deal architect

Why the changes at SAP may be timely for the industry

Since Thursday evening I have heard from many if I am surprised by the changes at the top at SAP

My answer is "only slightly"

From Sapphire in May, I wrote after some of the changes earlier in the year

"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."

At the event, Bill McDermott had asked me what I thought of the new-gen of executives.  In background, I had heard from many customers as I was writing SAP Nation 3.0 that their legacy ECC (and PeopleSoft and Baan) systems were increasingly a recruiting liability as they tried to hire younger tech talent. So, SAP's changes were in line with what many customers were experiencing. 

However, there are more executive changes since at SAP. So people ask did McDermott need to leave along with Rob Enslin and others this year? Who exactly are Jennifer and Christian? What's wrong at SAP?

Let me try and address them. I have not talked to Bill since Thursday but his decision to leave after 10 years as CEO is really not that dramatic. According to Korn Ferry, the average Fortune 500 CEO tenure is less than 5 years.

People speculate he wilted under pressure of activist investors. Frankly, as I wrote in the book, the last 3 years have been quantum more demanding.

"That (McDermott HBR) interview was conducted before President Trump came to office. I imagine there are now additional challenges in being an American CEO of a European company."

About Jennifer, Fortune included her in its list of the 50 most powerful women in the world. They described her meteoric rise at SAP "going from head of regulated businesses (till January 2013) to overseeing all of the Americas, Japan, and Asia Pacific in just five years.”

In my book, I cataloged the Digital Transformation that Christian has led within SAP. This extract should give you some dimensions of the complexity

"We are tackling the whole value chain at SAP. We are looking end to end, looking at marketing, sales, finance, service and support, cloud operations and the cloud infra- structure. That’s the first aspect of our transformation. Next, we are infusing machine learning, IoT, predictive analytics and these new technologies to bring the intelligence into play. It’s about adapting business processes to the new digital age. It’s about fixing the data architecture. Last but not least, it’s about change management, and taking the people with you. In the end, everything that we do in the cloud impacts our 90,000 employees and our 400,000 customers.”

They are both impressive executives. The Co-CEO arrangement is unusual, but not at SAP. McDermott was co-CEO with Jim Hagemann Snabe for several years. They replaced Léo Apotheker, who himself was once an co-CEO.

Honestly, I think the industry needs a jolt. While the book overall is positive to SAP, it highlighted the under-achiever performance of the industry in the last two decades. I mean that to include SAP and Oracle and Salesforce and Workday and Infor and IBM and HP and many others.

Amazon shows authors "popular highlights" that a cluster of readers mark on their Kindles. Chapter 2 of the book looked at the disappointing performance of enterprise vendors. The majority of the highlights so far for my book are in this chapter - see some extracts below, courtesy of Amazon's algorithms

Page 32

In the meantime, SAP and its competitors, who mostly focused on each other while trying to one- up each other and impress Wall Street, have missed out on large opportunities emerging around them. (the chapter discussed cloud infrastructure, smart products, digital advertising, IoT and many other markets that new entrants like Amazon, Google, Foxconn, Siemens and others took advantage of)

Page 40

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%.

Page 45

More alarmingly, we are starting to see customers get tired of waiting for vendors and go back to building their own replacement systems. With microservices, open source and other options, we are seeing the pendulum swing away from buy back to build. That’s a stunning reversal from the 1990s.

Page 53

However, they don’t have enough process visionaries who can dream up next- gen shop floors, emergency rooms or warehouses. So you see the industry continue to invest in infrastructure, platforms and tools.

 

If Jennifer and Christian only focus on financial performance, they will do little to change the industry trajectory. We desperately need them to aim differently. Much as I respect what McDermott did, I am looking forward to the next era at SAP with that hope.

Workfront - looking for work productivity in all the right places

Alex Shootman, CEO of Workfront, is versatile on many fronts. He has traveled more of the world than his tech peers. He has a family with adopted kids which deserves to be profiled in a movie. He is very good with financial numbers. But, to me, most impressively he knows the application landscape at many (most?) of his 3,000+ customers.

Workfront positions itself as the "operational book of record" for work. While many tools like Jira aim to provide visibility and productivity across IT programs and projects, Workfront aims much more broadly across the enterprise.

Alex proudly shows slides of customer application landscapes to investors and anyone else interested.  He told me one of his challenges is to keep scaling that customer intimacy culture. For now, the customer-centric gene runs through the organization. As he described in his book Done Right, one of his "laws of leadership” is "What the leader is interested in, people will be fascinated by".

His customers, in turn, say how much they like working with Workfront. Sue Fellows, Chief Customer Officer, interviewed a few of them during the Analyst Day this week that I was invited to. They had stayed on after their Customer Advisory Meeting earlier in the week and joined us for dinner and most of the day. (Next year, I have requested that they consider allowing a few analysts to observe and participate in the entire Advisory meeting.)

Brent Rudewick described how he started in Marketing Operations at Charles Schwab and since has had Risk Management added to his title, and how his group has steadily grown. His Workfront experience has attracted attention of his Investor Relations, Vendor Management and Training groups. Paul Tasker at Sage Software described the role of Workfront as they re-architected and launched a new web site across 25 countries. It involved global, regional and local coordination between Sage teams and those of external agencies.  Think of the coordination and quality assurance challenge. Angela Lapovsky of Lincoln Financial described how they go to market with their annuities, life insurance and other products almost entirely through channels like brokers. Workfront helps with that extended ecosystem and complying with the regulatory issues they are subject to. Since all these executives had marketing roles, I asked if that is Workfront's sweet spot. Alex told me if I had been in the Advisory meeting I would have met many more from other disciplines. When I was first introduced to Workfront they told me they had a "Land and Expand" strategy. Most vendors say that, but I have seen that now in many Workfront customers - they start in a pilot area and in a few years have been adopted widely. 

I had previously seen Steve ZoBell, the CTO present a case study on new product development. It wove together several creative groups in medical product design and product engineering . In the past, an idea for a bionic knee may have been noted but stayed invisible in the CRM system. Each product area would begin design anew. Workfront has changed that.

