immediately starts with a misconception, that Oracle was an early proponent of cloud computing. Here is his lead:

Wall Street loves a hot trend and had essentially decided four years ago that the cloud was next. With corporations needing all of the cost savings/productivity benefits the cloud offered, the timing was perfect. Oracle was one of the first blue chip enterprise companies to realize this opportunity. [emphasis here, and throughout, is mine.]

Sorry Richard. Even as late as 2009, Oracle's CEO Larry Ellison famously mocked the term cloud computing, calling it no more than a fashion statement. Furthermore, he not only mocked the term, he mocked the concept. To this day, Ellison criticizes multitenant applications, which are the cornerstone of most large scale SaaS providers. Only recently, as Oracle realized it was losing the war did Oracle embrace cloud computing, albeit with its own twist (either hosted single tenant applications, or multi-tenant applications with single tenant databases.) Industry analysts can argue all day about the relative merits of each approach. But none would claim that Oracle was anywhere to be found at the beginning of the trend to cloud computing.

Oracle Market Share in Cloud Services

He continues with a comment on Oracle's rising revenues:

The company [Oracle] is providing a service, of which there has been very few complaints -- at least not according to the rising revenues, which suggest it's stealing share from rivals such as salesforce.com. And Oracle is not the cheapest on the market, either. So, there's a reason why customers are willing to pay the premium. And it's not because these corporate CIOs are dumb.

Yes, Oracle's revenues are rising. But those of Salesforce.com are rising also, up 37% in 2012. Furthermore, while all of the revenues of SFDC are derived from cloud computing, only a small percentage of Oracle's are. So to impute on the basis of revenues that Oracle is taking market share from Salesforce.com is ludicrous. Certainly, in my own firm's work advising buyers in software selection, I do not see Oracle taking market share from Salesforce.com. In fact, in CRM, I see deals in which buyers want to look at Salesforce but do not even consider Oracle, especially in the midmarket.

As far as software pricing is concerned, neither do I see Oracle as commanding a premium price over Salesforce.com, or over other application vendors for that matter. In fact, Oracle is notorious for competing on price when it really wants a competitive deal, as it knows it can make it up on maintenance revenue in the future.

But the author wouldn't know that, because he does not advise technology buyers, nor is he in a position to see actual deals going down.

Oracle's Engineered Systems Are Not "Cloud"

He then confuses Oracle's new Exa-boxes with cloud services.

However, David Linthicum of InfoWorld thinks [CIOs are] idiots (I'm paraphrasing that a bit), which doesn't make sense. CIOs are spending billions annually with Oracle. But in Linthicum's recent article, he insists they don't know what they're buying: "Oracle is continuing its faux cloud strategy, adding to its private-cloud infrastructure offering the ability to rent for a monthly fee preconfigured application servers to be deployed in customer data centers. The available application servers -- what Oracle calls 'engineered systems'"

The author can be forgiven for this misunderstanding, as Oracle itself confuses this issue, which is the whole point of Linthicum's criticism. The basic point is that cloud computing is a "service," whereas Oracle's computer hardware (whether old school Sun commodity servers, or Oracle's new "engineered systems") is a physical product. Renting Oracle hardware does not magically turn the hardware into a cloud service.

Oracle's Engineered Systems Are an Old Concept

He continues with the impression that Oracle's Exa-boxes are somehow a new concept. 

Linthicum clearly has an ax to grind. While he's going all-out on Oracle's product portfolio, rival companies have been working hard to duplicate Oracle's offerings. For instance, IBM has a rival offering called PureSystems -- launched three years after Oracle's Engineered Systems, or ES. And, after Oracle has already deployed ES to more than 1,000 customers in 43 countries, IBM followed. Big Blue has gained traction, but not to the extent of Oracle. And I doubt that IBM would have followed a model it didn't think had sustaining potential.

The author appears unaware that Oracle is attempting to return to the IBM era of the 1960s. In fact, Larry Ellison has said so himself. The IBM mainframe at the time was a single integrated platform of hardware, operating system, database, and applications engineered from the ground up to work together. IBM's AS/400 series of machines (now called Series i) took this concept even further. What broke up IBM's dominance in the mainframe era was the fact that these boxes were all based on proprietary standards, and eventually low cost commodity hardware (whether IBM personal computers, or later, Unix boxes from providers such as Sun) could do the job much more cost effectively. The downside was that the new approach led to challenges in system integration, in making all the layers of the technology stack work together.

Oracle's strategy with its Exa-boxes is to return to this single technology stack from hardware through applications, engineered from the ground up to work together. Will Oracle be successful? Only time will tell. And, certainly the 1,000 customer number that the author mentions is not yet enough of a measure of success.

Regardless, what does any of this have to do with cloud computing? Absolutely nothing. Oracle is launching a public cloud offering, with its Exa-boxes as part of the infrastructure. Other providers can do the same using commodity hardware, as Google, Amazon, Microsoft and others have already done.

But the Oracle offering that Linthicum is criticizing and that the author is defending is not Oracle's public cloud service. Rather it is an arrangement whereby Oracle customers can, for a monthly fee,  rent preconfigured Oracle application servers and run them in their own data centers. Linthicum is absolutely right: this has nothing to do with cloud computing.

