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
Thursday, March 13, 2014
Microsoft Broadens Dynamics CRM, Moves Up-Market
With three strategic acquisitions, Microsoft Dynamics CRM can now be considered a complete offering for sales, marketing and customer service. In addition, Microsoft’s CRM offering is showing its ability to move up-market into large enterprises.
These were two points that I took away from the Microsoft Dynamics Convergence conference last week in Atlanta, GA.
By way of history, Microsoft introduced its Dynamics CRM product in 2003, its first Dynamics product written from scratch, though it did not experience significant market uptake until several years later. Until the past year or so, Dynamics CRM was largely a salesforce automation system, with a bit of case management on the service side. As such, it was not well positioned against the CRM offerings of SAP and Oracle, which offered complete solutions. Though Salesforce.com also started as a sales automation system, over the past few years it has also built out its capabilities for marketing and customer service.
I saw the deficiencies of Dynamics CRM up close in 2010, when my consulting firm, Strativa,
facilitated a CRM selection for a midsize high tech manufacturer. The company had actually implemented Dynamics CRM but decided to abandon it for lack of customer service functionality. In another CRM selection deal, in 2012, we didn’t even short list Dynamics CRM because of its lack of support for marketing and customer service.
Filling out the Footprint
But now, as the result of three strategic acquisitions, the picture is completely different:
- Marketing Pilot: Acquired in 2012, Marketing Pilot is the basis for the newly announced Microsoft Dynamics Marketing. Product capabilities include campaign management, content management, approval workflow, media planning, email marketing management, and integration with sales force automation. The product also supports multichannel marketing, with social media management (e.g. automated posting to Facebook and Twitter) and digital advertising (e.g. integration with Google Adwords). With the latest version of Dynamics CRM, the product is completely integrated, with a consistent user-interface.
- NetBreeze: This acquisition by Microsoft in 2013 allows organizations to monitor social media conversations of interest to the organization’s brands. It also provides “sentiment analysis” on social media conversations. In other words, are people speaking positively or negatively about the brand?
Microsoft executives claim that Netbreeze is the only provider that does such sentiment analysis in native languages (five, at present). This, they say, is in contrast to competing offerings, which have to translate tweets (for example) into English, and perform the sentiment analysis on the translation. Anyone who has attempted to use Google Translate or Bing's translation engine to communicate in a foreign language knows the dangers of relying on machine translation. Netbreeze now forms the heart of the newly announced Microsoft Social Listening.
- Parature: This most-recent acquisition, in 2014, brought a complete customer service solution into the Dynamics CRM product set, addressing a deficiency I wrote about last year. Parature, built exclusively in the cloud, supports customer self-service, knowledge management, issue management, and service workflow. The product is built with multi-channel in mind, with support for call center, web self-service, text chat, and social media channels.
Parature is the basis for Microsoft’s newly announced Unified Service Desk. In a subsequent interview with Microsoft’s Bill Patterson, who has now been named Senior Director over the Parature operation, he indicated that Parature really doesn’t need much help to build out more functionality or even to integrate it with Dynamics CRM. The focus, he said, will be more on execution, raising its profile in the market, scaling its business operations globally, and training partners to sell and support it. Interestingly, Microsoft currently has no plans to migrate Parature from Amazon Web Services to its own Azure cloud. The product will interoperate with the rest of Dynamics CRM, no matter if the customer is running on premises or with Microsoft or partner hosting.
These capabilities fill out Dynamics CRM into a complete offering, although there are still partner products needed in some cases, for example, for field service, which Microsoft views more as an ERP function than a CRM function. Partner solutions are also needed for configuration, pricing, and quoting (CPQ).
Competing on Value
Although Dynamics CRM can now position itself well in terms of capabilities, there is also an economic angle to its market strategy. Microsoft is simplifying licensing for Dynamics CRM and releasing much of the new capabilities at no additional charge. Specifically, for Microsoft-hosted deployments, which comprise the majority of new deals for Dynamics CRM:
- CRM Online Professional, priced at $65 per user per month for customers with 10 or more Professional users, will give users access to Social Listening at no additional charge. For on-premises customers (the minority of new sales), there will be a $20 per user per month charge.
- CRM Online Enterprise, priced at $200 per user per month, essentially delivers the whole enchilada: the core sales functionality, plus Dynamics Marketing, Social Listening, plus the new Unified Service Desk.
It will take one or two actual CRM deals to see how the new pricing and licensing works in practice, but as it stands it appears to be quite competitive. Buyers may find the pricing attractive against a similar bundle from Salesforce.com, where costs can rise quickly as Sales Cloud, Marketing Cloud, and Service Cloud are priced separately. Throw in a few AppExchange solutions and the total price can be quite steep. Of course, large customers can and do negotiate significant discounts. Still, Microsoft’s offer of a complete CRM solution at a reasonable price should work to limit the premium pricing ambitions of Salesforce as well as Oracle and SAP. And, that’s good for buyers.
A more complete run down on the CRM pricing and licensing can be found in a Microsoft blog post by Paco Contreras.
The expanded CRM footprint will certainly help Microsoft compete for CRM deals in larger enterprises. However, Dynamics CRM was already moving up-market even before these most recent announcements.
