deal architect

Accounting firms and automation of ERP practices - a conversation with Francine McKenna

Part 2 of my conversation with Francine McKenna. Part 1 focused on independence issues at accounting firms. 

The world has done over a million ERP, CRM, other enterprise software projects. With cloud implementations, it's like a second wave of projects. It still seems like there's very little automation of projects. You have many consultants who come on site, who fly a lot. It's not just the labor intensiveness, the travel expenses,the staff turnover when you have so many people, and the related quality issues haven't gone away. You'd think, as an industry, we'd be much smarter because we had such major overruns and failures around the '90s and early 2000s with ERP projects.

How automated is the audit side of the profession? Can the consulting side learn from it?

The audit side of the business has become much more automated. There's an enormous amount of effort being brought to applying technology, applying data analytics, applying all kinds of automation and, of course, the outsourcing trend has been going on for more than 20 years now in terms of looking at leveraging lower-cost locations to do work that's not necessary to be done on location at the audit.

They've been doing that for a long time. The reason is because an audit is almost always considered a commodity service, a necessary evil. Despite the firms trying to say, "How can we add value to the audit? How can we be more of a consultative presence when we're doing these audits?" in general, companies don't buy it.

They want to get the audit done. They want to get a good audit. They want to get the audit firm out of there as soon as possible and they want to keep pressuring the firms to, if not lower fees by finding efficiencies, at least not increase fees over a certain cost of living,  inflation indexed annual increase. These are typically very strict contracts; multi-year contracts; very, very low, low, low tolerances for cost increases even when the scope of the audit has to increase.

On the other hand, companies still view consulting projects as these things that are special and unique. All of the firms that implement various kinds of systems implementation and integration projects are very good at selling that concept. Nothing can ever be plain vanilla. There's always a twist and the Big 4 can always find something additional and unique. “For you, company A, we need certain types of expertise or specialization because you are special. We need something special that we can only find in one of our practices in the firm that we have to fly in"

The large, global, public accounting firms are still organized very regionally, very locally. The reward structures for revenue and profitability and the accountability, are very individualistic, very local, and very practice-focused. Each individual partner, each individual practice is very focused on maximizing the opportunity of any particular project that they might bid or propose at a particular client. That's exacerbated in consulting. It's a very different business model than the partners who propose audits who follow very strict contract and pricing formulas.

I remember at PwC, when I was there in 2005 and 2006, and internal audit co-sourcing and outsourcing was newly viewed as a consulting project. Again, it was positioned that way for a while because of the new prohibitions against doing internal audit co-sourcing and outsourcing at audit clients. We had a lot of audit partners that didn't know how to develop a pricing estimate because they had never really been required to looked at a variable estimate of level of effort and what are costs of the right resources on a unique project and how do I calculate that in terms of what is the cost of my resources. They didn't know anything about that because audit projects were very formulaic in terms of, hey, this what we always do because it is required, this is what the client will pay; this is what we're going to charge them, profitable or not.

Audit is very commoditized. They did not know how to create and price out projects on a consulting basis. That is the significant difference, and the opportunity, for consulting practices —to create those sorts of unique situations and add-ons and those expansions of scope and also sometimes budget overruns on a fixed price project because of delays, other issues with the software, changes, or client issues.

From an individual client perspective, they do ERP projects only every 20 years, right? That is unique. But as an analyst, I know these firms do them over and over again because they do a few thousand a year. My question is, given the repeatability that they have within the firms, why the resistance to automate? You would think it would make it more predictable, more manageable, the quality would be better, and so on.

Well, I think that as long as they can charge the clients and they can get their margin, there's very little motivation to try to make the projects more efficient or lower costs. Again, that takes a special kind of person within the firms, within the consulting practices who know the business of consulting versus just the technology, who understands the client and contracting issues such as fixed versus variable contracts versus just having the technical software knowledge.

Trying to make the consulting projects profitable and make them the most efficient given the resources and the cost base within the firm is a unique skill set that I'm sure all the firms have but the Big Four firms are, again, still rebuilding even now since, 2007 or so when the non-competes with the firms to whom they sold all that expertise —to Capgemini and IBM and spun off to BearingPoint —got dispersed and then came back again.

I would say probably Deloitte has that expertise because they've had it the longest and been able to build it, but the other Big 4 firms, people come and go. They just don't have that expertise in all practices and locations at all times to do those things and they're not motivated if the clients are a captive audience willing to pay whatever they tell them it's going to cost.

I spent over a decade at PwC. This was in the '80s and '90s. We had a methodology group that focused on standards. Every type of project, they would have fairly elaborate, I mean eight, ten four-inch-wide binders on how to plan the data conversion or testing phase of the project. They had a group that would develop that, keep that updated.

It sounds like that discipline has disappeared in these firms because, logically, you would take a methodology and automate it a lot easier. Once you can distill from 100 projects, 500 projects some common processes, common techniques, you could start to automate that.  

When I was at KPMG from '93 until 2001, KPMG to BearingPoint, we had that same thing. That was actually my area of focus because I was the accountant in the consulting practice whereas a lot of the people that were involved in the projects were more of the technology people. The project managers and the people who were managing the business of the projects, there were a lot of us around, mostly because you had brought people over originally from the audit firm and you brought the accountants over to start up those consulting practices.

When I got to PwC in 2005 and 2006, what had happened is, because they sold the whole consulting practice except for a few internal controls kind of people, some risk related, audit risk kind of people, they had sold everybody to IBM. None of those kinds of people were around anymore. Nobody who had done a consulting project for more than a year or more than $10 million had stayed at PwC. Maybe they had a few people doing some federal projects with the defense contractors but, in general, from a commercial perspective, they didn't exist anymore.

They've obviously, since, rebuilt those skill sets via hires and  acquisitions, by acquiring the remnants of BearingPoint, by starting to do these things and rebuilding the partnerships with the software firms. But when the focus is on selling to a captive audience at audit clients, and the focus is on implementing from a technical perspective, there's no impetus to manage the business side.

I think that, between turnover and the fact that the Big 4 have so many people in consulting who don't have the audit firm and accounting perspective, coming in from other software and systems integrators, there are too many not thinking about the primary business model of the audit firm. They don't have an experience on the audit side, and they're just not focused on that.

I think the Big 4 firms see the money rolling in and clients doing those projects every 20 years. It's a big deal for the clients and they trust the Big 4 firms, in particular, if they're also their auditor, and they pay what it costs. When things go wrong, they complain but they don't complain too much. Many, many failed projects, ERP projects, and they keep their auditor on anyway and they rehire them for something else. They feel like they have no choice.