According to the NIST definition of cloud computing, there are five essential characteristics of cloud computing, and Oracle's hardware rental offering does not satisfy four of them. (See the link in this paragraph for a more complete definition.)

• On-demand self-service. Oracle's rental agreement does not allow the customer to unilaterally provision computing capabilities, such as server time and network storage, as needed automatically without requiring human interaction with each service provider.

• Resource pooling. Oracle's rental agreement does not pool computing resources for multiple customers in a multi-tenant model, with different physical and virtual resources dynamically assigned and reassigned according to consumer demand.

• Rapid elasticity. Oracle's offering does not allow computing capabilities to be elastically provisioned and released, in some cases automatically, to scale rapidly outward and inward commensurate with demand. As Linthicum points out, the customer has to pay extra for spikes in demand and there is no provision to ramp down demand, and cost.

• Measured service. Oracle's offering does not automatically control and optimize resource use by leveraging a metering capability. Customers do not pay as they go.  

Clearly then, Oracle's offering may use the terminology of cloud computing but it does not display the essential characteristics of cloud computing. You can call me a fish, but that doesn't make me one.

The List Goes On

I have neither the time nor the patience to go much further. Let me just list a few (and by no means all) of the remaining errors.

• "Linthicum is pretending to be an expert on something that is still in its infancy." Cloud computing may not be a full grown adult, but it is certainly not an infant. Providers such as Salesforce.com have been delivering cloud services for well over a decade, ancient history in the technology industry.  
• "Oracle innovates at the technology layer, thereby giving customers more leverage and independence from consulting fees." What exactly is the "technology layer?" Everything from bare metal hardware to business applications are "technology." Furthermore, talk to Oracle customers: I doubt anyone will tell you they have less need for consultants. 
• "Had Cisco contracted out its cloud services to Oracle, it could have remained focus on growing its business." The types of cloud services that Cisco offers, such as cloud network management, are not services that Oracle provides. Therefore, it would not be possible for Cisco to contract with Oracle to provide those services on behalf of Cisco. 
• "Even if Linthicum's pricing claims were correct, then it means Microsoft's Azure, which has a pay-as-you-go model, is also fake. But Microsoft has been reducing its prices because it can't compete." If Microsoft is lowering its Azure pricing, it's not because it can't compete, but because it can deliver cloud services at lower and lower costs over time, as it scales and the costs of technology drop (see "Moore's Law"). Similarly, Amazon lowers its AWS prices multiple times per year and no one in his right mind claims it's because Amazon can't compete.
  

Parts of The Motley Fool article are nearly indecipherable, especially toward the end. But I think this is enough to illustrate: parts of the financial press are poor sources of information on enterprise IT. By that, I do not mean to imply that all financial reporters are suspect. One would not expect to see a story such as this one to appear, say, on the pages of The Wall Street Journal or Financial Times.

Furthermore, none of my criticism should be taken to mean that Oracle is not a good company from either the investor perspective or customer perspective. As the author tweeted me, "Oracle is one of the best tech names on the market and it deserves fairness."

Yes it is, and yes it does. And because of that, it also deserves accurate reporting.  

Related posts

Enterprise IT Buyers: Don’t Listen to Financial Analysts
Oracle's Behavior Undercuts Its Own Cloud Accomplishments
Cutting Through the Fog of Cloud Computing Definitions

Photo Credit: NS Newsflash

Labels: cloud, IaaS, Oracle, SaaS

by Frank Scavo, 3/02/2013 08:02:00 AM | permalink | e-mail this!



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Monday, February 18, 2013

Oracle Fusion Runs Into Oracle Apps Unlimited

Oracle is not taking well to a recent Forrester Research report, entitled, "Oracle Dilemma: Applications Unlimited Versus Oracle Fusion Applications."

Forrester's argument in a nutshell is this: based on its survey of  139 Oracle customers, Forrester contends that Fusion has had "low levels of adoption by existing Oracle customers, in part, because Oracle's Applications Unlimited policy has provided them with little incentive to migrate."

Oracle's rebuttal is difficult to put in a nutshell. Oracle goes into great detail, taking issue with Forrester's research methodology, specific survey questions, and the sample size/composition. But in my opinion, Oracle's strongest argument is against Forrester's report title. In Oracle's view, there is no "versus." Customers do not need to make a choice between Apps Unlimited and Fusion. Rather, Oracle points out that it has a co-existence strategy between Fusion Apps and Oracle's existing applications, such as E-Business Suite, Peoplesoft, J.D. Edwards, and Siebel.

I'll leave it to Forrester to defend its own report. However, it is hard to argue with Forrester's conclusion: that Fusion adoption has been slow, in part, because of the success of  Oracle's Applications Unlimited program. To better understand why, it is helpful to review some history. 

The Original Strategy

When Oracle completed its acquisition of PeopleSoft in late 2004, it had two strategic decisions to make.

1. For new customers, would it continue to actively market PeopleSoft and J.D. Edwards (which PeopleSoft had acquired) in addition to its E-Business Suite? 
2. For existing customers of PeopleSoft and J.D. Edwards, would it continue to invest in and support those products indefinitely? 

Interestingly, at the time, the answer to both of these questions was no. As I reported in January 2005,  Larry Ellison held a press conference in which he said that Oracle would not actively market PeopleSoft and J.D. Edwards but would try to push new prospects to E-Business Suite. In addition, he promised to support existing PeopleSoft and J.D. Edwards products only until 2013. "Circle that date 2013 on your calendar," Ellison said.