These buying centers - Marketing Operations, New Product Development, and various corporate shared services - all are increasingly digitized and tend to have a complex web of projects, and most have a high degree of quality and compliance activities to worry about. These buying centers also don't get much love from large technology vendors.

It's not coincidental that we are also seeing growing interest in categories like Robotic Process Automation (RPA) and investments like Salesforce has made in Mulesoft. There are plenty of inefficiencies in enterprise technology "junctions".  

Digital tools like email, instant messages and social media tend to distract workers even more in these hubs. In their annual State of Work survey, Workfront reports "Over the six years we have published the State of Work report, we’ve consistently found knowledge workers on average spend just 40% of their work week on the job they were hired to do." Get your own copy - it's well done.

As Alex says in our digital world "seamwork" is even more important than "teamwork". We heard the term "citizen integration' early and often during the day. They are facilitated by over 150 pre-built integrations Workfront delivers.

For now, Workfront has its hands full in white collar work centers to worry about shop floors, emergency rooms and other operational work areas. Plenty of productivity to deliver in white collar work.

I changed planes at Delta’s Atlanta hub 3 times this week (I love that place, not!). The crowds and the weather and other delays at such hubs are a good metaphor for similar work concentration and inefficiencies at the intersections of enterprise applications. Providing visibility and productivity at these hubs is what Workfront excels at.

SAP Nation 4.0?

I sent Bill McDermott a “please stay in touch” note last night, and sure enough a couple of hours later, even on what must have been an emotional day for him, I got a nice note back. I have always admired his polite grooming and his always-positive vibe.

 

As an analyst, though I have to unemotionally look at technology vendors from a customer pov and my trilogy of SAP Nation books provide a nice summary of McDermott’s legacy at SAP.

On Wednesday, before I knew of his decision to resign, I had the opportunity to summarize that at an ASUG Executive Exchange event. On a panel with CEO Geoff Scott I laid out what I have liked about SAP in the last few years

A) It has been a product launch machine, and I encouraged the audience to not just look at S/4HANA, but also C/4, Leonardo ML and IoT, Qualtrics, IBP, AIN, SCP and other newer products.
B) I told them I liked what Bill and Hasso have done to make “younger” the SAP leadership with Christian, Jennifer, Juergen, Alex, Ryan, Jared and many others.  I suggested the audience similarly think about their recruiting profiles to attract younger tech talent and make that a consideration and not wait till 2025 to consider migrating from the ABAP world
C) I told them Bill, in particular, had made SAP a lot more open and humble. I certainly saw that in writing volume 3.0

I also told them what I would like to see SAP deliver and what will now become Jennifer and Christian’s legacy

A) I want to see SAP become much more serious about the public cloud. I have told Christian I worry that in a few years we will have 000s of single tenant S/4 installations. That will only replicate the implement, upgrade, AMS economics of the previous generation that led to my writing volume 1 which was not flattering to SAP. It will also prevent SAP from gathering substantive data in the cloud for effective cross-customer ML scenarios. SAP has always been better at developing code more than supporting it, so it will take a sea change for SAP to build and importantly scale its public cloud at demanding SLAs. It does have pockets of multi-tenancy experience with BYD and its cloud properties but needs to expand that. 
B) SAP’s “digital core” is already the widest in the industry compared to that of its competitors. However, even that is tiny compared to the industry footprint of the customers it serves. SAP needs to deliver vertical functionality - every industry has gone through seismic changes in the last 15-20 years - and it needs to step up not keep looking for partners to help deliver industry specific operational functionality that its customers have been paying it maintenance for all these years.
C) SAP has to significantly prioritize its customers above its partners. It has to push its SI and outsourcing partners to automate their operations or even cannibalize them with its own IP. Additionally, the market pendulum is swinging back to build technology from the last few decades of buying. SAP needs to view its hyperscale partners - Amazon, Microsoft, Google among them - not just as infrastructure but as platform plays. They have to be viewed as co-optetion, not just as partners and it needs to make its own cloud platform and other build capabilities much more vibrant. 

On the ASUG panel, I was asked when I would write SAP Nation 4.0. Not anytime soon I said. McDermott’s move has me rethinking, but I really want to give Jennifer and Christian time to make their mark. 

 

I look forward to their success, and in the meantime I promise to be tough but fair in my blogs and importantly, in the advice I provide to customers. 

 

Exciting times ahead. 

A tumultuous couple of decades

As I was filing our quarterly Form 941 last week, it hit me that we have entered the last quarter of this decade. As I flew into LaGuardia on Monday, it took me back two decades to my time at Gartner. In October 1999, there was nervousness about the damage Y2K could cause, but also euphoria at the phenomenal few years many tech vendors had enjoyed. The introduction of the euro promised another bonanza for the near future. Enterprise vendors, particularly two sectors that I followed - enterprise applications and service providers - had reason to feel very good about themselves.

In New York this week I heard an optimistic Mike Salvino , the new President and CEO of DXC, at a HfS event. I heard similarly optimistic (for different reasons) Cognizant executives at one of their events the day before - they also have a new CEO. I also kept up with the celebratory mood at HR Tech in Vegas virtually.

At Gartner, I had followed SAP, Oracle, PeopleSoft and their SI partners. CSC, EDS and HP Services were players back then.  They continue to live on in the form of DXC, founded a couple of years ago. Cognizant had revenues of less than $ 100 million in 1999. It has grown like a rocket with over $16 billion in revenues now. HR Tech was only 2 years old in 1999. But the backwaters of the HR function had led the client/server applications market. This time around, it has similarly led the cloud applications market.   

There is lots to appreciate and applaud.

However, the even bigger lesson of the last couple of decades is the many missed opportunities. Outsourcers missed out on the cloud infrastructure market. It was theirs to lose and so far, players from left field like Amazon and Microsoft have benefited. After 20 years of cloud applications (Salesforce was born in 1999), application vendors can barely cover 20% of the country/industry grid. At the HfS event last week, the biggest attention was on robotic process automation (RPA). Hardly any talk of Amazon's Kiva warehouse robots, or UPS's drones or other operational automation. Or automating the labor intensive outsourcing space. CRM vendors completely missed out on the digital advertising market. Google, Facebook, and digital agencies have made out like bandits in the vacuum. SaaS vendors had an amazing business model which bundled multiple contracts - the license, the maintenance, the hosting, the application management - into one. Then they got greedy like their on-premise competitors. I saw Bruce Rogow, my former Gartner colleague in New York and he told me he sees in his travels CIOs struggle with new opex/capex funding paradigms. Instead of delivering a knock out punch, SaaS vendors mostly co-exist with their on-prem competitors. Outsourcers saw every one of their clients develop smart products and let contractor manufacturers like Foxconn and Flex dominate that market. They have let GE, ABB and others generate excitement about the IoT space.

