Wednesday, June 05, 2013
Nevertheless, after more than a decade of development, Plex has fewer than 1000 customers and its presence is limited mostly to smaller manufacturing companies in a few sub-sectors.
As evidence, there were about 700 attendees at last year's PowerPlex conference. This year's PowerPlex, which I attended this week in Columbus, Ohio, saw about 750 Plex users in attendance. Granted, overall, these are highly satisfied and enthusiastic customers. There just needs to be more of them.
On the one hand, Plex claims a compound annual growth rate of nearly 30% over the past three years--an impressive number. But as the first fully multi-tenant manufacturing cloud vendor, Plex could have, and should have, been growing at a faster pace. Now, there are several other cloud vendors taking aim at Plex's market, such as NetSuite, Acumatica, Rootstock, and Kenandy.
Plex must grow more aggressively, for two reasons. First, the company was acquired last year by two private equity firms. Private equity is not known for patience. Second, as CEO Jason Blessing pointed out in his keynote, growth protects the investments of existing Plex customers. Software companies that do not grow do not have the resources for continued innovation. Eventually, they only provide enough support to keep current customers--at best. They become, in effect, "zombie vendors," to use Blessing's term.
So, what does Plex need to do to grow at a more substantial pace in the coming years? I see six mandates. Some of these are fully embraced by Plex, while others, in my view, could use more emphasis.
1. Get NoticedIf some cloud vendors need to tone down their marketing hype, Plex needs to kick it up a notch. Plex was not only the first truly multi-tenant cloud manufacturing systems, it was also one of the first cloud providers period. Yet still the majority of manufacturing systems buyers have not heard of Plex. Reflecting Plex's home turf in Michigan, discussions with Plex insiders about this often includes the phrase, "midwestern values"--in other words, not blowing one's own horn. However admirable this humility may be on a personal basis, it is not useful from a business perspective.
Hopefully, this is about to change with the hiring of Heidi Melin as Chief Marketing Officer. Melin worked with CEO Blessing at Taleo, and more recently she was CMO at Eloqua, which was acquired by Oracle. In my one-on-one interview, Blessing was high on Melin's arrival, and indicated that she would be especially focused on digital marketing to reach the many thousands of companies in Plex's target market.
2. Put More Feet on the StreetBlessing also indicated that he intends to beef up Plex's sales efforts, which to date have been concentrated largely in the Great Lakes region. This has left many sales opportunities poorly supported in other US geographies, such as the southern states (home to many automotive suppliers), Southern California (home to many aerospace suppliers), and other parts of the country that are home to many food and beverage companies. Increased sales presence in international markets is also needed.
This is a step long overdue. When my firm Strativa short lists Plex in ERP selection deals, Plex is often flying in resources from across the country, which does not sit well with most prospects. Opening regional sales offices, like Plex has now done in Southern California, will help put more feet on the streets of prospects.
3. Move Up-MarketHistorically, Plex's system architecture is oriented toward single-plant operations. There is some logic to this approach. As Jim Shepherd, VP of Strategy, points out, most of the information needed by a user is local to the plant he or she is working in. However, even small manufacturers often have needs that include multiple plants, cross-plant dependencies, and central shared services. Plex does have some multi-billion dollar customers, but these are primarily companies with collections of plants that are relatively independent of one another.
In response, Plex is building out its cross-site and multi-site capabilities while keeping its primary orientation around the single plant. In my view, this will be a key requirement in Plex moving up-market and serving larger organizations.
4. Build Out the International FootprintThe bulk of Plex's sales are to US companies, but if Plex is to grow more aggressively it will need to better support the international operations of these companies. It will also need to sell directly to companies outside of the US.
In his keynote, Shepherd pointed to the new ability for Plex to print reports on A4-size paper, commonly used in parts of the world outside North America. The fact that Plex is just now getting around to formatting reports on A4-sized paper shows just how US-centric Plex has been. To be fair, Plex does support multiple currencies and has support some international tax requirements, such as in Brazil, India and China, although some of this is done through partners. Nevertheless, Plex has much it could do to improve its appeal to multinational businesses. In this day and age, even small companies--like those Plex targets today--have international operations. Building out its international footprint is another prerequisite for Plex to achieve more rapid growth.
5. Venture Outside of Traditional SubsectorsPlex sees its current customer base primarly as three manufacturing subsectors today: motor vehicle suppliers, aerospace and defense, and food and beverage. Blessing indicates that by Plex's calculations, these three sub-sectors account for about 25-30% of the manufacturing ERP market. Surprisingly, however, Plex currently has no plans to expand outside of these sub-sectors. Blessing believes that simply by increasing Plex's sales execution in its current markets it can continue its compound annual growth rate of nearly 30% for the next several years.
Count me skeptical. First, as indicated above, Plex no longer has exclusive claim to the cloud manufacturing ERP market. Plex is going to have to fight a lot harder than it has in the past for new customers. Second, why is 30% growth the benchmark? I understand that there are risks in more aggressive growth. But aiming higher might be needed in order to meet the 30% goal.
In my view, Plex is not far off from being able to address the needs of manufacturers that are adjacent to its existing markets. These would include industrial electronics, medical devices, and industrial equipment. Plex already has some customers in these sub-sectors, so it's not like the company is starting from scratch. Hopefully Plex will formally target these industries, sooner rather than later.
6. Target the Customers You Want Not Just Those You HaveOver the past 10+ years , Plex has let customer requests drive its product roadmap. In fact, much of Plex's development has been funded directly by customers or groups of customers who desired certain new features. This worked well to minimize Plex's up-front costs of new development and also led to high levels of customer satisfaction. However, it had one major drawback: if you only have customer-driven development, everything you build will by definition only be of interest to the type of customers you have today. In addition, a single customer or group of customers are not able to fund major new development that are more strategic in nature.
Here Plex is on the right track. Recognizing this need, Plex is now allocating product development funds for strategic initiatives, including a revamp of its user interface, cross-browser access, business intelligence and reporting capabilities (Inteliplex), as well as other major initiatives. In conversations with customers at PowerPlex they expressed these as welcome developments, although they have, apparently, diverted Plex resources from some of the customer-requested enhancements they also wanted.
The Way ForwardThere's plenty that I admire about Plex: its zero-upgrades approach, its broad functionality, and the fact that it proves manufacturing companies have been ready for cloud computing for many years, contrary to the claims of on-premise ERP providers. Most of all, Plex allows me to roam around its user conference and speak informally with customers. Nearly without exception, everything I hear is positive. Not a single customer has told me they made the wrong choice with Plex, although with any ERP implementation there are always bumps in the road.
But none of this guarantees that Plex will thrive in the future. Like proverbial sharks, software vendors must continue to move forward, lest they die. The management team at Plex has some new blood, including the CEO, and a new perspective. They understand the opportunities ahead, but will they fully rise to the challenges? We'll be watching.
Note: Plex Software covered some of my travel expenses to their annual user conference.
Related PostsThe Simplicity and Agility of Zero-Upgrades in Cloud ERP
Plex Online: Pure SaaS for Manufacturing
Sunday, June 02, 2013
This was my main takeaway from the Future in Review 2013 (FiRe2013) conference down the road last month in Laguna Beach, CA. FiRe bills itself as "the leading global conference on the intersection of technology and the economy." It is an annual conference of the Strategic News Service, which publishes research under this broad theme.
Beyond Enterprise ITAlthough FiRe is focused on technology, it is largely outside the boundaries of what is typically considered "enterprise IT," or even "consumer IT." It even goes beyond "line of business IT." It is about future-oriented issues involving the impact of technology on economic and societal interests. Under this year's theme, Digitizing the Planet, the agenda covered a wide range of focus channels, including computing and communications, economics and finance, education, energy, healthcare, environment, global initiatives, and pure science. Presenters included big names, such as Vint Cert, the "father of the Internet," who is now Chief Evangelist at Google, as well as a host of visionary thinkers from a variety of disciplines in the private and public sectors.