In the same press conference, Ellison announced Project Fusion, which would be a massive development effort by 8,000 developers to develop a new suite of back-office software products, based on the best features of PeopleSoft, J.D. Edwards, and E-Business Suite. At this point, Fusion Applications were positioned as the successor to Oracle's existing suites. "We expect people to at some point between now and 2013—sometime before that—to upgrade to Project Fusion," Ellison said.

A Mid-Course Correction

By 2006, however, Oracle realized that its strategy was not in its own best interests. By only marketing E-Business Suite, it was missing sales opportunities where PeopleSoft and J.D. Edwards were a better fit than E-Business Suite.

Moreover, Oracle's announcement that it would not support PeopleSoft and J.D. Edwards beyond 2013 took Oracle off short lists where it could PeopleSoft or JDE were good fits. In my own software vendor selection consulting, during the 2005 time-frame, I didn't short list J.D. Edwards and PeopleSoft, for this very reason.

Finally, Oracle's policy put J.D. Edwards and PeopleSoft customers on notice that they might want to consider a migration to products other than Oracle's. With software maintenance fees pulling in over 90% profit, that was the last thing Oracle wanted.

Give Oracle credit for correcting its mistakes. In 2006, Oracle announced its Applications Unlimited program, to provide ongoing enhancements to all Oracle apps beyond the delivery of Fusion. (Siebel, which Oracle acquired in January 2006, was also put under this program.) In addition, Fusion would not be a successor to Oracle's other suites: it would not be functionally equivalent to E-Business Suite, for example. Rather, it would comprise a series of applications, such as CRM and Human Capital Management (HCM) that could be implement alongside E-Business Suite.

The Tradeoffs

Oracle's decision to continue support for its existing applications, while developing Fusion as a set of complementary next-generation applications, was the right decision.

• Replacing Oracle's existing applications suites with Fusion was too ambitious a goal. Thousands of developer man years had been invested in developing E-Business Suite, JDE, and PeopleSoft, which would need to be repeated by Fusion developers. Furthermore, since 2005, Oracle has been continuing enhancement of these products, meaning that functional parity is a moving target. Finally, during the course of Fusion development, Oracle continued making other acquisitions, such as Siebel and Hyperion, further moving the target.
• Customers retain the value of their prior investments. Oracle's existing business suites are not dead-end platforms. The Apps Unlimited program preserves customer investments and keeps maintenance dollars continuing to roll in, which Oracle needs to fund Fusion development. 

But Oracle's strategy comes with a price. In a sense, Oracle's Application Unlimited program has been too successful. By continuing investment in its existing application suites, Oracle gives customers little incentive to move aggressively to Fusion. There is no burning reason for customers to change. To be sure, if Oracle customers are in the market for CRM or HCM, for example, they will have a reason to consider Fusion. But in any given year, this will be a small percentage of Oracle customers.

Perhaps this is the reason that nearly 18 months after Oracle announced general availability of Fusion Apps, Oracle has sold it to only 400+ customers, with only 100+ in production. Oracle refuses to disclose a breakdown of these 400+ customers, but word on the street is that they are heavily weighted toward Fusion HCM.

But there are other reasons that Fusion is not selling as well as one might expect for a product that is 18 months in general availability.

• Fusion is not a complete ERP solution. It lacks core functionality for manufacturing and operational support in other industries. Fusion Apps are, for the most part, really a replacement for pieces of an enterprise suite, a collection of complementary modules. 
• Fusion has functionality gaps. For this reason, Fusion is often sold to new prospects in conjunction with older Oracle products, if at all. For example, in a recent CRM deal, Oracle proposed a solution that comprised pieces of Oracle CRM On-Demand, Siebel, and RightNow. Fusion CRM was not even part of the solution, as apparently it did not satisfy certain industry requirements.
• Fusion is difficult to implement. Anecdotal reports of early adopters indicate that Fusion Apps have a fat footprint. They have complex infrastructure requirements, and as a result, Oracle says that two-thirds of customers are choosing to have Oracle host their systems.

Nevertheless, the success of Oracle's Apps Unlimited policy is the primary inhibitor of Oracle Fusion Applications adoption. Enterprise applications are sticky. It is difficult enough for vendors to get customers make a change, even when vendors announce end of support for an existing product. Imagine how hard it is to get customers to take action when you are promising them continued investment in their existing products. Oracle's Applications Unlimited program--though good for Oracle and Oracle's customers--has served to slow adoption of Fusion. 

Chris Kanaracus at Infoworld has a summary of the two sides of the debate. As usual, Dennis Howlett has his own point of view. Holger Mueller actually thinks it's good that Oracle customers don't know about Fusion.

Update, Feb 19: Floyd Teter has an incredibly informative post on customer options for deploying Oracle Fusion Apps, confirming and going beyond some of my points here. 

Related Posts

Oracle to Steer New Customers Away from PeopleSoft Products
Fusion to Build on Oracle's E-Business Suite
More on Oracle's Fusion Strategy
Oracle's Secrecy on Fusion Specifics
Oracle's Roadmap for Fusion Apps

Labels: Oracle

by Frank Scavo, 2/18/2013 08:37:00 AM | permalink | e-mail this!