Vendors ask me, what's next? Blockchain, machine learning, quantum computing, sure. But much bigger opportunities will persist from those missed in the last two decades. A new generation of vendors will move in. Vendors will cannibalize each other. And here is the most important nugget. Customers learn from their mistakes - I am seeing that in the new wave of SAP related services. In writing my recent book, I saw much more caution about using SIs as they implement S/4HANA. There is a "fool me twice, shame on me" vibe.

So, forget about doing business as usual. The best thing every vendor can do as we enter a new decade is to be introspective, even if Wall Street is pleased with your performance. Ask the tough questions - how the hell did we miss as many markets as we did? And how do we re-organize to make sure and not miss so many markets again?  

Exciting times ahead.

TAMyopia

When I was at PwC in the early 90s, I remember we used to throw out statements like "we have 40 to 50% market share in the SAP (or PeopleSoft) implementation market" When I got to Gartner I saw their competitors were saying similar stuff. So, I started telling them - "no, actually you have less than 10%" . The tune of at least some of them turned to "we have 50% market share of deals we choose to chase". Choice - certainly their prerogative which segments or verticals they chose to focus on. But it's not a reflection of Total Addressable Market.

One of my favorite advisory projects is helping vendors challenge their previous definitions of TAM.

I have seen plenty of dysfunctional behavior from technology vendors of every shape when their TAM definition is narrow  - salespeople chasing deals convenient to them, not what the leadership would have approved, marketing claims to deliver functionality in areas which their R&D had no intention of developing in any meaningful manner, CFOs and investment committees which don't approve enough R&D and Capex needed to keep their entities competitive.

In my recent book, I outlined several trillion dollar markets that many technology vendors have missed since the late 90s. Those included smart products, digital marketing, IoT, cloud infrastructure, various verticals - - Google, Facebook, Amazon, Foxconn, GE, Siemens and a whole bunch of vertical players have thrived in those markets even as many technology vendors ignored them. Download the chapter from my recent book  in link here if you want to read about all the missed markets.

Many of those markets were brand new ones or what in MBA school we called adjacent markets so you can understand why so many vendors ignored them - even as they now wish they had entered those markets. But even in their core focus markets, I have seen many a myopic definition of TAM. Here are a few examples

a) Automation and Outsourcing

When I wrote Silicon Collar three years ago, I chose the title because it felt like traditional definitions of white, blue, pink collars were dated as technology was reshaping every job, everywhere. We all wear a Silicon collar these days.  I had examples of robotics, drones, machine learning, CGI, exoskeletons, robotic process automation (RPA) and other automation in the oil patch, in accounting, in films, in winemaking, garbage collection and many other sectors. I wasn't dreaming this up - executives at sophisticated companies were in the book describing their experiences.

So, it has been a bit disconcerting to see so many outsourcers have glommed onto RPA as their major (in many cases only) focus when it comes to automation. Even more cynically, most outsourcers do not take seriously repeated customer expectations to automate their own labor intensive services.  

b) Data Centers and networks

I cannot believe how envious many vendors are of AWS's and Azure's recent success. On the other hand, I cringe when I hear software vendors and many outsourcers say "glad we didn't have to invest billions in Capex". The reality is less than a decade ago HP(with EDS), Oracle (with Sun), IBM, Accenture, Verizon, Deutsche Telecom and other telcos populated and ran data centers and networks for the world. The emerging cloud infrastructure market was theirs to lose and they have done so - spectacularly, so far.

Many SaaS vendors view the cloud infrastructure market as a bonanza - let someone invest the Capex, we will just rent it for cheap. It's not really that cheap and increasingly they are being expected to support multiple clouds. Zoho has continued to invest in its own data centers and passing along those savings to customers. The time will come for other software vendors to similarly hedge their bets. They will have to expand, or at least, morph their market definition of infrastructure.

c) "Glo-ver" in SaaS

I have increasingly been pointing out a huge under-achievement in the enterprise applications market. After two decades of cloud and in-memory applications, only about 20% of a grid across countries and industry processes has a decent choice in contemporary architecture. Myths persist such as "verticals are a sink hole". Sure if you dont do it right, but go see how much lock-in revenue and margins SAP has enjoyed with its vertical investments in the early 2000s.

I have accelerated my coverage of applications and executives who are focused on the white spaces - see some of that coverage summarized here in a trend I call Glo-ver  expansion in focus.

Back to helping vendors challenge their previous definitions of TAM.  Those are fun projects when the vendor is willing to open up. I must be honest though - many vendors look to influence analysts, not use them much for intelligence. So, they would rather posture they have "50% market share in deals they choose to chase".  

Seriously, I hope that changes. Too many vendors are defining markets too narrowly and finding their competitors have done the same and a result too many are chasing after the same, narrow markets. That is a sure path to commoditization.  Trust me - I have seen it repeated many a times over the last three decades. There is little safety in those numbers.

Occupation: Advisor, Analyst, Author

In my four decades of global travel, I have always hesitated about the correct occupation to list on a landing card or tell a passport officer (apparently I am not the only one who agonizes about that answer). At PwC, the answer used to be consultant or advisor, and I am sure I noticed a couple of immigration officers smirk at that. At Gartner, the answer was analyst, till an officer asked me "so why are you not using your diplomatic passport?" and I had to say "not that kind of analyst". I felt the most welcome ever entering Canada a few years ago. The immigration officer practically hugged me when I said I was an author. That did not last. Couple of trips later, in some other part of the world, that answer triggered the question "so how many copies of your books are you carrying?" Ergo, let's figure out how much customs duty you owe.

