Sunday, October 19, 2014
Is HR Tech Overshooting HR Capabilities?
Human resources management is a hot area for new technology, at least
based on the number of new vendor offerings. But why isn’t there greater
adoption of among HR practitioners? In this post, I outline three
reasons that interest is high but actual adoption is slow, and what business leaders should do about it.
But first, a quick summary about the leading conference on HR technology.
HR Tech Conference, a Must-Attend Event
At the urging of several associates, I attended my first HR Technology® Conference
(HR Tech) earlier this month in Las Vegas. If you are interested at all in HR technology, this annual event belongs on your calendar. Here's why:
- Thought leadership. Anyone and everyone associated with HR technology is at this conference--vendors, service providers, and HR professionals. This allows the conference organizers to select the best speakers and hold them to topics of high interest to attendees. Speakers go beyond traditional themes such as HR administration and compliance. Even cloud computing is old news to this crowd, as nearly all the leading HCM solutions these days are delivered as a service. This year, analytics was a hot topic, including predictive analytics, big data, machine learning, and employee sentiment analysis. Social business was another focus, as HR applications have turned out to be an excellent use case for social tools in recruiting, learning, and collaboration. The latest thinking around talent management was also on display.
- Peer networking. HR Tech is an HR vendor expo as well as a conference for HR professionals, so of course there is a large exhibit hall and plenty of sponsor logos plastered everywhere. But end users form a high percentage of the attendees. This creates excellent opportunities for peer networking, more so than I see in most single vendor conferences. At many events, I have to work hard to arrange customer interviews. But at HR Tech, they came to me unsolicited, while queued up for receptions, sitting at meals, or before sessions.
- Customer stories. Although vendors pay to exhibit, it doesn't buy them speaker slots, unlike many conferences. And, when they do speak, it has to be with a customer, never alone. As a result, many sessions are devoted to case studies, and there are lots of customer panels. This year there were presentations and panel discussions by HR practitioners from a diverse collection of organizations, from traditional companies such as ConAgra, Monsanto, Bristol-Myers Squibb, Unilever, Siemens, Lockheed Martin, and HP, to digital businesses such as Facebook, Google, LinkedIn, and Hootsuite.
HR is fertile ground for new technologies, from social recruiting to sentiment analysis to wearables. But can HR organizations even begin to consume it all? This is where there is a gap between what is possible and what is currently realized in practice.
Workforce Analytics Illustrates the Problem
The adoption rate for workforce analytics is a good example. In one session, Brian Kelly, a former practice leader at Mercer, gave a presentation on strategic workforce planning. It is a hot topic, as it enables organizations to address the critical gaps between the current workforce characteristics and future workforce needs. In some industries, this is a critical process, as future workforce needs are changing with evolving business models and new products and services. High tech and healthcare are two sectors that come to mind. The good news, according to Kelly, is that most organizations already have the raw data needed to do strategic workforce planning, such as basic employee census data, high level job families and critical jobs, reporting hierarchy, rewards data, and employee demographics.
But as Bill Kutik, as the former HR Tech co-chair, points out in his excellent post-conference wrap up
, HR consultants, analysts, and marketers have been saying as far back as 2001
that workforce analytics will be the next big thing. “Certainly interest is very high now in workforce analytics, but still without widespread adoption,” Bill writes. “So I find it ironic (but typical) that vendors are so focused on predicting the future when their customers don’t yet have a firm handle on measuring the past.”
So, we have to ask, if technologies such as workforce analytics are critical to the mission of HR organizations, why is there not greater adoption?
From my consulting work with clients over 20 years, I see three basic problems.
- HR viewed as a support role. Despite claims that “our people are our strategic advantage,” most companies do not view HR as a strategic function. In practice, it is a support role, focused around the basic day-to-day activities of hiring and on-boarding new employees, paying them, administering their benefits, maintaining accurate records, and keeping the organization in compliance with labor law and myriad other regulations. If the senior HR leader is in the room for strategic planning sessions, it is often as a token gesture, to keep him or her informed of corporate strategy, not as a co-equal partner with functions such as product development, marketing, operations, finance, or sales. In doing strategic planning over the past 15 years I've seen notable exceptions. But too often, HR in many organizations is like the typical IT function—it’s there to support the strategy, not to help formulate it.
- Inadequate staff levels. Second, if HR is viewed as a support function, it is a ripe target for staff reductions. With the thinning of management ranks over the past twenty years, and especially since the 2008 recession, HR professional are spread thin. When there are not enough hours in the day to deliver both the strategic and the tactical, the tactical always win. Failing to think strategically is seldom a career-ending move, but falling out of compliance with labor law can give you a quick escort out the door.
- Lacking necessary skills. Finally, most HR professionals do not have the quantitative skills to make use of new technologies such as workforce analytics. As Kelly points out, simple tools such as Excel may be sufficient for planning headcount by job function and geography. But more sophisticated analytical tools are needed to correlate projections of workforce skills, attrition rates, pay growth, diversity analytics, and external labor market data. Unfortunately, most HR professionals lack the skills to make use of these tools. HR has always been a career that is more attractive to liberal arts graduates, such as those majoring in psychology, sociology, and communications, rather than those with science and math degrees where they develop the quantitative analytical skills needed to make use of these tools.
I had a hallway conversion with my colleague Brian Sommer on this point, and Brian has now put his thoughts into a blog post, The Problem is HR, Not HR Technology.
He writes, “
HR departments are chock full of great HR transaction folks. Likewise, they have great recruiters, compliance people and more in these groups. However, is there anyone who understands data analysis, external/Big Data, etc.?
Where are the quants in HR? Where are the statistics and math majors? Where are the social scientists who understand human behavior? Seriously, giving powerful analytic tools to many HR folks today (who lack awareness or skills in these technologies and disciplines) is like giving a chainsaw to a 4-year old. If they ever got it running, you’d have a bloody mess on your hands. If you don’t know the difference between causality and correlation, you have no business playing with analytics.
A rebalancing of the talent within HR organizations is needed today. New skills, capabilities and insights are needed to make HR more relevant and able to exploit today’s new HR technologies.
Ironically, then, HR has its own talent management problem.
HR Organizational Readiness Is the Key Need
If an organization’s people are indeed its strategic advantage, then HR technology should have a prominent position in any organization’s IT strategy. But, as we discussed, most HR groups are not ready to adopt the latest HR technologies. Business leaders, therefore, should focus on developing their HR organizations as well as implementing HR technology.
For some organizations, this means changing their view of HR, from a support function to a co-equal role in business strategy. It also means reversing some of the staff cutbacks that were put in place during the last recession. Finally, it means doing something about the skills gap in HR. In many cases this will mean reaching outside of the traditional candidate pool to find new talent with the quantitative skills needed to effectively use emerging solutions for workforce analytics and other new HR technologies.
Labels: HCM, HR, hrms, HRtech
Sunday, October 05, 2014
Workday’s Goal: Tier I Cloud ERP
|Aneel Bushri, Co-Founder, Workday|
Mention Workday to anyone involved with enterprise applications, and the first response will probably be something about cloud-based HR systems. A few might also mention accounting systems.
It is becoming increasingly apparent, however, that Workday’s ambitions go beyond human capital management (HCM) and financial management systems. From briefings at a recent Workday analyst summit, I conclude that Workday intends to become the first Tier I cloud ERP provider.
What is Tier I ERP?
The term “Tier I ERP” has been bandied about for many years. It is generally understood to refer to the largest ERP vendors that are able to serve the largest and most complex global businesses. Fifteen years ago, there were several players that could arguably be members of that club. But because of industry consolidation only two vendors remain that fit that definition: SAP and Oracle.
I am convinced that Workday wants to join that club, and it wants to join it as a cloud-only provider. SAP and Oracle may be moving as fast as they can to cloud ERP, but they will forever be, at the most, hybrid providers—offering both on-premises and cloud versions of their systems. Workday, in contrast, intends to be the first Tier I cloud-only provider.
Evidence of Workday’s Ambition
There are several things that point to Workday's objective.
- Tier I customers. Unlike NetSuite, which leads the cloud ERP market in terms of number of customers, Workday from its very beginning has been targeting large companies. I noted this way back in 2008 with Workday's wins at Flextronics and Chiquita. Since then, it hasn't stopped, signing one Fortune 500 customer after another. For example, in 2013, it won HP, with 300,000 employees in 111 countries. This year it closed Bank of America, which is now Workday's largest customer. Moreover, its big company wins are not limited the US. For example, Workday recently sold Nissan and Sony in Japan and Philips in the Netherlands. Our most recent research at Computer Economics shows that Workday's typical
customer is so large that it stands head and shoulders above all other
cloud ERP providers.
- Tier I functionality. The functionality of Workday's HCM is now approaching that of Oracle and SAP, as it builds out its global footprint. It currently claims customers live in 177 countries, with 27 offices worldwide. Translations are provided for 25 languages. Outside of the US, it still relies on payroll partners, but it is building out its own payroll for the UK and France. Its Financial Management product has now reached 100 customers. It just announced a new embedded financial reporting capability (Composite Reporting) that promises to do away with a whole host of spreadsheets and data warehouse reports that large companies typically rely upon.
- Tier I cloud platform. Workday has also been building out its cloud platform into one that can handle the demands of the world's largest enterprises. It is moving its infrastructure to OpenStack, a set of open source components and architecture for software-defined data centers. This makes Workday's platform less proprietary than it has been in the past. Moreover, large companies need assurances of system availability and reliability. Therefore, like leading consumer Internet services, Workday is building its platform to quickly detect and recover from failure in any infrastructure component. Taking a page from Netflix, it will soon be randomly turning off components in the production environment as a way of ensuring its ability to recover. Phil Wainewright has more on the latest developments with Workday's infrastructure.
