deal architect

Where have all the process visionaries gone?

A recent visit to an Amazon Fulfillment Center was eye-opening. They have completely redefined the old warehouse pick, pack, ship mindset. It's now stow, pick, pack, verify, and in their lingo, SLAM and "chaotic storage". Kiva robots and miles of conveyor belts bring work to employees not the other way round. Scanners, scales, sensors monitor and facilitate the worker - what size box to assemble, cut right length of packing tape, apply shipping labels etc. Read more about my visit here. 

I was recounting the visit to a software CEO. He said "Amazon is amazing". And I responded - "it's not just Amazon". I told him about companies I have worked with and written about that have dramatically rethought their processes with all kinds of modern technology - shop floors, cashierless stores, return logistics, transportation routing, payment processing and on and on. He asked me which vendors they work with. And I named a few then stopped and said "In the end, these customers are themselves driving the vision about the new process with a wide range of technologies. Rarely is there a single vendor or product".

The realization sunk in that true process innovation is not really being bought "shrink wrapped". Companies which are taking a "systems approach" - adding sensors, robots, flexible workflow, RPA at front, center, back of any process - are getting stunningly better results.

Of course, plenty of SIs will continue to talk about "best practices" embodied in packaged software, and many customers will say they are satisfied with "good enough" processes.

Most software vendors have in the move to cloud computing hired good architects who have helped them think about multi-tenancy and platform technology. They have not invested similarly in business process experts, especially those unique to individual industries or geographies. And even with the underlying technology they have waited for consumer tech to innovate with UX, AI etc. A few of their "good enough processes" added together could translate to several basis points of margin lost every year.

Jeff Bezos, CEO of Amazon has been known to say "your margin is my opportunity". I used to think it was his way of targeting fat, dumb, high-margin competitors. After visiting his warehouse, I think he also means to target companies which are not focused enough on margins and instead waste them in process inefficiencies.   

Infor: Part of the bigger Koch puzzle

I was excited when Charles Phillips and his team arrived at Infor in 2010. I looked forward to them executing to their vision they would focus on various verticals like healthcare and hospitality. Over the last few years I have become less excited as they have not delivered operational functionality for those verticals, but more horizontal financials, crm, and hcm functionality.  

I am not just picking on Infor. I have been clamoring for more "Glo-ver" functionality. After 20 years of cloud apps, we have too much of the horizontal stuff in English-speaking countries. Customers are not waiting and they are finding plenty of solutions to fill geographic and vertical niches. They are going to startups, SIs and are even filling the gaps themselves.

Which is why it is interesting to see (courtesy of Bloomberg, sub required) the other tech investments Koch Brothers have been making in addition to that in Infor.

Then you look at the breadth of the Koch empire across industries

Sure they are going through a variety of digital transformations in these subsidiaries and could commercialize that in the form of solutions to bring to market.

So, the opportunity for more "Glo-ver" is at the Koch level. I hope they start presenting to us at that higher level of vision. That would get me and many customers a lot more excited.

Maverick idea: Shift some marketing dollars to product design

(Sir) Jony Ive recently left Apple to start his own design studio. On his heels, Marcus Engman with a similar role at Ikea is doing the same, and he has an interesting value proposition “I want to show there’s an alternative to marketing, which is actually design ..And if you work with design and communications in the right way, that would be the best kind of marketing, without buying media.”

He is definitely on to something. Look at all the money we have poured into modern marketing and the poor results

1. email marketing has led to all kinds of spam and phishing scandals
2. telemarketing has turned into nuisance calls, robocalls and scams
3. TV advertising has been abused to the point where the FCC does not even try to limit number of commercial minutes per hour anymore - other than for kid's programming
4. digital marketing is turning into a privacy nightmare

BTW, there is a naive view that GDPR and EU regulators will somehow make 4) more viable. To which I point to how poorly regulators have done trying to regulate 1, 2 and 3.

Nineteenth century retailer John Wanamaker is credited with saying “Half the money I spend on advertising is wasted; the trouble is I don't know which half.” We spend a lot more on advertising these days, and have much better tools, but the results are only marginally better.

The sad thing is enterprise vendors have for over a decade now missed the move to smart products, a trillion+ dollar market I covered in my 2012 book The New Technology Elite. Contract manufacturers like Flex and Foxconn and design firms like IDEO and frog were the big beneficiaries of a focus on smarter, better designed products and services.

Enterprise vendors brag about CRM, but the reality is most also missed out on the digital advertising market. Google, Facebook, now Amazon have mostly benefited.

Will they change their tune and encourage customers to try the balancing act Engman is preaching?

Is Oracle having an application fire sale?

I tend to not focus so much on what vendors report to Wall Street and focus more on what they are delivering to customers, but three numbers jumped out at me in this Seeking Alpha article

Oracle cloud apps annual revenue of = $ 11.49 billion

Oracle apps modules in the cloud = 1,100

Oracle cloud apps customers = 6,000

That makes it average annual revenue of $ 1,741 per module per customer. That's way cheap for Oracle.

One or more of those numbers is likely off. I will let my financial analyst friends check into that.

Me - I am going to tell Oracle customers to invoke their "most favored customer" clauses and ask for software at that bargain price :)

Rimini Street tries to reshape AMS

I drove by the Renaissance hotel in Powai on the outskirts of Mumbai in India last month. It brought back memories - I had taken a client there 15 years ago on a due diligence trip as they looked to outsource their SAP application management, Basis support etc. Over the next few years I took several other clients to other Indian and E. European cities.

Then in 2010, I stopped doing so. The economics were just not as compelling, the staff quality was deteriorating/turnover was rampant, the overhead of dealing with staff often many time zones away added to an already complex environment. The offshore, and even domestic AMS model did not die, but it has been ripe for automation and a less labor intensive, more shared service/multi-tenancy model.

I have been encouraging Rimini Street for years to enter the market. They already support customizations to SAP and Oracle in their customer base. They have an agile, small team model. They could combine Level 2 and 3 support for customers. They have a generally happy customer base around the world, even if the publishers don't exactly show them much love.

They have finally entered the AMS market. Here is the announcement.

Is it too late? The AMS market is going through massive changes. SAP customers have been ring-fencing ECC with cloud solutions, and two-ERP subsidiary models. Many ECC customers will move to S/4HANA in the next few years. SAP has a whole new slew of products I describe in SAP Nation 3.0 - C/4HANA, SCP, SAC, AIN, IBP, Leonardo ML and IoT and on and on. It's not your Dad's SAP customer base.

Yet the ECC-centric AMS market continue to chug along at over $ 80 b a year. It was one of the biggest components in the models I had built of the economy in the first volume of SAP Nation.

So, it is good for customers to have another, quite different, AMS provider. In many ways, it is also good for SAP. Better late than never if SAP customers can see operational efficiencies in the Run phase. It will make them more willing to look at newer SAP products knowing they don't have to continue to live with circa 80s and 90s support models around today's products.

The "Glo-ver" phase in enterprise apps

I don't mean to pick on NetSuite but it is one of the oldest cloud apps vendors - born as it was in 1998. Over 21 years, you would think it would have a fuller global footprint. Especially since it had an opportunity for global subsidiary implementations in a two-tier ERP world.  Look at its site and see how few countries it supports functionally. Look closer and even there see how many functional areas are covered by partners. Some analysts say since Oracle's acquisition in 2016, its geographic reach has grown. Yes, likely in terms of sales reach, but in functional footprint - not sure it has.  

Same thing with Infor. For nearly a decade it has talked about emphasizing vertical functionality. But it has largely spray painted its financial, crm and hcm features with some industry terminology. It has not developed operational books of record - patient related functionality in healthcare, merchandising in retail etc. 

It's not just Netsuite or Infor. Most other cloud vendors are largely English speaking-centric and horizontal in functionality. Hey, cannot blame them - they are doing fine. Wall Street is generally happy with their performance.

In the meantime, however, the world has changed dramatically. Customers are not waiting and they are finding plenty of solutions to fill geographic and vertical niches. They are going to startups, SIs and are even filling the gaps themselves.

In the last few weeks I have profiled some of these extensions

• Mike Laven of CurrencyCloud covered fast moving trends in Fintech
• Larry Bridge of Cognizant talked about trends and solutions in healthcare 
• Uptake execs talked about assets and dealers in heavy industrial sectors 
• Raju Vegesna of Zoho talked about coverage in places like Japan, UAE and Nigeria which most vendors usually ignore 
• Mike Laven elaborated on how China and India are reshaping global financial markets 

Expect my coverage of global and vertical trends to accelerate. The applications industry is rapidly moving into the phase of "Glo-ver" extensions - global and vertical extensions to core horizontal functionality.

Cognizant and the healthcare vertical

I had a chance to talk to Larry Bridge, SVP Healthcare Strategy at Cognizant about the sector and how healthcare vertical solutions have evolved in his 30+ year career.  

Every industry is unique, but it would seem the healthcare vertical, particularly in the US, is truly unique. Is that why mainstream technology vendors struggle to get much traction here?

We always say the healthcare market has evolved rather than engineered.  I think that brings a lot of the complexity to it that everybody who plays in it deals with.

We get this, I'll bet, 20 times a year where one of our big partners from banking and financial services,  says, "Hey, healthcare is a big, growing business.  We've got a play to make," and they can't wait to have a meeting.  They want to end the two-hour meeting with a go-to-market plan.  Five meetings later, almost the glassy-eyed, overwhelmed look that you get from the, "I didn't know it was this complex," "I didn't know it changed so often." 

They walked in day one saying, "This will be a great two-hour meeting, and we're going to walk away with access to a $3 trillion market," and in fact, a dozen meetings later, well, not only are they no further than they were, but it's kind of stymied based on the complexity.

Whether it's Oracle, whether it's Salesforce which has invested a lot in healthcare, whether it's Google and Apple - a lot of investment in healthcare is taking place.  The nontraditional vendors certainly are building healthcare specific solutions but, in every case, what we have found is they lack depth of industry specificity, knowledge, subject matter expertise, compliance.  Compliance is huge in healthcare, CMS security rules, HIPAA, the new CMS interoperability rules that just got published.  Well, they actually aren't even published.  The rule just got passed and now they're determining the details around it for implementation in 2020.

The complexity of healthcare, I think, has kept some of the more generic platform solutions from really gaining traction in healthcare.  It's not that they don't have good assets and we use all of them in combination with our core systems, but it's still the industry-specific cores that are ruling the day.

Remember the Affordable Care Act came back several years ago?  Then it was all going to be done away with and we were going to repeal and replace.  Well, that didn't happen.  Now there are the new CMS transparency rules.  All of these changes require changes to the underlying platforms and services

What you have to put into these systems from a regulatory and compliance perspective is huge and to keep up with it, the new rules, making sure you're HIPAA compliant.  The whole security side of things when you're dealing with healthcare data.  The chain of control and the sign-offs that you have from people that can access certain types of data at certain times.  All very complex and evolving; I think that's one of the unique things that applies across all three of those customer groups. 

How do you segment the large industry opportunities?    

I break it into, generally, three big client groups.  Each one of those client groups has a core platform, and it's very specific to what they do

In the hospital and health systems, it's the big EHRs, the electronic health records.  Cerner and Epic Systems are the top two.  Allscripts is number three.  They're the ones that really dominate in that area. Now, we will help install Epic and Cerner and other EHRs and we sell services into that segment, but we don't own a software platform there.

If you move to the other side, payers, insurance companies, that's where we dominate with our Facets and QNXT solutions.  Epic does have a payer core system offering that's tied into its EHR called Tapestry, but the only place that really wins is if the health plan is part of a big health system that is already on Epic.  Then they'll use Tapestry to extend into the insurance side of the business, but it's much less functional  than what you would get from our core payer systems.

Then there are office-based physicians.  Their core system would be the practice management system.  You may have heard of, and maybe you're familiar with, eClinicalWorks, Greenway Health and companies like that.  They are all PM vendors.  There are literally hundreds of them that are out there.  In fact, 300+ of the PM vendors are our partners. If you think about a provider practice with anywhere from two to, let's call it, 50 physicians, everything around not only having your practice management system but submitting your claims, reconciling to your accounts receivable system, what comes back, handing rejections, things like that.  Almost everybody is buying a revenue cycle management and EDI service to go with it.  These are things we (Cognizant) sell using those channel partners. 

We also do revenue cycle management in hospitals and health systems.  That is pure services as opposed to the software.  We work with the software they have and provide those services around it. 

How has Cognizant's healthcare business and market evolved?

When you think of Cognizant's healthcare business, particularly when it comes to some of these core platforms, the real driver here was the acquisition of TriZetto (5 years ago) and the use of TriZetto's platforms as core operating systems for health insurance companies. 

TriZetto's platforms, two big ones, Facets and QNXT, are like SAP would be to a manufacturing company.  It's essentially the core engine that the company runs on.  Selling software in that area was TriZetto's history.  We still do that as part of Cognizant.

Now, we're bringing them to market increasingly with Cognizant, as part of Cognizant and its platform-based solutions.  It is the TriZetto software platforms, but it's services around it as well.  I would say that probably our new clients are probably evenly split between those who want to license the software to those that want it as part of a more comprehensive, end-to-end platform-based solution.  It's definitely trending toward the latter, particularly for specialized lines of business like Medicare Advantage where people are really looking for a business outcome, as opposed to just the software.

The place where Cognizant has the software that really dominates is in the payer and health insurance market.  The larger payers, the larger health insurance companies--Aetna, United, Cigna, companies like that--by and large are software buyers.  They will also buy a lot of services,  but they generally don't buy the complete end-to-end solution whereas, when you move down the line to the midsized and smaller buyers, it's just the opposite.  They're almost always buying an integrated platform-based solution, and especially when they get into things like a new line of business like Medicare Advantage.

If I were a midsized insurer and I sold generally to employer groups, employer-based insurance, and I decided to get into the Medicare business, which, for insurers, it's called Medicare Advantage, it's Medicare Part C, there is a whole new host of rules, regulations, reporting, compliance, submissions, reconciliations, everything you would have to learn to get into that business and perform successfully.  For anybody smaller than the largest companies out there, to figure that out, to build up the department, the compliance team, to go through the work, I mean they would pay double compared to having somebody like us bring an integrated solution to them. 

When we bring an end-to-end client on, on one of our Medicare Advantage platform-based solutions, right off the bat we save them about 30% to 40% compared to them doing it themselves.  Then, over time, say over a five- to seven-year contract, they'd end up paying about half having us do it as opposed to them trying to do it themselves just because there's so much that you have to do in terms of rules, regs, subject matter expertise, configuration, submission back and forth to the government, and so on.  In that market, it is very much an integrated services and software play in the middle to small plan size.  It's still a software play up at the larger side. 

What's it like to be a software company like TriZetto inside a big services company like Cognizant?

TriZetto was a fairly large software company - about $800 million of revenue when it was acquired.  There was enough heft to the company that allowed the software business to sustain

It's been a blending of cultures.  Software brings you repeatability, scale, but you have a lot less opportunity to customize your solutions than you would if you're a pure services company.  I think that finding the balance between the two was a key part of a successful integration.

What we found out, I think, is that we're well positioned to bring the best of both markets.  We can serve all the segments, and it really allows us to go in and tailor the solution based on their need.  If you're one of those larger companies, if you have an IT shop of 2,000 people, and you're really buying 50 software products and then knitting them together yourself to develop what you think is the best solution, fantastic.  We're happy to sell you the software and support you in doing that.

If you're a mid or a small company and you're trying to get into a line of business or you're trying to figure out your business going forward and you don't have the scale, you don't have the subject matter expertise, you don't have the infrastructure, then our integrated software and service solutions, our platform-based solutions, as how we refer to them, are the best.  We can serve both, so I think it's been a very positive combination for Cognizant, but also for TriZetto as well. 

It depends on who you look at, but I think everybody -- the larger -- if you take the largest players and probably the biggest competitors in the healthcare market, you'd be looking at Cognizant, you'd be looking at Accenture, and you'd probably be looking at Optum, which is the software and services arm of UnitedHealthCare.  If you look at all three of us, Cognizant is very much invested in that software, services, integrated solution type model where we can do everything we've been talking about. Optum is very similar.  They don't have the core platform that we have, but they have so many of the surround software pieces and the consulting and the things like that.  They're coming in very much with that, "I've got software.  I've got services."  We find Optum does a lot of work around our platform and the things that augment.

Optum is a partner of ours.  They're a client.  They're a competitor.  We partner with Optum on certain pieces of software that enhance the services we offer.  Optum is definitely investing in that software, services, consulting type combination, as we are. 

Accenture leads with consulting services and strategy. They partner with a number of different software vendors.  I haven't seen the investment from them in healthcare software  that either Optum or Cognizant has made but, in the end, through partnerships, they're still trying to deliver across that spectrum. 

We think we have an advantage because we own the entire suite, including the core systems on the payer side that gives us that edge.  But I think you'd find us very similar to the others, for instance, in the provider and health system market.  None of the three of us that I mentioned owns a core health system software asset, but we're all building services around software around capabilities and consulting around the provider market.

What disruptive changes do you foresee?

If you think of healthcare broadly, and this is at the highest level, for every dollar spent on healthcare, $0.85 goes to actually providing care, so the doctors, the hospitals, the drugs, the treatment, and $0.15 goes to administering care, managing the provider office, running the health insurance company, things like that.

Almost everything that we've done in the past has been focused on that $0.15.  How do you make the administration more efficient?  How do you make it more seamless?  How do you help the day-to-day operations run differently? 

We are pivoting to expand into the cost of care area. How do we bring value-based care models or bundled payment models to market efficiently?  What technology?  Think of us as taking technology and applying it to the care side. 

Companies like Optum are also expanding into this area.  Optum is buying up provider practices.  For us, we probably, at least right now, do not want to be in the “Hands-on patient” services, but there are a lot of things we can do to help that care delivery process take place more efficiently.

We can help bring these new care models to market.  We can provide the tools that allow for digital engagement.  A member using their mobile phone to stay active and involved in their healthcare.  How that mobile phone connects to a connected device that measures lung function and heart function and breathing and exercise and things like that.  There are a lot of technology-based solutions we can do on that cost of care side.

The second thing is looking at the real impact of newer forms of technology and what it can do to deliver a better healthcare model.  Two big ones that come to mind: AI and Blockchain.  Artificial intelligence; we all read about it every day.  We hear about it.  A lot of hype. 