I should say AAA - as in advisor, analyst, author as my professional bio describes me. But then they would assume I worked for the automobile association.  Can you imagine how long I would hold up the immigration line?

AAA confuses far savvier clients of mine. Many of them see my 7 books and assume I am an academic. My accountant does not understand all the different revenue and spend categories that apply to each. Vendors see analyst and wonder why I don't do Magic Quadrants. Still others have no idea I write the New Florence blog - 15 years and 6,000 posts later. The Deal Architect name has led to inclusion on mailing lists for architecture magazines.

But deep inside I know if I were to unbundle AAA I would probably not get a nice reader review like this

'Mirchandani not only does his homework but seems to have first-person access to everyone who’s anyone in the technology sector, so the quotes peppering the text are all germane and keen'

Even better are those from my advisory clients who say "Thank you for stopping us from making a $20 m mistake" or others who say "you opened our eyes to all the white space in the market we were not addressing"

They don't get hung up on monikers. They do ask me how I manage any conflicts of interest. Otherwise, they just know the blend of AAA brings them a very different perspective and much higher payback than what they get from others. 

Curious - would love to hear from readers what unusual experiences you have had with immigration and customs.  

Oracle: Gen 2 cloud, but Gen 1 applications

Larry presented on Fusion applications in his second Oracle OpenWorld keynote yesterday. It is a bit unusual for him to dedicate a full keynote to applications. He tends to focus on database and infrastructure topics, and mostly tweak application competitors where it suits him. In a nice touch, he did take time to talk about co-CEO Mark Hurd who is out on medical leave.

I have followed Oracle for three decades and even when talking applications, Larry emphasizes what at Gartner we called "speeds and feeds". So, buy Oracle apps "because we use native stored procedures, we have a thin client architecture" etc. The reality has always been that customers buy applications based on functionality and economics as much as architecture and tools. However, he continues to mostly emphasize the technology not what the business user needs.  Yesterday it was about using the autonomous database, multi-tenancy in the cloud and machine learning.

History has shown wave after wave of Oracle applications do fine, but never get to dominant market share, and Oracle ends up catching up with acquisitions. That's partly because they don't benchmark their features and functions against world class customer needs. Could their manufacturing software run the BMW plant in Greer, SC with its massive amounts of automation - robotics and sensors? Could their warehousing functionality run an Amazon fulfillment center which utilizes concepts such as "chaotic storage"?  Can their supply chain run last-mile and same-day delivery concepts being tried out in retail, grocery and other distribution markets? Can their applications run a world class 'operating room of the future" for a healthcare company? Could a MNC customer looking for a global 2 tier ERP strategy count on NetSuite to support it in Indonesia, Brazil and Poland?

What was striking yesterday was how narrowly Larry defined enterprise applications. He said cloud infrastructure competitors (Amazon, Microsoft, Google etc) don't have such applications, ignoring that the pendulum in the industry is swinging from buy to build and tons of enterprise application code is being written on their infrastructure and platforms. He ignored that massive amounts of VC and customer investment has gone into vertical functionality like in FinTech - just visit Shanghai or London and see the vibrant startups there - and that for healthcare and other industries.  

He claimed Oracle has "more applications, more features, more functions" than any other suite - ignoring all the vertical functionality SAP has. He said Oracle is replacing SAP at customers - but none of his examples showed SAP customers moving industry functionality like utility billing or oil and gas functionality to Oracle. He took shots at S/4HANA as "hosted, not in the cloud" ignoring that many of his own customers are still not convinced about the public cloud. In fact his own announcements this week with VMware and "Oracle Cloud at Customer" reflect that reality. Or that SAP's contemporary portfolio today vastly exceeds his - it includes S/4, C/4, all its cloud acquisitions, AIN, IBP, ByD, Qualtrics and much more.

To his credit, he acknowledged that Fusion applications have taken "12 or 13 years" to bring to market. Actually, it has been longer than that because in January 2006, Oracle was already announcing it was "Halfway to Fusion". But let's not nitpick. The reality is in those 12, 14, 16 years Oracle has and in fairness its peers have completely missed out on developing applications for several trillion $ markets. Those included smart products, digital marketing, IoT, various verticals - - download the chapter from my recent book in link here if you want to read about all the missed markets. Google, Facebook, Foxconn, GE, Siemens and a whole bunch of vertical players have thrived in those markets even as Oracle and other applications vendors ignored them.

The good news is those markets are not closed. They are looking for their own Gen 2 applications.

That's Oracle huge opportunity - Gen 2 applications on its Gen 2 cloud. But it needs to get serious about developing or acquiring those Gen 2 applications, not just peddle its long-delayed Gen 1 applications.  

Oracle OpenWorld from afar

I have been watching bits and pieces of OOW from afar. Some observations

Larry, can I please have some of the anti-aging stuff you are on? Damn you look good

Marc Benioff and Aneel Bhusri, I know you are good friends but I want to know which of you, and after how many glasses of wine, thought up this brilliant placement at Oracle Park

The Oracle autonomous database does work. No DBAs on Howard Street during OOW week! Replaced by autonomous cars

Vishal Sikka, curious minds want to know whether you were thinking of your escape from SAP or Infosys here

Jeff Bezos should talk to Marc and Aneel - buy some space at Oracle Park and Larry may just leave him alone

Safra, my wife similarly wants to know your anti-aging secret.

Three pivots on one slide! I watched the whole Accenture pitch and ended up with a whole new buzzword dictionary.  

Oracle freemium......I cannot want to see the anti-aging stuff for this

Good to see Moscone center infrastructure has dramatically improved. NOT, but at least people are good humored about it. Or at least the female of the species.

More anti-aging - Steve Miranda's baby face never ages. He need not have had 2015 call in.

And the Oracle Twins - they age together and ever so gracefully

You know, I may never physically go to an OOW again. I would be wasting time with silly bloggers and missing out on all these astute observations!

BTW, I also have some drone generated pics. As they say, I could show you, but then I would have to .....:)  

Photo Credit - Oracle session replays and the #OOW19 Tweet stream.  