For me, it was a chance to get outside my usual track of user and vendor conferences in the enterprise software market. It was also a great opportunity during the breaks to speak one-on-one with professionals outside of my usual circle, for example, David Engle, Superintendent of the Port Townsend public school district and a panelist in the education channel, Nick Vitalari, author of the book, The Elastic Enterprise, and Greg Ness, who moderated a panel on hybrid cloud.
Here are some of the big ideas that caught my attention and what they mean for enterprise IT.
- Move from Data Analysis to Data Visualization. One eye-opener was the session on data visualization with Chris Johnson, University of Utah, and Bob Bishop, Founder of the International Centre for Earth Simulation (ICES) Foundation. The aim of ICES is to integrate all the sciences that pertain to planet Earth. The panelists showed one such visualization: a huge simulation of earth's thermohaline conveyor belt: a single worldwide ocean current that has a large impact on Earth's climate. Another showed the earth's magnetosphere.
How does this apply to enterprise IT? Organizations are swimming in data, both internal and externally sourced data, both structured and unstructured. To go from analyzing the data, to discovery of useful information, to decision support requires some sort of visualization. If data analysis is on your IT strategic roadmap, data visualization should be there also.
- Social Collaboration around Data. There was more on the big data theme. Stanford and NASA engineers have come together to form Intelesense Technologies, with its collaborate.org website. The site provides an interactive 3-D globe, dubbed InteleView, with over two million layers of geospatial data (which users can supplement with their own data) along with forums, blogs, shared calendars, video conferencing, and other tools to facilitate group collaboration worldwide around data. To provide a hands-on experience, Intelesense gave trial system access to all FiRe attendees.
How does this apply to enterprise IT? It's not enough for just one person to visualize large data sets. We also need tools that promote collaboration around data. Collaborators may include individuals within and outside the enterprise, and they often include participants worldwide. Many so-called "social business" tools today only provide the mechanism for collaboration (e.g. threaded discussion) but do not include the content (i.e. data) for collaboration. The real need is to combine big data with social collaboration. The collaborate.org website is an excellent case-study in what this looks like.
- Business Opportunities and Threats in Big Data. John Hagel and Eric Openshaw from Deloitte posed the question: will massive increases in data lead to increased fragmentation of industries, or will it lead to consolidation of businesses in the hands of a few who can support these massive data platforms? Their answer: it depends on the industry and the business function. Fragmentation will occur mostly in product innovation and commercialization businesses, such as digital media, media businesses, and even in physical products that can be disrupted by 3D printing. On the other hand, consolidation may take place with infrastructure providers, such as digital platform providers. With big oil, the question was always, who owns the resource? But with big data, the question is, who can create the value from it?
How does this apply to enterprise IT? In the view of Hagel and Openshaw, most large companies are vulnerable, because they are largely focused on their products, which is the part of their business that is threatened by fragmentation. CIOs, need to look beyond systems to support their organizations' current business to capabilities and business models that can allow their organizations to compete in the era of big data platforms. It may not even be your data, but if you can create value from it, your organization will succeed in the marketplace.
- Protecting IP More Important Now than Ever. Although so much of FiRe was visionary, there was a significant focus on security, with four tracks on "Achieving Zero Loss of Crown-Jewel Intellectual Property." Vint Cerf, now Chief Evangelist at Google, used his time to talk about network security. Cerf and other presenters offered a number of potential solutions. Some are technical, such as increased use of two-factor authentication and software security measures integrated with hardware at the chip level. Others go beyond technology, such as the use of economic sanctions and import tariffs against companies that are found to have stolen intellectual property.
What does this mean for enterprise IT? As the world becomes increasingly connected and much of the organization's IP is digitized, the opportunities and rewards for IP theft increase. As CIOs facilitate new technology-enabled business models, they must also increase their focus on security.
- Simplification of IT Environments Key to Big Data Challenges. The conference was not without an enterprise IT focus. Mark Hurd, Oracle's co-President and a regular speaker at FiRe, was on hand for a wide-ranging conversation. He pointed out that twice as much data will be created worldwide this year than has been created in the entire history of the planet. Much of this is machine- or sensor-generated data, such as data coming from sensors positioned on deep sea drilling rigs. Drilling companies collect all of this data--much of which is uninteresting--so that they have access to that one piece of information that turns out to be critical when there is a failure deep beneath the sea floor. Storing, managing, and analyzing that much data is a challenge, and technologies such as virtualization and data compression are key to success. Yet many businesses are shackled by legacy systems and infrastructure that do not scale to meet the demand. Simplification of the IT environment, including use of public and private clouds, is essential to meet these challenges.
What does this mean for enterprise IT? CIOs have two responsbilities that are somewhat in conflict. They must maintain current systems while investing for the future. With limited IT budgets, IT organizations must simplify and optimize their existing systems and infrastructure so that they have the bandwidth to make these strategic investments.
A Challenge to Enterprise IT Vendors
The expanding role of technology is not only a challenge for enterprise IT leaders, it is also a challenge for IT vendors. Nearly every major enterprise IT vendor has its visionary initiatives. SAP has HANA, Oracle has its Exa-boxes, IBM has Watson and its Smarter Planet initiatives, and so forth. At the same time, these vendors have enormous revenues in legacy technologies: SAP in its Business Suite, Oracle in its collection of acquired software and hardware technologies, IBM in its legacy hardware and systems integration business lines, and so forth. If IT organizations are challenged to rise above their legacy system support requirements, so too are IT product and services providers. Can the major IT vendors meet the challenge, or will a new generation of big data and cloud providers take their place?
One note on the conference format itself. In contrast to most technology conferences, which feature highly scripted keynotes and breakout sessions with single speakers, the format of at FiRe is nearly all panel discussions or one-on-one interviews. This format promotes a much more conversational and spontaneous style. The moderators or interviewers take a minimalist approach, guiding the discussion where needed but not becoming a center of attention themselves. Mark Anderson, the FiRe conference chair, and Ed Butler from the BBC hosted a number of sessions in this style. Other conferences could learn from FiRe's format.
The registration page for the FiRe 2014 conference, May 20-23, 2014 in Laguna Beach, CA, is now open.
Monday, May 20, 2013
I wrote about NetSuite's manufacturing functionality last year in my post, NetSuite Manufacturing: Right Direction, Long Road Ahead. Returning to this subject one year later, it is encouraging to see the progress that NetSuite has made. At the same time, there will be twists and turns that NetSuite will face in continuing down this highway.
If NetSuite is going to continue its growth, reported at 28% last year in its core business, it really has no choice but to pursue manufacturing customers. Manufacturers are the largest market for ERP systems and therefore an attractive target for NetSuite's development efforts. Although manufacturers have been slower to embrace cloud computing than many other sectors have, the situation is rapidly changing. In our ERP vendor selection services at Strativa, we find manufacturing companies increasingly open to cloud ERP. Sometimes, in fact, they only want to look at cloud solutions. In other words, NetSuite is at the right place at the right time.
Balancing New Functionality with Need for SimplicityTo more fully address the needs of manufacturing, NetSuite continues to build out its core functionality, with basic must-have features such as available to promise (ATP) calculations, routings, production orders, and standard costing. In some of the breakout sessions, there were indications of that NetSuite is also exploring functionality that goes well beyond the basics: for example, supply chain management (SCM) and demand-driven MRP (DDMRP).
This leads to the first twist and turn that NetSuite will need to navigate: filling out gaps in manufacturing functionality while not over-engineering the system. Oracle and SAP are famous for having manufacturing systems that are feature-rich, requiring significant time and effort from new customers to decide which features to configure and to implement them. Part of the attraction of NetSuite is its relative simplicity and ease of implementation. If NetSuite wants to remain an attractive option for the likes of small and midsize manufacturers, or small divisions of large companies, it will be wise to pick and choose where to build out the the sophistication of the product.