Well, there's a handful of use cases in there, virtual clinical assistants for the providers as an example.  If I'm a doctor, I'm at the point of care, and I'm diagnosing a patient with a specific disease, do I need to rely 100% on my medical knowledge to tell that patient what to do?  What if I had a real-time virtual clinical assistant that could tell me what the best practice is around this type of disease, what kind of drugs, what type of follow-up, what type of specialist might want to be involved?  That concept, even to the point that they act as chatbots and are learning and consulting with the doctor, if you will, at the point of care, that's just one tiny example of a very valid use case in healthcare. 

The second is blockchain.  It's probably the most overhyped technology out there.  Out of the hundred use cases that might apply to healthcare, there's probably four or five that make sense.  But - those four or five can be game-changers.  The way they change the way workflow happens within healthcare, what it can do to dramatically reduce cost or to improve security or to improve accuracy. 

There are two key examples.  We've got teams focused on both of these areas, healthcare AI and healthcare blockchain, that have done well and scaled, have the potential to really define some key things going on.  Emerging technology, as it applies to healthcare, as well as addressing technology-based solutions for the cost of care, those are two big areas of expansion that we see opportunity and are investing in.

Uptake Verticals - Part 2 - Dealers of Industrial Equipment

This continues our conversation about verticals at Uptake. Yesterday Lisa Dyer talked about their "asset and maintenance engines" and how they are adapted to several industrial verticals. Below we cover the discussion with Joe Rosing, Director of Product Marketing about functionality for Dealers of Industrial Equipment.

The Functionality

"I've been with Uptake for about a year now.  Previously, I had a little over 12 years with Rockwell Automation in a combination of manufacturing roles as well as product management in the control systems business.  Here at Uptake, I have focused primarily on solutions marketing with our heavy industries, specifically our dealer line of products that serve dealerships with construction, mining, and ag assets, as well as mining operators and then manufacturing as well.

 Most dealerships for heavy equipment are split primarily between a sales function and a service function.  Within those functions, then you'll have individual divisions.  For example, earthmoving or a division for agriculture or a division for rental, the motions of that business and the customer base are slightly different.  But what comes across all of those divisions, really, is the sales and the service workflow.

SalesLink is what we call our industrial CRM.  At a certain level, a CRM is a CRM.  But we've built it specifically for a dealership business.  So, it allows you to click into things like, "Show me all of the pieces of equipment that a customer has.  Show me all of the service notices or the warranty information for each of those pieces of equipment."  It gives you that level of details that, as a sales function within a dealership, you're going to want and you're going to want that pre-configured for you versus going with a more generic CRM that is maybe purposed for a broader set of industries.

Then in a similar way, what you have here with this iQuote and iMax, these are tools to help you do intelligent quoting.  The reason why this is specific to the dealer business is because it allows the dealerships to look up, in real-time, the current price list with the OEM to make sure that they're getting the best available price at that time.  Otherwise, what you have to have is either people go online to the Caterpillar website or you might have to build other APIs into other systems.  We have all that purpose-built, so it keeps everything in sync with the latest and greatest information that's available from the OEM or from any type of other promotional activity that the dealer might be doing.

Then CODI is an application that helps manage the workflow once an order is taken through invoice.  If you think about what's involved in buying a bulldozer, for example, while the Tonka trucks all look the same, in reality, they're all configured differently.  A lot of times these machines are basically configured to order from standard components.  Those components might be coming from different places.  Some of them might be in stock at the dealership.  Some need to come from, basically, a warehouse through the OEM.  Some might need to be built.  They might be custom or just lower volume and they need to put them on order a full lead time from Caterpillar.

There's a lot of touchpoints and a lot of people involved.  Actually, once the order is taken, getting it to the point where all of those components arrive at the dealership.  Once all the components are there, getting it assembled into the final product as the customer would expect it.  Then managing the delivery process to the end-user and, ultimately, generating that invoice.  Whereas, in the past, that whole process might happen between a number of different systems or on paper, sometimes on whiteboards, what CODI does is it helps create, basically, one central place that manages that end-to-end workflow for the dealership.  Those are primarily the applications for the sales workflow.

Then for the service workflow, we integrate with some of the same components like this industrial CRM.  We only want you to have one CRM as a dealership.  We don't want you to have to think that you need multiple CRMs for different divisions or different workflows.  But, really, we start one step in advance of this.  This is where we're starting to use the asset data as a way to generate new leads for the dealership based on service opportunities.

We were running it initially with the condition monitoring portal, which connects to the asset data that's available on all of the equipment that you have basically set up with the system.  That allows you to get access to the different machine alerts that are coming off of the IoT devices on the machines.  Then there's a condition monitoring analyst that goes through those alerts, filters out the ones that need to be actioned, and then create a case.

That case is turned into a sales lead for service that says there are five fault alerts on the engine that a technician should go look at.  Whether this piece of equipment is under warranty, under a CSA, or just a straightaway service sale opportunity, it goes into the CRM as a lead for a parts and service sales rep to call on that customer and say, "Hey, look.  The data off of your machine is saying a service needs to be done.  Let's talk about how we want to handle this."  That's why it's integrated into our CRM.

Then, from there, we have, again, some quoting tools that are specific to that use case.  In particular, parts and service quoter.  We want the dealership to have access to information like, again, is it on a CSA?  Is it covered under warranty?  Do we want to charge time and labor or time and materials?  Do we want to charge just labor only or materials only?  You have that flexibility built into this parts and service quoter that is a little bit more intelligent and prepopulated than you would just out of a standard quoting tool.

Then once the customer says, "Yes, I want to do that work," it gets saved as a work order in ServiceLink which is really a service work order management system.  You can schedule your technicians in ServiceLink.  You can have visibility to making sure that you have the right technician assigned to the right job or, if they're going to be in a certain geography at a certain point in time, you can have them based in that geography for a week, for example, and look at the four or five service opportunities in that geography and get those assigned to them.

All of the work order detail is saved and passed through the platform here.  From the point in time that a condition monitoring analyst identified those fault codes, that service technician, actually, onsite at the machine, can see what fault codes were identified, any notes that that analyst put in place.  All of that information is available to them.  That's the advantage, again, of just having a platform that serves the different points along that workflow, both for sales and for service.

The Value Proposition

When we talk about automated case recommendation, this is the AI package that we had built inside of Asset IO.  This is a new functionality that we just released over the last month that starts to automate some of the process that we established with the condition monitoring portal.  It starts to automate what the condition monitoring analyst is doing by looking at the history of the data, whether that be machine data, work order data, case creation history where we can identify, for example, if we see these same four fault codes, those four fault codes typically end up in a case that gets actioned by the dealer.

We take that as a key input into this recommendation so that the software now can automatically say, "Any time I see these four fault codes, I'm automatically going to create a case and automatically populate a description of what could be wrong and then add a prescription for what needs to be done to fix it.”

With our insights engine now from Asset IO, what we're finding is 89% of the insights end up being reliable cases.  Now, think about what that means for an analyst.  They can look at 50,000, let's say, machine alerts and put one percent of those in a case, or they can look at hundreds of insights and put almost 90% of them in a case

The vast majority of our data science team has been working with this dealer business now for about four years because Caterpillar was one of the initial customers of Uptake. We also send them out regularly to go visit dealers.  In particular, with developing these additional data science models, there is a lot of interaction, either by phone or in person, at the dealerships to gain an understanding.

We still rely on customers for deeper level subject matter expertise.  But I can tell you, to put this together, there were about 30 new data science models that were developed and a lot of those were developed with the subject matter expertise of our data scientists that have just developed that expertise over the last couple of years.

I would add that I think the other place where we have expertise isn't just in the asset, but in the process itself.  No one really talks about assets in manufacturing.  You always talk about process.  Everything is at the process level.

As we get into automotive cases, for example, or metal fabrication, you're not just looking at an individual stamping press.  You're looking at the end-to-end stamping process.  We developed expertise in how material moves through that process, the robotics that are involved, the control systems that are involved, the data that's available.

From an expertise standpoint, really, what you're looking for is, as you talk with an operator who has been doing stamping on an individual line for 30 years, they almost have this machine whisperer talent, right?  They can just tell by the noise a machine is making or by the vibration of something on the line that there's something wrong.  What we're trying to do is basically marry that intuition with data-driven precision.  Beyond just having knowledge or expertise around the asset, I think we've done a lot of work the last couple of years to develop this expertise around individual processes that help us accelerate implementation and time to value for customers.

The other point is that our customers, some more so than others, are thinking about their workforce, their aging workforce.  What do we do with all the intuition and the knowledge that walks out the door when these folks retire?  This is just another way of codifying that deep, deep knowledge and making sure that you have that as your workforce evolves.  That's one of the concerns that we have for customers as they think about their future is the workforce part of it.  In other words, it's assets, it's process, it's people.

That is a huge concern in this dealer space because the availability of technicians that can actually do the work to fix these machines has just been dwindling.  Every dealer we talk to talks about how hard it is to find good technicians, to retain the talent that they have as some of their best technicians start to retire.  How they're trying to bring new technicians up to speed.  All the more information that we can provide to them through this condition monitoring portal of, "Hey, these are the alerts.  This is the description of what's typically wrong when we see these alerts.  This is the prescription of what you should do to solve those problems."  All of that helps our dealers just be more effective with the technicians that they have and improve that technician efficiency also such that when we indicate that they need to go visit a customer to do a job, it is a job that needs to be done.  They know everything that needs to be done on that machine, so they don't have to go back out two weeks later to do some other minor repair, but they can get it all done in one shot, improve that first-time fix ratio, and then move on to the next customer.  Improving that technician efficiency is a key component of the value that we drive in the dealer business in particular.

Uptake Verticals - Part 1 - Industry Asset Engines

I had a chance to talk to two executives at Uptake about vertical markets they focus on, under their tag line of "Our technology has seen millions of machine failures so you don't have to". First are the notes from the conversation with Lisa Dyer, till recently their Director of Product, about their "asset and maintenance engines" and how they are adapted to several heavy industrial verticals. Tomorrow, we will  cover the discussion with Joe Rosing, Director of Product Marketing about functionality for Dealers of Industrial Equipment.

The AI engines

I've been at Uptake for four years now and since the beginning, we’ve always been really focused on the industrial space, industries with heavy industrial assets, with the goal of helping them to increase productivity, reduce downtime, financially optimize their maintenance strategies and, ultimately, help them to improve their own customer experience.

So how do we do this?  We have an APM application called Asset IO. Broadly, it offers a full suite of what I'll call blended maintenance strategies.  Meaning, a company - given their journey in transforming how they manage their assets - may be at different places in terms of their maturity and thus, appetite for different strategies.  For example, not everyone is ready to go all the way to predictive.  The blended maintenance strategies and offering that we have helps customers understand what they can do now, given where they are from a maturity standpoint, and gives them a path forward to advance their strategies.

Let’s talk about the ground work we’ve done with the Uptake Platform that ultimately supports our applications and provides our customers with an end-to-end solution.  The platform uses a series of AI methodologies to ingest and normalize data as well as predict failures and maintenance needs.  We have over 150 unique algorithms that serve all different types of assets and industries.  To create new models, we use our AI engines, which serve as a starting point for common use cases.

For organizations performing reactive and/or time-based maintenance, for example a time-based maintenance plan from an OEM, we can help them create quick wins for their organization by reducing over-maintenance of assets.  With our data integrity engine we clean up work order data by identifying missing or inaccurate data, using unsupervised, supervised machine learning techniques and text mining.  We use AI to automatically make improvements for missing values or records to create asset and failure mode tags for each operator action so we can standardize across the plant and the fleet regardless if a customer is using different EAM systems.  This mitigates data quality issues so customers can see true O&M cost analysis.  Then with our planned maintenance optimization function, we can perform what-if scenarios to find the optimized maintenance strategy.  Our asset strategy library, which is a catalog that contains something like over eight hundred asset types that are supported by over fifty-eight thousand failure modes that are found in over a hundred and seventy-eight thousand conditions, feds into the PM optimization function to allow what if scenarios to be conducted whether customers have connected assets or not. This helps them balance over and under maintaining assets.  One customer was able to reduce their maintenance costs by over a hundred thousand dollars a year by optimizing their maintenance strategy for 25 voltage motors across one plant.

We also can help organizations with other maintenance strategies like condition monitoring and predictive analytics.  We use our MLAD engine, that’s Machine Learning Anomaly Detection, for condition monitoring which detects abnormal behavior in asset data.  It determines the high/low tolerances for an entire fleet of assets.  This was helpful for one of our wind customers.  After just two weeks of monitoring the entire wind farm, we were able to determine one turbine was performing abnormally compared to the others. We alerted our customer to a potential failure and when they checked the turbine to determine the main bearing was about to fail. The repair cost them five thousand dollars verses the two hundred and fifty thousand it would have cost them had the bearing failed.

Additionally, the ‘normal range’ expectation adjusts as operating circumstances & environments change.  For example, a customer won’t see an alert when a spike in engine temperature occurs because of an external cause like increase in payload or going up a steep hill.

Our failure prediction engine ingests high volumes of  live streaming data across multiple sensor readings to detect deviations.  Instead of just understanding if an asset hits the high/low threshold, the engine correlates multiple sensor readings to detect and alert to deviations in order to provide advance notice that a failure will occur.  We caught a coolant issue because we were monitoring engine speed, engine oil temperature, and engine coolant temperature of a locomotive.  We saw that the engine coolant temperature was deviating slightly from the patterns of the engine speed and oil temperature.  Fault codes never fired because the data didn’t hit the OEM thresholds and the deviation in the data was too slight to notice by just looking at the data patterns, however our customer was alerted to the issue and able to schedule maintenance in advance of a failure occurring.

Adapting to verticals

While there are algorithms that can be used across different inquiries, most of our algorithms are built to support a particular industry.  We just use our AI Engines as a starting place to then tailor them by industry. This allows us to quickly deploy new models while also tailoring the applications.  Like in the trucking space, we have an algorithm to detect when a truck is running an inefficient DPF or diesel particulate filter. With one customer, we were able to save them over five hundred dollars a month for one truck with this model.  The fleet/trucking space is also a great example of how we tailor our applications to be industry specific not just with models, but capabilities, for example, we have driver scorecards and a mobile app for ELD, electric logging, that are needed to support our customers in the fleet industry.   

We have data scientists who are focused on specific vertical industries.  In part, what informs them and gives them the knowledge, besides the visits with customers and prospects and so forth, are regular deep dive sessions with folks who have been in the industry for 30-some years and they teach how to fix these assets, for example.  We rely on our advisors in understanding and getting down to the lowest level of how an asset or component could fail and all the ways in which it could fail, to help us find what causes it to fail and ultimately help improve the accuracy and efficacy of our data science models.

In certain industries such as transportation, the asset technology itself is evolving.  Take an on-highway truck, which is predominantly linked to a diesel engine.  Now we have CNC, natural gas-operated.  This is a whole new type of asset, a whole new process for maintaining and, again, that workforce that you may have may not be as familiar with something like a natural gas-powered or a renewable energy powered vehicle.  Our data science models that we develop around those new machines can also help with that.

 

 

Part 2 of conversation with Mike Laven of Currencycloud

In this part, Mike talks about the China influence on Fintech, Blockchain and other disruptive trends

Mike, I was in Shanghai a few months ago and I was blown away at how isolated I felt.  I didn't have the banking and other apps that the Chinese consumer has.  I felt cut out of that economy.  On the other hand, the Chinese consumer is so connected and digitally savvy. How do you see Chinese influence spreading to other global financial centers?

I just ran a seminar at a conference that I go to every year in the Alps.  It's a fun conference, put on by one of my investors. I ran a seminar for the morning on the Chinese Fintech Model.  I was the moderator and we had a whole bunch of knowledgeable people in the room discussing China. 

You’ve been in Shanghai. You walk into a restaurant. it may know who you are through geolocation.  You scan your QR code.  The menu shows up.  You order on-line, you just walk out, and you're billed.  Your account is then linked to the restaurant and everything works effortlessly. Payments can be embedded in your WeChat account.

There are a couple of things going on that are very difficult for us in the West.  First of all, a lot of the bank services are being delivered by a third party wallet outside of the banking system.  They're not being delivered by a bank.  Ant and Tencent effectively are running these huge balances that keep the wallet.  So we’re beyond the security of the banking system for holding balances.

The second thing that's quite important is our concepts of data privacy aren’t there.

Government has basically sponsored this massive infrastructure that totally integrates everyone into the financial system for every single thing that they do.  You get that utility at the expense of sharing all your information with government. Loose controls on anything to do with privacy and that makes all that work.  At this point the Chinese consumer doesn’t care about privacy in the same way, or has no choice. Maybe that will change in the future, but not now. That drives a level of integration and service provision that we can’t come close to.

When you think of whether the Chinese model will come to the West, I think, the answer is probably unlikely.  The U.S., is the most difficult market for financial innovation because U.S. banking regulations are so hard with banking regulated by 50 states. There have been attempts by the federal government to put in a national banking law and the states have defeated it each time.  Fintech innovation in the U.S., in anything that touches actual money, is incredibly difficult. The States have said, "No, we're not giving up our ability to protect our consumers," all of which means that it takes millions of dollars both in license fees and operation fees to build an innovative regulated financial platform in the US.

So in the US, Fintechs focus on technology first, and then the regulated platform becomes the bank.  Then the bank delivers the service and buys in the tech.  So I think the US model will be very bank focused.  In Europe where there is a single source of regulation it is easier to be a larger banking alternative which we’re seeing with the growth of large Neo Banks.

But the scenario that's more interesting -- and this is the summary of my seminar with a lot of really smart people -- what's much more interesting is, the Chinese may not care that much about Europe and the U.S.  

If you look at the places where that model is going, it's all over South Asia and all over Sub-Saharan Africa and all over Latin America.  The Chinese financial firms have figured out that the European and U.S. privacy standards, mean that the Chinese model of third-party wallets, total integration, and government access without so much concern for data privacy is not going to work in Europe and the U.S., but it's going to work everywhere else. It could come to dominate the whole of the world, except for Europe and the U.S.  We'll end up as a museum of how things used to done. The Chinese visitors are already piling in.

How about India's or Singapore's influence?