Zoho One evolves at rapid clip

Earlier this year, I wrote about Zoho One " ... the bundle priced at $30 a month an employee, or $75 a month on per-user basis. It was launched in 2017 with 35 applications, it now has over 40.  And from the presentations we heard more apps will join the bundle. A dollar a day per employee is a compelling value proposition, when the functionality keeps growing exponentially. "

I compared it to Amazon Prime "The more I heard of Zoho One and the growing apps coverage for the same price, I thought of how Amazon Prime has grown in coverage. It started off a free 2 day shipping, then added free movies and since then countless new features." Prime, of course, has proven to be a rocket ship for Amazon.

This week, Zoho provided an update on One. It's now up to 45 applications. They told me in a side conversation they have 50+ apps right now....just not all announced.  "Some are on alpha programs, and we really do test them before we formally launch them or add them to Zoho One!"

Features keep evolving including its workflow management tool, Orchestly, which lets managers and administrators design and run workflows without the need for coding skills and PhoneBridge, its telephony platform, which integrates over 50 telephony vendors on one side and several Zoho applications on the other side.

When you look at services under the cover, like in the "AI" category, you get a sense for the growing richness of the applications.

The tools in the bundle keep evolving, many aimed at end users which SMEs with small IT staff especially appreciate.

Bear in mind, many vendors promised they would take savings from taking advantage of cloud infrastructure at vendors like Amazon and invest that into application functionality, and either have not done so, or are just not productive. Zoho continues to rapidly grow its application footprint even as it grows its proprietary DC network. They have shown they can run their DCs more efficiently than going with public cloud infrastructure.

No wonder the bundle is popular. There are now 20,000 businesses using Zoho One, up from 12,000 last year. According to Zoho, a quarter of Zoho One customers use more than 25 applications and more than 50 percent use 16 or more. So, clearly, customers are buying into Zoho's version of suite.

Indeed, Zoho tried to jam a 158 slide presentation into an hour's time slot. Hey, it's good to see a vendor continue to invest in new functionality, and not just milk what they have delivered in the past.

Makes you wonder how much further our industry would be if other vendors would similarly reverse their 50 to 60% of revenue investment in Sales and Marketing and plough that into R&D.

 

Re: Oracle OpenWorld

I am going to miss going to the event next week. My fault. I had a conflict that cleared up, but not in time for Oracle to register me. I have asked them for streaming info so will catch up on a few sessions that way. Sorry to miss those who are going.

In the meantime, thanks to many of you for your input on whether I should think of next writing Oracle Nation. I have also reached out to Oracle to measure what their level of support might be if I do end up writing. Hopefully, it is comparable to the support I got from SAP in writing SAP Nation 3.0. I expect to hear back in a couple of weeks.

Those who do go to OOW, please send me your thoughts on the book, especially on the applications side of the business. You can be my eyes and ears there - will help considerably in my decision. Thanks!!

1995 called. Time to revisit your applications strategy. Now!

I joined Gartner in 1995. I remember clients would call and say they were getting ready for next-gen applications, but that they felt they had "enough time". The deadline in their case was, of course, the Y2K "wall". By the end of the year, the urgency grew and for the new few years, for several analysts like me, all hell broke loose.

Gartner had an elaborate call tracking and scheduling system called GAMEC to facilitate 30-to-60-minute consultations with clients. The average, annual GAMEC metric for an analyst was about 500 inquiries. In the 4 and a half years that I was at Gartner, through the end of 1999, my GAMEC count was over 7,500!

Having come from Price Waterhouse where I ran a software intelligence group, I handled many of the ERP software queries around SAP, Oracle, PeopleSoft, JD Edwards and other client/server vendors. Having done multiple implementations, I also handled many of the ERP systems integration queries around Deloitte, IBM and other SIs. And for years after leaving, in my own firms I helped many of these customers source and negotiate their ERP application management, hosting and other contracts.

As an industry, we declared victory that Y2K was not as lethal a disaster as some had projected. The reality is many clients waited too long and then paid significant premiums to SIs and still had poor implementations. Others did not do enough due diligence on their software vendors and many are still paying the price. Many only replaced back office systems, when updating operational areas would have delivered them much higher payback.

I get the feeling we are about to see a similar spike in interest in next-gen apps in a move that Hemingway called "gradually, then suddenly". As I tell my advisory clients "fool me twice, shame on me" - we made a lot of mistakes in the 90s and we would be remiss to repeat them.

I have had conversations with several SAP customers in writing SAP Nation 3.0 and others since it was published in March. Many of them say they are looking at migrating to S/4HANA, but then they add "we have time till 2025",  the announced SAP end of life for their current ERP software. Honestly, they should be looking not just at S/4 but other new SAP technologies like C/4, IBP and Leonardo. BI customers should be looking at the Analytics cloud. BusinessOne customers at ByD and so on.

But, wait a minute, we don't have a hard Y2K wall this time, so what's the hurry? If anything, it is possible SAP may extend ECC support beyond 2025. Customers of Oracle, Infor and other on-prem vendors show even less urgency in looking at next-gen solutions. But the management changes and layoffs at SAP earlier this year reflect an industry where open source, ML, IoT are the future not ABAP or Basis. The acquisitions of Mulesoft and Tableau at Salesforce, the autonomous database and cloud infrastructure investments at Oracle are signs of a significantly changing industry. Your Board and management team are talking Digital Transformations. Do you really want to be stuck in 2025 with technology and talent from the 90s or even earlier? Have you considered your recruiting brand for younger IT professionals if you want them to support Baan or PeopleSoft? Have you considered the compliance and security risks with your customizations around that technology?