Some observers view Workday as less than an ERP provider, as it only provides HCM and financial management systems. But they ignore the fact that Workday has already moved beyond these functions. It already provides purchasing, expense management, and project management functionality. It also includes embedded business intelligence capabilities that embrace data inside and outside of Workday. In one sector in particular--Higher Education--it has already pushed into operational systems, with its launch of Workday Student.
Can other functional areas be far behind? Workday's CEO Aneel Bushri made a telling comment at the end of the analyst summit, "Financials are the door to everything else," he said. "After you see us land large financial deals, you will see us moving into other areas: maybe healthcare, which is mostly workflow, plus patient accounting and billing. Layer on top of that strong analytics. It might be a year or two from now, but not five years out. But right now, we can't spread ourselves too thin."
This mimics the evolution of most other ERP providers over the past two to three decades. SAP, Oracle, and many others started as accounting systems. Once they were in the door, they then became the natural choice for expanding into operational systems in other functional areas.
Avoiding Side Streets
At this point, Workday has no lack of opportunities. In fact, one of the problems it faces is that there are simply too many good ideas that it could pursue. But if I am right that Workday's goal is to be the first Tier I cloud ERP provider, it cannot afford to take its eye off the ball.
Here are some of the ideas where Workday is saying no:
- Platform as a service (PaaS). Most of the leading enterprise SaaS vendors also offer a platform for their customers to extend the vendor's system or to build their own complete standalone systems. Salesforce.com with its Salesforce1 platform is the prime example. In its recent user conference, Oracle CTO Larry Ellison criticized Workday for its lack of a PaaS.
But Workday is taking another path. First, most user development is for reporting, and Workday excels in its embedded business intelligence capabilities. Second, its applications are highly configurable, which diminish the need for customizations. Finally, where customers truly need to do new development, Workday offers an "integration cloud" to allow customers to build applications on other platforms, such as Salesforce1, and have them interoperate with Workday. With a number of other good platforms offered by other providers, it is difficult to see the drawbacks to Workday's approach here.
- Commercializing Workday's cloud platform. As noted earlier, the capabilities of Workday's cloud platform are approaching those of large consumer cloud platforms, such as Google's or Amazon's. It is robust, scalable, and fault-tolerant. It is difficult to think of another enterprise software provider that can accommodate the number of simultaneous users in a multi-tenant environment and a single application code line. After Workday's briefing update on its technical architecture, I asked, "At what point do you commercialize this platform?" By this I mean, either to allow other SaaS providers to build on a separate instance of Workday's platform, or to license the platform for them to build upon and operate themselves. The short answer was, never say never, but Workday would rather focus on building applications.
- Manufacturing industry functionality. Manufacturing companies represent the largest industry sector worldwide. Nevertheless, Workday executives are adamant that--at least at this time--they do not plan to develop manufacturing business systems. In part, this may reflect the founders' experience at PeopleSoft, where their attempt to gain market share in manufacturing never gained traction. Way back in 2003, I wrote a post, PeopleSoft Is Tired of Being the Best Kept Secret in Supply Chain Management, which highlighted just how good PeopleSoft was in manufacturing and supply chain. But PeopleSoft never broke through in a big way.
The other reason, I believe, is that manufacturing is simply a bridge too far from where Workday is today. Most of Workday's target markets today have one thing in common: they are sectors where people are the dominant costs--Financial Services; Professional and Business Services; Higher Education, Software and Internet Services; Government and Non-Profit; Healthcare; and Hospitality. These industries are best for leveraging Workday's roots as an HCM system provider. Workday could change course at any time, but right now, the leadership team feels that chasing product-based businesses would be a distraction.
Strategy is all about choices: deciding what not to do is as important as choosing a goal. Workday has no lack of those offering free advice--worth every penny!--and I've given my share in the past. Its leadership team is to be commended for keeping its focus.
If Workday's goal is to become the first Tier I cloud ERP provider, expect to see Workday begin to build out functionality to more fully serve its target industries, like it is doing with Workday Student in the higher education vertical. I'm speculating here, but it might mean merchandising systems for retail or revenue cycle management for healthcare.
Will Workday make major acquisitions to fill out its industry solutions? I don't think so. Its acquisitions to date have mostly been for technology (e.g. Cape Clear) or what I would call capabilities (e.g. Identified). Any acquisition of business applications would need to be rewritten for Workday's platform, and I sense that Workday would rather start with a clean slate in developing new functionality. Workday's approach also allows it to build upon a single object model for each key entity, such as "person," rather than interfacing entities between acquired software. Workday's approach is another point of contrast with SAP and Oracle, which have built up their cloud portfolios largely through acquisition of disparate vendors and are now facing the challenge of integration.
There is another contrast with SAP and Oracle. Workday has a tremendous advantage in that all its customers are on the latest version. Its architecture with a single code base ensures it will never have legacy customers to support--another demand on a vendor's resources.
The Tier I ERP club today only has two members. But a third member may be joining sooner than we think.
Best Practices for SaaS Upgrades as Seen in Workday's Approach
Workday Making Life Easier for Enterprise Users
Workday Pushing High-End SaaS for the Enterprise
Workday: Evidence of SaaS Adoption by Large Firms
Labels: ERP, HCM, Oracle, SAP, Workday
Sunday, September 28, 2014
Infor’s Most Urgent Initiative
After more than a decade of acquisitions, Infor is now the world’s third-largest enterprise software vendor, following SAP and Oracle. In the past, it’s been easy to characterize Infor as a roll-up of older ERP products and point solutions. But that view is no longer fair.
Beyond Acquisitions to Innovation
Under the leadership of CEO Charles Phillips and his mostly-new team of senior executives, Infor is now moving beyond acquiring other products to innovation on several fronts:
- Hook & Loop: an in-house design agency, which has brought a fresh modern user interface across all of Infor’s products, embracing mobile devices as well as desktops. With Hook & Loop, Infor can now also provide design services to its clients, an unusual competency among enterprise software providers.
- Infor ION: a light-weight middleware capability, which allows quick integration between Infor’s many products as well as third party solutions.
- Ming.le™, a comprehensive solution for social business, process improvement, and analytics.
- Deep vertical functionality, covering dozens of industries, sub-industries, and micro-verticals. For example, where some vendors might list “Food and Beverage” as a vertical, Infor makes a distinction between “Beverage,” “Bakeries,” and “Confectionery.”
- CloudSuite: Industry-specific suites of Infor products pre-integrated and deployed as cloud services, comprising five industries today with more on the way. It also includes the newly-announced Cloudsuite Corporate, which covers horizontal applications such as finance, human capital management, and purchasing.
- Data Science Lab: a newly formed group, which will develop advanced analytics capabilities across Infor’s product suite as well as offer data analytics services to Infor customers, which might otherwise be out of their reach. The group is based near MIT and includes data scientists, mathematicians, economists and other analytical skills that are beyond the reach of many Infor customers.
These strategic initiatives go beyond market messaging. In fact, until now, Infor has been deliberately muted in its market communications on these innovations, waiting until it had substantive product and capabilities to deliver. Expect to hear more from Infor in its public messaging on these innovations.
But Infor is Losing Customers
Nevertheless, while Infor is newly invigorated around innovation, the majority of its customers are stuck in the past. Many of Infor’s products were originally developed over 20 or even 30 years ago, and it is safe to say that a good percentage of the customers of those products have not upgraded them since Infor acquired them.
The first and obvious risk to Infor is that such customers may be lost to competitors. Infor does not publish attrition numbers, but some simple arithmetic shows that Infor has actually lost customers over the past four years.
Here’s the calculation. When Charles Phillips was named as CEO in October 2010, Infor indicated that it had over 70,000 customers.
At this year’s Inforum, exactly four years later, Infor gives its customer count as 73,000
. However, during these four years, Infor has made a number of acquisitions. The largest of these was Lawson Software, which Infor acquired in 2011. At that time, Infor said
that Lawson had more than 4,500 customers and that 9% of Lawson’s active customers were also users of use Infor products
. That would be a net addition of approximately 4,100 customers.
So, if we add the 4,100 customers from Lawson to the 70,000 customers Infor claimed in 2010, we come up with 74,100, which is 1,100 more than the 73,000 customers that Infor now claims. The loss of customers is undoubtedly greater, as Infor has done four smaller acquisitions since 2010
, apart from Lawson. Bottom line: Infor’s new customer wins are not even keeping pace with existing customer attrition.
Two recent examples from my consulting business, Strativa
, illustrate the problem.
- An aerospace and defense manufacturer contacted us last year about doing a new ERP selection. This customer is running an older version of an Infor product that was installed in the early 1990s. The company customized that product with changes to deal with the Y2K century-dating problem, and it has not upgraded since. The company may consider a migration to the current version of their Infor system, but it also wants to look at other alternatives.
- We recently completed an ERP selection for another company, a mid-sized manufacturer, which is running an older version of another Infor product, again, highly modified. Although we short listed Infor products for consideration, there were few advocates among users to continue with Infor. This client has tentatively decided in favor of Microsoft Dynamics and has started a proof-of-concept as the next step.