The interesting question here which has come up a couple of times, is whether there is a third pole globally in terms of financial models? That's India, which hasn't worked as aggressively outside of India, and is a totally different economic model and will soon have a larger population.  In India everybody now also has a government-issued ID.  There is some level of state knowledge and control but nowhere near the amount the Chinese have.  With such a massive internal market, tech savvy entrepreneurs, access to capital, India could develop a financial model more closed than China but with greater integration and ease of use than the West. After the demonetization of the 100 Rupee note a few years ago, cash payments went massively electronic through Paytm and others almost overnight. So there is scope. Whether India will end up as a third economic pole is an interesting question.

Outside of Paytm, which is huge which exploded after the demonetization of the 100 rupee note, we haven’t seen that many India Fintech product companies. Lots of expertise, the banks have huge development shops and large integrators. But the Indian market is large enough, like China, that internally focused products can get massive scale and eventually export. To go back to the Chinese model, when you go to China and see that total integration of the financial system, it's pretty impressive but its likelihood of spreading in Europe and in the U.S., we think, is really low.  However, you can also think of it this way: if China’s economy grows at 8% and India grows at 6%, if you paid a 2% penalty for a little bit more data privacy, maybe it's okay.

Singapore has a very active Fintech market, actively encouraged by the regulator and the government. But the S.E. Asia internal market is quite fragmented and except for DBS, the Development Bank of Singapore, most banks are not that tech savvy. Think of Singapore like Israel—a hot tech market focused on export.

What other trends excite you?

I think the transformation of insurance is now very interesting.  Insurance is about the ability to identify, price, manage and share risk. Now that we have the ability to collect massive data on everything, we can now refine our ability to identify and manage risk and then to distribute that risk across other venues. Additionally there are new kinds of risk. How do you insure self-driving cars, or shared vehicles, or home owners insurance for shared properties or drones.  Insurance is usually the last industry to ever transform as it’s so conservative.  Sometimes we think banks are conservative, but you're seeing a lot of InsureTech startups these days.  You should look at a company called Trove, which is pretty interesting.

People always ask about blockchain and crypto which I think isn't that interesting as a financial service at the moment. In terms of asset trading, crypto is very interesting.  But in terms of a financial services delivery vehicle, say payments or FX, it seems to have come and gone. No real advantages as yet in speed or cost.  There is a lot of experimentation with blockchain based financial systems and distributed ledger systems in the larger banks-but right now that is still only experiments. There are other ways to solve distributed data problems. A few years ago, when you attended Money2020, the major annual Fintech conference, the booths were full of blockchain and crypto start-ups. Walking around this year, they were there, but hard to find.

When I think of the conference I just came from, it was very innovative, and quite fun.  What were the themes?  The themes were InsurTech; the difference between selling to millennials to selling to the people who have the money, who are the baby boomers; and how innovative firms are trying to capture younger people without money because, ultimately, they're the people with money in 20 years. 

Conversation with Mike Laven, CEO of Currency Cloud

I had a chance to meet Mike Laven, CEO of Currencycloud over lunch in London, and then follow up by phone on how the Fintech market has evolved in major money centers around the world.

Mike, you have had a bird's eye view of the Fintech market, even before the term was coined, at Currencycloud and in previous leadership roles at Infinity Financial Technology, Cohera, Coronet and Traiana. Summarize if you can the trends you have seen.   

Currencycloud is a venture backed company that provides embedded international payments for many Fintech firms, neo/mobile bank and payment firms. We now effect well over $1B a month in payments. We got our first major funding in 2012 and then we were off and running.

I divide the Fintech world into two buckets: digitally native finance, and digitally transforming finance.  For the first five or six years of the company, we almost exclusively sold to digitally native Fintech companies. These firms didn't come out of existing banks or existing large corporations but usually from technologists trying to solve a personal or business problem. Fintech arose from meeting a customer requirement and an old, inefficient, almost customer hostile banking system.  Nobody loves their bank and the quality of services. Banks believed they had a lock on their consumer and corporate customer, and so felt no pressure to change and evolve. So Fintech companies set out first to meet Millennial digital demand, for digitally native consumers, and then have created a whole new ease of use in financial services. Those services, even when they don’t attract enough customers to scale set the standard for the traditional providers. So Fintech has massively punched above its weight in setting a standard for the industry. Digital consumers have set the standard which will filter upwards into all of finance. So yes—in finance customer requirements fueled by massive amounts of venture capital are driving industry transformation.

The early stages of Fintech were very much like other Internet-related areas.  Firms like ourselves and start-up automating lending, people, car loans, insurance, small business loans, wealth management, trade finance. Each picks off some feature and optimizes the hell out of it, focuses only on that, making a category killer. They were pure startups.  They took for granted that services would be delivered to millennials on a mobile phone and by-passed the out-dated physical bank branch system. Fintech is breaking up that massive bank platform into a series of optimized pieces. The optimized pieces are great for the early adopters but most people and businesses don't want to go to ten places to get their services. So the question is “who will provide the point of integration to provide all of these new optimized digital services. Will it be the banks who already have the customers but need the technology, or the Fintechs who have the innovation but need the customers". The Fintech companies and digitally native banks are built on a totally new banking stack, on a cloud-delivered, agile developed, next-generation banking stack.  But then those firms don't have a lot of customers compared to the large established banks.

In Europe, there's Revolut, Starling, Monzo, N26 and other Neo Banks who are starting with debit cards on which you can hold a balance and then layering in budgeting, insurance, travel, and a whole series of other banking services. These banks provide a whole new level of user experience. There's a whole series of consumer-oriented, digitally native, financial service firms.  You don't see them as much in the U.S. because of the regulatory issue but, basically, they start out mobile, and generally they start out targeting millennials. 

So talk about the incumbent global banks and their strengths and weaknesses in a changing world.

I've always been a believer that the big banks always win because of their ability to make a billion-dollar investment, their ability to shoulder risk, and their huge balance sheets but they'll just be late to the party.  Those banks still have the bulk of consumers.  Europe has this very active challenger bank segment, but it's still the early days for Fintech and the bet is that as millennial consumers grow up they won’t return to banks they’ll stay with their apps, and that the bank culture will not be able to deliver.

The established banks still have the customers and cost of customer acquisition is very high and requires off-line marketing which we see all over the London metro system and TV ads.  Pulling people away, even for a better service is complicated and expensive.  So to me the jury is still out—there will be few Fintech winners, but as you need massive scale and the banks have a lock on users, I wouldn’t bet against the big banks yet. A few Neo banks will make it-but not all.

In our world of moving money around the world, the banks, the big banks who do payments -- and that would be like JP Morgan ,Citi, Barclays, BNP and others -- service their large customers very well. Banking and finance are conservative and highly regulated industries, so their technical transformation to modern, user friendly, mobile oriented industries has come late in the internet revolution of turning all kinds of commerce on its head. Also, some of them looked at emerging Fintech and thought, "We have the customers.  Our customers aren't going anywhere.  These are small startups. Nothing to worry about."

The difficulty that the larger banks have is they're still running these big, on-premise systems.  The systems work. But if you want to offer flexible, mobile services that are delivered to the next generation of customers then, ultimately, you have to make changes to your core banking system or else you have to build a new platform. 

The firms who are really clever actually know that they can't touch their core banking system without spending hundreds of millions of dollars.  What they're doing is building an alternative platform to start the delivery of services and then hope they'll bring the platforms together later. 

We know from back in the old days of ERP, when you switch technology, when you switch from mainframe computers to minicomputers and minicomputers to desktop computers and from desktop computers to mobiles from mobiles to streaming that new entrants come in with new technology and the old guys just watch and eventually have to catch up or die.  What you're seeing now is banks trying to catch up in what I call digital transformation. Right now, the banks' advantage is that they provide all of those services through one single point of contact, but the individual services will be sub-optimal, over-priced, not transparent, hard to use, bad user experience … all the things we’ve come to expect in the digital age.

The difficulty for the big banks is that when they look at the assets that they lose or the transactions that they get, today it probably doesn't matter much because all of the challenger banks are serving a different demographic, which is the demographic that you need 20 years from now, not the demographic that you need today. 

I once had a conversation with a Head of Payments from one of the largest US corporate banks and we talked about my targeting services to SMEs. His response was that services to firms under $1B were unprofitable, so the more I could do to take that business off their hands the better. So when the established banks looked at Fintechs initially focusing on millennial consumers and small business—they just didn’t see a threat.

The smarter guys are trying to figure out how they do their digital transformation to economically capture these markets of the future and the dumber guys say, "Okay, we're fine today," but I think they're going to wake up in ten years and all their best customers are going to be somewhere else.  When I present to established banks about Fintech I usually tell them that the competition they need to worry about is not Fintech but smarter banks.

That's where I see the Fintech world now. Maybe five or six years ago, the consumer-oriented Fintech world was all about digitally native startups. Some of those firms have prospered and are scaling up and that's great.  Some have fallen by the wayside.  Now you're seeing less new entrants and a real sort of arms race on the part of larger banks who are very constrained because of old technology and old siloed organizations.

Where I see the challenge right now for larger banks is that you can't unlock a lot of the Fintech innovation unless you can migrate your core banking system.  But migrating your core banking system is really hard and really expensive. In order to provide a whole range of digitally optimized services, either the established banks have to rebuild from scratch, or modify their brand through digital partnerships. So will the banks become the point of integration for new services, or lose their customers? I actually think, from a market-facing perspective, the big banks are not in that bad of a position.  Acquiring customers is usually a longer and harder job than acquiring technology.  Their big question is “How to provide a next-generation service with a last generation core banking system?”  So, who will create the new integrated financial services stack. First for consumers, and then for business.

The other point, which I think is important, is Fintechs are tech heavy but asset lite, no balance sheet. In the world of financial services, the banks that have huge balance sheets that can meet regulatory requirements and have the ability to loan money from those balance sheets to corporates, they are the ones who have a huge scale advantage over Fintechs, even those with a banking license.

Fintechs like ourselves and people in other corners of our industry optimize transaction costs to near if not at zero, so you really have to scale and in the end there can not be that many players.  The real profitable business that's left for the banks is loaning off the balance sheet and making money on the capital.  As the Fintech world optimizes all of the transaction costs, the large banks with large balance sheets might be actually in a very, very good position because they can let Fintechs optimize all of the low margin stuff and they keep the high margin business.

European regulation, the Payment Services Directive (PSD2) is forcing the banks to open up their account information to third parties to build services on. At first, this looked like it might bring in an open banking environment. But consumers are often reluctant to switch banking providers and open banking may just allow established banks to off-load unprofitable current account services while keeping the deposits and the money making loan activities.

The reality is corporate customers are not going to go to multiple places to get finance or overdrafts, and another place to get short-term loans and another place to get a real estate loans. Corporates like to come into a single bank to get all those services.

A business wants to come to one place. So the digital transformation of corporate banking is taking longer.  The challenger banks are really at the level of very small business, you know, at helping sole proprietors and small businesses, people who sort of run their business using Intuit, Sage, NetSuite, or one of those packages.

If the core accounting system is Oracle, SAP, or anything that's really substantial, the likelihood that that firm is going to end up buying lots of different little apps to run their banking is fairly low.  The question then for the big banks is, as those alternative services put on cost pressure, to what degree are they going to respond.  They can be slower;   business banking takes a lot longer to transform than consumer banking.

Sounds like a lot of fragmentation. Do you see any consolidation anytime soon?

The way Fintech has grown up is that we’ve optimized different parts of the financial value chain:  cross-border payments, wealth management, current accounts, mortgages etc.

The current issue in Fintech, is that separate optimized services are massively inconvenient for consumers and businesses. At some point, all these things have to be reintegrated and the question becomes, who will manage the point of reintegration.

Goldman’s Marcus is a good example.  It starts as an innovative platform backed by the assets in Goldman Sachs with all the money they can put behind it.  They can then become a platform for delivering services from other Fintechs.  I think that's what you see.  Santander, BBVA, Credit Agricole and other banks are going down the same path.

You'll see Fintech massively consolidate.  Either a few guys will become huge because they start to go out of their niche or everything else will be delivered by the banks.  Remember, this happened -- I was around for this in capital markets.  Twenty years ago, when you started to get the proliferation of trading venues in equities, all sorts of new places to trade and massive price reductions in the cost of trading. Ultimately, the exchanges and the big banks consolidated everything and brought it all back.  Capital markets went back to the large players with a few survivors

In Part 2 tomorrow, Mike will talk about the China influence on Fintech, Blockchain and other disruptive trends

Vendors and Analysts: Influence v. Intelligence

Readers know my favorite vendor event is a summit - a day or two long analyst-centric event. Not that I mind going to user focused events but feel like I intrude on customer time there.

In the last year, I have seen analyst meetings get more nuanced and frankly more enjoyable with richer content

• Plex, which pioneered and continues to take analysts to customer plant tours, invited a few analysts to a Customer Advisory Board meeting. That took some courage but the interaction of their executives, their customers and analysts allowed for far more authentic back and forth. 
• SAP invited analysts and reps from ASUG (the N. American user group) to a licensing day event. Usually vendors are loathe to discuss pricing, trade-ins, audits.   That took even more courage as we were not shy in providing feedback. 
• Zoho invited a global set of employees, not just execs, to join in their analyst day. It accented the reality that Zoho's is blazing a dramatically different global path as I wrote here
• I recently had a chance to present to a group of consultants at Cognizant in India about my new book, SAP Nation 3.0. Instead of just listening to me, we turned it into a much more interactive session where we discussed other platforms, vertical solutions as well. I learned as much as they hopefully did - we could have gone on for a few more hours.

Even the evening gatherings are becoming more creative

• Workfront hosted a few analysts and customers at celebrity chef Heston Blumenthal's restaurant in London. Few things impress a tech analyst more than when you ask for a scoop of simple vanilla ice-cream and they drag in an elaborate contraption and make it in front of your eyes using liquid nitrogen.
• Workday chartered the California Spirit and took customer execs and analysts on a pretty sunset across the bay in San Francisco. Talk about ensuring a captive audience :)

It's not about elaborate settings. Frankly, I am more impressed that one CEO has started to host small dinners with analysts ( I missed the first one, but in an email he told me he looks forward to the opportunity to more sessions and to "listen and learn") and another CEO has similarly promised to make more time for one on ones.

All this contrasts to certain vendors who have not had an analyst summit in years (or ever) and many others where your only interaction with the CEO is via Q&A in a large press conference. It's their prerogative but certainly different from the share, listen and learn approach some of their competitors are taking.

Analysts can be used for influence or market intelligence - the ideal combination involves both.

Cloud Applications - A long, winding road dotted with Bystanders

Frank Scavo's Computer Economics has a nice post about the the long, winding road - the slow customer march to cloud applications. Bill Kutik pointed to similar slow movement more specific to HCM cloud applications in a recent LinkedIn post.

My recent book and my advisory work provide an additional perspective to their data. I identified a large group of what I called Bystanders in the SAP customer base. They have not taken advantage of its growing portfolio of new products - S/4, C/4, cloud properties, SCP, SAC, Qualtrics etc. They continue to stay with ECC, BOBJ, B1 and other 20-25 year old products. I did not call them laggards or anything else pejorative for reasons that will become clear as you read further. I estimated 60% of SAP's 400+K customers are in that group, especially those in Europe. If anything SAP is ahead of its on-prem peers. S/4 is maturing nicely and its coverage in functional and geographic areas is much wider. The competitors have even more Bystanders in their customer base.

There are three big gating factors for their lack of movement

Not enough functionality

I have heard from countless customers they do not see enough from individual vendors in the cloud, and they are afraid to add to their patchwork of already too many vendors. After 20 years of cloud applications, we have too little global or industry coverage. So, you have vendors like NetSuite brag they have users in 200+ countries and they support over 190 currencies, but their own site shows detailed functionality for less than 20 countries. You have vendors who claim to "do ERP" but have zero shop floor or warehouse or operational capabilities in the cloud. I got a nasty note from a vendor executive asking why I considered "back office" functionality "boring". I responded "I was trained as a CPA so boring is a strong term but I am amazed the industry talks so little about operational systems and vertical functionality compared to all the talk of hcm, crm and core accounting."

Too expensive and risky a migration

A number of customers have tested the waters and many have been shocked by the proposals they have seen from SIs. Many SIs are behaving like it's 1999. Just because the S/4 or Workday software is relatively new, it does not justify a premium in consultant rates. The functionality is not dramatically different. Also, SI delivery models have not evolved much. Just not enough automation in data conversion, testing and other phases of projects they do over and over at clients. Finally, there is their age old FUD of  "oh, there is so much change management". And yes, they still cannot show predictable outcomes. The muscle memory of the overruns and failures of the last wave of ERP and CRM remains with too many customers for them to sign up. I was actually pleased to catalog many case studies of ECC to S/4 migrations in my book which minimized the organizational change and the SI role - they stuck with SAP GUI, stayed on-prem etc.  They are postponing innovations, but frankly reducing exposure to the "change management" and other SI premiums.  

Cloud economics are just not as attractive

In wave 1 of the cloud, the economics were compelling. The cloud collapsed 4 contracts from on-prem world - the software, the hosting, the AMS and that of SIs who did frequent upgrades. Multi-tenancy and simplified contracting explained why it was so attractive to look at a Salesforce or a SuccessFactors relationship. But in the last decade, reality has set in. I have heard from a number of customers their incumbent infrastructure is fully amortized - the cloud only adds to that cost layer. I have heard from others who have sharpened their pencils, that buying their infrastructure is still cheaper than subscribing in the cloud when it is annualized. Then there is the expectation that comes from their outsourcing experiences - when you hand someone a 3 or 5 year contract you have the right to expect CMM Level 5 or Six Sigma continuous improvements. Instead, too many SaaS renewals are turning into unpleasant head-butting experiences - no improvements, just massive cost increases. 

Most customers I have talked to would love to modernize. Many, in fact are frustrated with the status quo. ABAP or Peoplecode are not exactly recruiting assets any more. Their significant customizations and technical debt are growing compliance and security risks. They realize they cannot leverage multi-tenancy, machine learning and other advances with their current set-up. But they are nervous. They want lots more operational functionality, and they want better economics and predictable results.

In the book, I called on SAP  to "tilt its bell curve" and jar the Bystanders into action. Other on-prem vendors need to do that even more in their customer bases. Pure cloud vendors continue to have the opportunity to replace incumbent vendors. But they need to tackle the three big issues I highlight above.

Just calling the Bystanders "laggards" or something else demeaning is to ignore the reality of the state of cloud applications.