If we learned anything from the 90s, we should be preparing for things very differently

a) Spend time to envision your next-gen application portfolio

In the 90s, applications consolidated many departmental solutions and allowed companies to set up shared service centers across global subsidiaries. This time around the goal should be about (and the payback will come from) retiring last-gen customizations and tons of spreadsheets, consolidating many of the surround cloud solutions companies have acquired in the last decade, and most critically modernizing industry and geography specific operational systems. They were neglected in the Y2K rush and in the twenty years since every industry and country has gone through seismic changes. Evaluate your current major software vendors to see if they can support you (make them share detailed road maps for industry and geographical growth, and negotiate penalties if they delay planned deliveries), but also be prepared to look around. There are plenty of vertical and geographic application specialists, and you should consider custom developed applications which leverage next gen ML, multi-tenancy and other platform capabilities from Amazon, Microsoft, Google, Alibaba and others. All this will take months, if not years to evaluate.

b) Spend as much time to review your service providers and your own talent needs

No question - the last wave of services procurements was poorly done. Companies did not plan for a life cycle of needs. They hired SIs for initial implementations, then outsourced their infrastructure to hosting firms, then hired application management, often offshore firms to help with on-going care and feeding of their applications. Each of these was done over years, often with different providers. It has also become their biggest single cost, without proportionately positive results. However, so much has changed in the last twenty years. Services should be a lot more automated now. They should deliver shared service/multi-tenancy efficiencies. There are third party maintenance firms for level 3 support, rural sourcing and near sourcing firms for AMS. We are also seeing a reversal and several CIOs are insourcing talent. Much of it is for making their own products smarter, IoT compatible and contemporary in design. As with vendors, customers are having to look for talent with open source, ML, integration and other capabilities. Reviewing the changed talent and automation marketplace similarly deserves months of analysis.   

c) Do more scenario planning, not traditional TCO/ROI analysis

I hear from several customers they cannot justify a move to a next-gen product. I can certainly empathize, but often their analysis of the cost and benefit is one-dimensional, focused on a single application and does not cover the lifecycle. We need a new generation of IT financial analysts who can perform scenario analysis to handle the complexity of multi-year, portfolio wide migrations.

d) Develop a new intelligence network

The one big difference since the 90s is proliferation in information sources. Blogs and vendor marketing materials are plentiful. But they tend to be anecdotal, or single threaded. And many tend to focus on the negative. Google the term "SAP Indirect Access" and you get 6.5 million hits. Is that a concern? Of course, but one of 00s of things to consider as you look at next-gen applications. Peer networks are a far better source of intelligence and sharing. Again, you need multiple conversations given the complexity of the portfolio.

Long and short, it's not too early to start reevaluating your application portfolio. Don't let vendor end-of-life projections lull you - or in reverse, force you to join a stampede in migration. Do it on your own terms and speed, but don't ignore the history of the 90s. You may be doomed to repeat those mistakes.  

SAP and the changing face of Asia

I have increasingly been pointing out a huge under-achievement in the contemporary applications market. After two decades, only about 20% of a grid across countries and industry processes has a decent choice in cloud solutions. As a result, I have accelerated my coverage of applications and executives who are focused on the white spaces - see some of that coverage summarized here in a trend I call Glo-ver expansion in focus.

So, I looked forward to an opportunity to meet with several of SAP’s Asian customers at an event in Bangkok last week. Even better, they actually showcased a wide range of industry nuances across the country/industry grid.

Zahila Mohd-Ali of Sarawak Energy talked about a Vegetation Management System, an important consideration for a utility in tropical Malaysia. She covered wide ground including drone applications in thermographic inspections, mobile field force applications and operational parameters at power plants.

Hans Van Wuijchkhuijse of Troo talked about the very different challenges of selling life insurance in a country like the Philippines where 52% of the population is under 25 years old and tethered to mobile technology. He related to his own experience growing up - his dad had told him to go talk to the insurance agent the family had long patronized.

In another country with a similarly young demographic, Myanmar, Roland Lee described City Mart’s fantastic growth from a single supermarket in 1996 to wide range of modern physical and electronic retail channels with 9,000 employees. In a fascinating breakout, listening to him describe rapidly changing customer preferences and logistical challenges I felt like I could have been talking to a grocery exec in the US as Amazon and others dramatically reshape that sector.

Lisa Robins of Standard Chartered simplified the complex supply chain in auto, aviation and other manufacturing sectors across Asia, and then related that to cash flow her bank helps finance especially for smaller suppliers in lower tiers of the chains.

Daniel Laverick of Zuellig Pharma talked about his company’s efforts to ‘fight fakes’ - counterfeits and other pharma tampering in Asia. He talked about the promise of Blockchain in that context. In a breakout, he talked about bridging his IT organization - a seasoned ECC support staff with others focused on proprietary algorithms and Azure cloud nuances.

I especially enjoyed time we had with Scott Russell, SAP President, Asia Pacific and Japan. He likes to use the term ‘Asia Soaring’ for the region that has been home to him and his family. Organizationally, SAP has China and a few other markets reporting directly to the Board but Scott’s territory is wide and he can effortlessly cover nuances across each of the markets. I told him I could spend days listening to him talk about war stories from each market. I come to this part of the world about once a year - he has lived here every day since the early 2000s.

There were other perspectives from execs at Ananda, a real estate developer, the National University of Singapore, SingEx, a venue/events organizer and a tour of one of JustCo’s coworking locations in the city. 

The big takeaway from me from the event was Asia has long been a manufacturing base for the world. That is changing as trade tensions between US and China intensify. But even more so with its bright, young demographic Asia will increasingly influence customer expectations and experiences for the world. My wife and I then spent a few days in Japan with its fascinating blend of extreme automation in every aspect of life and immense respect for artisans of every flavor. The world will increasingly look to Japan as the man-machine mix similarly evolves everywhere.

I wish I had more time understanding how SAP competes in this more price sensitive part of the world. Also, how SAP and regional partners will support the vertical diversity that was highlighted at the event. One risk is SAP keeps just talking S/4, C/4, Experience Management and not drilling into vertical operational areas.

For now, it is time for Oracle, Salesforce, Workday and others to similarly start showcasing their Glo-ver investments. SAP has been in Asia over 30 years and now has over 9,000 employees spread across 31 office in the region. The event in Bangkok showed me just how far the competition has to go to catch up.

Plex ML project - something every software vendor/systems integrator could emulate

Machine Learning is a hot topic. Every software vendor is talking about ML and AI in their products. Plex applied ML to something very different - an understanding of how their customers configure parameters in the Plex system. This conversation with Jerry Foster, CTO, describes the project.

It has always bothered me that after millions of ERP, CRM and other enterprise projects and upgrades, we cannot get predictability and savings from automation in these projects. I think every software vendor and SI can build on this exercise around other SaaS products to automate configuration and related templates. Another interesting area Jerry describes is how rethinking customizations and the UX can dramatically reduce configuration change effort.