That's a great perspective. Any final thoughts?

I think, again, the growth of the firms and the fact that there is so much more movement of people between other companies, between the firms and the software vendors – I mean when you and I were coming up, if you joined one of the Big Four, Big Six, Big Eight firms, you mostly stayed there your whole career. Now, people move constantly. They move between vendors and the firms, and so you have this sort of dilution of the culture. I think that that just consistently invites problems and concerns, in particular, compliance, the special kind of compliance issues that a public accounting firm has.

That means there has to be good leadership to be on their toes because the fundamental is that they're supposed to be auditors first and maintaining the integrity of the audit process and the integrity of financial information going out to the public. If they let that get diluted in the efforts of selling any work to anybody at any time and forgetting their DNA as an audit firm, you're going to see, basically, a deterioration of the integrity and the quality of financial information going out to the public, including the information that's coming out of these financial systems.

Yeah, one thing I would try to emphasize is, I might be a journalist now but, remember, I was doing this work. I was on the consulting side of the firms that I was at and so I have this view coming from the inside.

Unfortunately, what I don't like is what the firms have become. We're missing that quality that you and I used to see at the beginning of the financial systems revolution

On the other hand, projects have become more complex, beyond just financials. They need to bring in different architects and different skill sets.  Just the industry perspectives, the software vendors, I constantly tell them, "You need to verticalize. You need to verticalize," and they pay lip service, but the industries have become so complex now and you've got to factor all that.

Auditor Independence and ERP/CRM projects - a conversation with Francine McKenna

Francine McKenna is a prolific commentator on the accounting, audit, and corporate governance issues affecting public and pre-IPO private companies. Since 2006, McKenna has been an investigative reporter and feature writer for publications including Dow Jones MarketWatch, Forbes, American Banker, Financial Times, Chicago Booth Review, Accounting Today, and Boston Review. At MarketWatch she monitored and reported on public company accounting, fraud and financial investigations, and the often questionable financial reporting practices of pre-IPO companies. McKenna spent more than 20 years in public accounting and consulting, including for KPMG/BearingPoint in the U.S. and Latin America, and at PwC. She is also an adjunct professor of international business in the MBA program at American University’s Kogod School of Business. She speaks often at universities, conferences and other forums. You may also know her from her blog, reTheAuditors.com. She also writes an online newsletter, The Dig.

I had a chance to talk to her a bit about the history of auditor independence issues and some of the risks of using accounting firms as implementation partners on ERP and other enterprise software projects. In part 2 tomorrow we will talk about differences in automation in the audit and consulting practices of such firms.

Francine, I read your story about the SEC’s recent auditor independence enforcement against PwC and thought, "What are some of the risks that companies that use accounting firms may be exposing themselves to on their consulting projects?" Talk in terms of something around an ordinary business executive, not necessarily a CPA would be able to relate to.

The rise in ERPs and the large software vendors like SAP and Oracle mirrors the rise of the Big Four public accounting firms involvement in consulting, especially systems implementation, design and implementation consulting. When you think about when Enron happened and when Arthur Andersen collapsed, if you go back to the late nineties, you had the emergence of ERP software. They started to work with systems implementers like the Big Five auditors including Arthur Andersen and other systems integrators.

Then, unfortunately, you had Enron's bankruptcy and the collapse of Arthur Andersen. There was a push already to look at how the rest of the Big Four public accounting firms were addressing or working with issues around doing both audit and consulting, in particular systems design and implementation consulting, for the same client. The firms were already under pressure.

A lot of people think that three of the four Big Four firms sold off their consulting arms because of Enron but, actually, the pressure was on them before that. They were already being criticized for potentially compromising the integrity, objectivity of audit work because of their disproportionate focus on consulting and consulting revenues from the same clients.

When Enron occurred, there were already, I think, at least two of the four had already sold their consulting arms. EY sold to Capgemini, KPMG spun off BearingPoint, and PwC eventually sold their consulting arm to IBM. Deloitte, uniquely, never sold. It's not that they weren't planning on doing it but they actually just never got to it. I think I've written more than once that they never ended up doing it because, once the other three sold their consulting arms and Deloitte saw that even though they hadn't, no one was coming after them. There was no significant enforcement of new auditor independence rules enacted as part of the Sarbanes-Oxley Act of 2002. There were no new enforcement actions at least in terms of significant scrutiny over whether they were doing consulting, systems integration, and design implementation work in their audit clients. The actions the SEC did take related to actions prior to 2002 that were egregious violations of exiting rules.

The SEC and the new audit regulator, the PCAOB, never really aggressively implemented or enforced the new rules that were put in place to try to prevent that kind of combo audit and consulting work that was blamed for Arthur Andersen’s mistakes with Enron.

Deloitte, I think, just decided, "Hey, let's hold onto it and keep going." They ended up being able to build on that base and now pretty much dominate the consulting business in the Big Four, although PwC is a pretty close second.

When I think about the conflicts of interest inherent in being a public accounting firm, Accenture got out of that issue a long time ago. When the consulting arm of Arthur Andersen split off and became Accenture, they eliminated that worry. Accenture can do any projects for anybody they want. Certainly, Accenture can have conflicts of interest like any other professional service firm, but they eliminated the inherent conflict of interest that a public accounting firm has when you're an auditor for a large public company.  In that case you're restricted, in particular now, post the Sarbanes-Oxley Act of 2002, from doing audits and financial reporting-related systems design and implementation at an audit client. Sarbanes-Oxley is the law that came into effect in reaction to the conflicting priorities issues that people thought had occurred at Enron, WorldCom, HealthSouth, and some of the other corporate frauds that occurred during that period.

The SOX auditor independence rules prohibit an auditor from doing systems design and implementation work at an audit client. It's strictly prohibited. What's happened is that those services, that software, that activity, which are the kinds of things companies want from big consulting firms has grown, changed, and developed. Now we have lots of different modules for all of the different large ERP systems and many of them can arguably not be tied directly to financial reporting, the direct financial reporting and financial statement preparation, which is where the prohibition comes into play. In other words, the auditors are not supposed to be designing and implementing software, implementing the controls, the internal controls and the configuration, developing the training and the user instruction associated with how you use those systems if they're going to go back, turn around, and go back and supposedly independently audit the company's use of those systems.

What happened after the financial meltdown? Did that have any effect on the accounting firms? Was there any scrutiny after that?