For example, the availability of multi-books accounting (which I discuss briefly in the video at the top of this post) is a good move, as it has widespread applicability to both small and large companies in the manufacturing industries as well as other sectors. But does DDMRP fall into the same category? Moreover, how much SCM functionality do prospects expect from NetSuite, and where does it make sense to partner with best-of-breed specialists, who can better bridge a variety of SCM data sources?
Netsuite's recent success with manufacturers such as Qualcomm, Memjet (discussed later in this post), and others give it real-world customers to validate its product roadmap. It will do well to prioritize new development efforts to the areas where those customers deem most needed. NetSuite may choose, ultimately, to fully move up-market, to become the manufacturing cloud equivalent of SAP or Oracle. But if it does so, there are already a number of other cloud ERP providers, such as Plex, Rootstock, Kenandy, Acumatica, and Keyed-In Solutions, that will be ready to take NetSuite's place serving small and midsize manufacturers.
NetSuite's PLM/PDM Strategy Needs OpennessNetSuite also announced a new alliance with Autodesk to integrate its PLM 360 offering for product lifecycle management with NetSuite's ERP. This is in addition to NetSuite's existing partnership with Arena Solutions.
By way of background, PLM systems manage the entire life-cycle of product development, from ideation and requirements gathering, through design and development, to release to manufacturing, service, engineering change, and retirement. PLM systems take an engineering view of the product and are generally under the domain of the client's product engineering function. PLM systems generally include product data management (PDM) systems as a subset, to manage all of the product data, such as drawings, specifications, and documentation, which form the definitions of the company's products.
Over the past 20+ years, the integration of PLM and PDM systems with ERP has been a difficult subject. In organizations where engineering and manufacturing work well together, basic roles and responsibilities can be defined and proper integration of data can be accomplished. In organizations where such cross-functional processes are weak, PLM/PDM and ERP often form separate silos.
Autodesk's PLM 360 shows very well, and the story about its cloud deployment matches well with NetSuite. However, it is my observation that the majority of manufacturers would do well simply to establish simple integration between their engineering bills of material (within their PLM/PDM systems) and their manufacturing bills of material (within their ERP systems). Making engineering documentation within the PLM/PDM system available to manufacturing ERP users is also highly desired. Furthermore, there are few engineering organizations that have not already standardized on a PLM/PDM system (e.g PTC's Windchill, Solidworks, and others), and they will seldom be willing to migrate to Autodesk just because the company is implementing NetSuite's ERP.
This is another turn of the highway that NetSuite must navigate: will it offer standard integration to a variety of PLM/PDM systems, or will its answer to engineering integration be, "Go with Autodesk or Arena?" I do not believe that an Autodesk- or Arena-preferred, strategy is the best.
Case Studies EncouragingTo validate its progress in the manufacturing sector, NetSuite reported on several case studies.
- At the large end of the spectrum there was Qualcomm, the $19 billion manufacturer of semiconductors and other communications products. Although Qualcomm has Oracle E-Business Suite running throughout much of its operations worldwide, in 2011 CIO Norm Fjeldheim chose NetSuite for use in smaller divisions, based on the need for implementation speed and agility. As part of that strategy, Qualcomm has now gone live with NetSuite in a newly launched division in Mexico. This is a nice "existence proof" for a two-tier ERP strategy in a very large company.
Customer stories are the best way to communicate success, and these two NetSuite customers substantiate NetSuite's progress.
- At the smaller end of the spectrum there was Memjet, a manufacturer if high-speed color printer engines. Martin Hambalek, the IT director at Memjet, did a short on-stage interview during Nelson's day one keynote. Although the company has just 350 employees, it has engineering and manufacturing operations in five countries. Unlike Qualcomm, Memjet runs NetSuite as its only ERP system worldwide, showing NetSuite's capabilities for multinational businesses. Notably, Memjet is also a customer of Autodesk for its PLM 360 system, mentioned earlier. In my one-on-one interview with Hambalek later during the conference, I learned that he is the only full-time IT employee at Memjet: evidence that a full or largely cloud-based IT infrastructure requires many fewer IT resources to maintain.
Rethinking the Services and Support StrategyAs much as ERP functionality is important to manufacturers, there is another element of success that is even more important: the quality of a vendor's services and support. It struck me during the keynotes that, apart from an announcement of Capgemini as a new partner, there were no announcements about NetSuite's professional services.
More ERP implementations fail due to problems with implementation services than because of gaps in functionality. Functional gaps can be identified during the selection process: but problems with the vendor's implementation services are more difficult to discern before the deal is signed. Furthermore, functional gaps can often be remedied through procedural workarounds. But once the implementation is underway, failures in implementation services are difficult to remedy. Sometimes, such failures wind up in litigation.
In this regard, NetSuite's rapid growth has a downside: it stretches and strains the ability of NetSuite's professional services group to spend adequate time and attention on its customers' implementation success. In advising prospective ERP buyers, I have much more concern about what their implementation experience will be than I do about any potential gaps in NetSuite functionality.
One solution is to build a strong partner channel of VARs, resellers, and implementation service providers to complement or even take over responsibility for post-sales service and support.
During the analyst press conference, I asked Zach Nelson about this point. NetSuite is building its partner channel, but how does it decide what work should go to its implementation partners and what part should be retained for NetSuite's own professional services group? Nelson's answer reflected a traditional view, that whoever brings the sales lead to NetSuite should get the services. In other words, if a lead comes through NetSuite's own sales team, NetSuite should get the services work. If the lead comes through a partner, the partner should get the services.
As an advisor to prospective buyers, my own view is that NetSuite should rethink this strategy. The party that happens to find the prospect may not be the best party to deliver the services. In fact, NetSuite may be better served by passing off implementation services to local partners that are willing to spend more time with the customer on-site than NetSuite's own professional services group may be able to provide.
At the end of his answer, Nelson indicated that he would actually prefer that NetSuite not be in the professional services business. If so, this is good news. Let NetSuite focus on developing and delivering cloud ERP, and let a well-developed partner channel compete to provide hands-on implementation services. What professional services NetSuite does provide would be better focused on providing support to those partners.
Just before leaving the conference, I gave Dennis Howlett my initial thoughts in this video interview on NetSuite Manufacturing and multi-book accounting.
Disclosure: NetSuite paid my travel expenses to attend its user conference. They also gave me a swag bag.
Update: in an email exchange, Roman Bukary, NetSuite's head of manufacturing and distribution industries, comments on NetSuite's PLM strategy:
The fact that today we have a partnership with Arena and Autodesk is not a matter of “just” these two, it’s a matter of those vendors who have a smart, complementary cloud strategy and our own bandwidth to recruit and enable partners. For my $.02, we have an open strategy with the goal to change the kind of solution modern manufacturing can leverage today
Related PostsNetSuite Manufacturing: Right Direction, Long Road Ahead.
Thursday, March 28, 2013
Please read to the end of this post to see how I plan to quantify this issue with some hard data.
One Client’s ImpressionThis finding was reinforced in my mind last week, when I reconnected with a past client of my consulting firm, Strativa. We had helped this high tech manufacturer three years ago with a new CRM system selection, and the company had chosen Salesforce.com. Now the CIO wanted to pick my brain about options for upgrading other parts of his applications portfolio.
In the course of the conversation, the CIO made an interesting observation. “Frank, we think we made the right choice with Salesforce, and we believe cloud systems are the way to go. But I’ve got to tell you, they aren’t cheap.”
I indicated that I had been thinking about this subject recently and asked him to tell me more.
“Well, when you count the per-user fees, plus the platform costs, plus the partner apps that you want to implement, it can add up to a lot of money year after year,” he explained. “And, of course, you still have the up-front implementation consulting fees.”
Changing the SubjectLater in the day, I posted a couple of tweets about this conversation, and the reaction from some of my followers was interesting. “The real benefits of SaaS are in flexibility and agility,” replied one follower. “You shouldn’t be looking at TCO,” replied another.