Tim Cook - Book Review

I read the Leander Kahney book on Tim Cook on the long Emirates flights to and from India. In India, I had a conversation with an Apple consumer like me (not really that knowledgeable about the operations of the company). His point was India should require Apple make massive investments in return for access to their large market. I asked him if the US should expect the same of TCS, Infosys, other Indian outsourcing firms for similar access to their largest market? He ignored my question. Then we got into Apple needing to diversify production away from China given recent trade tensions. I asked him how India would improve its infrastructure to support Apple's finely tuned supply chain. Again, no good answers. Raise our amateur conversation a few levels of abstraction higher. It would highlight how Tim Cook is one of the most geopolitically influential executives in the world these days.

And if rumors of the Apple Car are true, Germany, Japan, S. Korea are just as interested in what he is going to do. So I thought it was odd that Leander's book does not look much at these global crosscurrents in his new book. Instead, I thought Kahney spends way too much time on race relations in Alabama where Cook was born and raised, and his sexual orientation. In that sense, I had the same reaction as I did to Walter Isaacson's book on Steve Jobs - bit too much focus on personal background and idiosyncrasies, less on the gears and timing belts of the Apple juggernaut.

Unlike Isaacson, Kahney did not have appear to have direct access to the subject. However, from the citations he did have access to a handful of Apple executives, and with his long time blog The Cult of Mac he has a slew of contacts in the Apple ecosystem. I find when I write books, I have to take off my blogger hat and not focus so much on newsy, gossipy stuff and focus instead on complex issues that corporate executives are interested in. I don't think Kahney does enough of that. So much of the book is actually cut and paste of lots of historical reporting about Apple. I wish he had spent time in China crawling through Foxconn, Fedex and various component vendors that make the remarkable Apple supply chain work. How it is orchestrated with last minute design changes, how it is mostly kept secret etc. 

I do like that Kahney addresses the silly notion that Cook is not innovative. By launching Apple Pay and Watch he has bought Apple a toehold in massive emerging digital payment/commerce markets and wearables/healthcare markets. And if Car becomes a reality, he should do  the same in rapidly changing mobility markets. Just wish Kahney had explored those a lot more about how those products are bought to life, and how their complex supply chains are choreographed.

You will likely understand Tim Cook a bit better as a human after you read the book. I found it did not really add that much to my understanding of him as a business executive or that of Apple's operations.

Deja Vu all over again

I was in India last week and visited with a couple of outsourcing firms. In my travels, I got reminders of several due diligence visits I had helped clients with from 2003 to 2010. The Renaissance in Powai reminded me I had stayed there with a client during a visit to TCS. A Cognizant executive reminded me of visit with another client to Chennai. A drive-by the Hinjewadi building of Persistent reminded me of a visit with yet another client.

A bit of deja vu, all over again.

My firm, Deal Architect has helped a number of clients evaluate SIs, negotiate hosting and AMS contracts. Before that I had a marketplace startup which helped customers develop digital services RFPs and evaluate responses. Prior to that at Gartner, I helped a number of clients with their ERP SI evaluations. India and E. Europe have actually been a small part of the landscape across which we have helped clients with services procurements for a couple of decades.

The time is right to help clients with their new wave of services procurements - as they move to S/4HANA, as they evaluate cloud infrastructures, as they look for post implementation support around their cloud apps.

It's a new world - not sure vendors have evolved enough in skills, methods or automation.

Clients need a deja vu to avoid some of the mistakes we all made in the last wave. Look forward to helping several of them.

SAP Nation 3.0: Excerpt Chapter 12 - Manifest Destiny?

I excerpt 10% from every book in a series of blog posts. I posted several on SAP Nation 3.0 in April, then took a break after the Sapphire event. This is the final batch I am excerpting. The book is available to purchase on Amazon in print and eBook format here

"In the start of the book, we shared that in his inaugural address in 1801, U.S. President Thomas Jefferson had talked about a nation “with room enough for our descendants to the hundredth and thousandth generation.” A couple of years later, Jefferson instructed Lewis and Clark as they began their pioneering westward trek: “Those who come after us will fill up the canvas we begin ….”

Jefferson was an optimist and helped fire up a country’s imagination for a massive westward expansion. SAP needs a similar call to action."

"McDermott, himself, after announcing the large Qualtrics acquisition, said, “Very few people are aware of the implications of courageous decisions. Especially not if they’re hit unexpectedly …. Looking back in a few years, SAP will have reached a whole new level with the Qualtrics deal. We dream and fulfill dreams. That’s the wow factor that distinguishes an average company from a great company.”

"Of course, SAP is not the only vendor who sees this second wave opportunity. Dave Vellante of SiliconANGLE Media paraphrased IBM CEO Ginni Rometty’s message at her Think conference in February 2019. “Chapter two is about the hard stuff. It’s about scaling AI and creating hybrid clouds. It’s about bringing the cloud operating model to all those mission-critical apps and enabling customers to manage data, workloads, and apps and move them between multiple clouds. This is a trillion dollar opportunity and IBM intends to be #1.”

"McDermott has a best selling book titled “Winners Dream”. On Facebook, he periodically posts inspirational quotes such as “My parents gave me permission to dream big. Do the same for those around you”.

So, how bold can SAP’s and McDermott’s dreams be? Are they ready to issue the Manifest Destiny clarion call to go from “sea to shining sea”?

The continent of enterprise computing is waiting to be tamed."

SAP Nation 3.0: Excerpt Chapter 12 - From Sea to Shining Sea

I excerpt 10% from every book in a series of blog posts. I posted several on SAP Nation 3.0 in April, then took a break after the Sapphire event. Over the next week I will excerpt the final batch. The book is available to purchase on Amazon in print and eBook format here

"In Ch. 11, we looked at how SAP could become a first mover with its huge incumbent customer base. At the same time, SAP could be thinking much bigger. There are plenty of other markets where SAP could adopt a fast follower approach after missing out on the first wave of opportunity."

"Or take the world of the Industrial Internet and Industrie 4.0. In Ch. 2 we discussed GE’s “Power of 1%”: 1% in fuel sav- ings in aviation and utilities, 1% productivity improvement in healthcare, 1% reduction in oil and gas cap-ex. In just five sectors combined — rail, aviation, healthcare, power and oil and gas — GE had projected US$276 billion in efficiencies over 15 years.” These were only in sectors GE was interested in, where it sold turbines and MRI scanners. There is a far bigger market around connecting other assets, listening to them, delivering predictive maintenance and other tangible benefits."

"Or take verticals. Just take one sector — fintech. According to Deloitte, “264 companies have received a total of US$7.71 billion in investment since 1998. Contrast that with China, where only seven payment fintechs are found, but these are backed by US$6.92 billion in funding. Similar patterns are seen in deposits and lending, investment management, personal insurance, and real estate leasing/purchase and sale." After leading its peers to industry solutions in the early 2000s, can SAP do so again with so much turmoil in so many verticals?"

"If anything, I would like SAP to find a different inspiration from Google and more specifically from X, the idea incubator of Google’s parent, Alphabet.

Astro Teller, Captain of Moonshots at X (seriously, that is his name, title and company name), said in an interview with The Wall Street Journal:

“Nine years ago, if you had written down a list of the problems that Google was trying to solve in the world, transportation wouldn’t have been one of them. In fact, connectivity, what Loon is working on, wouldn’t have been one of them. Health care wouldn’t have been one of them. Other than internally, cybersecurity wouldn’t have been one of them. Those are all things where we said, ‘There’s something important here that’s worth working on whether or not Google is focused on this.’ Google doesn’t need us to solve Google’s problems."

"But to be able to do so, SAP needs its own version of a Manifest Destiny Call."

SAP Nation 3.0: Excerpt Chapter 11 - X’s and O’s

I excerpt 10% from every book in a series of blog posts. I posted several on SAP Nation 3.0 in April, then took a break after the Sapphire event. Over the next week I will excerpt the final batches. The book is available to purchase on Amazon in print and eBook format here

”SAP has the biggest “business applications” laboratory — across business process, geography and industry. However, every few years SAP gets bored with applications and dabbles in platform and infrastructure areas. It seeks out partners and acquisitions to grow its applications’ reach when a better approach would be to partner with its customers. It is sitting on the mother lode of business process and enterprise application innovation and that’s where they need to put their focus. Fahey of Louisiana- Pacific described one such example around IBP in Chapter 3.

The industry desperately needs a business application leader. After two decades, when you look at the global and industry landscape of applications, only about 20% is available in the public cloud. Most application vendors are investing heavily in platforms. In a way, it’s abdication. A good analogy would come from the food sector. You go to a restaurant you really like and the chef says we have changed our business model. We are only serving semi-cooked meals now. Enjoy the meal at home. Or come on in, but be aware we are now offering grills. You bring your own ingredients and cook your own. That’s similar to what SaaS vendors are doing with their emphasis on platforms when they are being paid to deliver “cooked meals” in the form of applications."

" In Ch. 10, Bell of Uptake talked about a new way of selling — one focused on customer outcomes, not TCO or ROI. Even if that is too far a bridge, Sommer challenges SAP to think differently in the current economic model: “While I know there would be substantial backlash to this — from Wall Street for sure — I think SAP needs to get to the point where they EARN a customer’s business every single month. That means getting rid of long-term subscriptions, not charging for software until after the customer is in production, having reasonable renewable subscription pricing, a commitment to ever lower pricing (a la Amazon AWS), etc.”

"As we discussed in Chapter 9 in the section around IA, value in enterprise software has been moving away from transaction processing to analytics, intelligence and machine learning. Automation in the form of sensors and wearables is perform- ing edits and validations ERP and CRM software used to do in the past. Their pricing needs to reflect that shrunk role. Finally, SAP is starting to talk open source in SCP, and as it evolves its developer ecosystem. This brings even higher expectations of very different economics."

" For over a decade, SAP has branded itself with its “Run Better” and “Run Simple” campaigns. Indeed, in 2018, in a marketing survey, it was named the most valuable German brand and ranked even higher than BMW and Mercedes-Benz.88   The enduring image, however, of SAP in the enterprise technology world is that of its ERP products, and there, expensive ones. Between the unforced errors like IA (which we discussed in detail in Ch. 9) and the persistence of 35-year-old technologies like ABAP in the customer base, you could argue that SAP actu- ally has a brand challenge. Wright of Accuride, Hortovanyi and others have pointed out that ECC and ABAP are not attractive to young technology talent. As Dennett discussed in Ch. 4, it also has to become better respected in open source and ML circles. Mueller of SAP talks about expanding its image way beyond ERP. All these factors point to a need to rethink the branding."

Control your own destiny when it comes to EOL of your packages

A recent Rimini Street survey says that in spite of the announced 2025 end of life for core applications in SAP Business Suite 7 ERP product and older versions, "Of the IT leaders surveyed, two-thirds state they either have no plans to migrate to S/4HANA (35%) or are undecided about moving to S/4HANA (32%) "

IDC, on the other hand, surveying 300 of its clients concludes "it’s not a matter of if companies will adopt SAP S/4HANA anymore, but when."

Steve Miranda of Oracle tells Diginomica "We're pretty comfortable with our strategy of supporting customers who are on-premise and want to stay that way (with support from Applications Unlimited) until the time is right for them to make a move. I feel good about that."

UpperEdge, on the other hand, argues that under pressure from Wall Street "So ready or not, Oracle will be trying to force migrations according to their own timeline."

Who to believe? In my recent book, SAP Nation 3.0 I had profiled several risk-takers, modernizers and diversifiers in the SAP customer base who have been refreshing their application portfolio. The biggest segment is still what I called Bystanders which are not moving - they make up about 60% of the base of over 400,000 customers. I had a whole chapter where I provide guidance to SAP to "tilt the bell curve" and energize the Bystanders.  

Others make similar points in the book

"Mueller of Constellation said, referring specifically to ECC and moves to S/4:

“The next two or three years will show if SAP can create the value proposition. We’ll see how much customers push back. SAP could say, ‘We listened to our customers and we will give you another two or three years (beyond 2025), but you have to pay not 18%, but 21% or 25% or maybe even 30% in annual maintenance.’

However, the writing has been on the wall and for years now. It should have been clear to every CIO that the innovation is happening on the S/4 side. Do you want to be in 2030, 11 years from now, with an ERP system that cannot run machine learning, which doesn’t have a good IoT story and so on?”

Or as Wright of Accuride and Howlett of diginomica have pointed out, it’s tough enough today to recruit younger talent to an ECC and ABAP shop. Can you imagine what it will be like in 2025 or 2030?"

By all means, listen to all these perspectives, but in the end make your own hard-nosed decision. Actually decisions. Revisit them every year. The market is changing rapidly.

As I show in the book, the SAP world has dramatically changed in the last few years. So many new products - not just S/4, C/4, SCP, SAC, Qualtrics, AIN, BCP. So many cloud flavors. You should also get clarity on upcoming releases, especially around vertical and geographic functionality that keeps growing.

Oracle has an even more acute Bystander issue - by my estimate 80% of their customer base is in the Bystander category, and they have not been as forthcoming about their next-gen products. They keep talking about their financials, hr and crm - not so much about the rest of the enterprise. So, they have an even bigger challenge - and opportunity - to tilt their bell curve. As a customer, use it to your advantage.

Also take advantage of the market bounty. These are not either/or options. We live in multi-vendor, multi-cloud worlds.  In my book, EBSCO which went with Rimini for third party maintenance, describes how they continue to buy new products from SAP. I have talked to other Rimini customers who are moving to next-gen applications over a few years, and in the meantime move their legacy apps with significant customizations to Rimini.

Don't wait for a vendor-driven EOL date and then have to fight a crowd of your rushed peers. Plan how and when at your own terms. You should be deciding the EOL of your legacy applications.  

A dream team to negotiate with SAP

Geoff Scott, CEO of ASUG, wrote this in his foreword to SAP Nation 3.0

"For many years, licensing was a “third rail” topic: look at it, discuss it among yourselves but don’t ever collectively — as a customer contingent — touch it. That all changed in 2017, when SAP customer anxiety peaked due to several high-profile lawsuits against SAP customers over IA. ASUG’s involvement started with a proactive letter from the global user groups, led by ASUG, to SAP’s Executive Board. What followed next was a series of intense but productive discussions — real back-and- forth between SAP customers, user group leaders and SAP executives that soon expanded to customer concerns around sales and audit practices. There were many trips to Walldorf and meetings in Newtown Square."

So, I was pleased to be invited to be with Geoff and others at SAP HQ in Newtown Square this week. The others included Gartner analysts - not those that come up with MQs. Those that reminded me of my time there in the 90s. Buyer advocates who help in vendor negotiations. There were independent analysts like me. This was a dream team anyone negotiating a big contract with SAP should aspire to bring together to represent them.

Of course, SAP was represented by an even more formidable team. Their top attorneys and licensing experts, some of who have shaped its deals for over two decades.

We did not represent any particular named customer. We were there for SAP’s "first-ever" Pricing & Licensing Analyst Day.

We covered wide ground including

- why is SAP not making consumption of SCP a lot easier?

- when is SAP going to start delivering cloud price reductions like the 60+ Amazon has delivered over a decade?

- how does SAP expect to police rogue salespeople who dream up their own policies?

- who thought up the user-to-document count conversion ratios that are being proposed in Indirect Access scenarios?

- does SAP realize every time it tries to simplify an area, it actually adds more nuances and makes it more complex?

- does SAP realize it has lost control of product messaging to its SI partners and licensing messaging to user groups?

- when is SAP going to clarify EOL dates and implications for ECC?

SAP did not have definitive answers for many of the topics, but to their credit they only had a few slides under NDA so allowed for discussion around a wide range of its old and new products. And yet we just scratched the surface when it comes to its portfolio of products.

Oracle, Salesforce, Microsoft and other vendors came up often during the day. Not as positive examples SAP should emulate. But reflective of market reality. SAP is taking a lot of grief for Indirect Access and other licensing practices.  But other vendors have their own bag of tricks. And many of them pretend to be lily-white pure when it comes to such behavior.

Will other vendors have the courage to similarly open up to analysts? I would hope so but not counting on it any time soon. All the more reason to compliment SAP for convening the day. Hopefully our input will shape more positive behavior in the field.

SAP Nation 3.0 Excerpts: Chapter 11 - Tilting the Bell Curve

I excerpt 10% from every book in a series of blog posts. I posted several on SAP Nation 3.0 in April, then took a break after the Sapphire event. Over the next couple of weeks will excerpt the final batch. The book has sold very well - I should have ordered a much larger first print run, but you can buy small batches on Amazon in print and eBook format here

” SAP could start becoming a first mover with its customer base, and at the same time start thinking on a bigger scale. There are plenty of other markets where SAP might adopt a fast follower approach after missing out on the first wave of opportunity.

Let’s first discuss the first mover option."

" In Chs. 5–8, we classified the customer base into Risk-Takers, Modernizers, Diversifiers and Bystanders, with the last group being the most populous.

What if SAP could turbocharge customer conversations so the Risk-Takers and Modernizers help convert the Bystanders? What if it can turn the tide among the Diversifiers so more of them return to SAP products? In Ch. 8 we highlighted a wide range of strategies customers have been trying out. All kinds of good things could come from such a tilt both for customers and SAP. Next, SAP could entice similar Diversifiers and Bystanders in Oracle, Infor, Unit4 and other customer bases. Many of them have been waiting for next-gen applications for even longer than SAP customers."

"Some say the Bystander group is playing “blink” with SAP. They are betting that SAP will back down on its “end of support dates.”

Mueller of Constellation said, referring to ECC and moves to S/4:

“The next two or three years will show if SAP can create the value proposition. We’ll see how much customers push back. SAP could say, ‘We listened to our customers and we will give you another two or three years (beyond 2025), but you have to pay not 18%, but 21% or 25% or maybe even 30% in annual maintenance.’

However, the writing has been on the wall and for years now. It should have been clear to every CIO that the innovation is happening on the S/4 side. Do you want to be in 2030, 11 years from now, with an ERP system that cannot run machine learning, which doesn’t have a good IoT story and so on?”

Or as Wright of Accuride and Howlett of diginomica have pointed out, it’s tough enough today to recruit younger talent to an ECC and ABAP shop. Can you imagine what it will be like in 2025 or 2030?"

Zoho's strikingly different global path

I have heard Zoho talk about doing business in UAE and Nigeria. That is so different from other cloud vendors which tend to mostly focus on N. America and Europe. Over the last decade, their US revenues have steadily declined to now about 40%. Not because the US, is not growing, because other regions have grown up quicker.