Yeah, absolutely. Actually, the financial crisis was a boon for them. Let's go back a little bit. One of the big reasons why Deloitte and PwC dominate in this arena as opposed to KPMG and Ernst & Young is that BearingPoint, the KPMG consulting firm that spun off and went public, ended up going bankrupt in February 2009. PwC and Deloitte split that carcass. Deloitte bought the federal services portion, so all of the big public sector clients of KPMG consulting, which became BearingPoint, and PwC took all the commercial clients. Those two firms got a really big head start in the midst of the crisis, which was approximately right after PwC’s non-compete clause with IBM expired.

The crisis deepened. The crisis root cause analysis really didn't focus on the accounting firms.  The perception was the financial crisis was about this cataclysmic economic event that no one could control, it wasn't perceived initially as a sort of broad kind of a corporate fraud-related crisis. It wasn't the auditor's fault, in other words, at least at first.

Later, when it became apparent that there had been a lot of fraud related to subprime mortgage origination and securitization, mortgage and foreclosure processing, mortgage servicing, how people who went through or were threatened with foreclosure and were charged multiple fees, in error in many cases, then that sparked or was a catalyst for a whole new area of consulting called GRC, Governance Risk & Compliance. Many of the biggest banks and many other financial firms ended up on the wrong side of regulators in terms of how they had addressed those issues. In order to get out of civil and criminal liability for those issues, they signed settlements and consent decrees that said they were going to go back and fix those problems. They were going to calculate what the damage was to consumers and find a way to repay consumers for that damage.

This Big Four firms stepped into that arena in a huge way, in particular in a process called the foreclosure reviews that were ordered by the Fed and the Office of the Controller of the Currency. Three of the Big Four firms participated in the process in addition to Promontory, which was an independent consulting firm and now is part of IBM, and a couple of other smaller firms.

They did these humongous projects at the banks, which were essentially sort of hybrid audits. They went in looked at systems, looked at compliance with agreements and they tried to develop and extrapolate calculations of damages to consumers from having been inappropriately foreclosed on or inappropriately charged fees or other kinds of penalties related to mortgage servicing and processing.

Deloitte made out big, but PwC was the biggest winner in that arena. For everybody that PwC or Deloitte or EY didn't audit, they could do that foreclosure review. Deloitte, however, did a big project at JP Morgan that focused on mortgages at Bear Stearns and Washington Mutual that JP Morgan bought in a forced acquisition, essentially a bailout of those firms. Deloitte had been the auditor of Bear Stearns and Washington Mutual. PwC and Promontory did almost everyone else. Ernst & Young did a few small ones.

The only one who didn't really do much on that was KPMG. That created an enormous opportunity to do that kind of work in many other realms later. Any time a company is charged with some kind of a regulatory issue, whether it's anti-money laundering or something, like in the banks, related to their processing of some kind of consumer loans or something like the subprime loans, you have an opportunity for someone to be appointed as a monitor or as some kind of a consultant after the fact to help that organization correct the issues, often systems related issues.  The Big 4 consultant or monitor then also does the work to calculate the number used to repay customers for the damages that occurred from the violation.

The firms have cleaned up on GRC. And it’s a whole new area of software that Oracle and SAP have incorporated into the ERP systems that’s required by regulators.  The Big 4, especially Deloitte and PwC, now partner with Oracle and SAP to implement the software on behalf of clients.

What I'm seeing is that a lot hasn't changed since the time when I actually was last working in a Big 4 firm. The last firm I worked for was PwC in 2005 and 2006. At that point, I was part of an internal team looking at how well PwC was responding to the new rules under Sarbanes-Oxley, things like auditor independence and making sure that they were prepared to respond to inspections of audits under the new independent regulator the PCAOB, established by Sarbanes-Oxley.

There were things that I was concerned about then, things I looked at and said, "Hmm. You know, I don't think that some of the people in the firm understand that they can't do these things anymore." The ability of the large global public accounting firms to control partners, to monitor partners' activities, and to actually have good governance to make sure that there's a structure that identifies and addresses when somebody wants to go rogue or do something that is against the rules is always, always a challenge. The bigger they grow, the harder it is, especially because they're global firms.

Tell us your opinion about the recent SEC enforcement action against PwC

I looked at the recent SEC enforcement action against PwC that covered almost a five-year period from 2013 to 2016 and it said there was one person responsible for implementing governance risk and compliance systems from Oracle in multiple audit clients. PwC, as a firm was charged with violating the auditor independence rules in 15 different clients 19 different times during that short period and seemingly attributable to one partner. The SEC said one partner was the cause of these violations.

That one partner was a hybrid IT audit partner, who participated in the audits with as a specialist, with expertise around IT general controls and other IT controls. He was also a partner who was responsible for identifying opportunities for advisory or consulting projects related to Oracle ERP products.

That sort of hybridization of partners, with a dual incentive structure, is inevitably going to lead to potential conflicts and will present a constant challenge to try to interpret the rules, and for somebody to actually be willing to say, "No, you can't do that." When you say, "No, you can't do that," you're forcing the partner to turn down revenue. I saw that that was going to be a challenge for some partners to comply back in 2006, and it seems like PwC has not implemented any better rules or governance structures in all this time. PwC had one partner running around doing this over and over and over again and obviously without any real, effective constraints.

Given that, now talk about two audiences - the clients and the software vendors. When a company is implementing packaged software, it could be ERP, CRM, whatever. They look at consulting firms and they end up hiring a Deloitte or a PwC, an accounting firm. Are they exposing themselves to some risks?

They're exposing themselves to multiple risks, and not just the risk that a regulator is going to decide to crack down on this and they're going to be left without a consultant or having to change consultants suddenly, mid-project. When the rules were implemented in 2002, we saw companies come down into two different camps, and they're kind of distinct. One is the company that loves, loves, loves their auditor, that's been with them for 99 years and has built their whole professional services relationship around that firm. Usually, it's obviously one of the Big Four and if it's one of the Big Two, PwC or Deloitte, it’s a special problem because of their ubiquity in consulting.

Companies still get full service from that firm. They look for every opportunity to use that firm whenever possible. They know that there are some things that are prohibited. But if the firm and someone else within the company, in their board of directors audit committee, can find a rationalization or can find a way to interpret the rules such that that audit firm can do the work, that company will always choose the audit firm to do the work.

On the other hand, you have companies that only tolerate low risk. They're very much oriented around following the rules and not buying anything beyond the audit. It's so obvious, it's so stark, the comparison between the two kinds of public companies.

These companies have very, very, very strict rules that the audit firm can do nothing but the plain vanilla audit. But then those companies are faced with, whenever they want to do something else, any kind of systems implementation, any kind of upgrade to an existing system, any kind of evaluation of internal controls, any kind of enhancement of any kind of operational system, they put out a tender, entertaining bids and reviewing RFP responses, doing the whole vendor demo thing, and being forced to select from another firm. Then obviously, they have to work with another large firm on something financial or accounting related, negotiate another big professional services contract and vendor relationship and manage all the complexity that entails.