In briefings with other vendors, nearly every one of them lists Infor’s customer base as a target for new business. In fact, Phillips noted during his recent keynote at Infor's user conference that NetSuite
had sent people into the audience to recruit Infor customers. (What’s good for the goose, is good for the gander. Infor apparently had gotten wind of NetSuite’s tactic and had inserted a slide with a special offer for NetSuite customers to migrate to Infor.)
Personally, I think NetSuite's guerilla marketing tactics are more for show than for real prospecting. If NetSuite wants to target Infor customers, the best targets are not the 6,000 attendees at its user conference. Conference attendees represent those customers who are actively engaged with Infor. They are those who are either on current versions or considering to get there—or they are new prospects altogether. The Infor customers that competitors should be targeting are those who stayed home.
Customers Unable to Benefit from Infor’s New Stuff
There is a second problem with so many Infor customers being on older versions, and that is that they are in no position to take advantage of all of Infor’s new innovations. Because they are on older versions, they cannot get Infor’s new user interface, they cannot take advantage of ION for integration, their users cannot collaborate with the capabilities of Ming.le™, and they cannot benefit from the deep industry functionality that Infor has been adding to its products over the past several years.
From Infor’s perspective, these are lost opportunities to up-sell and cross-sell additional Infor products to these customers. From the customer’s perspective, there is diminished value from their past investments in Infor products, making them question why they are paying maintenance. This again opens them to abandoning ship for competing products.
Upgrading Customers Is the Critical Path to Success
If it is not apparent by now, getting customers to upgrade to current versions is absolutely essential to Infor’s success. Infor realizes this, and over two years ago it launched an initiative it calls UpgradeX
The features of UpgradeX are aimed at making version upgrades a no-brainer for customers:
- Value engineering: Infor will analyze the customer’s existing deployment and quantify the business value of eliminating modifications and upgrading the applications.
- Version upgrades. The service will move the customer to the current versions of its Infor products, which can be a daunting project for customers that are behind many versions. Infor’s website doesn’t make it explicit, but I believe Infor will allow customers to switch to a more appropriate Infor product.
- Cloud deployment. Infor uses its cloud to bring up a sandbox version of the new system quickly for the customer to prototype and understand the new version. Infor then migrates and deploys the target solution as a cloud service, assuming day-to-day responsibility for operating the system.
- Bundled professional services. Infor provides all the consulting services required to accomplish the upgrade or migration. User training is provided online. The website does not make this clear, but I believe that Infor does all this as a fixed price contract.
- Ongoing upgrades and support. UpgradeX will not be a long-term solution if newly upgraded customers fall behind again on upgrades. The offering therefore includes services to keep customers current on new versions.
The UpgradeX program has recently been assigned to Lisa Pope,
Senior VP of Infor CloudSuite, who appears to be a great pick for the job. She came within the last year to Infor from QAD, where she was VP of Strategic Accounts. Interestingly, QAD was earlier than most traditional ERP vendors in offering a cloud or hosted deployment option, beginning in 2007. According to my research
, QAD’s ERP subscription revenue now is in the neighborhood of 10% of its total revenue, which puts it at the high end of what most traditional ERP vendors have been able to achieve to date. In her role at QAD, Lisa was instrumental in this transition. She will need to build on her past experience and move even more aggressively to accomplish an even greater transformation with Infor’s installed base.
Infor Customers Should Consider UpgradeX
Some Infor customers on older versions are determined to go with a different provider. When I speak with such customers, I encourage them to take a look at UpgradeX. In many cases, they are not familiar with the innovations Infor has introduced, and they do not understand that they may be able to get upgraded quicker than they think.
Even Infor customers who have gone off maintenance should consider UpgradeX. Vendors hate to lose customers. If there is a way to recapture a customer that has gone off maintenance, a vendor is likely to make an attractive deal to do so, especially if the customer is also looking at competing products.
It is often simpler to upgrade a system that users are familiar with than to migrate to a completely new system, which reduces implementation risk. Moreover, with Infor’s value engineering services, the opportunity to eliminate or reduce modifications can also lead to longer term savings, as the customer will no longer need to support those customizations.
One word of caution: I was not able to interview any UpgradeX customers during Infor’s user conference, so I’m not able to verify the results that Infor promises. In any event, UpgradeX so far has only touched a small percentage of Infor’s installed base. For Infor to really move the needle, UpgradeX needs to be rapidly scale up to thousands of customers, not the hundreds it has now. I don’t know of any vendor that has ever been able to make such a massive impact on its legacy customers, but Infor's UpgradeX program certainly has all the pieces in place to do so. For Infor’s sake and its customers, I hope it is successful.
Infor's Two-Pronged Cloud Strategy
[Infor] Drilling Deep into Healthcare IT
New Details on Infor's Lawson Acquisition
A Guide for Cloud ERP Buyers
Labels: cloud, Infor, NetSuite, QAD
Tuesday, September 16, 2014
ERP Customer Deployment and License Preferences
As we all know, a major transition in the ERP market is underway, from traditional sales of perpetual licenses deployed on-premises to subscription services deployed in the cloud. But not all buyers are ready to make the switch. Some prefer to stick with the traditional model, while others are going whole hog to the new model. Others still, are somewhere in the middle, sticking with a traditional vendor offering but having the system hosted by the vendor or a third-party partner.
Customer preferences are complicated by what is offered by their chosen vendor. When a new customer selects a cloud ERP vendor, such as NetSuite, Plex, or Rootstock, are they doing so because of the cloud subscription model, or in spite of it? Likewise, when a customer selects a traditional vendor with on-premises or hosted deployment, is it because they are opposed to the cloud model, or is it because the functionality of the traditional vendor was a better fit?
Acumatica as a Test Bed
As it turns out, there is one vendor’s experience that can help us answer these questions: Acumatica. Acumatica is a newer cloud ERP vendor, and it has some interesting characteristics that make it a good laboratory for testing customer preferences.
- It is a fairly new provider, founded in 2008, that built its product from the ground up as a multi-tenant cloud system. It now has about 1,000 customers--a good sized sample--in manufacturing, professional services, and a variety of other industries. Moreover, there is no legacy installed base to influence the numbers.
- The system is sold exclusively by partners, and—this is the key point—partners have flexibility in how they deploy the system. They can deploy it as a multi-tenant cloud system, with multiple customers on the same system instance, or they can deploy it in the customer’s data center or a hosting data center as a single tenant deployment.
- The licensing model is also flexible: customers can buy Acumatica as a subscription service, or they can buy it as a perpetual license.
The combination of deployment flexibility and licensing flexibility yield three main groups of customers that I’ll refer to as follows:
- Perpetual License Customers: these are customers choosing the traditional license model with on-premises deployment or hosting by a partner. (Acumatica refers to these as “private cloud.” I think that term is confusing, however, as when deployed for a single customer, the system loses its cloud characteristics, such as pooled resources and elasticity.)
- SaaS Customers: these are customers choosing cloud deployment along with a subscription agreement.
- Subscription On-Premises Customers: these are customers that choose traditional on-premises or hosted deployment but pay according to a subscription agreement.
In theory, according to Acumatica, there could be a fourth category: a customer could choose cloud deployment with a perpetual license. In practice, however, no customer has asked for this. If a customer were to choose this option, they would pay the license fee up-front, plus traditional maintenance fees, plus a hosting or cloud services charge on a monthly basis.
What Deployment and Licensing Options Do Customers Prefer?
Richard Duffy at Acumatica was kind enough to share with me the customer counts for each of these three categories for the years 2013 and 2014. This allowed me to calculate on a percentage basis what options customers are choosing and—just as importantly—how those preferences are changing.
As shown in Figure 1, perpetual licenses (either on-premises or hosted) form the largest category of customers. This group accounted for 63% of new Acumatica sales in 2013, but it is falling dramatically to 42% of new customers in 2014. The SaaS customer group is picking up some of the difference: 29% in 2013 rising to 33% in 2014. But the largest increase is coming from the so-called “Subscription On-Premises” group, which accounted for only 8% of sales in 2013, rising to 25% this year.
A Trend to Cloud, But Even More to Subscription
Although I am an advocate for cloud ERP, these results indicate that—at least for some customers today—the attraction of cloud ERP is more in the subscription option than it is in cloud deployment itself. Acumatica’s experience shows from 2013 to 214, the majority of Acumatica’s sales shifted from perpetual licenses to subscription agreements. But a significant percentage of those did not deploy in the cloud: they chose the subscription agreement with on-premises (or hosted) deployment.
Duffy is quick to point out that the choice of licensing and deployment options are influenced by Acumatica’s partners. Some are accustomed to selling perpetual licenses and appreciate the up-front cash that comes from license sales. Others are accustomed to on-premises deployments or hosting in their own data centers and unless challenged by the customer may steer them toward those options. But if this is the case, the trend in Figure 1 is conservative. Without partner bias toward perpetual licenses and on-premises/hosted deployment, the trend toward subscription and cloud would be even greater.
What Does This Mean for Buyers and Vendors?
As outlined in other research from Computer Economics, the benefits of cloud ERP are clear: speed of implementation, ease of upgrades and support, agility, and scalability. But do not underestimate the benefits that come from subscription pricing—whether or not it comes with cloud deployment:
- Up-front cash savings. Unlike perpetual licenses, subscription agreements give customers pay-as-you-go pricing. Some vendors may require customers to commit to an initial contract term (e.g. one year) and pay for that up front. But even so, this is significantly less than customers would pay up-front under a perpetual license.
- Risk mitigation. Under a perpetual license, if the implementation fails, or the customer decides to switch systems after two or three years, the customer loses its entire investment in the software. With a subscription agreement, the customer only loses subscription fees paid prior to cancellation.