During Convergence, I had a chance to sit down with Patrick Berard, Senior VP Southern Europe at Rexel France
. Though not a household name in the US, Rexel is a $18 billion distributor of electrical supplies, operating in 30 countries worldwide. Starting three years ago with its operations in France, Rexel implemented Dynamics CRM to provide a 360 degree view of its customers. It may not sound exciting except that Rexel, having grown through many acquisitions in various markets, has dozens of ERP and other transactional systems that contain customer information, in multiple languages. Bringing this information together for the first time in a single view was no small feat.
Rexel’s approach was not to disturb these transactional systems but to pull information from them into Dynamics CRM and make it available for real time display on desktops and mobile devices and to use it for sales force automation. The company also leverages Microsoft Lync and Yammer to create communities of interest around this customer information.
As good a case study as this is, Rexel may not be finished implementing Microsoft Dynamics. With Microsoft building out its CRM footprint, Berard plans to look at Dynamics Marketing to see whether it would provide a way to better manage technical specifications and other content. Finally, some of the ERP systems in Rexel operating units are “sub-standard” and candidates for replacement. Microsoft Dynamics AX may be a good fit for these divisions, which may lead to an even broader commitment to Microsoft throughout Rexel.
For a system that was only born 10 years ago, Microsoft has made great progress in building out a complete CRM offering. It positions well against SAP CRM as a smaller-footprint alternative. Against Oracle, Dynamics CRM has a simpler story to tell. There’s no doubt that Oracle has deep CRM capabilities, but they come in a variety of acquired products, such as Siebel, Rightnow, and Eloqua, as well as Oracle-developed products, such as Oracle Fusion CRM.
Against all competitors, including the market leader, Salesforce.com, Microsoft is signaling that it is willing to challenge their premium pricing.
With Microsoft now offering a complete CRM solution and demonstrating that it can scale up-market, there are few situations now where Dynamics CRM does not deserve consideration.
Microsoft Dynamics Move Up-Market: What's Missing?
Four Needs Pushing Microsoft Dynamics into Large Enterprises
Computer Economics: Microsoft Dynamics Stepping onto Enterprise Turf
Update on Microsoft Dynamics Products and Plans
Labels: CRM, Microsoft, Salesforce.com
Tuesday, February 25, 2014
Drilling Deep into Healthcare ERP
Most enterprise software providers today claim to target certain industry sectors. But when you scratch below the surface you find that their so-called industry focus is not much more than a market strategy. There is little if any support for the core operations of those industries. At best, such providers give a tip-of-the-hat to certain industries in their horizontal applications, such as accounting or
The problem is not so much in the manufacturing industries, where ERP started. Indeed, there are ERP providers with strong operational support for, say, or engineer-to-order manufacturers with native PDM integration, or, for metal processing centers, with nesting logic.
The problem is when you get outside manufacturing. For example, some vendors claim to support the financial services sector, but you can't find a core banking or insurance claims module in their portfolios. Ask about those, and the vendor will give you a list of partner solutions. In other words, there is not a serious effort to support those industry-specific operational requirements.
Infor as an Example
One example of a provider that is putting some weight behind its industry strategy is Infor, the third largest provider of enterprise software, after SAP
and Oracle. Since Charles Phillips took the helm as CEO in 2010, Infor has been building out its capabilities to match its tagline, which reads in part, "Specialized by Industry." Its website lists 12 industries, from aerospace and defense to public sector. But when you drill deeper
, you find not just "food and beverage," but "bakery, grain, and cereals," and "confectionery." I've worked with manufacturing systems for over 30 years, and even I'm not sure how the requirements for those sub-industries would be different. But I'll take Infor's word for it.
So far, so good. But Infor has taken the concept of industry specialization beyond manufacturing and is applying it to the non-goods-producing sectors as well, such as in healthcare. The firm has already acquired and built out solutions for hospitals, extended care providers, and health insurers, along with data integration functionality between healthcare providers and from medical devices. These solutions go a long way to address the day-to-day operational activities of healthcare providers, not just their administrative support needs.
Today, Infor took another step to build out its operational support for healthcare providers, announcing its intent
to acquire GRASP Systems International
. It's an interesting move. Infor already supports healthcare workforce management (e.g. nursing staff scheduling) through systems it picked up with its Lawson and Workbrain acquisitions. But its acquisition of GRASP will take that a step further.
GRASP goes beyond simple scheduling of, say, nursing staff based on the number of patients. Rather it provides "automated patient
acuity," which means it takes into account "the unique set of interventions required for each patient." In other words, a patient in critical condition will need more attention than one in less critical condition. Even two patients with the same condition may require different levels of attention, depending on other factors. The ability to more precisely allocate healthcare staff not only improves productivity, thus saving money. It also improves outcomes by allocating staff according to actual needs of patients.
Infor's acquisition of GRASP goes beyond just picking up its software products. GRASP also has a significant professional services group, which means Infor is acquiring some good healthcare industry talent as well.