They've signed up for the fact that they're going to have to manage multiple, significant professional services vendor relationships and they do that because they want to keep everything nice and clean and legal. They don't want any trouble with the SEC, and maybe they don't want to let any one vendor get too much power over them. There are advantages and disadvantages to both approaches.

In the Big 4 firms, obviously, individual partners are rewarded for getting what we used to say way back in the '90s at KPMG, “A bigger portion of the client wallet.” That's not changed. Even though it might be frowned upon for the audit partner or anybody else to get a bigger piece of the client wallet for the firm by selling more consulting or tax work, in the end, the Big 4 firms have become these very large organizations with gray lines between the various practices.

From a customer's perspective, though, there's no legal risk. The risk is what?

There is somewhat of a legal risk. For example, if the audit committee and the company executives are not aware of the auditor independence rules, do not fully evaluate those rules when contemplating opportunities for the vendor to do certain kinds of work, and they choose the auditor despite the fact that that work will violate the auditor independence rules, the SEC can sanction the company or sanction its officers or its audit committee. That happens rarely – rarely, rarely.

In the case that I wrote about with PwC, what happened was it all came down on PwC and on that partner in particular. They didn't even name the names of the companies that were subject to these 15 engagements and 19 different instances. They don't want to embarrass the companies because they want to make the assumption that it's the auditor's responsibility to fully inform the client and, in particular, as cited in the PwC case, if the auditor or the audit partner fudge the information in the scope of services, in the engagement letters in order to kind of get in under the wire or fool somebody, then the SEC really holds the auditor and the audit firm responsible.

What happens then? You have to look at the company, you have to look at its audit committee, and you have to look at sort of the company executive who is the purchasing executive or the one that's responsible for hiring, evaluating the vendor, and say, "How could they not know? They know what they want to have done and they are allowing for a contract or scope of services to not accurately state the work that's going to be done." What's going to happen then if there's a dispute?

In order to get in under the wire and be able to use the auditor as a vendor, the SEC enforcement action against PwC implied that there were executives at some of these companies that knew very well that they were fudging the information in the contracts, scope of services, and invoicing. That presents a very significant risk to the company if they do that and then there's a dispute.

Certainly, if the SEC wanted to come back to the company or come back to the audit committee, they could if they thought that there was some kind of collusion in order to create an opportunity, let's say, for a particular official to get some kind of kickback or if there was some other kind of illegality involved. You could have a situation where an official of a company or of a board of directors allowed for this kind of a situation to occur in return for some kind of an illegal payment.

How about software vendors? Do they have any liability given these situations? You look at Salesforce or Infor or whoever has these as partners. Do they have any risks?

As you know, most often when these types of big projects occur, the Big Four firm, the consulting firm, whether it's Accenture or whether it's one of the public accounting firms, they take the lead as the prime contractor. They might have subcontractors and the software vendor is the subcontractor. To that extent, they may be sort of "see no evil; hear no evil" in that situation. It may be that, as a subcontractor, they're doing their part and they're not responsible for the other piece.

What was stated in this SEC enforcement action against PwC is that there was an ongoing relationship between this PwC partner and the Oracle rep. There was probably an ongoing multiple engagement relationship and the vendor provides all kinds of other monetary and nonmonetary benefits to PwC as a strategic partner, an implementation partner, and also to this specific partner potentially on a personal and a professional level. In the end, the SEC said the partner actually provided nonpublic material, nonpublic information to the software vendor about at least one client.

That's public knowledge?

Yes, that's in the SEC enforcement action. I'm assuming that if this partner felt compelled to provide nonpublic material, nonpublic financial information to the software vendor, it was probably so that that software vendor could evaluate pricing or creditworthiness of particular clients. That to me is not very kosher.

What other risks does a software vendor have when they evaluate an accounting firm as a partner?

Well, certainly, if the accounting firm is fudging the information in the scope of services or in the contract in order to get it under the auditor independence wire and they're a subcontractor, if for some reason someone in the company or someone at a regulator determines that that's not allowed, prohibited, and tells them they have to stop the project, well, the software vendor is going to have a break in the project. They're going to have a delay. They might have the contract canceled and have to start all over again with a different integrator or, potentially, have some kind of a breach of contract with regard to the software licensing because the whole contract is canceled if the system integrator has breached some kind of terms.

That's hypothetical, right?

Right.

You don't know of any that have gone to that extent.

Well, in the case of one of the clients cited in the SEC enforcement action, PwC bid on two different projects at one client. I identified that client as Logitech. In that case, PwC had to resign as the auditor because of these independence issues.

Now, in some sense, that might actually be a blessing in disguise because, once you resign as auditor, then you're free to do the consulting work. But the question is, did that cause a stoppage of the project or were the projects delayed because these issues are being fleshed through and potentially there's a lot of back and forth and issues around whether or not the contract is going to go forward or whether or not the contract is going to be completed.

What else should buyers of consulting projects, implementation projects be aware of when they look at accounting firms?

Well, I think the biggest lesson from the PwC enforcement action was that audit committees either are still not aware of these prohibitions against the auditors doing certain kinds of work or they're willfully kind of trying to deflect the understanding or appreciation for those rules to other people. In other words, executives and board members, including audit committee members, claim plausible deniability or delegate the responsibility for evaluating auditor independence.  Sometimes they delegate it to the auditor itself.

When you ask the audit firm itself to evaluate whether it's independent in providing services, you're basically giving the fox access to the henhouse. The vendor is not the one who is supposed to be evaluating whether or not providing those services presents an auditor independence risk to the company.

I would say the biggest lesson was that audit committees, in particular, and executives who are hiring the firms for these types of projects really need to get better acquainted and take more seriously these prohibitions. They are on the books. Whether or not the SEC or the audit regulator, the PCAOB enforce them at any point in time doesn't mean that they can't come back later and doesn't mean that a sudden spike in enforcement action or scrutiny is not going to disrupt the project for the company as a whole and cause a lot of money and a lot of delays on perhaps a mission-critical project.

I'm sure some people will say, “She is a little too alarmist.” I think it's healthy – it's important to look at a segment of the market from different eyes.

Tomorrow, we will talk about how the audit and consulting arms of the accounting firms have evolved differently when it comes to automation.