- Alignment of vendor’s interest with customer’s. Closely following the previous point, under a perpetual license, a failed implementation does not cost the vendor anything (assuming there is no legal action requiring vendor concessions). With a subscription agreement, in contrast, vendors must continually satisfy customers, lest they lose the ongoing subscription fees. This tends to focus the vendor’s attention more closely on customer success.
The combination of cloud deployment and subscription agreements is, no doubt, a powerful combination. But notice that the three benefits outlined above are the same, regardless of whether the system is deployed as a cloud system.
Does this mean that all customers should go for subscription pricing? Based on interviews with some Acumatica customers that chose perpetual licenses, it seems the answer is no. Some customers do not like the idea that they will be paying subscription fees for as long as they use the system. They like the thought that, if they implement successfully, they have lower out-of-pocket costs for the long run.
Personally, I think such customers are underestimating their ongoing costs, including maintenance fees and the cost of money. I also think they are under-appreciating the risk mitigation and alignment benefits of subscription agreements.
Nevertheless, Acumatica’s experience shows where customer preferences are today and where they are heading. Cloud deployment is the future of ERP, and subscription agreements are attractive, even without cloud deployment.
These findings also suggest that traditional vendors that are slow to adapt to cloud deployment may be able to benefit in the short term simply by offering and promoting subscription agreements.
Labels: Acumatica, cloud, ERP, NetSuite, Plex, Rootstock, SaaS
Wednesday, August 20, 2014
A Guide for Cloud ERP Buyers
In working with clients over the last decade, I've watched as cloud ERP vendors have been steadily encroaching on the territory of traditional ERP providers. As a result, ERP selection projects today are more and more becoming evaluations of cloud ERP providers.
However, buyers need to realize not all ERP systems that are labeled “cloud” are the same. To help buyers better understand these differences, I've just completed a new report for my research firm, Computer Economics, entitled Understanding Cloud ERP Buyers and Providers,
based on my experience in selection deals as well as extensive analysis of vendor offerings over the years.
Figure 2 from that report sums up the differences:
- Cloud-Only Providers: These are the “born-in-the-cloud” ERP vendors that do not have an on-premises offering and include such companies as NetSuite, Plex, Workday, Rootstock, Kenandy, FinancialForce, Intacct, and several others. These tend to be newer, smaller vendors (although Workday and NetSuite are each in the range of $500 million in annual revenue). Because cloud-only vendors have a single deployment option, they each can focus their entire business—from product development to sales to implementation and ongoing support—on the cloud. As a result, they make fewer compromises and tend to deliver the maximum benefits of cloud solutions in speed, agility, and scalability.
- Traditional ERP Vendors: These are larger, more established providers such as SAP, Oracle, Infor, Microsoft, and a number of others. They are growing more slowly than cloud-only providers. They have more complex businesses as they have to support their on-premises customers as well as their hosted or cloud customers. Because they have developed their solutions over many years or even decades, their functional footprint tends to be more complete than those of cloud-only providers.
There is much more in our analysis of the cloud ERP market, which describes these two major categories of cloud ERP providers in more detail. In addition, the report also segments cloud ERP buyers
into two categories: first-time buyers looking for their first ERP systems and established companies replacing their legacy systems. As it turns out, generally speaking, these two categories of buyers have different pain points and different criteria driving their decision-making.
At this stage of cloud ERP market maturity, each of these provider
categories has its advantages and disadvantages, and there is no one
right answer for a given buyer. Organizations considering cloud ERP need
to carefully consider their requirements, their choices, and what
tradeoffs they are willing to make. We, therefore, conclude with recommendations for buyers looking at cloud ERP. We also have some advice for providers that seek to serve these two types of buyers.
As a practical aid to buyers, the full report
includes two lengthy appendices, which provide profiles of the key ERP vendors of hosted and cloud solutions today, along with an assessment of their market presence. Cloud-only ERP providers profiled include Acumatica, AscentERP, FinancialForce, Intacct, Kenandy, NetSuite, Plex Systems, Rootstock, and Workday. Traditional ERP providers with cloud/hosted solutions include Epicor, IFS, Infor, Microsoft Dynamics, Oracle, QAD, Sage, SAP, Syspro, and UNIT4.
The Cloud ERP Land Rush
Computer Economics: Choosing Between Cloud and Hosted ERP, and Why It Matters
Labels: Acumatica, AscentERP, cloud, Epicor, FinancialForce, IFS, Infor, Intacct, Kenandy, Microsoft Dynamics, NetSuite, Oracle, Plex, QAD, Rootstock, Sage, SAP, Syspro, UNIT4, Workday
Thursday, July 17, 2014
SAP's Revamped Strategy for Small and Midsize Businesses
SAP announced today the launch of a new division focused solely on sales of its systems to small and midsize businesses. The SMB Solutions Group will be headed up by Dean Mansfield and will focus on companies with up to 500 employees. Moving against the tide, Mansfield comes to SAP from NetSuite, where he headed up global sales and operations.
Product Strategy: Simplified Suite on HANA and Business One
What I find most interesting in the SAP press release
is its ambiguity on what products Mansfield will be selling into the SMB market. The first part of the announcement appears to be saying that SAP will target the SMB market with a cloud version of its Business Suite, though it does not say so explicitly:
Mansfield will execute on a board strategy to redefine the SMB business solutions market by creating the next generation of simplified, integrated business applications powered by SAP HANA®, delivered via the cloud that will solve tomorrow's complex SMB business challenges.
The announcement then explicitly mentions Business One (a separate system from SAP's Business Suite), which will continue to be sold and supported through partners. It also refers to a push to move those partner offerings to hosting on HANA, as a separate deployment option for SMBs:
In addition, Mansfield will lead the current SAP Business One application portfolio, which will continue to operate through the Global Partner Operations organization, and plans to accelerate the adoption of SAP Business One, version for SAP HANA, as well as the SAP Business One Cloud solution, version for SAP HANA.
What's missing from the announcement? Any mention of SAP Business ByDesign (ByD).
This lack of clarity about the products that SAP will offer to SMBs was also picked up by one analyst in SAP's quarterly earnings call
. Adam Wood from Morgan Stanley, noting that SAP appears to have deemphasized ByDesign, asked SAP CEO Bill McDermott what would be the main product focus in SAP going to market with SMBs.
McDermott responded, in part:
ByDesign is still part of our product portfolio and we now have ByDesign on SAP HANA, which is absolutely a game changer because everything is faster and better on HANA as you know. [Emphasis mine.]
McDermott is a careful speaker, and his use of the word "still" is revealing. He wouldn't dream of saying, "The Business Suite is still part of our product portfolio," or "SAP HANA is still part of our product portfolio." The word "still," therefore, indicates that ByDesign is not
part of SAP's core strategy.
We also believe strongly that Business One has been going through an indirect channel now and has proven itself to be a very successful, high growth, double-digit business with good margin. So we will continue that. But we also put B1 up on HANA in the Cloud and we go global and we think that can be a very serious category killer.
Once it get into the market place and people see what it can do on HANA and we will continue innovate in that space now with a defined agenda underneath Dean Mansfield. So it's a combination of things we are going to go after the market with.
So, this confirms the implication in SAP's announcement that, in contrast to Business ByDesign, Business One is strategic to SAP's SMB strategy.
Without directly using the words "Business Suite," McDermott then implied that the Business Suite itself, running on the HANA Enterprise Cloud, would also be a product offering for SMBs:
Related to the HANA Enterprise Cloud and the multi-tenant debate, the bottom line is the HANA Enterprise Cloud and each customer wants their solutions. They want it beautiful. They want them to work and yes, we can make money on it because HANA is the great simplifier.
When you radically simplify the IT stack--I mean SAP [in context, the SAP Business Suite--ed] used to run on eight terabytes of data. Now it's like closer to 1.5. You dramatically lower your cost of operation and improve the speed of everything in the operation. So it's perfect for "Run Simple." It doesn’t matter whether it's single- or multi-tenant. What matters is the customer gets what they want at the price point in the performance and the user experience they're looking for, and that's precisely what we intend to give them.
Will SAP's SMB Strategy Work?
I would interpret SAP's strategy as two-fold. For really small businesses, starting at even five or 10 employees, SAP wants to continue its reseller channel strategy with Business One. For small divisions of larger companies, especially those already running its Business Suite globally, SAP will also position Business One, whether on-premises or hosted by partners.
For midsize companies, especially those that are growing and need more comprehensive functionality, SAP wants to position its flagship Business Suite. But this product has not performed well for midsized businesses in the past, even when packaged with preconfigured industry templates as SAP All-in-One, due to its size and complexity. SAP is betting that it will be successful with its "Run Simple" strategy to turn this product into a "Simple Suite." This is what McDermott was talking about when he mentioned going from 8 terabytes to 1.5. And, by running it as a managed service on the HANA Enterprise Cloud, SAP hopes to simplify the implementation and ongoing support experience for SMBs.
In my view, there are two risks in SAP's strategy and they both involve the Business Suite. First, even if "simplified," will midsize businesses find the Suite simple enough? The early signs with SAP's Simple Financials are promising. But is that possible with the rest of the Business Suite? Second, will the experience of the HANA Enterprise Cloud be as friendly as the cloud-only ERP providers, such as NetSuite, Plex, Rootstock, FinancialForce, and others?
In recent years, SAP had a cloud-only solution in Business ByDesign that was more directly comparable to the competition. That's no longer part of the plan. Rather, SAP believes that a combination of Business One and a simplified Business Suite will be a winning strategy. Time will tell.