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Monday, February 04, 2013

SAP Goes Back to the Well for a Maintenance Fee Hike

Jarret Pazahanick alerted me to an email that went out this morning to SAP partners, announcing a unilateral price increase on standard support, for new maintenance contracts signed after July 15, 2013.

The email reads, in part,

To be able to provide the same level of support in the future, we will change the maintenance rate for new maintenance contracts with SAP Standard Support from 18% to 19%, effective July 15, 2013.

This moderate adjustment does not apply to any existing maintenance contracts for SAP Standard Support closed before July 15, 2013. We also want to be respectful about budgets being planned for 2013. Therefore, we encourage you to take advantage of the opportunity to place purchase orders with SAP Standard Support ahead of this change at the existing 18% rate until July 14, 2013.

I would point out that this is not a 1% increase in maintenance fees: it is a 5.5% increase (1/18 = 5.5%).

If I were an SAP customer, I would have four questions for SAP:

1. What improvements in SAP support will SAP deliver to justify this 5.5% price increase? Can we expect our internal costs to drop by at least 5.5% as a result of SAP's improvements in its support program?
    
2. What is the gross margin on SAP's maintenance business today, and how will that change after this increase is in effect? Maintenance is the most profitable segment in SAP's financial performance. Why should it become even more profitable? 
    
3. How have SAP's cost of support increased to justify this increase in my maintenance fees? Normally the cost to support mature products decreases over time, as issues with the program code are resolved. Offshoring of application support and deflection of support activities to SAP's user and partner network also have introduced support efficiencies. Shouldn't SAP be considering a reduction in maintenance fees rather than an increase?
    
4. Since SAP uses some of its maintenance revenue to fund development of new products as well as make acquisitions, will SAP provide these new products to customers at no charge? It seems SAP charges customers for new products twice: once, when it charges maintenance fees, and again when existing customers buy those new products. 

Several years ago, SAP customers fought back SAP's attempts to impose a maintenance fee increase by forcing all customers to move from standard support (at 18%) to enterprise support (at 22%). After a great deal of public outcry, SAP backed down.  Now SAP appears to be trying to impose a smaller price increase, with no apparent improvement in service, in hopes customers will not notice.

The only good news in this announcement is for providers of SAP third-party maintenance, such as Rimini Street.

Update: Chris Kanaracus at IDG News Service reports on the SAP maintenance fee hike. Larry Dignan at ZDnet also chimes in. Ray Wang provides more background and analysis.

Update, Feb 5: Dennis Howlett has a deeper dive, and he gets clarification from SAP on several issues. 

Related Posts

SAP backs down on 22% maintenance fees
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Labels: 3PM, rimini street, SAP

by Frank Scavo, 2/04/2013 10:30:00 AM | permalink | e-mail this!



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Thursday, January 31, 2013

Mitigating Risk in Software Vendor Support

Credit: Ryan O'Connell

For implementation and ongoing support, most customers rely on their original vendors of major enterprise applications, such as ERP, CRM, and supply chain management (SCM). But what happens when the vendor is not up to the job? What steps can buyers take to mitigate the risk of vendor support failure and protect their investment?

These are questions that come to mind when reading about a recent lawsuit by a governmental agency in Puerto Rico against Infor, alleging that Infor "has been absolutely incapable of resolving serious problems" with the agency's implementation of an Infor product.

The Allegations

The agency, known the Municipal Revenue Collection Center (or, CRIM by its Spanish acronym) originally purchased a license for a computerized tax management system in 2006, prior to Infor acquiring its developer, Hansen, in 2007. Complicating matters, CRIM originally purchased its Hansen license through a Hansen partner, Rock Solid.

Reading the agency's lawsuit, CRIM appears to have done at least a partial implementation of Hansen starting in 2006. Then in 2009, CRIM negotiated and executed contracts with Infor totaling approximately $1.1M to provide services and support for its Hansen system.
Sometime after signing these agreements with Infor, things appear to have broken down.

The details of CRIM's complaint against Infor are summarized by Chris Kanaracus at IDG News Service. In summary, CRIM alleges that the original resources Hansen assigned to the project left Infor after the acquisition, and that Infor was unable to provide other resources that were up to the task. As a result, CRIM claims it has had to create patches and workarounds to keep the system active and working, a job which is made more difficult by not having access to Hansen source code. According to CRIM, serious problems remain unresolved.

Take Steps to Mitigate Risk

Although any legal complaint will, by definition, be one-sided, there are important lessons that buyers can learn, regardless of the outcome of this legal action. In fact, lawsuits of this type are often settled without disclosing the details, meaning we may never know who is at fault.

Therefore, it is more important to focus on what buyers can do, before entering into a vendor relationship, to mitigate the risk of getting into a situation similar to what CRIM claims. 

1. Implementation success is ultimately the buyer's responsibility. By all means, reach out to the vendor, or a vendor's partner, for implementation and ongoing support. But recognize that you cannot delegate success. Ultimately, it is your implementation, and your responsibility to ensure you have support. 
    
   
2. Every mission-critical system implementation plan needs a risk mitigation plan. It appears that CRIM's system was core to the agency's mission--to "collect, receive, and distribute public funds corresponding to municipalities." Inasmuch as its Hansen system supported that mission, the system is, by definition, mission-critical. Did CRIM have a risk mitigation plan? Did that plan identify the risk of losing key vendor support personnel? Apparently, not.
    