The "fog" of enterprise software

So many data points cannot be wrong, can they? Larry Ellison talks about SAP's customers moving away during the Oracle earnings call. IFS runs a billboard ad suggesting the same. I get whispers from several other competitors suggesting SAP is in trouble. I see countless retweets of an article which says the new SAP leadership faces big challenges in 2020. I hear many analysts talk about the activist investor, Elliott. So many of the executives I had in my book SAP Nation 3.0 released just a few months ago are no longer there.

Except that when I talk to SAP customers I hear concerns - but very different ones. Those around integration across SAP products. Those around SI and other costs when they consider migrating to S/4HANA. How they have a tough time developing an ROI for S/4. How few are considering the public cloud route to S/4. But I don't hear of them migrating to a different vendor. Five years ago, in volume 1 of SAP Nation, I showcased customers who were ring fencing SAP with other solutions, moving to two -tier ERP, to third party maintenance. When I wrote volume 3 that trend had slowed down and if anything, SAP had reversed some of those defections.

What to believe?

I watch Dreamforce and have to wonder if I am watching a stream of the Democratic National Convention. So many caucuses talking about ethnic, ethical and equality issues. Protests in and around Moscone. I read CEO Marc Benioff's new book, Trailblazer and I see he invokes Steve Jobs and the launch of Apple's App Store. He forgets to mention his AppExchange was born before and still does not have even 10%  of the App Store revenue. I am glad I also got to see sessions which go into Salesforce's efforts in various verticals. To me, they should have been Day 1, center stage.

What to believe where the company's priorities are?

I listen to Microsoft pitches on their retail vertical and parse Satya Nadella's keynote at NRF, the annual retail show. Lots of good capabilities, particularly in the CRM and infrastructure area but I notice there is very little on supply chain and logistics. The hottest topics in retail these days, many driven by Amazon, are around last mile coverage, robotic warehouses and reverse logistics.

What to believe about the company's vertical strategy?

In the last few months I have written blog posts detailing most of these points. But those are individual notes in an orchestra. In 2007, I wrote a post which talked about the "thousand points of influence". Now, there are x times more - many often rumor and conjecture based. It forces you to keep going back to your True North. To me, my "fog lights" are conversations with customers and distilling their technology strategies and investment trajectories. Then use that as a guide to measure vendors on their functionality, their architecture, their economics and their ecosystems. Because customers make really long term decisions when it comes to their enterprise software.    

Interestingly, in the auto world, fog lights are gradually disappearing as a standard feature. In a world of LIDAR and automatic braking, that trend will continue. In the enterprise software world we need to develop similar capabilities to navigate our fog. Till we do, drive carefully, and pray that others on the road also behave responsibly.

Microsoft Retail vertical - it's like navigating an unfamiliar retail store

Satya Nadella, CEO of Microsoft kicked off NRF 2020 Vision, the annual retail industry mega event in New York yesterday.

He had some great sound bites "There’s death, there’s taxes and there’s ever-increasing online advertising spend. There’s not much we can do about the first two, but — depending on the decisions we make now — there is something we can do about the third." I took that to mean - hey, don't just blow all your advertising dollars and those of the brands you represent with Google, Facebook and increasingly Amazon and with your agencies. We can help you do better.

And “The meme of the twenties will be retailers moving to their own tech intensity. It’s not about taking away the art of retail. It’s about building your tech intensity. You can’t be cool by association with a tech friend — you have to be cool on your own.” I took that as we can do better than the AWS or Google or Alibaba cloud infrastructure.

Earlier, I had listened to two Microsoft analyst briefings in prep for NRF. There it was more about products like Dynamics 365 Teams (with an Ikea use case) and Commerce, Azure Synapse Analytics (with a Walgreens Boots Alliance use case)  PromoteIQ Commerce Marketing (with a Home Depot use case). That was more about traditional ERP and CRM competitors like Salesforce, Workday, Infor, SAP and Oracle. Sound bites were terms like "Headless Commerce."

If I could have taken a tour of their booth at NRF or at their showcase store nearby on 5th Avenue, I am pretty sure I could have learned more about their mobile and mixed reality innovations they showcase in this physical store flow graph.

What I had hoped to also hear about was innovations around cashierless stores (Microsoft does have a connected store concept but it is still in Private Preview). Or same-day delivery (they talked about Attabotics which provides a robotic warehousing and fulfillment service for perfume orders at Nordstrom. It runs on the Azure cloud. They did not mention if they have any role in Walmart's Alphabot deployment - which is grocery, fresh item focused). Similarly not much about alternatives to Fulfillment by Amazon and its highly automated distribution centers (that competitors like Shopify, 3PLs and robotic competitors are starting to provide alternatives to).  Or role of multi-story warehouses in last mile delivery (that Prologis and others are pioneering) or about reverse logistics which are always a hot topic this time of the year as customers return holiday purchases.

You get my drift. Lots and lots of capabilities but a bit of what logistics folks call "chaotic storage", designed for machines not humans to navigate.

Knowing Microsoft and its reseller network, I know they can pull piece parts together and create solutions for any challenge you throw at them. It's a bit like going to a retail store you are unfamiliar with. You have to ask which aisle an item is at. If it's not there an associate can look it up on her mobile device. Or they can special order it for you from their online catalog or somewhere in their supply chain.

I will take that over vendors who spray paint their horizontal products with a couple of vertical features. Every industry has grown massively complex over the last decade or so. Even those around death and taxes:)

Innovation Season

My innovation blog, New Florence will celebrate its 15th birthday this March. It will have clocked over 6,500 posts. I recently looked at various patterns on that blog. Innovation stories and news ebb and flow from different industries and geographies. One particular search tried to identify the most active phase of the year I get to curate from. I would have sworn it would have been the enterprise conference season when I attend a number of events.

I was wrong - it was actually a "quarter" from the end of November through early March. Here's some of what shows up on a regular basis, year after year.

Holiday festivities

Thanksgiving, Christmas, New Year's and the Chinese New Year always allow opportunities to highlight spectacular decorations, fireworks and meals. Black Friday, holiday deliveries and returns allow for showcasing advances in ecommerce, same day delivery and reverse logistics.

Winter travel

The growing global passenger traffic and weather challenges always allow for showcasing how airports, airlines, traffic control and meteorologists are perfecting their craft.

Industry events

Plenty of innovation is showcased at CES, NRF (Retail) and HIMSS (Healthcare) events. In the past, the Detroit Auto Show in January would also provide fodder.

Sporting/entertainment events

The NFL SuperBowl commercials lineup usually brings out the best from Madison Avenue. The game itself allows for reviewing stadium, on-field and broadcasting technologies. Daytona 500 showcases auto and broadcast innovations. The Oscars usually allow for a review of how STEM is helping Hollywood innovate.  Fashion weeks in Paris, Milan and elsewhere, the Westminster Kennel Dog show in New York often provide other ideas. Every four years, the Winter Olympics provide inspiration.