Update, 5:22 p.m.:
Removed references to Business One on Hana Enterprise Cloud (HEC), which does not appear to be part of the solution. Thanks to Dick Hirsch
for the clarification.
Update, July 18: Dennis Howlett
picks up on my post and provides more analysis, including a history of ByD.
Fighting Complexity: Can SAP Run Simple?
Labels: Business One, ByD, cloud, HANA, NetSuite, SAP
Wednesday, June 11, 2014
Fighting Complexity: Can SAP Run Simple?
When it comes to enterprise software vendors, SAP wants to be not just the largest but also the most simple. That’s the message behind SAP’s new theme, “Run Simple,” rolled out at its annual SapphireNow user conference in Orlando last week.
At first glance, the theme of simplicity is an odd one. For over 20 years, SAP has been widely regarded as having software that is functionally rich but enormously complex. Its name has become synonymous with implementation projects that run into the tens, even hundreds, of millions of dollars, sometimes ending in failure or at least in organizational exhaustion. SAP is easy to stereotype.
Newly appointed to the sole CEO role, Bill McDermott set the tone in his kick-off keynote
: SAP customers need to “fight complexity,” to simplify how they interact with their customers, starting with how they deal with their own workforce. At the same time, McDermott acknowledged that SAP itself has been part of its customers’ complexity. But n
McDermott is an inspiring and disciplined speaker. But fulfilling this vision will take more than an inspiring keynote. In my view, if SAP really wants to beat complexity, it will need to run simple in three ways: in its products, in its ongoing support, and in how it deals with its customers. So, let’s look at each of these.
Simple Finance the First Step toward a Simplified Business Suite
On the first day of the conference, SAP announced the future delivery of Simple Finance
. As I see it, Simple Finance will be a major new release of SAP financial applications (starting with FI and CO) as the first SAP Business Suite products to undergo radical code optimization to take advantage of HANA, SAP’s in-memory database technology.
Based on interviews and a demonstration I received on the show flow, I see at least three ways that Simple Finance is, well, simpler.
- A simpler code base. Under HANA the applications can now simply record transactions and not have to create any summarized data fields for later reporting. With HANA, reporting always goes back to the source data in memory to build aggregated data fields on the fly. This shrinks the size of the programs, greatly reducing the number of lines of code, making them less error-prone and easier to debug. It also means that users can now drill down from summary data to details in any way they choose, without having to write special reports or customize the code.
- A simpler user interface. SAP Fiori provides the user interface for Simple Finance. Fiori apps operate across desktop and mobile devices to provide a simplified user interface for SAP’s applications. They are not just a new presentation layer but in many cases combine SAP transactions into a single user process. For example, entering a manual payment in Accounts Payable can now be done in a single screen instead of the multiple screens it previously required in SAP. On a side note, after much push-back from customers, SAP announced that Fiori apps will now be delivered at no charge to customers under maintenance, removing one barrier to adoption of Simple Finance.
- Simpler to implement. Implementation tools and methodologies are built right into the application, based on SAP’s previous work with its Rapid Deployment Services. These include wizard-like tools to guide and configure the applications. There are data migration tools to map data from existing systems into Simple Finance—whether from previous versions of SAP or from other systems. Implementation testing is also managed within the system itself. In addition, Simple Finance is integrated with SAP’s collaboration system, Jam, to encourage knowledge exchange. If a user runs into problems, for example, he or she can reach out to other users for help.
A date for general availability of Simple Finance has not been announced, only that early ramp-up customers are about to start implementation. Following Simple Finance, other parts of the Business Suite will also be “Simplified” until the entire product becomes a “Simple Suite.”
SAP personnel demonstrating Simple Finance appeared genuinely excited about the product. One indicated she was slated to work on implementations with early adopters. She said that she had even signed up some ramp-up customers earlier that day on the show floor, indicating a high level of interest.
I am optimistic that new prospects will find Simple Finance much more attractive than older versions of SAP financial systems. Simple Finance will be better received by midsize organizations that might have been otherwise scared off by the size, scale, and perceived complexity of SAP Business Suite. Score one for SAP.
product simplification is the most straightforward mandate facing SAP. For the most part, it is only a technical challenge. SAP is loaded with software engineers, and HANA does represent a new paradigm for how business systems are architected. This is not to say there won't be bumps along the road, but I am hopeful SAP will get there.
Cloud Deployment Simplifying Ongoing Support
SAP also wants run simple in how customers keep their applications up-to-date. Like most traditional on-premises vendors, the majority of SAP customers are not on the latest releases of its products. The reason is that applying new versions (in SAP lingo, “enhancement packs”) is often a labor-intensive activity—testing the new code, retrofitting any customizations, regression testing to be sure nothing gets broken, and migrating data.
SAP’s solution is to take over these responsibilities by hosting customers’ systems in SAP’s HANA Enterprise Cloud (HEC). This program, already rolled out to some early SAP customers, is essentially a managed services offering in which SAP takes all responsibility for day to day operation of the system in SAP’s own data centers. Notably, SAP also takes responsibility for keeping the customer’s system up to date with the latest enhancement packs and bug fixes. It even supports systems with custom modifications.
The managed services offering should allow the customer’s IT personnel to focus less on technical aspects and more on business process design and effective use of the system.
simplifying SAP’s ongoing support by moving customers to its managed services offering
will be more of a challenge. Only a tiny fraction of SAP’s customers are committed to this offering today. There is likely to be much inertia in SAP’s installed base about having SAP host their systems. Even though customers may be experiencing pain, many will view migration as short- term cost and effort for long term benefit. It may all come down to how SAP prices its managed services offering. If existing customers do not take up SAP on the offer, they will not experience much simplification in their SAP support experience, and SAP will retain its reputation for complexity.
Many other vendors have tried this approach—in particular, Oracle. Although most customers of Oracle Fusion Applications (Oracle’s next generation apps) are reportedly choosing the hosted deployment offering, I do not believe Oracle is seeing a mass migration of its preexisting applications, such as E-Business Suite, Siebel, JDE, or PeopleSoft, to its hosted delivery model. Will SAP’s experience be any different? I have my doubts.
Making SAP Simple to Deal With
The third way in which SAP must run simple is in its customer-facing processes. How easy is it for customers to deal with SAP? McDermott did not spend as much time in his keynote on this point, but he did emphasize it toward the end.
“Run Simple is more than a slogan for SAP--it is an organizing principle for our company,” he said. “We'll ask the tough questions: do our products and technologies run simple? Does our customer experience run simple? Are we empowering our employees to run simple? And are we enabling our customers and our partners to run simple? If not, hold us accountable.”
He continued: “For customers, we're committed to a beautiful user experience. We will make it simple to do business with SAP: simple pricing, pay-as-you-go in the cloud, simple web experience.”
Those are big promises. Anyone who has negotiated an acquisition of SAP software knows that SAP contracts are incredibly complex
. Pricing is opaque, with many various types of named users defined for each product. SAP’s terms and conditions around indirect access (when other systems access information from an SAP system) are onerous.
The result is that it is nearly impossible for an SAP customer to be fully compliant. When SAP does an audit of a customer’s use of SAP products—which it has the right to do—it will find problem, if it looks hard enough.
Even finding the right person in SAP's organization to deal with is not a simple matter. Whether it is the result of having a worldwide organization or peculiarities of German corporate governance, it is difficult to understand who reports to whom, or who is responsible for what.
Lars Dalgaard, founder of Successfactors, recently commented
about SAP’s organizational problems. “[SAP has] this messed up reporting structure where nobody reports to anybody,” Dalgaard said. “It’s this German thing where I didn’t even report up to Bill [McDermott] myself, I was reporting to the Supervisory Board. That doesn’t work. It just doesn’t. I mean, the COO doesn’t report up to the CEO?”
Dalgaard was positive about McDermott’s new role, however. “Someone has to be the decider, and with Bill, now they’ve got a decider on the job, I can tell you that,” he said.
The complexity of SAP’s organization not only affects customers; it affects anyone who has to deal with SAP. Talk to SAP partners, third-party developers, SAP suppliers, and industry analysts—nearly all of them say the same thing. SAP’s organization and decision-making processes are extremely difficult to navigate.
Following McDermott’s recent appointment to the role of sole CEO, SAP underwent a major reorganization
, laying off an undisclosed but apparently significant number of employees. SAP claims this was not to cut costs but to better align the organization with SAP’s strategy. If so, the reorganization could be consistent with an attempt at simplification.
SAP’s organization and customer-facing processes will be the most difficult to simplify. Technical simplification is an engineering problem. Support simplification can be solved if SAP can motivate customers to take up its managed services offering. But making SAP simple to deal with requires cultural change.
SAP’s culture manifests itself in how people are measured. One example: why did it take an outpouring of customer wrath for SAP to release Fiori at no charge to customers under maintenance? One source close to SAP told me that, within SAP, product groups are measured by their impact on revenue. If there is no revenue from Fiori, there is little recognition for Fiori developers. I have to believe that many SAP executives understood the opportunity in delivering Fiori at no charge. Some of us have argued
that SAP stands to make more
money by delivering Fiori at no charge (because it pulls through greater revenue opportunities with HANA and additional user seats). So, why wouldn’t SAP make this move sooner? If my source is correct, it is because that general lift in revenue would not be attributable to Fiori.
When you change program code, the program doesn’t fight back. But when you try to change a large organization, the organization often resists. Having a sole CEO will help, and McDermott appears determined. But has there ever been an example of a large organization that has become less complex over time?