3. Software product change of ownership introduces risk. Your risk mitigation plan should include a scenario where your software product changes ownership. In some cases, support actually improves under new ownership, especially if the new owner views the acquisition as strategic and the previous owner did not have the resources to deliver required levels of support. But in other cases, the vendor may be viewing the acquisition as simply an asset purchase and may be looking to drive support costs out of the business to improve profitability. Either way, a customer should pay close attention whenever a software product changes hands, and certainly before making new investments in that software, whether in purchasing additional licenses, or as in this case, in negotiating new service contracts.
    
4. Avoid single point of support failure.  It is important for customers to always have alternative sources for support. The vendor does not need to be the only source. Sometimes local partners are a better source. Other times, third-party support may be available from organizations that are not vendor partners. Even individual consultants, if they have the right skills and experience, can be a good source, and an excellent value. A combination of vendor support and support from other sources can often be the best approach, to minimize risk and ensure continuity of service.  
    
   
5. Secure access to source code. Finally, customers should negotiate access to source code as part of their initial license agreement, to allow the customer to take over its own support. If the vendor does not accommodate this need, then it often can be negotiated as a condition of a change in control, such as a buyout or acquisition of the vendor. In cases where the vendor goes out of business, a software escrow agreement can at least deliver original source code to the customer.

Commercial software is an attractive alternative to in-house custom system development, in part, because it relieves the customer of the need to provide its own ongoing support. Most of the time, vendors deliver their end of the arrangement. But customers should plan for the times when they don't.

Related Posts

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Infor's opportunity: value in maintenance and support
Oracle applications customers: wedded bliss or battered wives?

Labels: best practices, ERP, implementation, Infor

by Frank Scavo, 1/31/2013 02:31:00 PM | permalink | e-mail this!



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Thursday, December 13, 2012

Four Needs Pushing Microsoft Dynamics into Large Enterprises

Early in November, I attended a series of analyst briefings offered by Microsoft Business Solutions (MBS), outside of Seattle. The briefings and interviews with MBS executives  provided an opportunity to catch up on where Microsoft is going with its Dynamics line of business applications. Coming away from the event, I was impressed with several overall trends that are encouraging Microsoft to move up-market, into territory that for many years has been dominated largely by SAP and Oracle.

I recently developed these thoughts more fully in a new research report at Computer Economics, Microsoft Dynamics Stepping onto Enterprise Turf. This post provides a brief introduction.

Evolving Market Solutions

In the early 2000’s, Microsoft jumped into the business applications market by making acquisitions that brought Great Plains, Solomon, Navision and Axapta into its product portfolio. These products, aimed at small and midsized businesses, established the perception that Microsoft was aiming its business applications primarily at smaller companies. When it came to enterprise applications for global organizations, Microsoft was viewed as out of its league. Those were markets for players such as SAP, Oracle and other vendors with multinational capabilities.

But the market landscape is changing. Over the past year, the Microsoft Business Solutions (MBS) division has been demonstrating that it is capable of delivering two of its business applications—Microsoft Dynamics AX (the descendent of Axapta) and Microsoft Dynamics CRM—to large and multinational organizations. Moreover, Dynamics product enhancements now rolling out will accelerate this trend.

Four Needs Encouraging the Up-Market Move

There are at least four customer needs that create an opportunity for Microsoft to move up into larger enterprises, as shown in the figure nearby.

• Multinational localizations, formerly a requirement only for large companies, are being are increasingly demanded even by small businesses.
• The desire of organizations large and small to manage their people, facilities, and equipment as one global resource pool.
• The continuing pursuit of improved productivity and tighter control, through worldwide business process consistency. 
• The need of global organizations to have operating systems that are appropriate to serve the needs of both their large and small operating units.

The MBS division continues, of course, to offer software that is aimed at small and midsized businesses (SMBs), those with single-site operations or with limited international presence. Microsoft reseller and systems integrator partners often introduce Dynamics NAV (formerly Navision), Dynamics GP (formerly Great Plains), and Dynamics SL (formerly Solomon) in these situations, sometimes in combination with Microsoft Dynamics CRM for customer relationship management.

Nevertheless, larger enterprises can now take Microsoft Dynamics under consideration when selecting a vendor for its enterprise business applications. In the large company market, it is Dynamics AX along with Dynamics CRM that form the solution offering. Although MBS is seeing success with large organizations in several industries, the retail sector appears to be particularly receptive to Microsoft's move up-market.

Although the Tier I ERP providers--SAP and Oracle--are well entrenched in the world's largest corporations, if Microsoft is able to compete effectively at this level, it will give enterprise buyers additional choice and options that they have not had in the past.

My full report discusses in detail the four customer needs that are driving Microsoft Dynamics up-market and three ways in which Dynamics now has become capable of serving these large organizations. Challenges facing Microsoft in gaining market share among larger companies are also discussed. The report concludes with examples of customers that illustrate the move of Dynamics into the enterprise market and recommendations for large enterprise buyers who are considering Microsoft Dynamics.