So, I caught up with Raju Vegesna, Chief Evangelist at Zoho on how they have grown globally, and how they have done it in their own unique way

Extracts from our conversation

How is your global footprint evolving?

We started in India and U.S. at the same time.  In U.S, we started in New Jersey and moved to California, now we are making another transition to Austin, TX. Early on, when we launched our initial set of products, we noticed good interest from few markets like US and from some unexpected countries like Japan.  Back then, interest came from printer manufacturers in Japan.  So in the late '90s, we said, "We need to have an office there given the interest from the printer manufacturers." We set up an office in Japan in the late '90s and we have had it since then. Over the last two or three years, the global expansion accelerated.  On top of India, US and Japan, we have had our presence in China for about seven or eight years now. We have around 100 employees in China. Few years back we started our Singapore operations.  Our Mexico office has been growing silently for about a year now, but it became official last month. Our Australia office went live earlier this year. UAE is another country where we have had offices for a few years now, but recently accelerated our efforts there. In Europe, we did not have significant presence in the past. But once we got going couple of years back we quickly ramped up operations in Netherlands and now expanding to other countries like France (where we have employees) and Germany (where we will be adding employees).  There are a few additional countries in which we have people present, but didn't evolve yet into offices yet. We expect these to expand moving forward. In the near future, this trend of adding local presence will likely continue. 

When we pick a country, we typically do not set up an office downtown in a big city.  For example, we didn't open our office in Tokyo, Japan.  We did it in Yokohama, a calm and beautiful city.  Similarly, in Mexico, we chose Queretaro, not Mexico City.  It's about two and a half to three-hour drive from Mexico City. The same thing in the Netherlands.  We set it up in Utrecht, not Amsterdam.  Same in China. Of course, in US, our expansion is in Austin, not downtown San Francisco (where large number of tech companies are based). One of the key reasons for picking these cities is quality of life for our employees. Our employees get to have a good life, good cost of living, good education, healthcare facilities, less traffic/commute and less pollution. All of these contribute to quality of life and happiness at work.

How do you prioritize your geographic growth?

It varies.  It could be because 1) the markets pulling us - like noticing a spike in customers from a country or increase in signups, consistently high number of logins/activity, partners pulling us in certain markets etc or 2) We are being proactive in certain markets seeing a long term potential.

In Mexico, for example, we started attending events. We noticed significant interest. During our first Zoholics we had 200 attendees.  Since then, every year, it has been doubling. Zoholics typically is a way we enter some of these markets to understand the customers, their usage, their requirements, expectations, requirements and feedback from partners, interest level in the market etc.

Just in the past year or so, we hosted Zoholics in 25 countries (that's about one event every 2 weeks). We have offices in 9 of those 25 countries. This also means we are addressing the user/customer needs in other countries. If we notice some strong signals from the market, we end up opening an office and expanding our presence from there. Before we make that call, a question we ask ourselves is, are we going to continue to invest in these markets for decades to come. If the answer is yes, we move forward. Even before we go and set up an office, we put in some ground work. Like making sure that the entire website is translated or we have local partners in place etc.

Apart from the usual signals, we also look at long-term potential of a country. Looking at demographic information for example. Nigeria for example where the median age is around 19. Fertility rate is around 5.5. This means, in the next couple of decades, this is going to be an important country with long-term potential.

If we observe the demographic information, there is a correlation between demographics of a country and GDP growth. Typically when the GDP of a country accelerates when the median age is between 25 and 40. During that period, there is generally business formation and this helps economic activity and offers opportunity for various businesses including technology vendors.

Now, if you list down all the countries that have a median age around 25 or 30 and a decent population, a few hundred million or higher, then you can create a short list of countries that are going to do well 10 years, 20 years, 30 years from now.  Then, based on that, we can make some educated guesses on where to expand/invest.

What we sell also matters/varies in some of these countries.  In the U.S., we are known as a CRM company for the most part because that has been a popular product.  In UAE, we are known as an accounting company instead. Kind of similar in India. In Brazil, we are known as the email company.  In pockets, depending on what the interest is, we try to pitch those products and expand from there.  Given that we have close to 50 products, it helps.

Our customers tend to be local companies or international companies with local offices. Several global companies with local presence in multiple countries tend to standardize on our apps.  There's a travel company called Agoda.  They belong to the Bookings.com group. In the Asia region, Agoda uses Zoho. But at the global level, not yet. There are other international companies like Grab using our apps across countries and they are supported by regional offices. When we say we have local support in each of these regions, that helps a lot.

You also have a different philosophy on how you staff your regions. Can you elaborate?

The key to expansion in a country is the "anchor" executive for a region/country. We do this differently than other companies. We identify a person, typically someone who has been with us for a very long time, who knows and understands the company, its culture deeply and we relocate them to a region/country to be the anchor. Once we have an anchor, we then hire locally to build and expand around the anchor. 

If we take our European office in the Netherlands, Sridhar Iyengar, who leads that office, has been with the company for 23 years now. Similarly, Gibu Mathew, who heads our Singapore office, has been with the company for around 20 years. Same with the head of our offices in UAE. The main reason we do that is we do not want these individual country offices to be silos.  We want them as part of the company fabric. To do this, these offices should have the same culture. The best way we believe we can maintain the culture of the company is by having someone there lead that office who understands the culture of the company and then makes sure that he/she sets up the company in a similar approach.  That is the reason we would pick an anchor from within. Apart from setting the culture, if that office has a need, this regional head knows who to contact throughout the company because they know the company inside out and they know who to contact to get something done.  Because each of these regional heads have been working together for 20 years and there is no friction. It becomes more like calling a friend. You just pick up a call any time and talk to them. 

We basically go global but hire local.  Apart from the anchor, everyone else is locally hired.  It's the anchor that moves from our core team, but our preference for hiring has been to hire freshers, for the most part, and train them locally in each of our regions.  In Mexico, we hired 15 kids fresh out of college.  We trained them for four months.  In six months, we were able to run an entire Zoholics in Spanish.  We said no English speakers are allowed at the event," which meant I was not allowed to speak. 

We run a very flat organization globally. Any person, including new hires, can reach another employee globally using our own tools. Our tools like Cliq and Connect play a crucial role in flattening our organization. All our global communication happens through our own tools. We truly run Zoho on Zoho.

Locally, the regional head runs what we call "open houses" where every month they just spend an hour or two talking to all the employees within the region. Any employee can ask any question, even anonymously.  Some of it can also be online.

Our CEO, Sridhar Vembu runs open houses globally, on Connect.  We have built a feature called 'Town Hall' because of this. Anyone can ask any question on Connect.  This can come in from multiple regions.  It can be anonymous questions, and it can be any question. We don't have a lot of rules there.  Such free form communication flattens the organization. 

This far flung global footprint must also require a global data center strategy?

We have two in the U.S.  When we set up an office in Europe, we set up two data centers in Europe.  We have two in China, given their own restrictions and challenges, we needed to have the data behind their firewall.  India now has two data centers. Those are eight data centers in these four regions.  

Then there is the more coming that are in the works. We will soon be launching two new data centers in Australia. Should be live fairly soon to serve the Australia/New Zealand market. We will keep adding to this list depending on interest.

Given the geopolitical climate, I think every major region will likely mandate that data stay within their region or within their country and that's generally the direction of the industry. We've invested over $100 million in data centers, and it's an ongoing thing.

Why do so many technology vendors have problems expanding globally?

There are several technology companies in the technology industry who built good products, but with bad economics. A quick look at financial statements across tech companies reveal this. If they are not profitable in developed countries, they are unlikely to be profitable in developing countries. If the economics are bad for developed countries, then they are going to be worse in developing countries.

If we take a suite like Zoho One where we pack incredible value at $30/employee/month....in US, it sells like hot cakes and they love the price points. But in India for example, $30 is considered expensive. In fact, in India we sell it for Rs. 1000 instead, which comes down to around $15. Even at $15, companies still negotiate with us.

That's the reality of some of these markets. If we don't have our economics optimized to serve at those price points, there is no point focusing on that market.

I think that is the reason majority of tech companies don't enter other markets. Lot of companies don't have the right economics. Bloat is built into the system. Bloat from expensive downtown offices, bloat from over-priced acquisitions, technical bloat etc.   

During bubbles, like the current one, profits don't matter. As Sridhar Vembu puts it, economics don't matter, until they do.

We are trying to build good software with good economics. Our users around the world love that.

The IFS-Acumatica-EQT "powerhouse"?

Part of me is excited by the announcement that EQT, the private equity investor in IFS is also buying Acumatica. I have been saying for a while even after two decades of cloud applications, there are shockingly few operational applications for manufacturing and other industrial markets.

But the announcement also has me asking "so what?"

The good news is both units will continue to be autonomous. The history of enterprise software over the last couple of decades shows that integration of acquisitions/roll-ups can be very distracting and not really that beneficial to customers. Go look at the history of Microsoft Project Green, Oracle Fusion, rationalization SAP Cloud Properties and Infor CloudSuite if you want proof of that.

The bad news is both units will continue to be autonomous. IFS is increasingly focused on asset-intensive industries and is bringing field service into the modern age where assets generate plenty of data. However, it often falls into the trap of chasing too many broader ERP opportunities. Acumatica has a "cloud ERP" positioning but even less of a clear vertical/operational focus. Their customer bases are very different - IFS stronger in Europe, and with larger customers. Acumatica is US centric and SME focused. Their go-to-market is very different, with Acumatica heavily dependent on resellers.

So, I want to see what synergies EQT can bring across the two. As we have seen with Unit4 and FinancialForce, just having some common ownership does not easily translate to success in the field.

Personally, I hope EQT can sharpen the vertical focus at both. There are all kinds of opportunities for migrating customers to product design labs, shop floors and warehouses "of the future". With the caveat that the future is already here when you see the robotics and wearables at the BMW plant in Greenville, SC and at Amazon's distribution centers around the world.  ERP vendors need to catch up and not just pretend 2D bar code scanners are good enough to modernize operational areas.

So, look forward to EQT's detailed roadmap for creating what it promises will be a "global cloud ERP powerhouse "

Stant: RPA in a Manufacturing setting

When you think of automation on the shop floor you think robotics, IoT and AR/VR. On the other hand, when you talk to executives in white collar industries about automation, the conversation usually drifts to bots. Most SIs now have a Robotic Process Automation (RPA) practice area and most of their references tend to be in banking and other financial services verticals.

So, I was pleased to sit down with Dorothee Baas and have her describe their RPA journey at the recent Plex user conference. She leads Business Process Integration at a manufacturing company, Stant.

Stant, headquartered in Connersville, IN, is focused on thermal and vapor management products for automotive OEMs (many of the leading brands around the world), industrial OEMs (like Caterpillar) and auto aftermarket (channels like Walmart).

Extracts from our conversation:

Stant used to be the largest producer of precision piano tuning pins and somehow then ended up as an automotive supplier.  We just celebrated 120 years last year, so there was a big celebration and that felt good to be part of that history.

In North America, we have plants in Connersville,IN; Pine Bluff, AR and San Miguel de Allende, Mexico. We also have plants in the Czech Republic, China and at a joint venture in Korea. Rochester Hills, MI which is where I'm based is an administrative office. 

Our RPA efforts so far have focused on two main areas : a) Accounts Payable invoice matching (Finance) , b) Accounts Receivable (Customer Service) sending invoices to customers. The AP bot is supposed to do all the upfront work and put invoices into buckets that need human attention (this has a price issue, that has a quantity issue etc.) and others which are ok to process. On the customer service side, we developed three small bots that simply email the accounts receivable invoices from the system out to the customer each night or print them at the local printer if the customer wants them in paper format. (The AP payback has been much higher and that is described below.)

We had a small AP employee group. They had to learn two ERP processes because in addition to Plex, we have QAD in one of our locations.  They were struggling to keep up with the invoice matching. Plex has an approval workflow, but it was not being followed, and they were holding on to invoices. We had a huge backlog of invoices which were not being processed for weeks.  So we started adding temporary workers because, what do you do when you need to catch up?  You throw more people at the problem. Well, we also ended with high turnover in that temporary workforce.

At this point, our CFO decided to outsource the process, but my boss, the CIO suggested we also look at RPA. I remember it well. He came into my office and said, "Hey, what if I had a magic button that just takes all these invoices that come in through email and magically matches them and no one has to look at those?"  I looked at him, and I threw him out of my office. True story.  I said, "Okay.  I like you, Andy, but I don't have time for you right now because I'm trying to solve a problem here with finance and you need to just leave. I can't listen to your rainbow, unicorn stuff." Well he persisted. Couple of days later, Thirdware (a partner of the RPA vendor, Automation Anywhere and whose video describing the Stant project is available here ) was in our building showing us what other customers have done, explaining RPA. I was not convinced in the beginning because I didn't understand it, honestly.  I saw it as screen scraping.  If everything is not perfect, then nothing will ever work.

They convinced me pretty quickly.  Then we had a three-day workshop where we scoped out what we wanted to do.  What are all the different main processes that we would need to program?  Then, within ten weeks from me throwing my boss out of my office, we went live with a select group of suppliers.  I think that we could have done it faster but, at the same time, remember; we had to also outsource.  I was trying to train humans in doing this somewhere else in the country.  There was just a lot of stuff going on, so I think we could have even done this faster than ten weeks. 

Using the Pareto 80/20 principle, we focused on about 50 suppliers that sent us the most invoices, volume wise. In the end, Stant ended up with 3 bots - Bot 1: AP invoice matching bot, Bot 2: AP invoice Retry Bot (if Bot 1 could not find invoices to match on the first try) and Bot 3: AP manual invoice entry bot. The bots know to focus only on these suppliers. It has a preparation stage where it looks at emails from these suppliers. It scans for the keyword invoice, grabs the PDF attachments and sends them to an OCR reader (a tool called Doc Parser) which turns them into Excel sheets. The bot validates the entries in the spreadsheets - did the OCR grab the wrong source so the price field has a word in it? A price needs to be a number, ideally with decimals. Do all my lines add up to the total?  It puts exceptions into buckets which need human review. The bot also renames the PDFs to our naming convention - location, supplier number, invoice number etc.

At this point, there are two piles of "These are the invoices I'm not going to even attempt to match, and here are the invoices that I will now attempt to match." Taking that pile, it's going to log into both of our ERP systems and try to find the matching receipt.  It first checks if maybe someone already matched this invoice. Sometimes a supplier will send the invoice to the AP mailbox but, also, to a very specific accounts payable clerk.  Maybe the clerk already did the matching and now the bot is also trying to repeat it.

Then it looks to make sure that it can find a unique record that matches that based on who the supplier is, the shipper number, combination, and it checks the currency. If it doesn't error out there, now it's going to actually go into the invoice in Plex or in XA, and it's going to do all the work.  The first thing it will do is overwrite fields.  This is actually data entering.  It will overwrite the invoice number because now we have an invoice number, or it'll overwrite the date.  Then there's a field down here.  It's called printed invoice total.  This is where the bot enters what the Supplier’s PDF totals, so the bot can see if there is a difference to the Plex calculated Total.

If it doesn't match, the bot will go down into the line item level and compare each part number, quantity, and price between what Plex thinks and what the Excel sheet transcribed data from the supplier says.  It will then know, "Ah!  I have an issue with price," or, "I have an issue with quantity," or, in some cases, it doesn't know. 

The humans still need to do the legwork of trying to figure out if there is something incorrect.  The bot would not know that, but it can do the prep work to tell you there is something incorrect. And I now have great tools to understand root cause of matching discrepancies by supplier.

The next graph shows the results across the 53 suppliers:

To adjust for timing differences or system unavailability, we programmed a second bot and that's our retry bot where bot one just hands over, if it can't find something, to bot two and says, "Hey, bot two, just try this again tomorrow.  You have all the information.  I already have everything transcribed.  You just need to keep logging in every day and try to find the receipt.  Just keep trying.”

The bot also sends email notifications every time it starts the process and every time it finishes the process.  It sends it out to whoever I put in the distribution list, which is mostly the accounts payable group because I want them to own this.  I want them to know your team member, the bot, just finished something and now you need to look at all these log files.

Two critical decisions

We decided early on the bot would be owned by the AP group, not IT. We wanted to make sure that they can help themselves after this is done and they can monitor the bot and have the bot be a part of their team.  We wanted them to see the bot as an equal member within the business function that they could work with.  That was the hard sell. 

What we're doing different is that we're not only doing the analysis with the bot, but we're also having the bot process it inside the system, which saves a lot of time.  That's the thing that I think we do in addition to maybe some other companies.  A lot of customers I've talked to that use RPA use it to pull reporting, but none of them that I spoke with, even the banks or the big guys, use it for actually overwriting or data input, which I found interesting and I think it's the whole security or SOX compliance that they're worried about (as a private company, Stant does not need to worry about SOX).  We use it for data entry and we use it to actually overwrite information.  Our bots have security roles just like our humans.  They have a user ID just like a human.  Everything they do is captured.  So, in the system, in my invoice, if they made a change, then in my change log it says the bot made this change on this date, just like it would log a human doing it.

Results and next steps

As the slide above shows, the invoice backlog went down to just 4 days, the initial savings are $ 50K a year, which should increase as more suppliers are covered and the bots do more tasks. The next graph shows potential other bot applications.

Credit: Stant for all images

In the land of the blind.......the one-eyed man is King

I only half-jokingly proposed that to my editor as the sub-title for SAP Nation 3.0. One of the reasons the book comes out, on balance, positive to SAP is because it is developing, acquiring, releasing a new generation of enterprise applications. Most other vendors are content to peddle their financial, HCM, CRM applications. They are enamored with infrastructure and platform markets. Let someone else develop applications. After 20 years of cloud applications, if you look at a grid by country, by industry, by business process, we barely cover 20%.

So, nothing against Tableau, but I would have invested in a variety of new industry applications. Instead, Salesforce keeps hoping its partners will develop them on its platform. And it has invested over $ 20 billion (including that in Mulesoft) in the last couple of years without growing its functional footprint.

But why just pick on Salesforce? Oracle and Microsoft are teaming up to take on Amazon. I would love to see them develop new industry applications. Microsoft continues to let its resellers verticalize its applications. The end result usually is small extensions not major operational functionality. Oracle made a number of industry investments like Retek and i-flex a decade ago but in recent times has mostly been talking about its horizontal applications.