What Does “Run Simple” Mean for Enterprise Tech Buyers
Large tech vendors change their marketing messages periodically, with no change to their core strategy, values, or culture. Is “Run Simple,” merely a branding exercise, or will it be a reality in how customers experience SAP? Time will tell.
In the short term, Simple Finance deserves consideration. In looking for new financial systems, business leaders who might have otherwise dismissed SAP as too complex should take a look at Simple Finance. New and existing customers should also investigate SAP’s managed service offering. But be prepared for continued complexity in dealing with SAP.
SAP did not become a complex organization overnight and it certainly won’t be easy to simplify. McDermott specifically told customers in his keynote to hold SAP accountable. I hope they will do that. I also hope McDermott will follow up in next year’s user conference with a progress report.
What Fiori Means for SAP and Its Customers
Risks and Opportunities with SAP's Platform Economics
Mad as hell: backlash brewing against SAP maintenance fee hike
Labels: Fiori, HANA, SAP
Sunday, June 01, 2014
Function and Dysfunction on Silicon Valley Boards, with Ken Goldman, CFO Yahoo
Are Silicon Valley companies more prone to dysfunctional boards than other companies? What are the keys for ensuring that a board does not run off the rails?
These were some of the questions I asked Ken Goldman, Yahoo's CFO, last month in an on-stage interview at the Future in Review
conference in Laguna Beach, CA. As someone who has served on over thirty corporate boards in his career, he had plenty to say about what works--and what doesn't--on corporate boards.
How Do You Decide Which Boards to Join?
With his extensive connections in Silicon Valley, Goldman receives many invitations to join corporate boards. But in deciding which to accept, he looks at several factors. First, he looks at who he knows on the board and whether he wants to work with them. As an active investor, he also takes interest in those where he has some "skin in the game." In addition, he has a strong preference for founder CEOs. "They have a passion that cannot be replaced," he said.
Finally, he considers whether he can add value, often with his operational experience and financial background, which makes him a logical choice to chair the audit committee.
Goldman pointed to one company that met all these criteria, GoPro, Inc.
, where he recently joined the board. "I know the people on the board, I like the CEO, and they have a great product," he said.
When Do You Say Goodbye?
Goldman hates to leave a board when the firm is not doing well. "I don't like to be seen as a quitter," he said. As an example, he pointed his recent departure
from the board of directors at Infinera
, a manufacturer of optical transmission equipment for telecom service providers. "They had some ups and downs in a tough market, but they were doing well in the most recent quarter," he said. "So it was a good time for me to leave and not be seen as bailing out."
The easiest time to leave is when there is a merger or acquisition, as investors expect board changes as part of the transaction, he noted.
Is a Tech Background Needed to Serve on a Tech Company Board?
With an undergraduate degree in electrical engineering from Cornell, an MBA from Harvard, and his long history in Silicon Valley, Goldman would seem like a natural fit for tech company boards. But is that background and experience always required?
Goldman says that tech companies often prefer to have board members with tech experience, but that's not always the case. "Chuck Schwab was on the board with me at Siebel, and now he has joined the board at Yahoo
," he said. "He may not have a technology background, but he has such recognition, and having been a founder CEO himself, his experience is very helpful."
In any event, the need to have technology experience depends on the board member's role, he said.
What Are Some Examples of Well-Functioning Boards?
With his years of experience, Goldman rattled off a list of companies where he's served on well-run boards. For example, there is Starent Networks
, where the board comprised some venture capital investors in addition to several independent board members. They went through the IPO process together and ultimately sold the firm to Cisco
for about $3 billion.
He then pointed to NXP Semiconductors
, where he joined the board just prior to the firm's IPO and saw the board playing a critical role in bringing in key personnel to grow the business. NXP went public at $14 and is now trading at about $60--a four-fold value creation, he said.
He also mentioned TriNet Group, Inc.
, a cloud-based professional employer organization (PEO) where the board worked with the CEO to build the executive team in every key function. "You can push and push, but if you don't have the right team in place, it won't work," he said.
At TriNet, the board was able to provide guidance to the CEO in some matters where the CEO was too close to the situation to see things objectively. "The board can add value by seeing the big picture, but not by micro-managing," Goldman said.
Later, in response to an audience question, Goldman elaborated,
In tech companies, the fundamental value add is revenue growth, so the board needs to work with the CEO on the business model and strategy. How much do you want to invest in growth versus near-term profitability? The CEO defines the strategy, and the board can help ensure that the strategy makes sense, and that the executive team is doing what it needs to do to carry it out.
Goldman agreed that with many strong personalities, it does take some time for a board to jell together. Therefore, directors should spend more time to get to know one another outside of formal board meetings. He pointed to his experience at Legato Systems
, which was acquired by EMC in 2003. "As we were selling the company, we had a closing celebration in Monterey where we played golf together, and we realized how much we liked each other," he said. "It would have been helpful if we had had an event like that prior to the closing."
"Sometimes it is good to have a little R&R with the board, where you can meet and jell and get outside of the formalities," he added.
What are Some Causes of Board Dysfunction?
According the Goldman, the fundamental problem is when board members are not all on the same page. "I can tell when folks don't have a day job, because they pontificate forever," he said. "They make their board membership part of their ego, instead of having a real job. You need to have board members who have a real respect for what their role is, what it is not, and how to give advice."
However, board dysfunction is not always the fault of the board. It is up to the CEO and the lead director or chairman to not allow a board to become dysfunctional, Goldman said. "It is important for the CEO to know how to work with the board. It is also important to have a board chairman who knows how to work with the CEO, to keep meetings on schedule, and not let them go on and on," he said.
"It's good to have a little congeniality," Goldman said. "It doesn't mean you can't have a different perspective or be contrary once in a while. But if you are constantly not seeing eye-to-eye, it's probably time for you to do something else."
Goldman agreed that it's okay to rock the boat as long as you don't capsize it.
Are Silicon Valley Boards More Prone to Dysfunction?
"Some people like to bad-mouth Silicon Valley boards, and I really disagree with that" he said. "What I have seen on Silicon Valley boards is a tremendous amount of passion. We have skin in the game, we're investors, and we came to the board because we want to be there."
Goldman said that there are some differences between Silicon Valley companies and traditional businesses: Board members are often investors and not just part of the CEO's old boy or old gal network, which is often the case in old line industrial companies.
He also had nice words to say about venture capitalists, who often play a major role on Silicon Valley boards:
There's an old saying: no conflict, no interest. Venture capital guys have a lot of "interest." They are involved and engaged. So, I like to see them stay on the board as long as they can after the company goes public, even though they want to move on because they get pressure from their other partners to get out. I like to see them stay on because they know the history of the company and they understand the vision and the strategy, which are so critical. I like the continuity and their passion and the fact that they have skin in the game. They work really hard and do real work. They don't just meet to deal with governance issues.
How Do You Deal with Activist Investors?
Goldman believes activist investors are here to stay, so corporate boards had better be prepared to deal with them. At the same time, sometimes their demands can be good for the company.
There are certain times when you attract activists, and their play book is almost always the same. They look at what they perceive as excess cash on the balance sheet and giving back capital allocations. So, they push for stock buy backs, spinning off business units, and cost reduction. If you sum it up, those are probably the three major things.
But the reality is, they do add value. Their funds tend to do better than the average hedge fund. They do well for their investors.
So, you need to be prepared, have your own play book, your own advisers, and be ready. The most important thing is, don't avoid them. Listen to them, be respectful. They tend to be extremely smart. In many cases, including at Yahoo, they come with a good experience base, so I personally like to listen to them. Sometimes they may want to get on the board, which means they are now insiders, and that changes the dynamics tremendously. Sometimes they want to be on the outside and want to pull for change.
Activist investors are not all the same. Some are more operating-focused, some are just pure financial. Some want to just get in and muck-rake a little bit and cause the stock price to go up. Some may want to bring in other investors and take over to get members on the board. Others just want to get the company to do certain things....And in many cases their suggestions have been productive for the company.
What's the Story with HP's Board?
During audience questions, FiRe's conference chair, Mark Anderson, asked Goldman to comment on the situation with HP, which many consider to be the epitome of a Silicon Valley company with a dysfunctional board.
Noting that HP's former CEO and now Oracle's co-President Mark Hurd was speaking later that day, Goldman said,
I worked with Mark during the time he was at HP. I thought he did a fabulous job there, growing the company, increasing profitability, making all their numbers. But then HP brought in another CEO [Léo Apotheker] and we saw just the opposite. When companies keep missing their numbers, they make excuses.
I watched HP during the Autonomy acquisition. I blasted some of the advisers they had, and I asked, "How can you acquire a company for 25% of your market cap with cash that you don't have when it's only going to add one or two percent to your revenue?" You don't need to be a science wizard to know that's going to be hard to make work.
I don't know anything about HP that's not public....You can go back and say, Autonomy people were bad or the company was bad, but sometimes you have to go back and say, should you have done that acquisition in the first place? It's not easy to bring in a real outsider from Europe as CEO into a Silicon Valley company, into an iconic company like HP that is so proud, with such culture and such DNA and make that work. HP has gone through a number of transformations over time, so ensuring that you have the right CEO and the right board is so important.
Goldman concluded, "People like to blame the accounting, or the company being acquired, but sometimes the board just has to look in the mirror."