Related Posts

Microsoft Dynamics ERP on Azure: What Are the Benefits
What’s new with Microsoft Dynamics AX 2012

Labels: Dynamics, Microsoft, retail

by Frank Scavo, 12/13/2012 01:23:00 PM | permalink | e-mail this!



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Wednesday, October 17, 2012

Tablet Computers to Begin Displacing Laptops

Tablet computers, such as Apple's iPad, are making inroads into corporate settings, but only a small percentage of corporate employees today are using them. This will likely change, however, as tablets and tablet-like devices evolve in their capabilities and form-factors.

Market Definitions Blurring

The market for tablet and tablet-like devices is developing quickly, but there is still quite a bit of confusion. For example, in Intel's most recent quarterly conference call, CEO Paul Otellini wondered out loud about the definitions of the various types of new tablet-like computers coming on to the market.  He said,

When you start seeing an ultra book with a detachable touch screen, is it a tablet? And [if] it's based on [Intel's next generation processor] Haswell, is it a tablet, an ultra book or a convertible? I don’t know. We’ll have to invent some names for these things as we go along but what I can tell you is the level of innovation there is unbounded.

Later in the call, he answered a question the potential for tablets to cannibalize sales of personal computers and laptops.

Pressed by one analyst on how much of the slowdown in consumer PCs was related to timing of Windows 8, versus how much was related to cannibalization by tablets and phones, Otellini said that “I think it’s a bit of each.” Otellini said that once Windows 8 ships, and consumers begin to try it out, “and we have all of the touch-based ultrabooks out there, we’ll know a lot more so we’ll try to quantify that a bit more for you in 90 days.”

In other words, the line between laptop computers and tablets is blurring. Moreover, tablets themselves are evolving in their form factors and capabilities, enabling them to begin to encroach on sales of laptops.

Corporate Penetration of Tablets Low But Growing

When considering the issue of cannibalization, Intel and other suppliers are considering both consumer sales and business sales. But the evidence so far shows adoption of tablet computers is much stronger on the consumer side than the business side.

As shown in the figure nearby, our research at Computer Economics indicates that about one-third of business organizations are supporting tablet computers to some extent among their user populations. However, the percentage of corporate employees actually using tablets is quite low. At the median, less than 5% of business users carry company-supported tablet computers today. These statistics vary, of course, by industry and size of organization.

Although tablet penetration into the corporate workforce is quite low, there are signs that the usage rate will increase sharply in the coming years, based on the percentage of organizations considering these devices or planning additional investments. 

Tablet Capabilities to Mature Rapidly

To this point, corporate PC makers have not had much to worry about in terms of tablets taking market share away from personal computers. Today, most tablet computers, specifically the market-leading iPad, do not have the capabilities of laptop computers. For example, cutting and pasting text on an iPad is cumbersome.

iPads today, therefore, supplement laptops and desktop computers rather than replace them. As the market leader, Apple can afford to deliberately limit the functionality of the iPad so as to not cannibalize sales of its own MacBook laptop computers. However, as other tablet manufacturers catch up and even surpass the functionality of the iPad, Apple is likely to expand the capability of its tablet computer line.

The maturation of tablet computer capabilities will come sooner rather than later. Microsoft's introduction of Windows 8, a touch-enabled operating system that will run on PCs, laptops, tablets, smartphone and other handheld devices, is a full-featured platform. It will be able to run Microsoft Office, the core desktop application suite for most business organizations, as well as single-purpose mobile applications that are so popular on today's tablets. Tablet manufacturers will leverage these capabilities to introduce devices that are much more capable of replacing laptops than the iPad is capable of today. This will force Apple to follow suit if it wants to continue to make inroads in corporate settings. Makers of Android-based tablets will no doubt do the same, as has been rumored.

Tablets Will Begin to Displace Laptops in Corporate IT

Corporate IT organizations are not the ones taking the lead today to push tablets, or tablet-like devices, into the workforce. In most cases, it is individual business units that are forcing the IT organization to support these devices. The pressure generally is coming from sales organizations, field service, or top executives directly, who want these devices to perform simple tasks while traveling, such as checking email, scheduling appointments, entering expenses, and performing workflow approvals.

Tablets are just the latest example of the "consumerization of IT." In this regard, adoption of tablet computers in business will likely take a similar path to the adoption of personal computers over 30 years ago. When personal computers first made their appearance in business organizations, IT organizations were quite happy with having employees use IBM 3270 green screen terminals. It was business leaders that bought those first PCs and then turned to the IT organization to support them. Ultimately, IT organizations took over the procurement and management of desktop computers and addressed issues of connectivity with the corporate networks.

Likewise, today, it is business leaders who are buying tablet computers and pushing their IT organizations to support them. As these devices mature, they will become a standard part of the IT portfolio of most business organizations. At that point, we will see tablets and tablet-like devices take a serious bite out of laptop and desktop sales.

That day may come faster than IT leaders imagine.

Related Posts

Laptops Displacing Desktops: Impact on Support Costs (Computer Economics)
ERP in the Lead, But Mobile Apps Gaining Ground (Computer Economics)

Labels: CoIT, laptops, mobile, mobility, PC, tablet, tablet computers

by Frank Scavo, 10/17/2012 11:50:00 AM | permalink | e-mail this!