The white space won't stay white for ever. I met a couple of Fintech execs in London last week. Plenty of similar execs in New York, Shanghai and Singapore. At the Workfront conference, conversations were about product design and creative agencies. Recent conversations with Cognizant have been about packaged applications in healthcare and insurance markets. Those with Plex have been about automation on the shop floor. Those with Zoho have been how they target markets like the UAE, Brazil and Nigeria. At Sapphire, Hasso Plattner told me several executives asked him about vertical operational functionality in the cloud.

Here's the irony. Most vendors covet Amazon's cloud infrastructure. Most customers on would also love them to develop the applications that run Amazon - its eCommerce, its fulfillment, its R&D, its logistics.

The time is ripe for a new generation of applications - and likely a new generation of vendors.

    

Workfront - Modern Work, Modern Markets

Many vendors talk about the "Future of Work". It's usually in the future tense. They forget that the future is already here. The BLS adds many brand new occupations in its listings every few years. We glibly talk about the "gig economy" when in many cases 70 to 80% of corporate talent is already on their platforms, in their franchises, their suppliers - "off payroll". We talk narrowly about automation when robotics, drones, wearables, RPA. ML and other technologies are reshaping just about every job.

So, I was excited that Workfront's theme for its LEAP user conference in London was "Mastering Modern Work". Modern, not future. CEO Alex Shootman in his keynote said "we have moved past (the great) Peter Drucker’s knowledge work to very different modern work". What he calls global tribalism - our growing connectivity with the explosion in social and mobile technologies - and the massive digital transformation efforts in every enterprise are driving that. He also predicted enterprises will soon start to designate a Chief Work Officer.  Already some customers have a Chief Automation Officer.

It is a recognition that work is not just done by those who get a regular paycheck. Importantly, it is being done in silos and at the junctions of traditionally automated business processes. It includes what my friend Sig Rinde, who recently passed away, used to call "barely repeatable processes". It's not uncommon to see companies "ring fence" core systems with tens of specialist solutions. No wonder, Workfront positions itself as a "glue" between many operational systems of record and is positioning itself as a system of record for "work"

I missed going to the Workfront event in Dallas last month due to a conflict. The one in London I attended actually allowed me to meet a more diverse set of customers. I have lamented that after 20 years of cloud apps, if you look at a grid of applications by country and industry processes, it's only about 20% filled. LEAP in London stood out for the diversity of customers across geographies and process areas.

An example was Glenn Joyce, Senior Production Manager at Boden, the British clothing retailer which sells ladies and children's clothes online, and continues with its traditional mail order/catalog model. An excellent salesman, he gave me a catalog for my wife when I told him she was a Laura Ashley fan. He then explained that in a form of mass customization they mail out multiple versions of the catalog, The catalog and the digital sites tailored across many markets around the world require an extensive Digital Asset Management of the imagery. Before they adopted Workfront there was little project management, little scheduling or analysis, and then much of it on spreadsheets. Now they can better measure economics and results of print catalogs, email campaigns and other digital efforts. Creative folks don't like to be burdened with administrative minutiae and his team has helped create over a hundred templates to initiate email and other campaigns. Next, he hopes growing resource visibility will allow him to estimate effort down to an hour level.

On stage, Alex and Steve ZoBell, the CTO presented a case study on a fictional Citadel Medical. It wove together several creative groups in product design and product engineering. In the past, an idea for a bionic knee may have been noted but stayed invisible in the Salesforce system. Each product area would begin design anew. Workfront has changed all that. In another customer they requested I mask, it allowed their merchandising group to better audit utilization of their intellectual property.    

Refinitiv, a 2018 jv between Thomson Reuters and Blackstone Group sells financial market data and infrastructure. It presented a complex, but more traditional IT-centric use case. Workfront has allowed them to gracefully retire tens of inherited custom built apps and will play a role in on-boarding 5,000 developers in the next two quarters. Look at the eye-popping numbers below.

It is an example of what Workfront calls "Land and Expand". Start small, show impressive payback and encourage a wide deployment through free what it calls "collaborator" licenses. Workfront also does a nice job celebrating the early adopter executives, who then help spread it across the enterprise.

Nina Long in Marketing Operations at TSB, the 200 year old bank, described how her social media and even risk management teams are showing interest in the product based on her initial success. There were cut out figures of a dozen such early adopters across the show floor and awards recognizing many more.  

I thought it was nice that Workfront invited JLL's Rose Hayes to dinner with a few analysts. JLL provides a variety of real estate services. Rose is a prototypical modern worker, working as she does remotely from Kauai. She certainly won the farthest to travel award to be at the event and showed no effects of jet lag at dinner. After all, she is used to 3 am conference calls. Similarly, Dave Randall had flown in from Michigan, representing Atlas Copco, the Swedish company. He joked he is surrounded by SAP systems around the world, and little Workfront still plays a pivotal role for him.

So what exactly is Workfront's sweet spot?  In a one on one, Alex told me he sees three prominent uses cases in his customer base:

• Increase speed of work/productivity especially in creative areas like product design and marketing.
• Squeezing cost out of more traditionally automated areas - as with Refinitiv
• Helping with compliance - Nina at TSB had described compliance across marketing campaigns as the big driver for her Workfront project

Is Workfront too unfocused with so many industries and geographies across its 3,000 customers? I also mentioned to Alex their definition of "work" may be too narrow - it's missing out examples from the shop floor, from the hospital emergency room, from the warehouse etc. He politely pushed back. His analysis shows there are 400 million knowledge workers in companies with 1,000 or more employees. Nearly 180 million of them have access to some modern applications. That is a massive market for Workfront to target. Blue collar and operational areas can wait. See, they are not that unfocused. Still, analysts will try to pigeon hole them as a project management or CRM tool.

I am glad I went to the London event. I heard of a much wider range of process areas and geographies than I would have at the Dallas event. The diverse, hand crafted flavors at the ice cream stand in the "Experience Zone" at the event was a good metaphor. In a world of too many vendors selling "cloud solutions" which are mostly spray painted but actually vanilla general ledgers and SFA solutions. Not really representative of modern work. This was refreshingly different.

Confession - I did try the Baileys flavor :)

 

  

Plex: From shop floor to top floor

I was surrounded by high-tech. I flew into the Delta McNamara terminal in Detroit with its ExpressTram which uses air cushion levitation like a hovercraft. The terminal is connected by a passenger tunnel which celebrates LED art. I stayed at the Renaissance Center where GM shows off its latest auto technology. PowerPlex, the Plex user conference, was at the Cobo Center which also hosts the annual North American International Auto Show, which attracts a million visitors all using its wi-fi and watching exhibits which leverage AR/VR and AI. Barrie Vince, Plex's "Q" showed up on stage as a roving display, as if to wave goodbye to Sheldon at the end of the Big Bang Theory show. Plex customers like Seven Marine had brought props like their luxury boat engine rated at 627 horses. Partner booths were displaying scanners and sensors.

But what stood out for me this week was something analog and likely boring to many - a board with printed sheets of metrics. It was at the plant of a Plex customer, College Park Industries, a maker of prosthetics. Every technology vendor these days has "Digital Boardrooms" and dazzling analytics in their demos. But how many demo you those at their customer's facilities? And even more specifically at their shop floors or warehouses or emergency rooms being used by blue collar employees? And show operational metrics related to quality and logistics?

I have been lamenting that even after two decades of cloud applications, if you look at a grid by industry and country you can mostly find application coverage in financial, HCM and CRM processes and there mostly for N. America and English speaking world. Product design? Scrap management? Kiva robots in the warehouse? Not our problem, these vendors seem to think even as they claim "enterprise-wide" coverage.

Which is why I look forward to visits with Plex. Over the years they have taken us to tours of shop floors of customers like Fisher Dynamics, Trojan Battery and Sanders Chocolate each with unique manufacturing, packaging and other engineering challenges. They invite us to spend time with their Customer Advisory Board which represents an even wider range of industries and operational details. Jargon such as auto-release, LPN barcodes, pull efficiency and traceability is common.

While Plex tends to rely on its customers to take it overseas, it is common to hear about its global reach at its events. An exec from Stant talked to me this week about their plants in Czech Republic, China and S. Korea. On stage was Toyotetsu which supplies parts to a number of Japanese automakers.

While most events have inspirational speakers, Plex tends to bring in keynoters like Mike Rowe who talk about solving the perennial shortage of blue collar workers. At this conference, Dean Kamen, inspirational in his own way with his string of inventions including Segways and insulin pumps, talked about how he has helped transform Manchester, NH, a textile town couple of centuries ago into a modern day high-tech magnet. He talked about FIRST and getting young kids interested in robotics. Not just talk - action about closing the advanced manufacturing skills gap. 

 

Beyond the manufacturing focus, Jerry Foster, CTO presented on a machine learning project which, frankly, systems integrators should have long been working on. Most of them have industry templates with pre-defined configurations of systems parameters. The Plex project has analyzed such templates across its customer base and identified potentially newer ones that could benefit several of its implementations. Going forward, hopefully, such parameter configuration activity can be significantly automated and reduce dependence on consultants.

Of course it is not just manufacturing sectors which are looking for modern operational systems. Markets don't wait for ever and I have been researching startups, SIs, corporate buyers who are targeting various verticals.

Plex has new executives led by CEO Bill Berutti, with significant manufacturing experience at PTC. He did a nice job hosting this year's PowerPlex. While he is disciplined in executing to Plex's current path, I am hopeful he will allow me to periodically distract him. There are just too many operational application white spaces across industries and geographies to ignore.

Teflon SAP?

In the ASUG Executive Exchange on Monday morning at Sapphire I joked that it was fitting that we had yet another rumor floating - would Bradley Cooper show up with Lady Gaga at her concert later in the week? I cannot remember a Sapphire with so much rumor and speculation in the build up to the event. I was impressed how SAP executives handled much of it during the event. In one on ones, however, several of them were hurt and even angry about the coverage. Even more striking was how little customer execs had heard about or cared about the chatter.

Some of the topics about which there has been some wild speculation

Qualtrics

Yes, it was an expensive acquisition - a "high-beta" one. I am not a big fan of M&A in software. But in my new book, I point out several trillion dollar markets SAP, Oracle, IBM and others missed out on in the last couple of decades - digital advertising, smart products, cloud infrastructure etc. So I cannot fault Bill McDermott for betting a pile of chips on his view that the "experience economy" is going to be a massive one. Not only will it differentiate SAP's CX offering it is already opening up product design, employee engagement and other new opportunities for SAP. It also allows SAP to benchmark and reshape its own product ideation and customer relations. And it has brought a new breed of impressive, high energy execs into the SAP ranks.

HANA

There was some really irresponsible "HANA is dead" speculation. I told several journalists and analysts weeks ago I was baffled by the talk. So it was nice to hear Hasso Plattner after lowering expectations that his was an "old-style", "low-cost" keynote then proceed to announce “SAP HANA is too good a database just to lock it inside SAP enterprise applications,” Watch this keynote where along with Gerrit Kazmaier, he set ambitious new goals for HANA and for the broader portfolio of SAP's analytical offerings. 

Layoffs

There has also plenty of talk about layoffs including some of my colleagues asking for more "openness" from SAP on the topic. I was in Salt Lake City with several of the execs as they were being announced and I could see the hushed conversations. I chose not to pry given the legal and HR considerations that surround such moves. Besides, as I write in my book, SAP has to evolve to a much more cloud, open-source, machine learning savvy culture. So do its systems integrator partners. So do its customers. Continuing with legacy customizations is a growing security and compliance risk. Much worse, it is a recruiting liability when trying to attract younger technical talent. The transitions at SAP are just a start. The ripple effects will be felt throughout SAP Nation. The sooner we start planning for them the better, and we should not just hammer SAP for kicking them off.

Management changes

Nick Tzitzon, EVP of Marketing and Communications had told me "we have individuals in some cases who collectively have worked for SAP for 100 years, and who decided that it was time to try something else in their career. Does this not happen in every company?" Hasso Plattner was even more emphatic when he told a few of us that several customer executives have marveled at the smooth transition. He told us SAP is much "younger" now and he has never been more proud of the company. Watch this keynote and see the energy of execs like Christian Klein, Ryan Smith, Jen Morgan and others

Elliott investment

Geoff Scott, CEO of ASUG had to explain to an audience of customers who exactly Elliott is. That calm struck me as radically different from the panic I have heard from of my media colleagues. Yes, Elliott is a feared force as an activist investor but I am familiar with at least a few executives who have worked collaboratively with them. I liked Bill McDermott's comments during a Q&A “I’m very confident in our top- and bottom-line development,” McDermott said, and that he and the Elliott reps were “psyched” by SAP’s prospects. As I write in my book, there is a huge opportunity in "tilting the bell curve" - transitioning ECC and customizations, BW, S/1 to the new portfolio of S/4, C/4, SAC, SCP, Qualtrics, SuccessFactors, Ariba and many other products SAP now has to offer.

My book

Finally, I am bracing for potshots about my book. I had a chance to give my book to both Hasso Plattner and Bill McDermott. I warned them both it had many sections which would make them cringe. They were both gracious in their thanks - can I dare say they are mature enough not to expect a puff piece from me? But if hear some of my colleagues who have clearly not read the book, you would conclude it is an unqualified endorsement of SAP. I had a chance to sign several copies for SAP customer executives this week. Trust me they are not looking for fawning support of SAP when they talk to me.

No, Bradley Cooper did not show at the concert. But Lady Gaga was amazing on her own. I did not know much about her music prior to the concert but you have to admire her amazing pipes, incredible energy and her body of work. More importantly you have to acknowledge the sheer admiration she got from the audience. SAP is not everyone's cup of tea, but you have to similarly admire its wide body of work and the fact that it is the backbone for over 400K customers.     

I heard an executive say this week media attention on any topic lasts about 5 days. You wait that long and any PR crisis will blow over. That is not a compliment to our analyst/media side of the fence. We have to take the much longer customer view points when they invest in technology.

From my side, this week made me resolve to be even more careful in my reporting and to continue to validate my viewpoints with even more customer conversations.  

"I have never been so proud to be part of this company"

Said Hasso Plattner as we were wrapping up our annual Sapphire meeting with him. He told us he thought Bill McDermott's keynote this morning was the best he has delivered (I had walked up to Bill a few hours earlier and told him roughly the same thing, for different reasons as I describe below). He raved about Jen Morgan and her attention to detail. He is just as pleased with the other members of the new management team. He said customers have complimented him about the smooth executive transition over the last few weeks. He was energized and as we will see in his keynote tomorrow dispel rumors that have been swirling around HANA the last few weeks.

I liked Bill's keynote because it highlighted global companies like Apple, Under Armor, Shell, Tapestry and SAP itself tackling complex issues in product design, manufacturing, field service, joint venture accounting, retail and digital transformation. It is such a contrast to the competition which pretends that its financial and CRM cloud functionality is all that an enterprise needs.

The keynote and a sneak preview walk through we got of the show floor even as the roadies were still moving booth material in their fork lifts gave me the solid feeling that SAP is back as the dominant application vendor. There are 5 massive "neighborhoods" centered around People engagement, Network and spend management, Customer experience, Supply chain and the Digital core and a section on 25 verticals.

ASUG had invited me to present on themes from SAP Nation 3.0 to its Executive Exchange on Monday. It explained to them why on balance the book comes out positive about SAP. If I had waited till this Sapphire to finish, I have a feeling the book would have come out even more positive.

The Orange County Convention Center advertises 2.1 million square feet of exhibition space. Given the scope and ambition of SAP's application coverage, in the not too distant future, I think it will be able to use all that space.

Competitors watch out - you have one heck of an energized application vendor.  

The Oracle Enigma

Rimini Street recently conducted a survey of Oracle customers. Oracle and Rimini have long been in litigation, so I would read the results with a nuanced viewpoint, but it does not paint the picture of a very happy Oracle Nation.

As an analyst, I am particularly interested in products and competitive positioning.  One of the more intriguing sub-plots in my writing SAP Nation 3.0 was looking at why its competitors did not go for the jugular. 5 years ago, when I wrote the first volume, SAP's image suffered from the massive failures and writeoffs, it appeared distracted by HANA, its next-gen ERP, S/4 was immature. Customers were ring-fencing SAP, moving to third party maintenance and two-tier ERP. In many ways, SAP was on the ropes. 

As I say in the book

"Partly because SAP’s competitors did not target it aggressively enough, and partly because its own cloud acquisitions and developed products afforded it a shield, the company has come through the threat of the last five years relatively unscathed. In fact, when you look at the mob of strong competitors that it had to fend off, it has done remarkably well. In those five years, SAP’s customer count has actually increased by 50%. Wall Street has not been as generous to SAP as it has to cloud vendors, but the existential threat that SAP faced has passed."

The competition is not just Oracle, but as the largest application competitor to SAP, I wondered why they did not have more momentum in the last five years. It's partly because the Oracle functional scope in the cloud does has not appear to have grown significantly. I wrote recently

"In October 2018, Oracle co-CEO Hurd predicted that 80% of business applications would be in the cloud by 2025....Today, even after two decades of cloud computing, industry and geographic coverage is spotty — by my estimate, less than 20%. For Hurd’s prediction to prove accurate, it will take massive new investments in upgrading industry functionality."

Will Hurd's own products grow rapidly and get a lion share of his projected 80%? In January 2006, Oracle had confidently declared they were "Halfway to Fusion". 13 years later, Oracle still mostly talks finance, HCM and CRM. NetSuite, even after 20 years, has limited global coverage as Phil Wainewright points out here or industry coverage as I point out here."   

Beyond applications, I was excited about its autonomous database, but wondered why they had to bundle it with their IaaS. When it was introduced, I wrote this. I have also been puzzled why the Oracle IaaS had not focused on its and other on-premise customer bases. I wrote this 3 years ago.

I write this from SAP's Sapphire show. I spent yesterday at the ASUG (user  group) Executive Exchange. There was vigorous conversation on a wide range of topics, many like Indirect Access which makes SAP cringe. My schedule for the week shows small group settings with key executives. I attended a couple of sessions at the Partner summit. We got a sneak preview of the show floor even as the roadies were still setting up.  Jon Reed has polled several "Mentors" and influential developers in the SAP community. There is a definite openness to all this. The week prior Workday allowed us access to most of their product executives at their analyst summit. Next week Plex is taking us to (another) customer plant, and has several executive sessions for analysts as part of their user conference. More openness.