Register for FiRe2015
Ken Goldman was one of many speakers this year at the Future in Review conference, which focuses on the future of computing and communications, economics, education, energy, the environment, global initiatives, healthcare, and pure science. Other speakers included Vint Cerf, Michael Dell, John Hagel III, Mark Hurd, Peter Lee, Barry Briggs, David Brin, and many others. The complete list of speakers
is on the FiRe website.
As I wrote last year
, this conference is at the top of my list of favorite events. Next year's conference will move to Stein Eriksen Lodge, in Park City, Utah. Registration is now open on the FiRe website.
Moving Outside the Box of Enterprise IT
Labels: FiRe2014, Future in Review, governance, HP, Strategic News Service, Yahoo
Wednesday, May 14, 2014
Moving Forward with DDMRP at Lightspeed
I love it when I'm proven wrong.
Back in 2011, I wrote a post on a new development in material planning: Demand Drive Material Requirements Planning (DDMRP)
. Read the preceding link for the full story. But to summarize, DDMRP builds upon and extends the concepts of MRP while borrowing the best
features of lean manufacturing and the theory of constraints. In my opinion, its most attractive feature is that it turns the focus in material planning from reliance on sales forecasts, which are always wrong, to positioning buffer inventory at strategic points in the supply chain, allowing material plans to be based largely on actual demand. Early adopters of the method show dramatic improvements in order fill rates with lower levels of inventory--the dream of every manufacturing executive.
Shortly thereafter the product management team in charge of manufacturing systems at NetSuite saw my post and expressed to me their interest in learning more. I pointed them to the thought leaders behind DDMRP--Chad Smith and Carol Ptak--and left it at that.
Fast forward two years later, at the NetSuite Suiteworld conference, where I arrive to find Chad Smith giving a breakout session on DDMRP and thanking me for the introduction.
Oh Ye of Little Faith
Here's where it gets interesting. I sat through Chad's presentation, which was fast-paced and thick with concepts and terminology. At the end, he opened for questions, and the room was nearly silent. Looking around the room, I thought, they don't get it.
Afterwards, I spoke with two members of NetSuite's product team and told them, "I think you are jumping the gun. Your customers aren't ready for DDMRP. Better to spend your time on more basic functionality and leave DDMRP for some point in the future."
I found out later that NetSuite pretty much had already decided the same thing.
A Seed Takes Root
Fast forward 12 months later. Arriving at this year's Suiteworld, I notice that there is another presentation on DDMRP. But this time it is not from someone promoting the concept, but from a NetSuite customer that is already applying it.
The customer is Lightspeed Technologies
, a midsize manufacturer of classroom audio systems, and a NetSuite customer since 2005. Carl Cox, the firm's VP of Operations and CFO, was one of those in the audience at Chad Smith's DDMRP presentation the previous year, and he was intrigued by the concept. Although NetSuite itself was not going to pursue development of DDMRP, Carl reached out to Chad and soon they were talking about how to apply DDMRP to Lightspeed's business.
To make a long story short, Lightspeed wound up working Demand Driven Technologies (DDTech)
, who partnered with a local NetSuite partner, Head in the Cloud
, to form a joint venture, IntuiFlow
, to develop a DDMRP solution on NetSuite's platform--with its first client being Lightspeed.
Early Results Promising
Now, Carl Cox along with folks from IntuiFlow were back at SuiteWorld this year to report on Lightspeed's implementation of DDMRP. The system is now up and running, with Lightspeed's previous material planning processes (mostly in Excel) running in parallel for comparison purposes.
I reached out to the Lightspeed and IntuiFlow team to see whether they could report some early results. Here's the top-line, quantitative, numbers:
- 40% inventory reduction in less than three months
- Customer service maintained at 99+%
So, Lightspeed apparently had been maintaining high levels of customer service at the cost of excess inventory. Now with the new system they could maintain those high order fill rates but dramatically cut inventory levels.
In addition, the team reported that inventory buffer analytics in the new system were giving them insights into changes in demand patterns. It was also giving them early visibility into spikes in customer demand, allowing them to become more responsive. Finally, the new system was giving them "clear and intuitive signals," which improved the productivity of material planning personnel.
Power of Cloud Platforms and Ecosystems
Perhaps most NetSuite manufacturing customers are not ready for DDMRP. But at least one was. What I missed was the fact that even if NetSuite was not going to directly address
the customer's need, it didn't mean that the customer was out of luck.
NetSuite's ecosystem of partners and ISVs building on its CloudSuite
platform could provide a solution.
Furthermore, the solution didn't require years of development. By my calculation, Lightspeed got up and running with DDMRP in less than a year. Moreover, they did it with a product that didn't even exist when they started. This speaks to the tremendous productivity and efficiency of modern cloud development environments. Other customers that want to go down this path should go even faster.
If you are a NetSuite customer, you can sign up for a free "Snapshot Bundle" from IntuiFlow
within your NetSuite environment, activate it, and run it against your own data. The snapshot will give you a simulation of the kinds of results you can expect with DDMRP.
Breakthrough in Material Planning: Demand Driven MRP
NetSuite Manufacturing Moves on Down the Highway
Labels: DDMRP, NetSuite
Monday, April 21, 2014
What Fiori Means for SAP and Its Customers
Over the past several months, analysts and bloggers have been debating about whether SAP should offer its new user apps, Fiori, at no charge to customers under its maintenance program.
The debate can be difficult to follow for those not familiar with Fiori or SAP's technology stack. This post summarizes the debate, including factors not often recognized, along with my view on what SAP should do in its own best interest and what it all means for SAP customers.
What is Fiori?
SAP Fiori is a set of apps, newly written by SAP, that address the most broadly and frequently-used SAP functions, such as workflow approvals, information lookups, and self-service tasks. They provide simple and easy-to-use access seamlessly across desktops, tablets, and smartphones.
To get a quick idea what Fiori is all about, watch this short video with examples of SAP Fiori apps for managers
, or click on the image on the right.
Fiori is more than just a new user interface. It is a set of cross-device applications that allow users to start a process on their desktop, for example, and continue it on a tablet or smartphone. SAP is developing its Fiori apps based on its latest user interface framework, SAPUI5.
SAP lists three types of Fiori apps
- Transactional apps, which allow users to perform SAP transactions on mobile devices, as well as desktops. For example, there is a transactional app for creating a leave of absence request and another for approving a purchase order.
- Fact sheets, which display information about key business objects in SAP. For example, there is a fact sheet app for viewing a Central Purchase Contract, which allows a user to also drill down into related entities, such as vendor contacts, items under contract, and terms.
- Analytical apps, which allow users to display key performance measures and other aggregate information about the business.
A complete list of all the current Fiori apps
is available on SAP's website. At the time of this writing, SAP has released two waves of Fiori apps, of 25 apps each, with additional waves underway.
It is important to note that Fiori will never be a comprehensive UI replacement for SAP. In a back channel
conversation, I learned that most SAP ERP processes cannot be
done with Fiori, now or in the future. Those SAP processes are
simply too complex in their design and do not lend themselves to
deployment on a smart phone or tablet. Everyone knows, for example, that
you can do a lot more with the desktop version of Netflix than you can
on the Netflix iPhone or iPad app. Likewise, it is difficult to take a
complex SAP process and dumb it down to the point where you can deploy
it on a smartphone.
Complicating things, Fiori is not the only development effort involving SAP's user interface. SAP has also released a product dubbed Screen Personas,
which allows users to customize standard SAP screens to their
liking. For example, using Personas, a user could remove fields of no
interest or change the placement of fields on the screen.
SAP Customers Are Pushing Back on Pricing for Fiori
The best source of information on the debate about Fiori pricing is a diginomica post written by John Appleby
, an SAP expert who works for an SAP partner, Bluefin Solutions. Some of what follows borrows from Appleby's post and its long comment thread.
The list price for Fiori is currently a one-time fee of $150 per user and it gives that user access to all current and future Fiori apps. That might sound like a good deal, until you consider several factors. First, as Appleby points out, that $150 per user fee can add up quickly. If a user only needs access to one or two Fiori apps (e.g. approvals), the $150 fee gets expensive in companies with thousands of such users. In the comments, Jarret Pazahanick points to one company that has 80,000 employees and would have had to pay $12M simply to let all of its employees view their pay stubs using Fiori. Nevertheless, Appleby points out that there are scenarios where Fiori is easily cost-justified such as when enabling the salesforce with a number of Fiori apps: the $150 fee per user is a no-brainer in such cases.
But, more basically: what are customers paying maintenance for? SAP's current maintenance pricing is 22% of the customer's license fee, which means that, in fewer than five years, the customer has essentially purchased its entire SAP product portfolio a second time. Customers look at Fiori as an extension of the SAP products they have already licensed. Why should they have to pay more money to SAP in order to license Fiori?
As Chris Kanaracus
found when he interviewed those in leadership positions from three major SAP user groups worldwide, SAP customers are up-in-arms over SAP's policy of charging them for Fiori. It's reminiscent of the customer revolt
against SAP's forced march of customers to higher levels maintenance fees a few years ago. It is also reminiscent of SAP's struggles
with how to charge for its mobility platform and the SAP Netweaver Gateway, back in 2011.
Strangely, SAP's policy toward existing customers appears to be harder than it is toward new customers. Back channel conversations indicate that when SAP is selling net new deals, it nearly always demonstrates Fiori--because it shows really well. When it comes to putting together a proposal, then, SAP typically bundles Fiori as part of the total deal.