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Sunday, October 14, 2012

How to Optimize Your ERP System

Earlier this month, I gave a keynote presentation on the subject of ERP optimization, at the Manufacturing ERP Experience conference in Cleveland. This post provides a quick introduction to the subject of ERP optimization and a video of my complete keynote.

Not Enough Just to Select and Implement the Right System

When it comes to ERP, most business leaders realize that it is critical to select the right system and implement it successfully. Likewise, when it comes to advice about ERP, most analysts and consultants focus on their attention on best practices for ERP vendor selection and implementation. 

But very few analysts pay attention to what happens after the implementation. An organization will spend many more months using an ERP system than it will selecting and implementing it. A company might take three to six months to select a new ERP system and another year or two to implement it: but it will be using that system to support its business operations for seven years, 10 years, or hopefully even longer.

How ERP Systems Become Sub-Optimized and What to Do About It

There are many opportunities for ERP system to no longer fully serve the needs of the business--even ERP systems that have been correctly selected and implemented. Business requirements may change, due to organic growth, mergers and acquisitions, introduction of new products and services, changes in business models, new demands from customers, or any number of other factors. As a result, organizations frequently become dissatisfied with their ERP systems.

Business leaders, therefore, need to periodically optimize their ERP systems, both on the benefits side and the cost side. This ERP optimization effort encompasses four main tasks:

1. Analyze Root Problems. Trace each ERP problem according to a four-way framework, that is, problems related to (1) the software itself, (2) how the software was installed, (3) the business not using the system, and (4) the business not using the system effectively.
    
2. Identify Corrective Actions. By understanding the root causes, the corrective action often becomes clear, and it often does not mean an expensive and disruptive exercise in selecting and implementing a new system. Rather, the existing system can be optimized.
    
3. Identify Potential Cost Savings. After three years, the majority of ERP total cost of ownership is not in the up-front implementation costs: it is in ongoing support. Therefore, it is essential to optimize the ongoing support costs for ERP, considering a number of practical recommendations.
    
4. Execute the ERP Optimization Roadmap. Finally, the recommended actions need to be prioritized, planned, and carried out with just as much discipline as the original implementation demanded. If done correctly, optimizing ERP can effectively extend the life of a current system to better serve the business for years to come.

You can watch my full presentation on optimizing ERP by clicking on the image at the top of this post. 

If you'd like a full copy of the presentation slides, just email me. My email address is in the right hand column.

Related Posts

Factors that Affect ERP Implementation Cost 
Twenty Years of ERP Lessons Learned
Optimizing ERP Support Staffing in Smaller Organization

Labels: ERP

by Frank Scavo, 10/14/2012 01:22:00 PM | permalink | e-mail this!



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Sunday, September 23, 2012

SAP's Emerging Cloud Platform Strategy

I participated last week in two days of SAP briefings with a group of about 15 bloggers. Part of the time was devoted to explaining SAP's evolving cloud strategy, which I will attempt to summarize in this post. 

Keep in mind that what I'm sharing here is not SAP's own messaging around its cloud strategy. Rather, it is my interpretation of where SAP is going and what it needs to do to be successful.

SAP Has a Proliferation of Cloud Assets

Over the past few years, SAP has been at work rolling out a number of cloud services. The most well-known is Business ByDesign (ByD), a full-suite ERP system, written from the ground up for software-as-a-service (SaaS). This was an enormous development effort, and it went through two development iterations until 2011, when it was ready to scale in production. SAP now has over 1,000 customers running ByD.  

Following initial delivery of ByD, SAP also began rolling out its line-of-business applications. These were built on the ByD cloud platform to meet the needs of specific business functions, such as sales force automation (Sales OnDemand) and expense reporting (Travel OnDemand). There are others, also.

Then in 2011, SAP acquired SuccessFactors, a well-respected cloud-only HRMS vendor. This greatly increased SAP's stature as a SaaS provider, but it also added another set of cloud assets and executive leadership to the mix. Further adding to the complexity: SAP is in process of acquiring Ariba, the venerable provider of supplier networking services.

From Cloud Applications to a Cloud Platform

In my view, the current situation has led to a number of problems. First, SAP's cloud portfolio is largely a collection of unrelated systems, and several different cloud platforms. There has been no common architecture, and no integrated product roadmap.

Second, the rest of SAP's product porfolio is not standing still. Specifically, SAP has been making large investments in its in-memory database technology (HANA), and it has acquired and developed an impressive array of mobility applications and mobility platforms. All of these products have cloud-delivery aspects. 

Third, SAP lacks a single extensible cloud development environment. (ByD does have a PaaS capability, for partners only, but it is limited to ByD.) Customers and partners don't just want cloud apps, they want the ability to extend those apps and build new applications that can interoperate with them. In other words, they want PaaS (platform-as-a-service) in addition to SaaS.

SAP's emerging cloud strategy addresses all of these issues: it embraces all of SAP's existing applications as well as its database and mobility platforms, and it gives customers and partners a development environment to build upon and extend these services.

Here are key aspects of SAP's cloud strategy, as I see them:

1. Everything as a Service. Behind the scenes, SAP has been rearchitecting its SaaS offerings to be delivered as web services. For example, it has broken up ByD functionality into 32 "honeycombs," so that no two of them share a common database. Rather they communicate via messaging. SAP has taken the same approach with its line-of-business applications.  In fact, all of SAP cloud applications will be deployed as web services, including its mobility and database offerings. I have to believe this also includes SuccessFactors. SAP will now be able to sell individual modules (e.g. Finance), or a complete suite, or combinations in between.
    