 

When your competitors talk about machine learning, it’s typically in terms of customer data and different functional areas like accounts payable. Your project looked at implementation configurations, which is a unique approach. Can you share your perspective on Machine Learning?

Just like with any transformative technology, everyone likes to ask, "What is your machine learning strategy?" or "What's your IoT strategy?"  But you can really go down a rabbit trail because those technologies are so big. So we've always tried to ask “What problems are we going to solve for our customers?” which could even mean solving an internal challenge that ultimately helps our customers.

At Plex, we didn't want to just start building Machine Learning models and doing them willy-nilly. Instead, me and my team discussed areas where we could apply machine learning efforts in order to solve a problem while also gaining our own internal knowledge on what a ML project entails.

Can you share some background on how this specific Machine Learning initiative began?

Last year, our VP of Services told me that about 15% of incoming customer care tickets deal exclusively with the configuration setup of our system.

Because the Plex Manufacturing Cloud is a Software-as-a-Service product, everyone is using the same codebase, which means we use configuration settings (also known as customer settings) that determine how the software behaves and functions.

Settings have business flow and visual ramifications. For example, some of those settings determine actual workflow, which may be different for a food and beverage customer versus a discrete manufacturing customer.  While others are as simple as a setting that will show certain columns on the screen and, if it's turned off, they are no longer visible. 

Because the system is so full-featured, there are a large number of settings so it would be unreasonable to expect our customers or even our Customer Care team to fully understand all of the interdependencies of the settings and the unintended side effects from turning settings on and off.

Obviously, when engineers build these systems, they try to take that into account.  They will add a new setting and see how it works with all other similar settings.  But over time, you can't ascertain all of the effects of all of those settings.

Our customers are trying to figure out how to optimize their settings, so when I was pondering that stat – 15% of our tickets are related to configuration settings – I realized this would be a great place to build a machine learning model that could help us understand what the net effect is.

Our desire was to ask “How could a customer use this model to compare it to their settings?” and be able to say, "Here are the settings you should change in order to have the optimum configuration.”

Once you identified your objective, where did you start? What technologies did you use?

We put together a team of engineers and gave them this assumption that there is a data set that could be analyzed to determine whether or not a customer's settings are configured correctly.

The team came up with a framework and a set of tools, which included Azure Machine Learning Studio because, in our opinion, Microsoft has done a really good job providing the necessary tools to very quickly get up to speed on a machine learning presentation.  We also used Neo4j as our graphing database and a system called Notebook, which is a way to put together any Python scripts that you are using to augment your artificial intelligence project. 

From there, the team put these tools together and started building out their models.

Once you had the tools, what was the process like?

 There were actually three phases to the project.  The first is feature discovery, which is basically asking “What are the data sets that we need to test our assumption?”  The second phase was building the knowledge capture system, which actually gathers all of the data from the feature discovery.  Then, of course, the final phase is a building a recommendation system.

The first phase – feature discovery – was determining which data sets were the most important.  One thing I learned is that feature discovery is just as much art as it is science.  You really have to have people on your team that know the data.

We put together a set of data that we could use to test our thesis and we started to build some models around that data.  We found that once we had a set of features and a set of data points, it wasn't enough to determine what data points to use, we needed to establish just how much data to use as well.

For instance, if we were too restrictive in our data sets that we were using, the models couldn't make any inferences from that.  It was basically regurgitating what you put in.  But if we were too broad in the amount of data, data sets, and features that we were putting into the model, it just came up with all sorts of crazy inferences and dependencies that had no meaning.

We had to keep refining, which we is a big part of the machine learning process. We really had to learn to accept that there is an iterative nature to determining which data could best give us the results that we were looking for.

Once we had a set of data points and features that we felt were representative and returned some good initial results, we built a knowledge capture system using Neo4j, Excel spreadsheets, and a data factory from Microsoft. This system pulled in the data, adjusted it, and used the models that we had built in ML Framework to start analyzing the data. 

The next part was actually consolidating and analyzing the data using mainly Azure ML as well as some Power BI and Excel along with Neo4j for some of the visual representation.

Can you explain how this applied to the configuration setting problem you were trying to solve?

As I mentioned, our customers turn settings on and off in order to configure the system to meet their needs.

To make that process easier, Plex has a set of customer setting templates – 12 or 13 primary templates based on size, industry, facility count, etc. – that we use to categorize our customers, which then informs new customer implementations. When a new customer is brought into the fold, it’s more efficient to associate them with an appropriate template and copy the template settings to their instance.

For this project, we wanted the algorithm to pretend we didn't have those templates and determine on its own how it would group our customers. We fed the data into the model and it begain to cluster our customers and match them with a particular customer setting template. Using a mechanism called similarity analysis, the model then made recommendations based on the delta between the customer and neighbors using their common template as a baseline. 

Can you show me how this played out in the model?

The image below is from Neo4j and it actually shows the clustering of customers matched to a particular template.  It first came up with its own clustering, and then it attempted to match those clusters with our templates. 

This next image shows the model’s clusters.  It identified 14 broad groups completely disconnected from our templates. 

Then what we told the model to do on this next screen was to try and match its clusters with our templates, and it actually grouped our templates into those four groups that you see highlighted right there: 0, 7, 9, and 11. 

So the model reclassified your templates?

Yes, the machine learning algorithm essentially said four of the groups it had defined (Group 0, 7, 9, and 11), could match up with one or more of Plex’s existing templates. 

What else does this tell you?

All in all, what you see here is basically six of its groups matched our templates. As you can see on this next image, the model matched two of its groupings – 3 and 8 – with a few templates that we don't typically use as much. The model also has two groupings, 2 and 6, that it couldn't match with any of our templates.

One of the main findings coming out of this is that we are basically missing two templates.  In other words, there is a set of customers that, when they onboard as a new customer, we're assigning them to a template that, although it may not be bad, is probably not the optimum template that they should be getting.

This final graph illustrates a finding that was consistent across the board : the number of times our customer settings were changed dropped off a cliff in about 2015.  That was a completely unexpected finding from the study.