I'm always amused when analysts and consultants want to tell customers what questions they should be asking or not asking. As if some questions are off limits.
Now, as a proponent of cloud computing, I’ll put myself right up there with the best of them. However, I would like to know: how does the total cost of SaaS compare to on-premises systems? Moreover, if SaaS is more expensive, isn’t that useful information for IT decision makers? Of course it is. If a customer is going to make a technology decision, the customer should have all the information needed. Certainly, cost is one of the factors he or she should be taking into account.
Four TheoriesSo, let's consider: why might a customer think that SaaS doesn't save them money? Off the top of my head, there are at least four possibilities.
- Theory 1: SaaS does save money, but customers don’t realize it. In other words, perhaps customers do not fully appreciate the cost of staffing and supporting on-premises systems, such as the cost of implementing future upgrades. These are costs that are eliminated or greatly reduced with SaaS. But since customers do not fully recognize those costs, they do not count those savings. Or, because of the cost, they might be avoiding upgrades of on-premises systems and not recognizing the price their organization is paying by not staying current.
- Theory 2: SaaS does save money, but you only realize those savings when you completely eliminate your on-premises systems. If you still have most of your systems on-premises, moving just one of them to the cloud doesn’t eliminate your data center or data center staffing. So, you are not able to realize the cost savings from eliminating the data center.
- Theory 3: SaaS does save money, but vendors don’t pass along those savings to customers. In other words, SaaS applications are cheaper to for vendors to develop, deploy, and maintain, but SaaS providers are just matching the prices of on-premises vendors and enjoy extra profits.
- Theory 4: SaaS is more expensive than on-premises systems, but it’s worth it. Perhaps SaaS does not save money, but the value of SaaS in terms of flexibility, agility, and scalability are so overwhelming that it’s worth it to customers to pay extra.
Now, these four theories are not mutually exclusive. For example, SaaS may save money (Theory 1) and also allow vendors to appropriate some of the cost savings as extra profit (Theory 3). Or, a mix of on-premises and cloud systems do not save money (Theory 2), but its still worth it for customers in terms of agility (Theory 4). Furthermore, the answer may be different for different SaaS applications. For example, perhaps cloud CRM saves money, but cloud ERP doesn't.
More Data NeededBut, the general question is still unanswered. Generally, from the customer’s perspective, does SaaS save money?
To answer this question, Computer Economics has launched another survey. As part of our annual IT spending and staffing survey, we are looking for organizations that have moved most or all of their applications portfolio to the cloud. In other words, we are looking for customers that have no internally supported data center, or at least, a minimal set of on-premises systems. We are asking these customers to take part in our regular annual survey, and we will compare the IT spending ratios of these select customers against our standard industry ratios for IT spending and staffing. We will also interview these customers to learn more about their experience with SaaS and the perceived value as well as challenges.
Through this study, we hope to be able to answer three main questions. First, do companies that have gone largely to cloud computing spend less on IT than those that have not? Second, how does the mix of IT spending differ? Finally, where do customers see the business value of SaaS?
We already have a handful of respondents and the initial data is quite interesting. But we need more. If you are a company that has implemented all or most of your business applications in the cloud, please apply to take our survey. As an incentive, survey participants will receive $2,500 of free research reports.
Apply for the Computer Economics Survey >>
Wednesday, March 27, 2013
four market forces that are pushing Microsoft Dynamics onto large enterprise turf. I also outlined several case studies in which Microsoft was having success with large multinational organizations. Now, more recently, I attended the Microsoft Dynamics annual user conference, Convergence, and had an opportunity to interview Microsoft executives and customers to see what further progress Microsoft was making in its move up-market.
Bottom line: Microsoft has many of the necessary elements in place to continue its move into large enterprises, but it still needs to fill several major functional gaps in its product offerings.
Continued Evidence of SuccessIn recent years, Microsoft has had several implementations of its Dynamics AX and Dynamics CRM systems in large enterprises. These include Carrefour S.A, the world's second largest retailer, Nissan Motor Company, Shell Retail, and others.
Now, at its Convergence conference, Microsoft highlighted two more large company success stories:
Another key success factor for the large enterprise market is the ability to provide direct support. In this regard, Microsoft's reliance on its partner channel is often not sufficient for large companies. To address this need, Microsoft has been building up its Microsoft Services unit, which provides consulting and premier support not only for its Dynamics business applications but also for Microsoft's entire portfolio of offerings. The Microsoft Consulting Services (MCS) Dynamics unit has reportedly doubled its headcount over the past year, and it can provide everything from high level program and partner management services to hardware support in conjunction with its large OEM partners, such as IBM and HP. For large customers, Microsoft can even take responsibility for service levels of the deployed applications.
- Dell Computer is the world's third largest PC manufacturer as well as a leading provider of a variety of IT products and services, with revenues of $57 billion. Dell is in process of consolidating its manufacturing ERP systems onto Microsoft Dynamics AX, with Oracle E-Business Suite continuing to run in headquarters and for certain corporate shared services.
- Revlon is the well-known cosmetics company with worldwide revenues of nearly $1.5 billion. Revlon consolidated 21 ERP systems to a single instance of Microsoft Dynamics AX.
Three Major Functional GapsThese case studies, along with Microsoft's direct services capabilities, indicate that Microsoft has had some success in the large enterprise market. But are these exceptions, or are Microsoft's offerings mature enough to routinely take business away from the Tier I ERP and CRM players?
The answer is, not yet. Microsoft as an organization has the global presence and the resources to do so, but the Dynamics business applications at present lack functionality in three critical areas. Until these are filled, Microsoft will be limited in the number of deals where it can be short listed against Oracle and SAP.
Partner solutions work best when they address narrow industry needs—for example, law firm practice management from Lexis Nexus, or complex manufacturing functionality from Cincom. But for broad horizontal systems, such as HCM, customer service, and supply chain management, prospects expect the ERP or CRM system to be able to provide that functionality directly. Partner solutions at this point are simply a band aid.
- Human Capital Management (HCM). Microsoft Dynamics AX today does have some HCM functionality for core HR, talent management, benefits administration, and employee/manager self-service. In addition, it does provide payroll for US and Russia. However, those who have studied this functionality do not view Microsoft's HCM offerings as competitive with SAP, Oracle, Workday, or other first tier HCM providers. In the SMB market, Microsoft could get away with these deficiencies, as many prospects either do not include HCM in their acquisition plans or are satisfied to work with a Dynamics partner for any gaps in functionality. In the large enterprise space, however, this is often not an acceptable strategy. This is especially true when the Microsoft partners for HCM are only regional players.
- Customer Service. The Dynamics team prides itself on the success of its Dynamics CRM offering, built from scratch to be a serious competitor to Salesforce.com, SAP, and Oracle. However, Dynamics CRM is not a full CRM offering. Its functionality is limited largely to sales force automation and now marketing automation (thanks to the 2012 acquisition of Marketing Pilot). Dynamics CRM lacks a full set of functionality for customer service and field service. So, when prospects are looking for a solution that gives them a 360-degree view of the customer—both new customers and existing customers, for both sales and for after-sales services—they quickly scratch Microsoft from their short lists. If they really want to go with Microsoft, they look to Microsoft partners to provide the needed functionality. Again, this approach may work for Microsoft's traditional SMB market—although even there, the lack of a customer service module is still a limitation. But in large global enterprise deals with thousands of users, most prospects take a quick look at Microsoft and move on to more robust providers.
- Supply Chain Management (SCM). Microsoft Dynamics AX today only offers traditional material planning functionality, so-called MRP and MRP-II systems. There are no supply chain execution modules for warehouse management, transportation management, or logistics. Neither is there supply chain planning functionality for demand forecasting, sales and operations planning, constraint-based scheduling, supply chain optimization, or event management. Again, in the SMB market, many prospects are doing well if they can implement basic MRP, and those who need more are often happy to consider partner solutions. But in the large enterprise space, prospects often expect this functionality to be part of the core offering.