I have asked for Oracle for a similar, much more open analyst summit and have been told it's not likely to happen any time soon. May be it's just me with all these questions. But I suspect my analyst colleagues have other questions about the vibrancy of its database, its platforms and other products. We all want Oracle to be a strong competitor, but with so many questions, it would be nice to have much more open conversations.  In the meantime, I will have to rely on Oracle partners like OppSource to describe innovations as Mark Galloway does here.

Frankly, they can easily ignore us analysts. It's customers they need to focus on - the Rimini survey is a symptom of what they need to turn around. 

The Paradox of Selling Progress: a guest post by Mark Galloway

Mark Galloway and I go back to our respective Lawson and Gartner days. I caught up with him recently - he is Co-Founder & CEO of OppSource, developers of next-gen sales engagement tools. He told me of an interesting use case of his tools as he describes below.

After watching multiple waves of “transformative” technologies come and go in the enterprise over the past 30 years, none in my opinion have been as transformative as what we are seeing with the “Amazon effect”.  No, I am not talking about AWS or the cloud.  Rather, I am talking about the online consumer shopping experience that many of us interchangeably call “Amazon” regardless of whether we are actually shopping at Amazon or some other online retailer.  You ask, so what does Amazon have to do with transformation in the enterprise?  Let me tell you, a lot.  As consumers, we have taken our desired consumer experience for self-service and moment-of-interest engagement into every corner of the workplace.  The net result, we have created a new normal for a radically different B2B buying journey.  We don’t want to talk with salespeople until we absolutely have to, and in many cases, we don’t ever “have to”. 

On the other side of the commerce equation, sellers are having to quickly and radically change their sales coverage models to adapt to us modern buyers.  The days of press-fleshing sales calls are waning. The cost/per sales engagement for this traditional sales approach used with today’s modern buyer is no longer economically feasible.  As a result, companies everywhere in every industry are now grappling with how to transform their sales coverage models to grow more profitably. 

Many organizations have favored hiring young, smart, and high-energy “inside sellers” who come with almost no business, industry or product acumen.  Why hire on this profile?  Because they can force high velocity and high-volume outreach and engagement efforts on these young go-getters at a fraction of what they were paying their expensive, highly compensated field-based predecessors.  Yes, these new reps are sharp and yes, they are quick learners, but without any contextual understanding or experience, smart learning can only take them so far.  The paradox of progress for the modern buyer is that while they don’t want to talk with salespeople until they absolutely have to, when they do, they want to speak with someone who brings value and relevance to their unique buying situation.  The current hiring model for insides sales teams that many companies are using is out of alignment with the modern buyer’s sales experience expectations.

This is where artificial intelligence and machine learning can lend these young sales guns a hand.  Imagine as a young rep, being prompted with questions to ask, similar customer stories to tell, and appropriate product/solutions to position all while you are engaged real time with one of these modern buyers.  This is all being made possible by leveraging machine learning and AI to listen to conversations.  Using modern AI and machine learning models, sales reps can be provided these real-time prompts that will augment the missing business, industry, and product acumen that next generation sales reps will need. Working together, salesperson and machine will be able to satisfy the buyer’s expectations for a modern sales experience, one that comes as the highly personalized and relevant engagement they desire.

As an example, Lifetouch, the nation’s largest K-12 school photography studio used to rely on field sales people to drive around and call on schools in their local territory.  This model worked well in days gone by. However, the modern security measures employed by most schools today discourages unsolicited sales calls and in many cases are not even allowed.  Coupled with these security changes, today’s modern school administrator have enormous time constraints just keeping up with running their schools.  They simply don’t have time to meet spontaneously with sales people of any variety. These market changes required Lifetouch to rethink their sales coverage model. 

They chose to hire recent college grads as inside sellers who work collaboratively with strategically located field sales specialists.  Their job is to line up scheduled and qualified appointments with school principals and other picture day decision makers at schools.  But getting engaged with enough of these contacts to keep a field team of sales people busy with qualified meetings required a much higher volume and velocity of market outreach than what these inside sellers could do with just a phone and their CRM.  They needed a specialized system that provides touchplan automation, AI and machine learning to capture conversation data, and automatically setup callbacks, and appointments.  Working with our company and our OppSource Sales Engagement Platform, they saw the average revenue per rep driven by their inside sellers grow 4X over 24 months.  An incredible ROI by anyone’s standards.

This type of progress driven by AI and machine learning is coming quickly.  A recent McKinsey Institute study found that by 2020, as much as 80% of transactional sales related functions will be possible with Ai and machine learning. 

If your sales organization isn’t experimenting with AI and Machine learning to augment your evolving sales force, you may soon experience the paradox of progress.

You can reach Mark at mark DOT galloway AT oppsource DOT com

 

Sapphire 2019: A curtain raiser with Nick Tzitzon

As I prepare to drive to Orlando for the annual SAP conference I had a chance to talk to Nick Tzitzon, EVP of Marketing and Communications about what we can expect on the main stage.

If you think about the big picture, Vinnie, in terms of where the economy is and where our customers are, we approach SAPPHIRE with a really clear view of the challenges that we need to address and the opportunities we need to seize.

If I had to give you the top three headlines, number one is continuing to deliver on promise of the intelligent enterprise, which as you recall is something we launched last year. This was the pinnacle moment, if you will, in terms of what we always knew that the SAP HANA era would lead to for SAP. Our customers know it’s a big data world. They know that they need end-to-end connectivity in their business. They’re hungry for the exciting machine learning use cases and the new wave of industry best practices. You’ll see a lot more of this in Orlando.

Look for Bill McDermott to make the argument that we want our customers to focus on something of a cultural transformation. The idea here is “you need all people inside companies focused on people and opportunities outside of companies.” Demand chain integrates to supply chain in any truly digital business model.

This leads me to the second headline, which I think will surprise a lot of attendees in terms of the energy it creates in the SAP community. In looking openly at the same challenges facing our customers, we recognized there’s a big gap we needed to solve for. No company in our industry at scale, not SAP, not our competitors, could bring in real-time experience data to complement operational data. This goes directly to the culture change McDermott wants to hit. Nobody questions the operational heft of SAP. The question is – how can we help customers direct those systems to what their key stakeholders, customers and employees, actually feel. Experience Everything , Everyone is a Customer, Customer is Everywhere.

It's widely known that we went out to find a partner here. We found not only the market leader, but the pioneer of the experience management category with Qualtrics. SAPPHIRE will now be the largest event ever focused on experience management and helping businesses operate with greater agility in terms of knowing what's going on in their business, knowing why things are happening, being able to connect the two and personalize outcomes to a far greater degree. So while I think people have read the headlines about the Qualtrics deal, I don’t think there’s a full appreciation of the paradigm-shift that experience management on the Qualtrics XM platform will enable.

Number three, I think the consistent feedback you see, not just from reading about SAPPHIRE, but from reading about all vendor events in this industry, the customers do a better job talking about the solutions than the vendors do. Perhaps this a career-limiting admission for someone in the marketing and communications function, but I’m willing to take the risk. This year we made a concentrated effort to bring as many customers to Orlando as we can to let them tell the stories, to let them explain the experience they're having with SAP, why they chose SAP, why they're excited about the idea of experience management as the latest frontier for the intelligent enterprise.  You're going to see hundreds of customer-led sessions, and the dominant ‘red thread’ is that customer testimonials will be steering the conversation. 

Those would be, at a high level, the three things I think about.

In terms of product announcements, we're going to do a lot around SAP HANA. I can’t tell you how aggravating it is to read speculation in the media about our product strategy. Josh Greenbaum wrote a nice piece about this earlier this week. HANA remains—as Bill calls it--the intellectual foundation of SAP. You're going to see Hasso do what he does best as we blaze a new trail in the data management space with some announcements about SAP HANA, which is very exciting. 

You're also going to see some additional progress being made on the idea of combining experience management and intelligent enterprise capabilities. You have heard us talk about this as “X Data plus O Data.” You'll see some early releases, giving developers the tools to build on our platform and accentuate the capabilities of X plus O. There'll be exciting announcements on this front as well.

You have another breakout on C/4HANA?  Is Qualtrics going to be more in that? Is that its own sub-event within the big tent? 

Qualtrics is going to be everywhere, first of all. CX LIVE is the customer experience event focused on SAP C/4HANA and the five integrated clouds that run in that suite. Frankly, the interest has been so high since it was announced last year, we had to do a dedicated CX track at SAPPHIRE because we ran out of space. That’s why Alex Atzberger and his team are hosting CX LIVE as a separate but connected track in Orlando. I’m sure Alex will happily tell you that it's a bigger crowd than they anticipated, which is good news. I should also say that any registered SAPPHIRE attendee can also participate in CX Live. Bill will appear with Alex at CX LIVE.  Ryan Smith from Qualtrics will appear there. It’s going to be a fun event. 

What about all the drama over the last few weeks?  Will Bill touch on it? Are you going to let the media openly ask their questions?

Yeah, I think the media, influencers, analysts, can and should ask any questions they want.  Personally, I don't see the drama. People have been following us for years and have very high expectations for us. Bill tells us all the time – take the high interest in SAP as a compliment that people believe we’re a significant company with a lot riding on us. Having said that, I worry that much of what’s out there right now has largely been the result of speculation and not necessarily the result of facts. In the case of the executive departures, we have individuals in some cases who collectively have worked for SAP for 100 years, and who decided that it was time to try something else in their career. Does this not happen in every company?

And the other piece of those changes, we have a particularly strong bench of talent at the leadership level and at the engineering level. Names like Adaire Fox-Martin, Christian Klein, Jennifer Morgan, Juergen Mueller, Thomas Saueressig, Gerrit Kazmaier, Abdul Razack. I think these leaders and the quality work done by our engineers will be on display at SAPPHIRE. Maybe the only thing that will quiet the conspiracy theories is seeing a totally thriving SAP in action in Orlando. So I guess I’m happy it starts next week.

Vinnie, I'm normally, as you know, somebody who is pretty sensitive to what's going on across the company, and I feel like the company is going in with a full ahead steam with a pretty clear sense of what it has to accomplish.  I just don't see a lot of this so-called drama.

While I understand there is some sensational stuff in the media, we put more credibility in the facts.

If there’s any learning I have from all this, it’s that we need to do a better job over-communicating about everything. We know what our customers expect, we know what our shareholders expect, we feel motivated and excited about the future. That’s the story I personally need to do a better job getting out into the influence channels.

Any other big announcements?  Any other directional stuff?

You’ll see a re-invigoration on the industries focus from us. There's a lot of really good content we're going to have at Sapphire on the industry side, a lot of good road mapping and best practices. 

You're going to see a lot on the ecosystem. I think our partners are fired up for SAPPHIRE.  You're going to see some more detail in terms of how our partnerships with cloud infrastructure providers have matured. These are topics that we know the SAP customer base is interested in, so they will be well featured at the event. 

I also think you're going to see an increasingly good balance between the technology topics and the business topics. This is something that all vendors struggle with. We, like many, have an audience that comes from multiple perspectives, but what we really like about the intelligent enterprise, particularly now in the context of the experience economy with experience management from Qualtrics, this is a conversation that bridges the gap between business and technology.  It completely unites the value chain on what needs to be done to keep companies successful or, in cases where they're struggling, gets them back on the right track. SAP is talking end-to-end now in multiple respects and we're excited for SAPPHIRE, if for no other reason, because it's our best opportunity of the year to show people just how complete and broad our portfolio is and how complete our strategy is in terms of giving them the tools that they need to be successful.

Plus, we're going to be distributing copies of exciting, new, future best-selling books. In case you have any recommendations in that regard.

Well I know at least one person - the publisher of SAP Nation 3.0 - will enjoy that drama :)

Thanks for the sneak preview.

Digital Transformations: Too little, too late?

I find Frank Scavo a great sounding board.  He has a way of simplifying things and pushing back when things are buzzword-y. I have quoted him in several books. He has introduced me to case studies I have profiled in my books and blogs.

I liked his recent post on Digital Transformations, especially the graph on left.

But it reminded me of 2 things.

In The New Polymath, I had invoked Doblin's (a design strategy firm) 10 types of innovations. You could take Scavo's graph and nuance it some more.

However, the key point I want to make is I started to write that book in 2009. It was inspired by innovative people, products and places I had been cataloging on the New Florence blog since 2004.

In 2012, in The New Technology Elite I had bunches of examples of companies making smart products - taking analog products of the past and embedding sensors, software, satellite and mobile support. They had started designing those products years before.

In 2014, I helped Karl-Heinz Streibich wrote The Digital Enterprise. It cataloged a number of companies rethinking their supply chains, their business models. They had been doing it for years.

In 2016, in Silicon Collar I cataloged companies in over 50 work settings changing their business processes with all kinds of automation - robotics, drones, wearables, 3D printing etc etc. They had been doing so for years,

In my latest book, SAP Nation 3.0, I point out the countless missed opportunities at some of our favorite vendors. Markets don't wait. Startups, corporations as in healthtech and healthcare, SIs have been developing solutions they should have 

What's my point?

If you are only now starting to think about digital transformation, you likely are years behind many of your competitors and your peers.

Here is something even more sobering. The solutions you are likely looking at also missed out on working with those pioneering customers. Their SI partners will try to convince you the solutions embody "best practices". No, they don't - the best practices belong to those pioneers.

Which is why I was pleased to see Brian Sommer write his new book Digital with Impact. In my review, I wrote:

"Brian Sommer and I go back a long way and we have consulted with clients on several projects he describes in the book. We are both worried that today's "digital' project is becoming the "re-engineering" project of the 90s. It starts off with the right goals, then many companies just implement off the shelf solutions justifying them or being told by their consultants they embody "best practices in a box". End result in 90s was massively expensive ERP and CRM projects and failures. Companies risk making the same mistake again with similarly poor results. This is where I like Brian's 4 step framework - spend plenty of time looking for digital opportunities (not just move your back office to the cloud) and build your own jigsaw of solutions given the plethora of cloud apps, automation technology, developer platforms and other tools available today. I also like his emphasis about thinking about in terms of a circle. Rinse, repeat - don't view it as a project which is one and done. Finally, he has a slew of exercises you can use to encourage lots of back and forth with colleagues.."

Frank is right when he concludes "each digital journey is different, because every company is different." In addition, as I said at the end of my review of Brian's book

"Its important you scream and debate. Opportunities like this come only every couple of decades - you want to do far better than most companies did with the "re-engineering" wave in the 90s."

You are likely late. But in addition, please do not do too little with your digital transformation project.

SAP Nation 3.0 Excerpts: Chapter 8 - Bystander Customers

My new book is now available to buy here in print version, and in the Kindle eBook version. As with my earlier books, I am excerpting roughly 10% of the 400 page book in a series of posts on my two blogs.

In chapter 8, I covered the final category in the four customer types in the book - Risk-takers, Modernizers, Diversifiers and Bystanders.

"So, it is not surprising that only a small fraction of SAP’s 400,000+ customers have migrated from ECC, Business One,BusinessObjects and other products to its more modern S/4, SuccessFactors, ByD, HANA and SCP.

In fairness, Oracle, Infor, Microsoft, IFS, Unit4 and other vendors have the same issue with their legacy customer bases. You also have to ask why after 20 years Salesforce, NetSuite and other SaaS vendors have still not converted millions of customers from the on-premise world."

I interviewed several analysts about these Bystanders

Holger Mueller of Constellation

"Now they’re in a similar situation. I think SAP pulled a fast one, saying, ’Oh, don’t worry. We copied all the code. S/4 is not a new system. S/4 is just a new implementation where we simplify things and get rid of old things.’ To some extent, it was a technical argument as you got rid of these non relevant tables. The simplification ran the system better, and you got better business intelligence because there was no need for a data warehouse.

However, for SAP, just copying the code wasn’t that easy. Technically, you had to examine the code and truly simplify it to make it work. Besides, the public cloud is not offering the dramatic TCO advantages that R/3 did relative to R/2.

Importantly, I don’t see the functional equivalency. When SAP was started, Hasso has said, he went to ICI, the launch customer, and met a person in the finance department. ‘He showed me how he worked, and I rebuilt that in software. It took us a few months, and then we had that.’

Today, you cannot go to a finance department and ask, ‘How do you use machine learning? What do you do with data science? How do you use the cloud? What are your FP&A best practices?’ These practices are still being distilled. We’re in the era of experimentation."

"To be fair to many of the European CIOs, the vendors also have not done a good job bringing data centers across the ocean. Germany is the largest European economy. Where else should your data center be? There have been so many ones opened in the UK, which makes sense for banking and financial services vendors, but Paris and Frankfurt are much bigger than London. That’s not even an argument."

Cindy Jutras of Mint Jutras

"Anecdotally, the biggest thing that stops them is the perception that they need all their previous customizations. I would argue they probably don’t, partly because new solutions today do more than they did back when they implemented. Plus, they have more ability to con- figure without invasive custom code changes. Partly, it’s because they just didn’t need those customizations. They did it because that’s the way they always did it, and they weren’t willing to bite the bullet and do something even better or different.

I was at a Unit4 conference last year, and I was in a session meant to collect information from customers to help them move to cloud. It was almost like a focus group with product management. The big resistance to moving to cloud is customization, because for so many years Unit4 had the BLINC message — an acronym for “Businesses Living IN Change.” With their SDKs, they actually encouraged code changes, but code changes that would move with upgrades. Now, in a multitenant SaaS solution, even those kinds of code changes are discouraged. But those customers are all sitting on those kinds of code changes, which is making them very resistant to moving into the cloud. I have asked Steve Miranda at Oracle a similar question. Basically, what he said was, ‘I strongly encourage customers not to inventory their customizations and to move forward.’

But I really think it is inertia. People have bad tastes in their mouths from having gone through the blood, sweat and tears of an ERP implementation years ago. I don’t think it needs to be like that today, but that’s the perception."

Frank Scavo of Strativa

"Vendors like Infor and Oracle have tried to move legacy customers to the cloud with initiatives called UpgradeX and SOAR, respectively. The reason you don’t have very many SOAR and Upgrade X customers to talk to is because there are not that many of them. Existing customers do not make that cloud conversion routinely."

"Some of these companies are running on operating systems that aren’t even supported anymore, so they’re running patched versions. They’re not getting vendor support, and they are running in emulation mode. A “last legs” kind of thing — and still, they will try not to make a conversion.

What are the kinds of events that finally force a company to go to a new ERP? There are several:

• We did an acquisition and we’re now on two ERP systems and this is just not tenable for the long term. We’ve got to standardize on one.
• We expanded our business into Asia and this ERP system is not double-byte or doesn’t support localizations.
• We went into a new line of business that has subscription billing. The [current] system doesn’t do this."