End of year

There are usually plenty of "best of year" and "forecast for next year" stories to select from.

Other inspirations

The US President's State of the Union address, Bill and Melinda Gates annual foundation letter, Warren Buffett's annual Berkshire letter, and the WEF annual meeting in Davos, Switzerland usually have nuggets of progress in healthcare, government and elsewhere.

It's not to say the rest of the year does not provide innovation inspiration - I average a post a day, come rain or shine, but for this "quarter" from late November through early March, I could easily have 4-5 posts a day.

I will share thoughts on other patterns I noticed across the 6,500 posts over the course of the next few months.

Ad Maiora Natus Sum: We are born to aim for greater things

Happy New Year! Welcome back! Hope you had a relaxing break. I had plenty of time to reflect on the last decade. And to introspect on what we should do in the coming decade. Let me share with readers some of my reflection, starting with the title of this post.

I am not Catholic, but did study at a school managed by the Salesians of Don Bosco. My wife was born Catholic, but in our travels she seeks out Buddhist and Hindu temples.  She does like to go to cathedrals which offer masses in Latin, which remind her of her childhood in Ireland. As a result, I am exposed to more Latin words than you would think. Recently, I saw the expression Ad Maiora Natus Sum - and I recognized that as the motto of my school. And I had a bit of a flashback. Without consciously recognizing it, it hit me that the motto has guided most of my life.  I have gravitated towards topics of innovation, Six Sigma, progress. That is a common theme in most of my books. 6,500 posts on New Florence reflect that. My advice to clients always pushes for continuous improvement using technology.   

So, in all honesty, I am disappointed at the missed opportunities in the last decade in the two big markets I write and advise about. Over a million on-prem customers have not moved to the cloud, even when their on-prem systems have become compliance and security risks and recruiting liabilities. And even staying on-prem, they could be running them much more efficiently and have not explored third party maintenance, cloud infrastructure, multi-tenancy in application management etc.  Cloud functionality barely covers 20% of the grid of applications by geography and industry. SIs and outsourcers lost the data center market, they missed out on contract manufacturing, they have barely automated their own labor intensive operations - see my notes on enterprise software and outsourcing for more details. 

I had to honestly ask - how much blame do analysts deserve for not screaming louder about these missed opportunities? My initial introspection was not tough enough. In fact, I felt proud our research consistently surfaced opportunities years ahead of others. I have written about the contract manufacturing opportunities, new data center architectures, about automation in every sector in several books. I have been screaming about vertical opportunities for so long that my colleagues crack jokes about it. What more could I have done?

I heard someone recently say we have moved to "slash titles" and "portfolio jobs". Deal Architect has been doing that for 15+ years - we have an adviser/analyst/author model. We have been publishing plenty but perhaps we have not been advising enough about how to take advantage of them.

That was one aha from my introspection. Increase the advisory component of our offerings. Help vendors increase their TAM, their competitive intelligence, help customers modernize, get more value from their technology investment.

Do vendors need more advice?  I don't see it as traditional advice, more guidance about white spaces and efficiencies, but many are afraid to seek advice from analysts. Some see that as a sign of weakness. Others are not prepared to evolve business models. Most CRM vendors missed out on the massive digital advertising market that Google, Facebook, now Amazon have grown to dominate. It did not align with their software licensing models.  Many others have the "help me sell what I have" mindset. When I was a young PwC consultant, a partner told me "a good salesperson sells what is in his bag, not keeps asking for more product". I was not sure about that but was too young to argue. Now I know he was wrong. A good salesperson listens to the market and goes back to R&D/product group and asks for changes and additions.

Will customers accept advice? Honestly, many are happy with traditional services we provide, and have too many conflicting priorities to consider new ones. Others prefer to buy advisory services only from larger "brand name" firms. Still others want it packaged in bite size units.

I have told a few colleagues I started my career when building technology was far more common than buying it. Back then, it was not much fun championing the Buy side of the Buy v Build equation. It has been a lot of fun since. I am afraid, however, I may end my career with the market custom building, insourcing much more.

Hey, pendulums swing all the time and I have no intention of retiring any time soon, but I feel loyal to the Buy side and want to keep helping that "team"

We will keep doing and publishing plenty of research which helps us unearth market opportunities early. But we will also add more advisory services - that will mean new partnerships, new packages of services. I expect I will be reaching out to many of you for input.

Happy New Decade! Let's all aim for Ad Maiora.

2020s - Embracing Complexity in Enterprise Tech

I wrote couple of weeks ago about missed opportunities in the 2010s in enterprise software and in outsourcing. That backlog did not disappear - it has created even more opportunity for this decade. However, as I caught up on my reading, podcast listening and keynote watching over the holiday break, I have become even more convinced that enterprise vendors and customers will need to make sure the 2020s are very different. In this post, I will explain how and why. Next week, I will discuss how we at Deal Architect hope to help the industry aim much higher.

A) Inspiration from FritoLay/PepsiCo

I had a chance to listen to Michael Lindsey, SVP, Chief Transformation Officer, and Strategy Officer at FritoLay present at Dreamforce. His portion starts around 29:00 in this video 

Here are some of his comments on how they have "embraced complexity" at Frito and its parent, PepsiCo

"Consumer expectations are just exploding in complexity....it used to be the case that we'd have five or six of our classic billion-dollar brands and that would be 90%-ish of the consumption...Lays, Ruffles, Cheetos, Fritos, Doritos, the ones that everybody knows and loves and it'd be in a relatively small number of flavors. Used to be the classic orange Cheetos. But now, we have flaming hot. Organic Cheetos. White cheddar Cheetos. White cheddar puff Cheetos. White cheddar crunchy Cheetos.

And now we have banana chips...apple chips... seaweed flavored snacks. The world is exploding around us in terms of what consumers want as we get more cross-cultural pollination. That variety introduces just an immense amount of complexity into our system.

One of the things that's unique about FritoLay besides the breadth of our portfolio is how big an end-to-end system we run. We have more trucks and a larger fleet than UPS, than FedEx, and the reason we do that is because we can control the entire process at FritoLay from the seed that's used for the potato to where it's manufactured to the distribution systems to the trucks that deliver to the store. When you go into one of our favorite customers on a Saturday and you see somebody working the shelf, that's a Frito Lay employee who is making that shelf look perfect for us.