The good news is that Microsoft recognizes these deficiencies and intends to deal with them over the course of the next few years, although, for the most part, it is not giving out details publicly. The one area where Microsoft has indicated specific plans is in the supply chain area. Later this year, it intends to announce new capabilities for Dynamics AX for warehouse and transportation management, along with demand management. This is a good start. In the other two areas—HRMS and customer service—Microsoft executives only indicate that they realize these needs and intend to address them in future releases of Dynamics AX and Dynamics CRM.
Priorities, PrioritiesThe large company case studies illustrate that Microsoft Dynamics has an expanding presence in the large enterprise market. Nevertheless, it would be unusual to see Dynamics fully replace Oracle or SAP for customers in this space. That said, Microsoft still can be successful in the large enterprise space, if prospects see SAP and Oracle playing a restricted role: pushing them back into a corral to serve only their core financials and perhaps core HRMS needs. Outside of this corral, Microsoft Dynamics can then become the operational system platform for such organizations.
If this is the case, the lack of HR functionality does not need to be an immediate impediment for further Microsoft progress up-market. Baring some major acquisition by Microsoft, it is unlikely that Microsoft Dynamics will have the richness of HCM functionality needed to displace SAP or Oracle in the HCM space. Any future Microsoft development in HCM will be more appealing to midsize organizations than to the large enterprise market.
Likewise, Microsoft’s lack of supply chain functionality does not need to be a major impediment. Manufacturing, distribution, and retail prospects will still need to fill their SCM requirements with a third-party solution. Fortunately, there are good offerings from Microsoft partners for warehouse management and transportation management. Furthermore, even many SAP and Oracle customers look to best of breed solutions, such as E2Open and Kinaxis, for supply chain planning systems. So, the lack of Microsoft SCM offerings does not need to be a show stopper.
The weakness of Microsoft’s customer service and field service features in the CRM product, however, is more problematic. When looking at CRM, most large enterprises want more than salesforce automation. Microsoft’s acquisition of Marketing Pilot for marketing automation fills one gap. A similar acquisition or internal development of after-sales service functionality is probably the most urgent need if Microsoft is to further succeed in the large enterprise market.
A Fiercer BattleWhat could go wrong with Microsoft's up-market ambitions? First, SAP and Oracle are not going to let themselves be passively corralled within corporate headquarters. Both vendors have major programs to further develop and serve line of business system requirements: SAP with its acquisitions of SuccessFactors, Ariba, and its line of business cloud applications; Oracle with its Fusion Applications.
Second, there are other providers that have the same up-market ambitions as Microsoft. For example, Infor, which is headed up by former Oracle co-President, Charles Phillips, fully intends to be a credible alternative to SAP and Oracle, and it already has a much broader footprint of applications than Microsoft has. Likewise, Workday from the very beginning took aim at the large enterprise market for HCM, financials, and operations management for services firms, and it is already a major thorn-in-the side for SAP and Oracle.
Microsoft’s success in the large enterprise space, therefore, is not guaranteed. But its success so far is encouraging, and if it continues to fill out its functional footprint, it will become a strong contender.
Postscript: Other analysts have good reporting on the Convergence conference. Ray Wang has an event report summing up the main news. Esteban Kolsky's has a good post on Microsoft Dynamics CRM as well as a good video interview with Dennis Howlett.
Update, April 4: I edited the paragraph on HCM, under the heading for "Three Major Functional Gaps." The original paragraph stated that Microsoft has no offering for HCM, which was not accurate.
Related PostsFour Needs Pushing Microsoft Dynamics into Large Enterprises
Saturday, March 02, 2013
Over at Computer Economics, I've just published a new report in our technology adoption series. The report, entitled Supply Chain Management Adoption Trends and Customer Experience, finds that the total cost of ownership for SCM systems often exceeds budget.
Nevertheless, the payback on SCM systems is so good that most companies achieve a return on their investment within two years, despite the challenges in managing costs.
As shown in Figure 1, the full report compares the adoption, investment, ROI and TCO rates of supply chain management systems against the rates for 13 other technologies from an annual Computer Economics survey on technology trends.
Based on survey responses, SCM and the 13 other technologies are given numerical ratings on the levels of adoption, investment, ROI and TCO. Then, SCM technology is categorized as having low, moderate, or high rates relative to other technologies in the survey.
Interestingly, the ROI success rate is more positive than the TCO success rate. This indicates that the business case for SCM systems is strong: Some adopters must be achieving positive or breakeven ROI in spite of exceeding their budgets for SCM projects.
- Adoption Rate: SCM adoption is moderate compared to other technologies in the study. That means the percentage of organizations that have SCM solutions in place is within the middle third of the range, defined by the technologies with the highest and lowest adoption rates in the study. It does not include organizations that have plans to implement the technology for the first time but have not yet done so. The moderate-to-low adoption rate for SCM is due in part to the fact that this technology does not have widespread application in some industry sectors, such as financial services or information services.
- Investment Rate: The percentage of organizations investing in SCM technology falls just shy of moderate and earns a low rating. Investors include organizations that plan new implementations or enhancements to existing systems within the next 18 months. Once again, the relatively low investment rate is because the technology does not have relevance in some industry sectors.
- ROI Success Rate: Among organizations that have adopted SCM, the experience is positive. The survey shows that, compared to the other technologies in the survey, SCM has a moderate ROI success rate, bordering on the high side. The percentage of organizations at least breaking even on their investments within a two-year period is at the high end of the middle range when compared to other technologies surveyed.
- TCO Success Rate: However, compared to the other technologies covered in the survey, the TCO success rate for SCM is on the low side. As with many enterprise applications, there is a danger of underestimating total cost of ownership. We define TCO success as actual costs coming in at or under budget.
Competitive pressures, globalization and increasingly complex offshore manufacturing relationships are spurring organizations to expand their supply chain management (SCM) systems, which encompass a wide variety of technologies and capabilities.
The full study quantifies the current adoption and investment trends for SCM systems as well as the benefits that are driving companies to expand their SCM implementations. We assess these trends by organization size, sector and geography. In terms of economics, we look at the ROI and TCO experience of those that have adopted SCM along with current investment per SCM user. The report concludes with practical advice for those considering investment in SCM technology.
written in the past, financial analysts may provide good advice for investors in the tech sector. But their analysis is not very useful to buyers of technology products and services. It's not that they don't have insights, but they are writing for a different audience: investors, not customers and prospects.
Some parts of the financial press are another story. Some financial media reporters so poorly understand the tech industry that neither investors nor prospective buyers should listen to them.
I saw an example of this today on The Motley Fool, in a story entitled, Is Oracle's Cloud Really Fake? In it the contributor, Richard Saintvilus, takes issue with an Infoworld article by David Linthicum that criticizes Oracle's most recent "cloud" announcement as "faux IaaS."
The Motley Fool is a website aimed at the individual small investor. It provides both free content as well as paid subscriber material. It also makes money from advertising. Therefore, generating page views is a key objective, with much of its content generated by freelancers, as appears to be the case here. So, the quality of its content varies.
Apologies to in advance to Saintvilus, who reached out to me on Twitter after I sniped at his story. He asked for specifics, so here you go.
Oracle Late to the CloudStaintvilus immediately starts with a misconception, that Oracle was an early proponent of cloud computing. Here is his lead:
Wall Street loves a hot trend and had essentially decided four years ago that the cloud was next. With corporations needing all of the cost savings/productivity benefits the cloud offered, the timing was perfect. Oracle was one of the first blue chip enterprise companies to realize this opportunity. [emphasis here, and throughout, is mine.]Sorry Richard. Even as late as 2009, Oracle's CEO Larry Ellison famously mocked the term cloud computing, calling it no more than a fashion statement. Furthermore, he not only mocked the term, he mocked the concept. To this day, Ellison criticizes multitenant applications, which are the cornerstone of most large scale SaaS providers. Only recently, as Oracle realized it was losing the war did Oracle embrace cloud computing, albeit with its own twist (either hosted single tenant applications, or multi-tenant applications with single tenant databases.) Industry analysts can argue all day about the relative merits of each approach. But none would claim that Oracle was anywhere to be found at the beginning of the trend to cloud computing.