Workday: The Power of Focus

I kept thinking of Southwest Airlines while I was at the Workday Innovation Summit in CA this week. I had read this tribute to the legendary founder, Herb Kelleher on the flight over and it reminded me how revered he was - like Dave Duffield of Workday is in HCM circles.

Then, a walk down memory lane took me back a few decades. At business school, as part of the Corporate Strategy class, we had been assigned in groups of 3 to analyze a local company. We interviewed executives and then presented to top management about growth opportunities. I had drawn Southwest Airlines, then just a regional airline with under 5% of today's fleet and revenues.

I remember I got an A for the course, but I am pretty sure I flunked the presentation to the airline executives. They were brutal. One of our recommendations was that they set up a separate sub to service smaller cities and acquire commuter planes for those routes. Nope - we will not diversify from Boeing 737s, was the response. We also recommended they diversify to airports in Chicago and couple of other major cities. The response was along the lines of "No, too many union and weather issues".

They have stubbornly continued with the first principle. Since then, Southwest has become the largest and most experienced customer for successive generations of the 737 - gaining significant maintenance and training efficiencies from a homogeneous fleet. They have been more flexible about the second recommendation. Indeed, I felt vindicated when they started flying out of Chicago Midway in 1985 and have since blanketed most of the country. Southwest has become my preferred domestic airline especially since they offer me nonstop flights from my home airport to over 30 cities.

I saw the discipline again when in 2006 after a bad experience with Ryanair in Europe I sent Southwest executives a letter requesting them to expand internationally. Nope came the response - there is huge amount of growth left right here in the U.S. They have since started to fly to the Caribbean, Mexico and Central America, but the bulk of the revenues is still U.S.- centric.

What's been fascinating to watch is how Southwest's discipline has attracted relentless competitive attacks. There was the infamous Wright Amendment which hobbled Southwest for three decades from flying nonstop on longer routes from its home state.

In response to the success of Southwest and others like Jetblue, United tried a sub called  Ted, Delta tried Song and most airlines have since moved to offering "basic economy", highly restricted fares. In doing so, these major U.S. airlines have neglected vast chunks of global markets to the advantage of premium competitors like Emirates and Singapore Air.

Workday has shown similar discipline. Its "Power of One" strategy is like that of Southwest's commitment to the 737. No on-premise distractions. A slow diversification in the form of AWS support. Functionally, Workday has stayed focused on finance, planning and HCM.

And along with Salesforce it has similarly drawn inordinate attention from bigger competitors like SAP, Oracle and Infor. They have been chasing after accounting, HCM and CRM markets with their own acquisitions and organic products when they would have had much more traction in verticals or world geographies. As I write in my new book, we are seeing new competitors in the form of startups and even major (buyer) corporations developing products for "white spaces" in fintech and asset intensive industries that these vendors should have been focused on. Google, now with Kurian and Enslin, will likely emerge as another threat in some verticals and regions.

Can you be too focused? With Southwest you are seeing the potential risk of being dependent on the 737. The issues with the new MAX generation of the 737 are causing short term scheduling issues, but longer term if customer perceptions about safety persist they could hurt Southwest significantly. Its slow international expansion has allowed regional, cut- rate players like AirAsia and Easyjet to grow nicely across Asia and Europe.

Workday could have similar challenges. IDC is talking about "cloud repatriation" - a bit of backlash against the economics of public clouds. Let's face it, after 20 years of cloud apps, over a million SAP, Oracle, Microsoft, Unit4 and other on-premise customers have not migrated major chunks of their enterprise to the cloud.

During the summit this week I saw a somewhat superficial Workday focus on operational functionality and data. It talks about enterprise wide planning when it does not get invited to complex network planning, finite capacity or CPG assortment planning opportunities. I saw a narrow focus on automation when enterprises are trying out a wide array of telematics, wearables, robotics across the enterprise. Internationally, Workday has been slow to expand functionally or in local presence.  It has been lucky the competition has mostly tried to engage it in areas where it is strong, rather than "surround" it with operational and regional depth. That will not last for ever.  

The great news is like Southwest which has a distinctive, even quirky culture, Workday is building its own unique persona. It topped Fortune's Future 50 list this year while also cracking the Top 5 in the magazine's top places to work. It has been blazing a trail with a decade of analyst summits, when some competitors shrink away from them. CEO Aneel Bhusri promised even more openness and communication.

There is so much to like at Workday. I do want to see them continue to evolve and expand. Correction - their customers want to see them evolve and expand. And those million on-prem customers continue to wait for a compelling reason to migrate.

 

 

 

SAP Nation 3.0 excerpts: Chapter 7 Diversifier customers

My new book is now available to buy here in print version, and in the Kindle eBook version. As with my earlier books, I am excerpting roughly 10% of the 400 page book in a series of posts on my two blogs.

In this chapter, I covered the third category in the four customer types in the book - Risk-takers, Modernizers, Diversifiers and Bystanders. Diversifier customers. In the first volume of SAP Nation, we had described the early wave of Diversifiers. They were “ring-fencing” SAP with cloud solutions, trying out two-tier models, TPM and private-cloud infrastructure. This group continues to expand and experiment. The big difference we noticed this time around was in some cases they are diversifying back to SAP products.

Here are excerpts from 4 of the 12 case studies in the chapter

'In the hypercompetitive software vendor world, Unilever could be construed as giving up on SAP. Actually, like many CIOs, Moran is merely diversifying her portfolio. Moran told CIO UK, “Working with SAP, they helped us put together the internal business case to move forward with S4/HANA. We’ve found that having HANA on our databases has increased performance five to 10 times when we have HANA sidecars.”47 In that article, she also talked about her other strategic partners: Microsoft, AWS and increasingly Google. Unilever also has a Foundry that, since its launch in 2014, has facilitated 100 pilots between start-ups and Unilever brands — stimulating and facilitating experimentation across the global footprint. It’s all part of diversifying the portfolio, and SAP continues as a key component.'

Andre Blumberg at CLP Group in Asia Pacific.

'The more interesting project which is our focus now, is to look at global disruption, industry changes and technological innovation. When you look at the Apple iTunes store, the Google Play store, Amazon, Alibaba, etc. you see how the platform business model has disrupted many industries. We’ve been looking at what a platform business model could look like for our sector — so what is the “energy internet”? What is the Amazon equivalent for a utility company? We are working on that now and how we can bring ecosystem players together to provide added value for our customers. How can we establish that on a modern public cloud PaaS platform so that any third-party ecosystem player or start-up companies can join our platform and work with us? That way, we don’t limit ourselves when it comes to innovation. That’s a much more exciting discussion and we’re working primarily with proven public cloud companies, particularly Amazon Web Services. It will be interesting to see how the global public cloud providers play out in the Asia-Pacific region over the next two to three years.'

Bryan Bee at EBSCO

'We had a healthy skepticism when we started the process. It took us a while to get our head wrapped around the service provided, the risks, and interoperability issues. As we went through that journey, we became comfortable and we concluded going with Rimini was an acceptable risk. Once we did our initial due diligence, we engaged both our business stakeholders and our developers. We did multiple reference calls and each time it was like, man, this is too good to be true.'

Paul Wright at Accuride

'Functionally, there’s no doubt in my mind that with SAP, we’d be compliant anywhere we wanted to go in the world. In today’s world, that’s important. We had a choice when we were going to Russia. I had a choice. I could have said, ‘Let’s figure out how to do with this with Plex and Workday. Or, let’s do this inside SAP.’ I mean, at some point, unfortunately, the government regulations are going to drive what you can and cannot do as a business, and it was just too risky to do something else in Russia, even if we wanted to, so we stayed with SAP.'

The joys of book reviews

I saw an article aimed at authors and publishers on how to handle critical reviews. And I chuckled to myself  "I could have written that myself"

I took most heat for the first volume of SAP Nation - mostly from SAP fans and partners. It was actually a generous history of SAP as it grew from small German vendor to global powerhouse. What I drew attention to was its poor handling of partners and the massive costs and project failures in the ecosystem. Five years later, I can say with some pride that it had a significant impact. The strategies I highlighted in the book like ring fencing with cloud, two-tier ERP and third party maintenance have gone mainstream. Also, in writing volume 3.0 I saw customers have become cautious in their use of large SIs, they are minimizing change as they move to S/4 etc. That to me is gratifying. I was talking to the customer audience and many of them have benefited from the book.

I was criticized for not being alarmist enough with Silicon Collar. The book came out when prominent Oxford profs and Gartner analysts were screaming about catastrophic job losses from automation.  Mine was a tone of optimism - automation makes us safer, smarter, speedier workers. Machines typically impact repetitive tasks not complete jobs. Automation takes time to mature, it is not cheap. History has proved me right so far. Very few job losses from machines. We are pushing back dates for autonomous vehicles, for payback from machine learning. Two disappointments from the book- I had hoped SIs and outsourcers would automate their own operations - but they are mostly sticking to labor intensive models. The other was software vendors would reshape processes to reflect growing drones and telematics in logistics, sensors, 3D printing and wearables on the shop floor, robotics everywhere but it may take a wave of greenfield vendors to come along to do that.

I am starting to hear criticism I am "too nice" to SAP in the latest, volume 3.0 of SAP Nation. I am actually pretty tough on SAP in a number of chapters. What I do point out is how little its competition has evolved in the last 5 years. So many missed opportunities. Some of the criticism is coming from them for highlighting their performance. To me, again, that is background noise. The book gave me a chance to highlight 200+ pages of case studies talking about a slew of new SAP products. Hopefully, the customer audience benefits from that and sees that this is not "your Dad's SAP". And the competitors realize the clock is reset and they can show much more progress by the time I start to write volume 4.0 in the series.

I tend to be a tough critic myself. The New Polymath was one of my best reviewed books and it was gratifying to get a number of comments about people wanting to expand their own skillsets. What I had hoped in addition was it would spur Polymath organizations like the GE Global Research Center I described in the book "Conversations in the cafeteria, in the hallways, and at the 40 - room lodge attached to the center effortlessly drift from pathology to holography, from one “ aha ” to another. The Global Research ethos is “ Innovation occurs at the intersection of disciplines. ” So, put chemists, mathematicians, engineers of all stripes, and biologists in close proximity and who knows where the conversations will lead."

The New Technology Elite was about smart products (analog products made digital with software, sensors and satellite support)  and covered design, IP issues, the application of Moore's Law, a need to plan multiple releases, product documentation and training and a number of other dimensions. I see so many smart products launched in the last decade which could have used that advice. You wonder, for example, how things would have worked out if Boeing had provided better documentation and training around the MCAS software and the Angle of Attack sensor on the 737 MAX.  

I write books to stay in touch with practitioners - my case study heavy style makes me reach out to over a hundred for each book. They provide me the reality checks and validations for the themes of each book. They also provide fodder for our advisory work. The ultimate compliments and criticism also comes from them, not from social media. Nothing is more pleasant than a note from a client which says "thank you from saving us from a $50 million mistake" or "you forced us to consider couple more scenarios we had not factored"

Having said all that, I happily sign my books, and enjoy presenting on themes from my books especially to audiences on campuses. See you at an event soon. 

The bad old days of consumer tech

Not a day passes without some harsh story about Facebook and data protection. How un-innovative Apple has become. Why Amazon should be broken up. Why Google should be regulated.

And I ask do these folks not remember the days when consumer only got technology dregs? It was not that long ago. Elite government agencies got the best in satellite, computing and other support. Then came corporations. Consumers, if they were lucky, came much later in the technology lifecycle.

Today, consumer tech leads enterprise tech in capability and design. Enterprise software repeatedly turns to consumer tech for innovation. Mobility, multi-tenancy, cloud infrastructure, machine learning - the leadership has not come from IBM or SAP. It has come from Apple and Google.

I think of this every time I hear Mark Hurd, co-CEO of Oracle, present in keynotes. He particularly likes to point out that consumer spend on technology has caught up to enterprise spend — annually about $1 trillion each — and is growing faster. Even more dramatically, over 80% of enterprise tech is spent on keeping the lights on, not innovation. In contrast, the consumer is getting almost pure innovation for her dollar.

Enterprise tech vendors — especially ERP/ CRM vendors, their systems integrators and other partners — were set to dominate the technology landscape in the late 90s. They had emerged very strongly from the Y2K crisis, and the launch of the EU’s common currency promised another bonanza. Instead, their share of the market steadily declined over the ensuing two decades. They missed out on the contract manufacturing of smart products, digital advertising, cloud infrastructure and several other trillion-dollar markets. Two decades ago, not many of us had heard of Foxconn which has delivered billions of iPhones, iPads and smart products. Few of us considered Amazon or Alibaba as tech vendors. Few of us would have speculated that Apple, near dead, or Google, not born yet, would have many times Oracle or SAP’s annual revenue.

To me, that has worked out better for consumers. Enterprise vendors have delivered nowhere near the price/ performance improvements or innovation that consumer tech has seen. It should be no wonder then that the tech the consumer gets at home on Sunday night or in her car is so much better than what she finds at work on Monday morning.

So, let's ask for a vote - how many consumers would give up the advertiser funded or subscription models and sign up for enterprise licenses and audits? So, we can criticize consumer tech for data privacy issues, but honestly, it is a tradeoff consumers have been willing to make. Us smart folks making snide comments or worse forcing GDPR type regulations are not doing them many favors.

Talking about regulators, let's look at their track record with tech. They have not fixed spam email and phishing, robocalls with IRS or Microsoft scams, misleading or fraudulent TV ads. Honestly, those cause way more damage to consumers. Regulators have given immunity to telcos after they violate our privacy rights - why do we think they will do better with consumer tech? GDPR to me is "feel good" legislation like Sarbanes-Oxley was post-Enron. Lot of noise and expense but little in results.

Be careful what you clamor for. You may bring about the bad new days of consumer tech. And that is not what tens of millions of consumers, including me, want. Respect our ability to make choices.

ERP: Moving Fast and Yet So Slow

A guest post from Ton Dobbe, Chief Inspiration Officer, Value Inspiration

"Every week I interview entrepreneurs and experts from around the world to share their big idea about new forms of value creation and the potential we can unlock when technology augments the unique strengths of people to deliver remarkable impact.

I got inspired by the release of the book SAP Nation 3.0, hence I invited its author, Vinnie Mirchandani to my podcast. We explored the changes in the ERP landscape over the last 5 years, in particular amongst the big 3 – SAP, Oracle and Workday. We also explored why after 20 years of ERP in the cloud today there’s still not enough traction.

The thing that triggered me most from my interview with Vinnie : "Cloud ERP has been around for 20 years now. But after 20 years, both the customers and the vendors are just not moving quick enough. Something's not right."

Vinnie’s conclusion is so true. If you compare the transformation in the ERP industry with other enterprise software categories, it’s transforming fast, but too slow. He outlined a range of reasons for that:

1)         Lack of functional coverage: ‘If you plot functional coverage by global world region, by industry, by business process only about 20% is filled. So after +20 years, the vendor community hasn’t delivered enough.’

2)         Not enough shift in value: ‘Data is one of the biggest selling points of cloud, you know, we are gathering a lot of data. That should allow us to do some really unique things that we couldn't do before. That’s simply not happening yet’

3)        The partner community is holding things up: ‘Partners are selling mostly private cloud or on-premise solutions. Partners want to continue to do what they always did: implementations, upgrades, application management.’

4)         Buyer fear. ‘The memory of the last implementation is still holding back a large number of buyers. Many of them just customized the heck out of their old ERP system and they're worried that they will lose the customizations if the functionality in the new product isn’t rich enough.’

So, it’s a chicken and egg dilemma that’s needs a breakthrough. And the breakthrough won’t come from continuing to move traditional solutions to the cloud to continue to do their traditional thing. From my perspective, there’s a large-scale opportunity in the market for any of the vendors – established or new – to shake things up but taking a fresh perspective on ERP.

We discussed a number of opportunities to unlock the status quo, here’s a summary:

1)         ‘Don't just modernize the technology, modernize the business processes.’

2)         Verticalize – what is wrong with offering claims processing or retail merchandising, or insurance billing, or utility asset management and so on. Those industries are screaming for cloud and in memory solutions for that.

3)         Get systems integrators to apply machine learning and automation to their own business. It's amazing how many systems integrators still sell bodies, when over the last 30 years they've done millions of ERP projects and millions of CRM projects. Why aren't we training machines to do configuration. Why aren't we doing automated data conversion.

In all three examples it’s data that’s the magic ingredient to unlock a large-scale and untapped opportunity to create a shift in value. As Vinnie quoted: ‘Up to now a lot of the machine learning that is showing up in the ERP space has come from the work vendors like Amazon and Google have done with image recognition, and voice recognition and so on. To me, the big, big, big payback will come when we can take enterprise data. Our own productivity, our process productivity needs to dramatically improve. It's not about it's not about replacing humans; it's making them into super workers. ‘

Listen to our interview about the evolution of the ERP space, and the large scale opportunity this leaves to creates shifts in value in a world that’s progressing, but not quite fast enough."

Groan - yet another TLA

Every good analyst is entitled to coin a couple of TLAs in their career. It is a badge of honor. So, I certainly understand why my friend Phil Fersht and his team at HfS have coined a new one IAP - Integrated Automation Platforms to evolve today's RPA or Robotic Process Automation.

"RPA provides a terrific band-aid to fix current solutions; it helps to extend the life of legacy. But does not provide long-term answers." they say

I groan because I am sore from TLAs. In my new book, SAP has so many new product names and TLAs that my editors recommended a glossary at the front of the book. Imagine what my poor transcriptionist had to go through to interpret all those TLAs in 20+ accents of the interviewees in the book.

But back to IAP. I hope Phil and team consider a couple of things

a) putting systems integrators on top of their graph sends the wrong signal. We should be highlighting automation - not more expensive labor and "change management". Besides, it would be nice to see SIs showcase automation in their own operations.

b) automation is about way more than white collar processes. In my book Silicon Collar, I had case studies of BP using drones and autonomous vehicles in remote, harsh parts of the globe. UPS with telematics guiding its trucks, factories with wearables and sensors, hospitals with tow bots, wineries with automated irrigation, waste management with robotic arms on garbage trucks, CGI at digital agencies, Exari (which Coupa announced today it is acquiring) which helps mine complex contract data, and many other examples including RPA.

So, hope Phil and team plan to start covering a broader range of automation, especially in operational areas.