Yet, when an existing customer wants to buy Fiori, that customer needs to pony up $150 per user. The exception, of course, is when the customer has something else it wants to buy from SAP. Then SAP can wink and nod and bundle Fiori into the deal with the other SAP products the customer is buying. In other words, unless you are willing to buy something more from SAP, you have to pay for Fiori.
Other Vendors Provide New Functionality at No Charge
Some on Twitter have argued that SAP's policy is no different than that of other vendors. I disagree. Some other vendors have a much more liberal approach to delivering new functionality to existing customers under maintenance at no additional charge. For example, Workday recently rolled out a new user interface
, and previous revisions added extensive mobile support. Workday didn't charge its existing customers extra for this new functionality. Salesforce did something similar with its Salesforce1 platform, a major new release of its Force.com platform--at no additional charge.
Furthermore, it is not just the pure cloud vendors who provide new functionality at no additional charge. For example, Microsoft Dynamics recently announced major new CRM functionality at no additional charge
to existing enterprise users (the top tier of users). This was not a user interface upgrade but totally new functionality from acquired products: a complete marketing automation system, from its acquisition of Marketing Pilot, a social media listening system, from its acquisition of Netbreeze, and a new service desk system, from its acquisition of Parature.
Finally, releasing new functionality at no charge already has precedent within SAP. For example, in 2012, SAP released a new product known as HR Renewal, which encompasses learning, employee and manager self-service, personnel administration, organizational management, and more. All of this was provided at no additional charge to customers under maintenance. See this blog post from Jarret Pazahanick
for details (including the comments). I see no logic in how SAP can charge customers for Fiori, while releasing HR Renewal to existing customers at no charge.
But...Paying for Fiori is the Least of the Problem
The argument to this point is simple: customers are paying maintenance on existing SAP products, and Fiori is an enhancement to those products. Therefore, SAP should make it freely available to customers. This was and is my position. But, as it turns out, for most SAP customers who want Fiori, that $150 flat fee per user is the least of their problems. There are two other obstacles to Fiori:
- Fiori needs current releases of SAP products. Some years ago, SAP introduced the concept of enhancement packs, whereby customers could selectively apply upgrades to individual SAP products instead of installing a completely new release. This approach is good: it lets customers can more easily install only the updates they really need or want. But it also means that many customers will not be completely up-to-date on all enhancement packs. Therefore, when a customer wants to install a Fiori app, the customer may first need to upgrade to a more current version of the product and install certain enhancement packs. Depending on how back-leveled the customer is, the upgrade can be a major effort. The prerequisites for each Fiori app are listed on SAP's website.
- Fiori needs HANA. Sometimes lost in the debate is the fact that, to use Fiori, customers need to be running HANA underneath their SAP products. SAP explicitly says that HANA is a hard requirement for Fiori fact sheet apps and Fiori analytic apps. For transactional apps, SAP says, somewhat cryptically, "They run best on an SAP HANA database, but can also be ported to other databases with acceptable performance." A back channel conversation with someone in a position to know, however, says that without HANA, Fiori transactional app performance is slow on mobile devices and, as a result, may not deliver a positive user experience.
Neither of these are small issues. One source with direct Fiori experience reports that the biggest problem is the effort required to upgrade SAP products and the expertise required to install Fiori. What percentage of SAP customers have all the upgrades and enhancement packs in place for Fiori? It is impossible to determine, but it cannot be a large percentage.
Another source points out that slow adoption of HANA is a major impediment to Fiori. Out of approximately 40,000 SAP Business Suite customers, only about 1,000 have bought Business Suite on HANA, and SAP doesn't say how many of them are live on HANA. Even if all of them are live on HANA, that is less than 3% of Business Suite customers. Charging for Fiori is "a small barrier" in comparison to the need to implement HANA.
SAP Could Make More Money By Giving Away Fiori
So, if the price tag for Fiori is the least of customers problems, why not turn it around and ask, what would it mean if SAP were to offer Fiori to existing customers at no charge?
- It would give a positive reason for SAP customers to upgrade to HANA. The real opportunity, in my opinion, is not some small amount of revenue SAP might receive from sales of Fiori to existing customers. It is in moving those customers to HANA.
SAP has staked its entire product strategy on HANA. Yet, as we have just shown, fewer than 1% of Business Suite customers have purchased HANA. If SAP wants to be successful, it must do everything it can to move customers to HANA. Yet, the business case for Business Suite on HANA to date has mostly been, in effect, "you can do things faster." Yes, there are a few dramatic examples, such as large companies being able to do a complete MRP regeneration in seconds instead of hours. But for most customers, "faster" is not enough to justify the time and expense of a HANA migration.
Fiori changes that. SAP can now say, if you go to HANA, you can change the user experience of SAP with these Fiori apps. Fiori, in effect, could be the trojan horse for HANA.
- It would sell more SAP user licenses. The only individuals who can use Fiori apps within a customer's organization are those who have a user license for the underlying SAP product. Fiori, therefore, may tip the scales in favor of getting more users licensed for SAP products.
As Appleby wrote:
I don’t have any facts to support this, but it makes sense from a strategy perspective. Fiori Launchpad hosts multiple Fiori apps for a given person. If I’m a sales rep, then I could have approvals, accounts, and a bunch of other things. Each of these apps requires some user license of some kind....
If users are using Fiori, they will want new capabilities too, and those new capabilities have a sell-on, but only if people are using Fiori. Get customers on it, and get the account team in to sell-on.
Compared to the strategic value and revenue opportunities for moving customers onto HANA and selling additional user licenses, charging existing customers for Fiori is chump change.
SAP Has It Exactly Backwards
In summary, charging for Fiori is a big mistake for two reasons. First, it annoys customers, who need to see more value in SAP's maintenance program. True, it is unlikely that any single customer is going to migrate away from SAP simply because SAP is charging for Fiori. But SAP's stated policy reinforces the perception that there is not much value in SAP's maintenance program. SAP's most recently quarterly results
show that SAP's core business--sales of its Business Suite--are shrinking. SAP, therefore, should be doing everything it can to keep the customers it already has.
Second, SAP in practice already gives away Fiori when it is part of a larger deal. As discussed earlier, nearly every Fiori deal to existing customers is by definition going to be a larger deal, either because the customer will need to license and implement HANA or because the customer will want to move additional users onto SAP in order for them to use Fiori.
In a subsequent email discussion, Appleby asks:
How can SAP positively motivate customers to move to SAP's innovation stack (HANA, Fiori, Hana Enterprise Cloud, etc.). This is where the good stuff will happen. Why isn't SAP bundling these three things together including the services to get customers there? Why doesn’t SAP take some of the risk up front to keep its relevance?
Taking it a step further, if Fiori is part of the key to moving customers onto SAP's latest technology stack, perhaps SAP should by paying
customers to take Fiori, rather than charging them for it. The payment could be in the form of a moderate credit toward new user licenses or HANA licenses. Or, as Appleby proposes, a discounted bundle of products and implementation services.
Such a program would generate much good will among SAP's installed base and would further SAP's larger product strategy.
SAP Customers Should Investigate Fiori Possibilities
What does this mean for SAP customers? First, get up to speed on the Fiori apps currently available and show them to your end users. Long time SAP users are often jaded in their expectations, which means the bar is set pretty low. They will most likely be pleasantly surprised by the possibilities of Fiori. Screen Personas are another way to impress long-time SAP users with new possibilities. If they become supportive of Fiori and Screen Personas, they may give you the business case to make an investment.
Second, spend some time to determine what additional investments you will need to implement Fiori. If you are like most SAP shops, you will need to upgrade some SAP products. You will also probably need to migrate at least some portions of your Business Suite to HANA. Or, at least you will want the option to do so if Fiori performance turns out to be unacceptable without HANA. You may also need some additional SAP user licenses.
Finally, talk to your SAP account representative about putting together a bundled deal for Fiori, Screen Personas, new user licenses, and the other technologies you will need, including HANA. Despite SAP's stated policy to charge for the new apps, it is likely that SAP will be quite willing to cut an attractive deal when there is a larger amount of money at stake.
Dennis Howlett had a post on diginomica
last week where he delves into some of these same points.
Update, June 4, 2014:
Better late than never. SAP, responding to pressure from its customers, announced during its annual user conference that Fiori apps and Personas will now be available to customers under maintenance at no charge.
Risks and Opportunities with SAP's Platform Economics
SAP innovating with cloud, mobile and in-memory computing
Mad as Hell: backlash brewing against SAP maintenance fee hike
Labels: Fiori, HANA, mobile, SAP
(c) 2002-2014, Frank Scavo.
Independent analysis of issues and trends in enterprise applications software and the strengths, weaknesses, advantages, and disadvantages of the vendors that provide them.
About the Enterprise System Spectator.
Send tips, rumors, gossip, and feedback to Frank Scavo at
I'm interested in hearing about best practices, lessons learned, horror stories, and case studies of success or failure.
Selecting a new enterprise system can be a difficult decision.
My consulting firm, Strativa, offers assistance that is independent and unbiased.
For information on how we can help your organization make and carry out these decisions, write to me.
For reprint or distribution rights for content published on the Spectator, please contact me.
Go to latest postings
ERP Support Staffing Ratios
IT Spending and Staffing Benchmarks
IT Staffing Ratios
IT Management Best Practices
Worldwide Technology Trends
IT Salary Report
Get these headlines on your site, free!
Blog Roll and Favorite Sites
Strativa: ERP software vendor evaluation, selection, and implementation consultants, California
StreetWolf: Digital creative studio specializing in web, mobile and social applications
Vinnie Mirchandani: The Deal Architect
Si Chen's Open Source Strategies