2. Platform-as-a-Service. SAP has built a PaaS capability, now referred to as the SAP Netweaver Cloud (earlier code-names included JPass, Neo, and Project River.) It is intended as a multi-language/multi-framework platform. It is primarily a Java-platform, but its open nature also allows development in a variety of other languages, such as Spring and Ruby. Furthermore, it allows developers to access all of the SAP cloud applications, database services, and mobility services that are now accessible via web services (see point #1).  It even allows applications to access SAP on-premises systems such as SAP ECC, CRM, and HCM. Conceivably, therefore, the Netweaver Cloud could be used for customizations/extensions of SAP on-premises systems that have been traditionally done with ABAP coding.
    
3. Ecosystem. The SAP Netweaver Cloud can be used internally by customers or their system integrators, and it also can be also used by third-party developers to build new applications for sale on the SAP Store. This facilitates the growth of SAP's developer ecosystem.

The Netweaver Cloud runs in SAP's own data centers (including those gained through the acquisition of SuccessFactors). There are a number of other features, such as identity services and document services, which I won't go into in this post.

The Pluses and the Minuses

There are several things I like about SAP's emerging cloud strategy.

1. Integration. SAP's is finally integrating all of its cloud assets into a single platform. If successful, nearly anything SAP delivers should be available and accessible through Netweaver Cloud.
    
2. Openness. Netweaver Cloud does not use a proprietary language, like Salesforce.com's APEX. Use of public development languages, such as Java and Ruby, facilitates adoption by developers and also works against lock-in to a single platform. Likewise, the PaaS makes use of open source projects from Apache and Eclipse, which should further facilitate adoption by developers. 
    
3. Availability. Netweaver Cloud has already been released to customers, and it is scheduled for general availability at the end of this month. A free 90 day trial is already being offered. This puts SAP out ahead of Oracle, whose Oracle Public Cloud is still in controlled availability (though hopefully there will be announcements at Oracle's Open World conference next month).  

On the other hand, there are some aspects that give me concern.

1. Will Customers Understand It? The cloud-only providers have one great advantage: simplicity. Everything Salesforce.com builds is on its Force.com platform. Likewise, enterprise cloud leaders such as NetSuite and Workday grew up with single platforms. Their platforms are relatively easy to explain and easy to understand. SAP, on the other hand, has a variety of on-premises and cloud systems. Furthermore, it has built or acquired a variety of database products and mobility applications and platforms. The SAP cloud platform must now deal with all of these products. It's not easy to explain, as witnessed by the difficulty SAP's own team had in communicating it with our group of tech bloggers. If the bloggers struggle with understanding it, what hope does SAP have to make the message clear to customers or prospects?
    
2. Will Developers Adopt It? Developers are a key to success in cloud systems, just as they are in mobility applications. Salesforce.com already has a large and enthusiastic ecosystem of developers for its Force.com platform. Microsoft has an enormous ecosystem of development partners, for whom Microsoft's cloud platform (Azure) is more-or-less an incremental step in using existing Microsoft development tools. Will SAP's current population of partners readily embrace Netweaver Cloud, or will they be content to continue development in the SAP tools they have been using for years? 
    
3. Is SAP Too Late? Salesforce.com's PaaS was first introduced in 2006 (I wrote about it at the time, here). NetSuite has had CloudSuite for years. Microsoft has already rolled out and continues to refine its Azure PaaS. SAP is only now rolling out Netweaver Cloud. Though SAP denies this, I do believe that its cloud development efforts in recent years have taken a back seat to its database and mobility development efforts. So now, SAP is playing catch-up. SAP has a lot of work to do to be perceived as a cloud leader.

Regarding that last point, on the other hand, my research at Computer Economics shows that PaaS is a technology that is still in the early adopter phase. Most organizations are still buying individual SaaS applications and have not yet made a strategic commitment to cloud computing as a platform. They have hybrid systems: some on-premises, and some in the cloud. Of course, there are exceptions: these are the early adopters that embrace cloud computing not only for SaaS applications but for PaaS as a development strategy. Nevertheless, the majority have not yet seen the vision. Therefore, if SAP can quickly make its cloud strategy clear and deliver working product, it may still have a shot at being a major player.

Here are some reports from other bloggers who were at this event:

• Vijay Vijayasankar: SAP Needs A Better Cloud And Platform Story, And A Good Story Teller 
• Jarret Pazahanick: SAP Briefing - Cloud, Mobility and HCM 
• Fellow bloggers Vijay Vijayasankar, Jon Reed, John Appleby, and Harald Reiter: Video discussion on SAP Cloud, Mobility, and Database Strategy

Disclosure: SAP paid for part of my travel expenses to this event. 

Related Posts

SAP in Transition on Mobile, Cloud, and In-Memory Computing
SAP innovating with cloud, mobile and in-memory computing
Salesforce.com to allow customization of its hosted service 

Labels: Azure, cloud, Force.com, Microsoft, NetSuite, Netweaver Cloud, PaaS, SaaS, Salesforce.com, SAP, Workday

by Frank Scavo, 9/23/2012 07:08:00 AM | permalink | e-mail this!



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