A Blueprint for Growth
ERP is by every definition a mature market. The need for horizontal solutions such as basic accounting and HRMS are more than adequately provided by a set of well established competitors. Of course, there is an opportunity for new cloud upstarts to displace these incumbent providers, as I've pointed out recently
But in addition to cloud deployment, another way for enterprise software providers to grow is to better serve specific industry sectors, drilling down beyond administrative support into deep operational processes. There are hundreds of small providers, such as GRASP, that have taken this approach. Infor is one larger provider that is attempting this at scale, in a number of industry sectors.
It is a blueprint that others will do well to emulate.
Infor and Salesforce.com: More Than a Barney Relationship
Infor's Two-Pronged Cloud Strategy
New details on Infor's Lawson acquisition
Making money in software with a niche-industry strategy
Labels: ERP, healthcare, Infor, Lawson
Wednesday, February 19, 2014
The Cloud ERP Land Rush
|Oklahoma Land Rush|
For those unfamiliar with US history, in 1889 the US government opened unoccupied lands in Oklahoma to settlement. Settlers could claim up to 160 acres, live on and improve the land, and then legally obtain title to it. Such an opportunity led to a land rush,
in which thousands of settlers raced into Oklahoma to make their claims.
Today, cloud ERP is like Oklahoma in 1889, mostly unoccupied land, and there is a race as cloud vendors rush in. NetSuite and Plex were two early settlers. Today NetSuite has more acreage (number of customers), while Plex has fewer acres but more development of those acres (functionality)--at least in manufacturing. Cloud-only providers such as Rootstock, Kenandy, AscentERP, Acumatica, Intacct, and SAP (ByDesign) are also in the race. Traditional providers such as Microsoft Dynamics, Infor, Epicor, Oracle, UNIT4, and QAD have also entered the land rush, although they are moving more slowly, as they need to pull wagons full of their traditional on-premises software along with them.
In the larger suite of enterprise applications, such as CRM and HCM, the land rush is further along. Salesforce for CRM and Workday for HCM have already staked out large claims and are rapidly developing them. But Microsoft with Dynamics CRM, SAP with SuccessFactors, and Oracle with its Fusion HCM are also adding to their acreage. Core ERP functionality, on the other hand, is earlier in the land rush. There is still a lot of open territory with a lot of unclaimed land.
FinancialForce Staking Its Claim
One provider that is clearly in the land rush is FinancialForce, which today announced new branding to signal its claim in cloud ERP.
The company is now referring to its suite of enterprise applications as FinancialForce ERP
. The new branding is necessary
because FinancialForce long ago ceased to be a provider only of
financial management systems.
FinancialForce previously added professional
services automation to its portfolio and late last year acquired Less
Software, which provides inventory management and order. Vana
Workforce is another acquisition from last year, which adds human
capital management (HCM) functionality. FinancialForce also added its
own functionality in areas outside of financials, such as advanced
quoting and revenue recognition. With this broader footprint,
FinancialForce now qualifies as a cloud ERP provider.
Building on the
Salesforce.com platform, FinancialForce has direct integration to the
Salesforce cloud applications as well as to all of the other providers
in Salesforce's AppExchange marketplace. The recent evolution of this
platform to Salesforce1 gives FinancialForce additional capabilities for
building out its mobile deployment options.
How many acres will FinancialForce claim? The signs are hopeful. The company is
reporting strong results: 80% growth in its revenue run rate, and 62%
growth in headcount year-over-year, bringing it to over 260 employees
globally. FinancialForce now has customers in 27 countries with users
in 45 nations worldwide. By all accounts, the company is on a strong
Plenty of Land for Everyone
The economic and strategic benefits of cloud computing accrue to end-user organization that completely or at least largely eliminate their on-premises IT infrastructure. Our research at Computer Economics
shows that cloud user companies save more than 15% in terms of their total IT spending, and the money that they do spend goes more toward innovation and less towards on-going support. But it is difficult to move away from on-premises infrastructure if an organization's core ERP system is still on-premises. Therefore, the move to cloud ERP is essential if organizations are to fully realize the benefits of cloud computing. You can move your CRM and HCM systems to the cloud--but if you are still running on-premises ERP, you still have one large foot stuck in the old paradigm.
In my view, there does not need to be one clear winner in cloud ERP. Just as there were dozens of on-premises ERP vendors in the 1990s, especially when sliced by industry sector, there is plenty of room for many more cloud ERP providers. There is plenty of land for everyone.
Computer Economics: Cloud Users Spend Less, Spend Smarter on IT
Four Cloud ERP Providers on the Salesforce Platform
NetSuite Manufacturing Moves on Down the Highway
Kenandy: A New Cloud ERP Provider Emerges from Stealth Mode
The Simplicity and Agility of Zero-Upgrades in Cloud ERP (Plex)
Plex Online: Pure SaaS for Manufacturing
Computer Economics: Cloud Players Storm the Gates of ERP
Key success factor for SaaS suites: functional parity
Labels: Acumatica, AscentERP, cloud, Epicor, ERP, FinancialForce, Infor, Intacct, Kenandy, Microsoft, Oracle, Plex, QAD, Rootstock, Salesforce.com, SAP, SuccessFactors, UNIT4, Workday
(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.
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