 

This finding validated the work that we've been doing since 2014 to reduce our overall dependence on settings, including our new user interface, which is much less settings-dependent than Classic. It gave us confidence we were on the right path.

This is also really cool because it wasn't actually in our initial hypothesis. It wasn't what my team was trying to find or determine, and it was just an unintended side effect of the work they were doing.  Of course, one of the advantages when you start doing a project like this is you start looking at your data in detail and you come across insights that you had never expected.  This is something that the initial algorithms that we were putting together showed us that wasn't even part of our initial thesis.

Those were the two main results: identifying configuration setting templates that we had missed, and showing us that the work we had done in reducing the number of settings had paid off. 

What action will you take from here?

One of the follow-throughs from this, obviously, will be to look at the model’s groupings that do not identify with a Plex template and ask what are the characteristics of the customers in those groups?  Why did we miss those?  One of the main follow-ups that we're doing right now and in upcoming months is trying to determine which customers are in those groups and what are the characteristics of those groups so we can come up with a proper template for those customers.

The second action is to follow through with the recommendation system because that's really where the productization of this is going.  If I'm an existing customer, I want to know if my settings are optimum. I want to know, based on all the customers that are like me, which of my settings are different, and why do I have those settings different than all of the other customers who are like me?

We already have the "like me" part done.  Now, we actually have to productize that so we can provide a tool, and we want to provide that tool in two different contexts.  One is an internal tool for our support team so that when they get an incoming call that says, "Hey, I've got a problem," they can run this against the settings optimization tool and say, "You know what?  You might want to check these settings.  I've noticed that they're different from you, but all other customers like you have these settings set differently."  Then, of course, the next iteration or the second context would be a self-service tool that the customer could just go onto the Plex menu and analyze their settings. 

Were you happy with the results of this project?

Overall, I was very pleased with the outcome of the project and how the team worked.  It was exciting to see.  One of the interesting things about where machine learning has come from where it was five, ten years ago is that the tools are so strong that you don't need a team of data scientists.  You need a team of smart engineers and a couple people who know the data. 

Yes, a data scientist is obviously going to help, but to get 70% or 80% of the way, in my opinion, you don't really need a data scientist.  All the things we did here, there was no data scientist involved.  That, to me, was a real encouragement.

The last takeaway I'm taking from this is, once you start to realize what's behind machine learning, you actually start to use that as a mechanism to solve problems.  In other words, it's not just this machine learning project that the labs did.  It's how we can analyze any problem moving forward.

It's going to be a long journey, but it's very exciting.  I'm really excited to see where we can go with this.

Time for Oracle Nation?

I have analyzed Oracle applications business since the early 90s - first at PwC, then Gartner, now at Deal Architect. I have long been a Larry Ellison admirer, much less so of his company's applications. It has been a perennial, promising, second ranked "Avis" in the applications market. The problem is their "we try harder" mission often gets distracted by the company's database or tools or infrastructure business. I get excited every few years, but they always seem to lose momentum. Reading Steve Miranda's comments in Seeking Alpha, it may be time to get excited again:

"It is the industry's most complete set of cloud applications and consists of more than 1,100 different modules. We have applications for every business function from finance and HR to supply chain, manufacturing, sales, marketing, and customer service. Our portfolio also includes dedicated applications for industry verticals."

If the 1,100 modules cover a wide range of global and vertical angles, it  would make them by far the vendor with the widest functionality in the cloud. See my post about the poor Glo-ver coverage in enterprise apps. 

I have thought about writing Oracle Nation in the past focusing on its application business history over the last couple of decades. It is a rich motherlode to mine: 

- Lots of very interesting executives - Larry, Mark Hurd, Ray Lane, Charles Phillips, Thomas Kurian among the many who have shaped its applications journey

- A wide tapestry of application software companies which have been acquired by Oracle

- Changing mix of competition - Microsoft, SAP, Salesforce, Workday etc.

- Legal and other spats with DOJ, SAP, Rimini Street etc

I have hesitated in the past because of several reasons

- Many a gossipy book has been written about Larry, so I understand why Oracle is a bit wary of authors. That is not my angle - I write about companies not personalities. I have plenty of contacts at Oracle customers, partners, alum but but without open access at Oracle, the book would be incomplete.

- My style is case study heavy. I like to interview a broad range of customers across countries and industries. I have not seen that range of customers - sure Oracle has them, but will need help there.

- As a couple of my analyst friends have (snarkily) asked - what new will you present in the book? Their point is Oracle is the bully in the industry, not well-liked - how will I be able to change that perception? 

Frankly, my job is to present the facts based on lots of research and let the reader decide on the perception. As another analyst once told me "You can make a brown paper bag sound interesting". 7 books in the last decade have given me plenty of practice.

Two decisions I have to make in the next few months:

- The first is a business decision. Based on feedback to my recent book, SAP Nation 3.0, I sense a book on Salesforce/Workday and other SaaS leaders may generate more of an audience. Even more would be one on PaaS and IaaS using Amazon, Microsoft and Google tools. 

- Secondly, I have to make sure this is not another case of "mission accomplished". In 2006, Oracle had (way) prematurely celebrated "Halfway to Fusion". I need to ensure the 1,100 modules in the cloud, as Steve claims, cover a wide range of global and vertical angles and have a reasonable number of customers in production. 

Likely make a decision before the end of the year. Readers - help me out with your thumbs up or down and why.  

Promotional Price on SAP Nation 3.0

For all the talk about digital everything, the reality is 75% of my books over the last decade have sold in print version. That's largely because I order a couple of bulk print runs for larger orders of 50 or more copies.

For SAP Nation 3.0, the print version has actually been running over 90%. Two large bulk print runs sold out pretty quickly. (The actual readership is a bit more skewed to digital because Amazon offers an Unlimited Subscription and a Lending Library for Kindle copies and they don't show as unit sales).

That is amazing considering the print list price is 3X the Kindle price. Still, to give the Kindle version some more support, I am running a half-off promotion for a week starting Sunday morning on the Amazon.com site. You can get the Kindle copy here for $4.99.

Enjoy and thanks for your support.

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 iMacs, 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 COTI 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 COTI 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.