Oracle Market Share in Cloud ServicesHe continues with a comment on Oracle's rising revenues:
The company [Oracle] is providing a service, of which there has been very few complaints -- at least not according to the rising revenues, which suggest it's stealing share from rivals such as salesforce.com. And Oracle is not the cheapest on the market, either. So, there's a reason why customers are willing to pay the premium. And it's not because these corporate CIOs are dumb.Yes, Oracle's revenues are rising. But those of Salesforce.com are rising also, up 37% in 2012. Furthermore, while all of the revenues of SFDC are derived from cloud computing, only a small percentage of Oracle's are. So to impute on the basis of revenues that Oracle is taking market share from Salesforce.com is ludicrous. Certainly, in my own firm's work advising buyers in software selection, I do not see Oracle taking market share from Salesforce.com. In fact, in CRM, I see deals in which buyers want to look at Salesforce but do not even consider Oracle, especially in the midmarket.
As far as software pricing is concerned, neither do I see Oracle as commanding a premium price over Salesforce.com, or over other application vendors for that matter. In fact, Oracle is notorious for competing on price when it really wants a competitive deal, as it knows it can make it up on maintenance revenue in the future.
But the author wouldn't know that, because he does not advise technology buyers, nor is he in a position to see actual deals going down.
Oracle's Engineered Systems Are Not "Cloud"He then confuses Oracle's new Exa-boxes with cloud services.
However, David Linthicum of InfoWorld thinks [CIOs are] idiots (I'm paraphrasing that a bit), which doesn't make sense. CIOs are spending billions annually with Oracle. But in Linthicum's recent article, he insists they don't know what they're buying: "Oracle is continuing its faux cloud strategy, adding to its private-cloud infrastructure offering the ability to rent for a monthly fee preconfigured application servers to be deployed in customer data centers. The available application servers -- what Oracle calls 'engineered systems'"The author can be forgiven for this misunderstanding, as Oracle itself confuses this issue, which is the whole point of Linthicum's criticism. The basic point is that cloud computing is a "service," whereas Oracle's computer hardware (whether old school Sun commodity servers, or Oracle's new "engineered systems") is a physical product. Renting Oracle hardware does not magically turn the hardware into a cloud service.
Oracle's Engineered Systems Are an Old ConceptHe continues with the impression that Oracle's Exa-boxes are somehow a new concept.
Linthicum clearly has an ax to grind. While he's going all-out on Oracle's product portfolio, rival companies have been working hard to duplicate Oracle's offerings. For instance, IBM has a rival offering called PureSystems -- launched three years after Oracle's Engineered Systems, or ES. And, after Oracle has already deployed ES to more than 1,000 customers in 43 countries, IBM followed. Big Blue has gained traction, but not to the extent of Oracle. And I doubt that IBM would have followed a model it didn't think had sustaining potential.The author appears unaware that Oracle is attempting to return to the IBM era of the 1960s. In fact, Larry Ellison has said so himself. The IBM mainframe at the time was a single integrated platform of hardware, operating system, database, and applications engineered from the ground up to work together. IBM's AS/400 series of machines (now called Series i) took this concept even further. What broke up IBM's dominance in the mainframe era was the fact that these boxes were all based on proprietary standards, and eventually low cost commodity hardware (whether IBM personal computers, or later, Unix boxes from providers such as Sun) could do the job much more cost effectively. The downside was that the new approach led to challenges in system integration, in making all the layers of the technology stack work together.
Oracle's strategy with its Exa-boxes is to return to this single technology stack from hardware through applications, engineered from the ground up to work together. Will Oracle be successful? Only time will tell. And, certainly the 1,000 customer number that the author mentions is not yet enough of a measure of success.
Regardless, what does any of this have to do with cloud computing? Absolutely nothing. Oracle is launching a public cloud offering, with its Exa-boxes as part of the infrastructure. Other providers can do the same using commodity hardware, as Google, Amazon, Microsoft and others have already done.
But the Oracle offering that Linthicum is criticizing and that the author is defending is not Oracle's public cloud service. Rather it is an arrangement whereby Oracle customers can, for a monthly fee, rent preconfigured Oracle application servers and run them in their own data centers. Linthicum is absolutely right: this has nothing to do with cloud computing.
According to the NIST definition of cloud computing, there are five essential characteristics of cloud computing, and Oracle's hardware rental offering does not satisfy four of them. (See the link in this paragraph for a more complete definition.)
- On-demand self-service. Oracle's rental agreement does not allow the customer to unilaterally provision computing capabilities, such as server time and network storage, as needed automatically without requiring human interaction with each service provider.
- Resource pooling. Oracle's rental agreement does not pool computing resources for multiple customers in a multi-tenant model, with different physical and virtual resources dynamically assigned and reassigned according to consumer demand.
- Rapid elasticity. Oracle's offering does not allow computing capabilities to be elastically provisioned and released, in some cases automatically, to scale rapidly outward and inward commensurate with demand. As Linthicum points out, the customer has to pay extra for spikes in demand and there is no provision to ramp down demand, and cost.
Clearly then, Oracle's offering may use the terminology of cloud computing but it does not display the essential characteristics of cloud computing. You can call me a fish, but that doesn't make me one.
- Measured service. Oracle's offering does not automatically control and optimize resource use by leveraging a metering capability. Customers do not pay as they go.
The List Goes OnI have neither the time nor the patience to go much further. Let me just list a few (and by no means all) of the remaining errors.
Parts of The Motley Fool article are nearly indecipherable, especially toward the end. But I think this is enough to illustrate: parts of the financial press are poor sources of information on enterprise IT. By that, I do not mean to imply that all financial reporters are suspect. One would not expect to see a story such as this one to appear, say, on the pages of The Wall Street Journal or Financial Times.
- "Linthicum is pretending to be an expert on something that is still in its infancy." Cloud computing may not be a full grown adult, but it is certainly not an infant. Providers such as Salesforce.com have been delivering cloud services for well over a decade, ancient history in the technology industry.
- "Oracle innovates at the technology layer, thereby giving customers more leverage and independence from consulting fees." What exactly is the "technology layer?" Everything from bare metal hardware to business applications are "technology." Furthermore, talk to Oracle customers: I doubt anyone will tell you they have less need for consultants.
- "Had Cisco contracted out its cloud services to Oracle, it could have remained focus on growing its business." The types of cloud services that Cisco offers, such as cloud network management, are not services that Oracle provides. Therefore, it would not be possible for Cisco to contract with Oracle to provide those services on behalf of Cisco.
- "Even if Linthicum's pricing claims were correct, then it means Microsoft's Azure, which has a pay-as-you-go model, is also fake. But Microsoft has been reducing its prices because it can't compete." If Microsoft is lowering its Azure pricing, it's not because it can't compete, but because it can deliver cloud services at lower and lower costs over time, as it scales and the costs of technology drop (see "Moore's Law"). Similarly, Amazon lowers its AWS prices multiple times per year and no one in his right mind claims it's because Amazon can't compete.
Furthermore, none of my criticism should be taken to mean that Oracle is not a good company from either the investor perspective or customer perspective. As the author tweeted me, "Oracle is one of the best tech names on the market and it deserves fairness."
Yes it is, and yes it does. And because of that, it also deserves accurate reporting.
Related postsEnterprise IT Buyers: Don’t Listen to Financial Analysts
Oracle's Behavior Undercuts Its Own Cloud Accomplishments
Cutting Through the Fog of Cloud Computing Definitions
Photo Credit: NS Newsflash
Monday, February 18, 2013
Forrester's argument in a nutshell is this: based on its survey of 139 Oracle customers, Forrester contends that Fusion has had "low levels of adoption by existing Oracle customers, in part, because Oracle's Applications Unlimited policy has provided them with little incentive to migrate."