Retail is absolutely still our dominant channel. But even within retail our large customers have become omnichannel. It's not that the store will go away, but the way that the customers, their shoppers interact with the store is shifting over time as well where people are pursuing new models, whether it's click and collect models, whether it's order and have it delivered from the store to their home. We have to be able to both supply that from a product supply standpoint to keep it always in stock, always on the shelf with perfect availability. We have to continue to invest and help our retailer customers understand their shoppers and their consumers in-depth in a way that perhaps they can't within our specific category.

Across the world about a billion times per day somebody is eating or drinking one of PepsiCo products. We have an agricultural system that touches 60 countries across the world, so we recognize that we're a big part of the overall food and beverage ecosystem and that we have to do our part to make sure that we can drive sustainability on water, on agriculture, on plastics, etc.

Our new CEO and chairman, Ramon Laguarta, developed this mantra on winning with purpose, which is that we're going to win, but we're going to embed purpose in everything we do all the way down to the way that brand is executed on the shelf to make sure that the packaging, the way that we advertise, the way that we market, the way that we develop our products has purpose and sustainability threaded throughout."

And then was to me his money quote that enterprise vendors need to factor. Too many of them defined their customer needs, their TAM and competitive landscape too narrowly in the last decade:

"(It's our) fundamental cultural idea to embrace complexity. That's one of the challenges, one of the mantras that we've been using internally because, as the world gets more complex, it's natural to then try to work your way through and manage through the complexity, trim out the long tail of SKUs. But if you want to capture every last moment of growth, every potential consumer or shopper out there, you have to just embrace that complexity; accept that the world is going to have a lot more products, a lot more channels, and you have to find a way to use technology and data to manage that and manage that effectively to delight your consumers and your shoppers."

In contrast, I next read a BusinessWeek article about Larry Ellison and Oracle and I was dismayed how "un-complex" they made Oracle applications sound.  "Ellison said doing well in the database market and with financial applications is enough for him. “If we’re successful in those two markets, it should be enough to make a living,” he said during a September call with analysts." I went back and checked the call transcript and Larry actually said "ERP back-office in the cloud, Autonomous Database in the cloud, we're successful in those two markets, should be enough to make a living." So, his scope was a bit more expansive but my reaction was "The Number 2 apps vendor in the world (at the start of 2010 but no longer so at the end of 2020 as it missed out on digital advertising, IoT, various verticals) is content just selling back office apps?"

Not just picking on Oracle. Every vendor played "small ball" in the last decade.

B) Inspiration from Apple

I was re-reading Marc Benioff's new book, 'Trailblazer" (I have a longer review here). He mentions how he played a role in the launch of Apple's AppStore 

"For me, it was exciting and humbling. And Steve (Jobs) had unwittingly given me an incredible opportunity to repay him for the prescient advice he’d given me five years earlier. After the presentation, I pulled him aside and told him we owned the domain and trademark for “App Store” and that we would be happy and honored to sign over the rights to him for free. By 2019, (Salesforce's platform) AppExchange had more than five thousand apps available for purchase, ranging from sales engagement and project management tools to collaboration aids. And nearly 90 percent of Salesforce customers were using them."

Marc rightly deserves credit but he neglects to benchmark his store's revenues against that of Apple's. His store has been in existence longer and by my estimate generated less than $3 billion in revenue in 2019 compared to nearly $40 billion at the Apple store. That means significantly higher royalties for store partners and much more choice for customers. Still, Salesforce has done much better than SAP's many stores - around mobile, HANA, cloud platform etc - and those of other enterprise vendors. The industry needs to embrace complexity to make their platforms and partner programs much more attractive to ISVs.

C) Inspiration from Tesla

While there is a big opportunity to grow bigger ISV communities, in reverse there is a significant opportunity to shrink the SI/outsourcing burden around enterprise apps.

I was fascinated by the visceral, loud reaction to Elon Musk's Tesla Cybertruck concept. As this designer, however, points out "Despite the radical aesthetics, the Tesla Cybertruck is a shining example of function-over-form, and it is perfectly designed."

Can you imagine if SAP similarly looked at function-over-form in its services ecosystem as it tries to migrate its customers from ECC to S/4HANA?

It could make consultant certification much more vigorous, it could push for more automation, shared services and virtual delivery in its services partner. Even better if its service partners did things differently this time. They have implemented millions of ERP projects in the last couple of decades. They have enough data to train machines to automate configurations, to develop conversion and testing routines, to develop training routines differently. They can use multi-tenancy concepts. As an industry we can and should make these projects predictable and much more affordable. Yes doing so will bring complexity, but we need to embrace that complexity.

D) Inspiration from Andreessen Horowitz

I was watching this video from Frank Chen, partner at Andreessen Horowitz look ahead to what life may look like in 2030 - he uses his daughter for scenarios around diet, exercise, virtual work etc. 

Frank may be sticking his neck out projecting a decade ahead but it shows how his fund is thinking.

I was hoping Infor's new management would have similarly showcased scenarios around what the retail store might look like in 2030, or even 2025. Or the hospital emergency room. Or the shop floor. Or last mile delivery. And how they are helping make those scenarios a reality. Verticalization is Infor's path to differentiation - has been for a decade. Of course, it would be much more complex, but in a recent presentation, they barely touched on what it is planning to innovate around industry applications.  

Not just picking on Infor, most vendors have invested in brilliant technical architects but missed out on process visionaries who would have allowed them to think very differently like, for example, Amazon has with its "chaotic storage" warehouses. 

I could go on - so many other opportunities for enterprise tech vendors in terms of new function points, globalization, multi-cloud infrastructure, continuous improvement in delivery and other areas.

It's not just vendors - enterprise customers have to embrace complexity as well. Many are content to stick with legacy apps which are compliance and security risks, and increasingly recruiting liabilities and unlikely to support machine learning and other innovations. They also keep waiting for the elusive single-source, wall to wall solution from a single vendor when they can already re-imagine every business process by integrating a set of modern tools.

And so do us enterprise analysts. Next week, I will describe how we hope to help buyers and vendors do things very differently this decade. To help them become more comfortable embracing complexity, we ourselves have to become so comfortable ourselves. 

The Infor reboot

I had a chance to listen to Kevin Samuelson, the new CEO at Infor, along with his executives on what he calls Phase 3 of Infor's evolution, focused now on Customer Centricity and Execution.  Phase 1 was Build and Acquire. Phase 2 was SaaS transformation.

To me, this is more of a continuing reboot of Phase 2. I had been very excited at the start of Phase 2 and then saw Infor under-deliver over the next few years. 