Oracle's rebuttal is difficult to put in a nutshell. Oracle goes into great detail, taking issue with Forrester's research methodology, specific survey questions, and the sample size/composition. But in my opinion, Oracle's strongest argument is against Forrester's report title. In Oracle's view, there is no "versus." Customers do not need to make a choice between Apps Unlimited and Fusion. Rather, Oracle points out that it has a co-existence strategy between Fusion Apps and Oracle's existing applications, such as E-Business Suite, Peoplesoft, J.D. Edwards, and Siebel.
I'll leave it to Forrester to defend its own report. However, it is hard to argue with Forrester's conclusion: that Fusion adoption has been slow, in part, because of the success of Oracle's Applications Unlimited program. To better understand why, it is helpful to review some history.
The Original StrategyWhen Oracle completed its acquisition of PeopleSoft in late 2004, it had two strategic decisions to make.
Interestingly, at the time, the answer to both of these questions was no. As I reported in January 2005, Larry Ellison held a press conference in which he said that Oracle would not actively market PeopleSoft and J.D. Edwards but would try to push new prospects to E-Business Suite. In addition, he promised to support existing PeopleSoft and J.D. Edwards products only until 2013. "Circle that date 2013 on your calendar," Ellison said.
- For new customers, would it continue to actively market PeopleSoft and J.D. Edwards (which PeopleSoft had acquired) in addition to its E-Business Suite?
- For existing customers of PeopleSoft and J.D. Edwards, would it continue to invest in and support those products indefinitely?
In the same press conference, Ellison announced Project Fusion, which would be a massive development effort by 8,000 developers to develop a new suite of back-office software products, based on the best features of PeopleSoft, J.D. Edwards, and E-Business Suite. At this point, Fusion Applications were positioned as the successor to Oracle's existing suites. "We expect people to at some point between now and 2013—sometime before that—to upgrade to Project Fusion," Ellison said.
A Mid-Course CorrectionBy 2006, however, Oracle realized that its strategy was not in its own best interests. By only marketing E-Business Suite, it was missing sales opportunities where PeopleSoft and J.D. Edwards were a better fit than E-Business Suite.
Moreover, Oracle's announcement that it would not support PeopleSoft and J.D. Edwards beyond 2013 took Oracle off short lists where it could PeopleSoft or JDE were good fits. In my own software vendor selection consulting, during the 2005 time-frame, I didn't short list J.D. Edwards and PeopleSoft, for this very reason.
Finally, Oracle's policy put J.D. Edwards and PeopleSoft customers on notice that they might want to consider a migration to products other than Oracle's. With software maintenance fees pulling in over 90% profit, that was the last thing Oracle wanted.
Give Oracle credit for correcting its mistakes. In 2006, Oracle announced its Applications Unlimited program, to provide ongoing enhancements to all Oracle apps beyond the delivery of Fusion. (Siebel, which Oracle acquired in January 2006, was also put under this program.) In addition, Fusion would not be a successor to Oracle's other suites: it would not be functionally equivalent to E-Business Suite, for example. Rather, it would comprise a series of applications, such as CRM and Human Capital Management (HCM) that could be implement alongside E-Business Suite.
The TradeoffsOracle's decision to continue support for its existing applications, while developing Fusion as a set of complementary next-generation applications, was the right decision.
But Oracle's strategy comes with a price. In a sense, Oracle's Application Unlimited program has been too successful. By continuing investment in its existing application suites, Oracle gives customers little incentive to move aggressively to Fusion. There is no burning reason for customers to change. To be sure, if Oracle customers are in the market for CRM or HCM, for example, they will have a reason to consider Fusion. But in any given year, this will be a small percentage of Oracle customers.
- Replacing Oracle's existing applications suites with Fusion was too ambitious a goal. Thousands of developer man years had been invested in developing E-Business Suite, JDE, and PeopleSoft, which would need to be repeated by Fusion developers. Furthermore, since 2005, Oracle has been continuing enhancement of these products, meaning that functional parity is a moving target. Finally, during the course of Fusion development, Oracle continued making other acquisitions, such as Siebel and Hyperion, further moving the target.
- Customers retain the value of their prior investments. Oracle's existing business suites are not dead-end platforms. The Apps Unlimited program preserves customer investments and keeps maintenance dollars continuing to roll in, which Oracle needs to fund Fusion development.
Perhaps this is the reason that nearly 18 months after Oracle announced general availability of Fusion Apps, Oracle has sold it to only 400+ customers, with only 100+ in production. Oracle refuses to disclose a breakdown of these 400+ customers, but word on the street is that they are heavily weighted toward Fusion HCM.
But there are other reasons that Fusion is not selling as well as one might expect for a product that is 18 months in general availability.
- Fusion is not a complete ERP solution. It lacks core functionality for manufacturing and operational support in other industries. Fusion Apps are, for the most part, really a replacement for pieces of an enterprise suite, a collection of complementary modules.
- Fusion has functionality gaps. For this reason, Fusion is often sold to new prospects in conjunction with older Oracle products, if at all. For example, in a recent CRM deal, Oracle proposed a solution that comprised pieces of Oracle CRM On-Demand, Siebel, and RightNow. Fusion CRM was not even part of the solution, as apparently it did not satisfy certain industry requirements.
- Fusion is difficult to implement. Anecdotal reports of early adopters indicate that Fusion Apps have a fat footprint. They have complex infrastructure requirements, and as a result, Oracle says that two-thirds of customers are choosing to have Oracle host their systems.
Nevertheless, the success of Oracle's Apps Unlimited policy is the primary inhibitor of Oracle Fusion Applications adoption. Enterprise applications are sticky. It is difficult enough for vendors to get customers make a change, even when vendors announce end of support for an existing product. Imagine how hard it is to get customers to take action when you are promising them continued investment in their existing products. Oracle's Applications Unlimited program--though good for Oracle and Oracle's customers--has served to slow adoption of Fusion.
Chris Kanaracus at Infoworld has a summary of the two sides of the debate. As usual, Dennis Howlett has his own point of view. Holger Mueller actually thinks it's good that Oracle customers don't know about Fusion.
Update, Feb 19: Floyd Teter has an incredibly informative post on customer options for deploying Oracle Fusion Apps, confirming and going beyond some of my points here.
Related PostsOracle to Steer New Customers Away from PeopleSoft Products
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Monday, February 04, 2013
Jarret Pazahanick alerted me to an email that went out this morning to SAP partners, announcing a unilateral price increase on standard support, for new maintenance contracts signed after July 15, 2013.
The email reads, in part,
To be able to provide the same level of support in the future, we will change the maintenance rate for new maintenance contracts with SAP Standard Support from 18% to 19%, effective July 15, 2013.I would point out that this is not a 1% increase in maintenance fees: it is a 5.5% increase (1/18 = 5.5%).
This moderate adjustment does not apply to any existing maintenance contracts for SAP Standard Support closed before July 15, 2013. We also want to be respectful about budgets being planned for 2013. Therefore, we encourage you to take advantage of the opportunity to place purchase orders with SAP Standard Support ahead of this change at the existing 18% rate until July 14, 2013.
If I were an SAP customer, I would have four questions for SAP:
Several years ago, SAP customers fought back SAP's attempts to impose a maintenance fee increase by forcing all customers to move from standard support (at 18%) to enterprise support (at 22%). After a great deal of public outcry, SAP backed down. Now SAP appears to be trying to impose a smaller price increase, with no apparent improvement in service, in hopes customers will not notice.
- What improvements in SAP support will SAP deliver to justify this 5.5% price increase? Can we expect our internal costs to drop by at least 5.5% as a result of SAP's improvements in its support program?
- What is the gross margin on SAP's maintenance business today, and how will that change after this increase is in effect? Maintenance is the most profitable segment in SAP's financial performance. Why should it become even more profitable?
- How have SAP's cost of support increased to justify this increase in my maintenance fees? Normally the cost to support mature products decreases over time, as issues with the program code are resolved. Offshoring of application support and deflection of support activities to SAP's user and partner network also have introduced support efficiencies. Shouldn't SAP be considering a reduction in maintenance fees rather than an increase?
- Since SAP uses some of its maintenance revenue to fund development of new products as well as make acquisitions, will SAP provide these new products to customers at no charge? It seems SAP charges customers for new products twice: once, when it charges maintenance fees, and again when existing customers buy those new products.
The only good news in this announcement is for providers of SAP third-party maintenance, such as Rimini Street.
Update: Chris Kanaracus at IDG News Service reports on the SAP maintenance fee hike. Larry Dignan at ZDnet also chimes in. Ray Wang provides more background and analysis.
Update, Feb 5: Dennis Howlett has a deeper dive, and he gets clarification from SAP on several issues.
Related PostsSAP backs down on 22% maintenance fees
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Thursday, January 31, 2013
For implementation and ongoing support, most customers rely on their original vendors of major enterprise applications, such as ERP, CRM, and supply chain management (SCM). But what happens when the vendor is not up to the job? What steps can buyers take to mitigate the risk of vendor support failure and protect their investment?
Credit: Ryan O'Connell
These are questions that come to mind when reading about a recent lawsuit by a governmental agency in Puerto Rico against Infor, alleging that Infor "has been absolutely incapable of resolving serious problems" with the agency's implementation of an Infor product.
The AllegationsThe agency, known the Municipal Revenue Collection Center (or, CRIM by its Spanish acronym) originally purchased a license for a computerized tax management system in 2006, prior to Infor acquiring its developer, Hansen, in 2007. Complicating matters, CRIM originally purchased its Hansen license through a Hansen partner, Rock Solid.
Reading the agency's lawsuit, CRIM appears to have done at least a partial implementation of Hansen starting in 2006. Then in 2009, CRIM negotiated and executed contracts with Infor totaling approximately $1.1M to provide services and support for its Hansen system.
Sometime after signing these agreements with Infor, things appear to have broken down.
The details of CRIM's complaint against Infor are summarized by Chris Kanaracus at IDG News Service. In summary, CRIM alleges that the original resources Hansen assigned to the project left Infor after the acquisition, and that Infor was unable to provide other resources that were up to the task. As a result, CRIM claims it has had to create patches and workarounds to keep the system active and working, a job which is made more difficult by not having access to Hansen source code. According to CRIM, serious problems remain unresolved.
Take Steps to Mitigate RiskAlthough any legal complaint will, by definition, be one-sided, there are important lessons that buyers can learn, regardless of the outcome of this legal action. In fact, lawsuits of this type are often settled without disclosing the details, meaning we may never know who is at fault.
Therefore, it is more important to focus on what buyers can do, before entering into a vendor relationship, to mitigate the risk of getting into a situation similar to what CRIM claims.
Commercial software is an attractive alternative to in-house custom system development, in part, because it relieves the customer of the need to provide its own ongoing support. Most of the time, vendors deliver their end of the arrangement. But customers should plan for the times when they don't.
- Implementation success is ultimately the buyer's responsibility. By all means, reach out to the vendor, or a vendor's partner, for implementation and ongoing support. But recognize that you cannot delegate success. Ultimately, it is your implementation, and your responsibility to ensure you have support.
- Every mission-critical system implementation plan needs a risk mitigation plan. It appears that CRIM's system was core to the agency's mission--to "collect, receive, and distribute public funds corresponding to municipalities." Inasmuch as its Hansen system supported that mission, the system is, by definition, mission-critical. Did CRIM have a risk mitigation plan? Did that plan identify the risk of losing key vendor support personnel? Apparently, not.
- Software product change of ownership introduces risk. Your risk mitigation plan should include a scenario where your software product changes ownership. In some cases, support actually improves under new ownership, especially if the new owner views the acquisition as strategic and the previous owner did not have the resources to deliver required levels of support. But in other cases, the vendor may be viewing the acquisition as simply an asset purchase and may be looking to drive support costs out of the business to improve profitability. Either way, a customer should pay close attention whenever a software product changes hands, and certainly before making new investments in that software, whether in purchasing additional licenses, or as in this case, in negotiating new service contracts.
- Avoid single point of support failure. It is important for customers to always have alternative sources for support. The vendor does not need to be the only source. Sometimes local partners are a better source. Other times, third-party support may be available from organizations that are not vendor partners. Even individual consultants, if they have the right skills and experience, can be a good source, and an excellent value. A combination of vendor support and support from other sources can often be the best approach, to minimize risk and ensure continuity of service.
- Secure access to source code. Finally, customers should negotiate access to source code as part of their initial license agreement, to allow the customer to take over its own support. If the vendor does not accommodate this need, then it often can be negotiated as a condition of a change in control, such as a buyout or acquisition of the vendor. In cases where the vendor goes out of business, a software escrow agreement can at least deliver original source code to the customer.
Related PostsTwenty Years of ERP Lessons Learned
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Thursday, December 13, 2012
I recently developed these thoughts more fully in a new research report at Computer Economics, Microsoft Dynamics Stepping onto Enterprise Turf. This post provides a brief introduction.
Evolving Market SolutionsIn the early 2000’s, Microsoft jumped into the business applications market by making acquisitions that brought Great Plains, Solomon, Navision and Axapta into its product portfolio. These products, aimed at small and midsized businesses, established the perception that Microsoft was aiming its business applications primarily at smaller companies. When it came to enterprise applications for global organizations, Microsoft was viewed as out of its league. Those were markets for players such as SAP, Oracle and other vendors with multinational capabilities.
But the market landscape is changing. Over the past year, the Microsoft Business Solutions (MBS) division has been demonstrating that it is capable of delivering two of its business applications—Microsoft Dynamics AX (the descendent of Axapta) and Microsoft Dynamics CRM—to large and multinational organizations. Moreover, Dynamics product enhancements now rolling out will accelerate this trend.
Four Needs Encouraging the Up-Market MoveThere are at least four customer needs that create an opportunity for Microsoft to move up into larger enterprises, as shown in the figure nearby.
The MBS division continues, of course, to offer software that is aimed at small and midsized businesses (SMBs), those with single-site operations or with limited international presence. Microsoft reseller and systems integrator partners often introduce Dynamics NAV (formerly Navision), Dynamics GP (formerly Great Plains), and Dynamics SL (formerly Solomon) in these situations, sometimes in combination with Microsoft Dynamics CRM for customer relationship management.
- Multinational localizations, formerly a requirement only for large companies, are being are increasingly demanded even by small businesses.
- The desire of organizations large and small to manage their people, facilities, and equipment as one global resource pool.
- The continuing pursuit of improved productivity and tighter control, through worldwide business process consistency.
- The need of global organizations to have operating systems that are appropriate to serve the needs of both their large and small operating units.
Nevertheless, larger enterprises can now take Microsoft Dynamics under consideration when selecting a vendor for its enterprise business applications. In the large company market, it is Dynamics AX along with Dynamics CRM that form the solution offering. Although MBS is seeing success with large organizations in several industries, the retail sector appears to be particularly receptive to Microsoft's move up-market.
Although the Tier I ERP providers--SAP and Oracle--are well entrenched in the world's largest corporations, if Microsoft is able to compete effectively at this level, it will give enterprise buyers additional choice and options that they have not had in the past.
My full report discusses in detail the four customer needs that are driving Microsoft Dynamics up-market and three ways in which Dynamics now has become capable of serving these large organizations. Challenges facing Microsoft in gaining market share among larger companies are also discussed. The report concludes with examples of customers that illustrate the move of Dynamics into the enterprise market and recommendations for large enterprise buyers who are considering Microsoft Dynamics.
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