As I have written:

"Infor had once been called an “ERP graveyard,” as it had accumulated a wide portfolio of ERP brands including Baan, Lawson, MAPICS, SSA Global Technologies and Systems Union. Those in turn had made acquisitions of their own (such as Lawson buying Intentia). Since they arrived in late 2010, Infor CEO Charles Phillips and his team have been reinvigorating the company. Phillips had called Infor “the world’s largest start- up.” The differentiation Infor promised was CloudSuite for 15 verticals (such as automotive, fashion, and food and beverage) and three horizontals (including corporate and human capital management). Since then, in spite of sizable investments from Koch and others, Infor has not delivered on its promise of vertical functionality."

Without the industry-specific operational functionality, Infor was forced to compete more on horizontal finance, hcm, crm and analytical functionality and its investments in UX with an in-house design agency against Workday, Salesforce and other cloud vendors. In spite of initiatives like UpgradeX, Infor struggled to migrate its on-premise customer base to the cloud without the vertical functionality.

Infor had benefited from the emergence of Infrastructure-as-a-Service. Previous CEO Charles Phillips used to say "Friends don't let friends build data centers". They took some of the capital that would have put towards the infrastructure and applied it into application functionality. Except that they did not architect the product to be multi-tenant like many competing cloud products. I have seen several of my analyst friends heatedly dissect Infor's architecture. Infor has been gradually rolling out specific products in multi-tenancy.

Rod Johnson, Head of Americas touched on their go to market, implementation accelerators and value points. The goal is to encourage legacy customer moves to the cloud. That to me, again, is part of the reboot if customers on such a vast array of products can be consolidated to a smaller, newer portfolio of products.

Kevin and team are modest in what they are promising this time. They are concentrating on 4 core ERP engines - LN for discrete manufacturing, M3 for process manufacturing and distribution, S3 for service industries and back office, and CSI for midmarket. Unbelievably, the competition there has not evolved much, so even after a decade Infor believes it can still do well with these engines. And they are breathing new life into what they call Edge Applications like EAM and CPQ. Especially in areas like EAM, Infor has never had much competition.

What's negative from their point of view is that competitors are starting to focus on verticals. At Dreamforce last month, I saw 7 very well put together industry sessions each with big brand customers on stage (I wrote about some of them here). Workday has been doing well in healthcare and the government sector and with its Prism Analytics and increasingly with its Cloud Platform partners will do even better. Plex has moved into MES for the auto industry. Plenty of startups and SIs are targeting other verticals.

However, we are entering a new decade. Every one of its competitors has had recent changes at the top and Infor similarly deserves a fresh look. In that spirit, I am looking forward to Phase 3 of their evolution.

Okay, enough of the silliness about SAP

I am stealing words about silliness from my friend, Bob Evans as he recounts here Larry Ellison's comments about competitors during the recent Oracle earnings call.

Larry was particularly vocal about SAP's vulnerability. My response to SAP competitors (many whisper more than scream like Oracle does), when they say that is: "Tell me exactly why?"

There are over a million SAP, Oracle, Infor, IFS, Unit4, Epic, Cerner and other legacy application customers. They are all "vulnerable". Have been for a decade.  None of the vendors has shown much momentum moving their on-premise customers to next- gen. The cloud competition has not delivered knockout punches. They are narrow in reach - don't cover operational areas. Besides, the cost of migrating to a completely new platform, with little automation, with the need to retrain users on the new UX and IT on the new architecture is daunting. Show me how you are making it compelling to move SAP customers. If anything I see a bit of the reverse. I see SAP's broad range of applications and customers looking at application portfolio rationalization. They are looking to reverse a decade of "ring fencing" their ERP with best of breed cloud applications.

Also, I see SAP with plenty of assets to turn the tables against the competition. It has a dominant Asia-Pac presence. I wrote after an event in Bangkok "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." With all the musical chairs in the executive suite at many CRM vendors in the last few weeks I get the sense that market is poised for disruption. SAP's CX portfolio, especially the Commerce piece, and with new leadership under Bob Stutz, will get another shot. The SAP Analytics Cloud keeps growing in reach and maturity as I wrote here. The recent "Microsoft Embrace" opens up support of the vast Microsoft channel, and also simplifies the hyperscaler choice for many undecided customers (while keeping open support for customer loads on AWS, Google and Alibaba clouds).

Yes, SAP has had plenty of executive turnover this year. However, as I recently told a journalist "Not just Jen and Christian, the exciting thing to me is how young SAP management is now, yet how technologically and globally sophisticated." Show me a vendor which has not had changes at the top in the last year or so - in different ways, Oracle, Infor, ServiceNow, Salesforce, Workday, Unit4 all have. The turnover in their customer tech teams and budgets is even more dramatic. And that has opened the door for many new competitors

I wrote recently "In the last decade, we have seen Google and Facebook run away with digital advertising spend. Amazon has commoditized order taking and fulfillment functionality by offering it as a service to millions of SMEs. Foxconn, Flex and design shops have taken over contract manufacturing as products of every stripe get smarter with embedded technology, GE, ABB, Rockwell and others are getting the lion's share of IoT generated revenues. None of the major enterprise application vendors have seen much revenue from any of these markets. And in industries like financial services, many customers are back to custom building and even becoming vendors in their own right."

Tongue-in-cheek, I had sent a copy of SAP Nation 3.0 to the editors with the sub-title of "In the land of the blind, the one eyed man is king". Looking at the last few years, I had been taken aback at how little its direct competition had grown and taken advantage of SAP's challenges.

So here's my question: if SAP is vulnerable, what would you call its current crop of competitors?

Decade-end review: Not your Dad's outsourcing market

Over the last month, as we get ready to welcome the 20s, I have been reviewing blog posts and books I have written and the notes from advisory work helping clients pick vendors, negotiate contracts, review vendor performance from the last decade.

I wrote about enterprise software last week, here is one on the services/outsourcing market.

It is the enduring power of brands, but I chuckle when I hear executives still talk about the "Big 6" - the accounting firms from the 1990s. I started my career at one, and have seen them and their competition transform dramatically. Or that placement offices at most business schools still mostly target a handful of consulting firms for their MBA students. Today's outsourcing market is remarkably fragmented - just in the Business Process Outsourcing (BPO) category, the analyst firm, Everest Group estimates there are over 200 firms with annual revenues in excess of $ 50 million.   

The previous decade had seen the fragmentation caused by the maturing of Indian and other global talent pools. By the end of that decade, however, I had written "And looked at from the lens of new price points in SaaS and cloud computing models, the (Indian) vendors I coined as SWITCH have become the new expensive "Big 6" "

The stage was set for this decade which saw even more dramatic changes. First, lets look at how service categories morphed, then we will look at macro trends that affected the outsourcing market.

IaaS

I wrote in 2012 about the evolution in data centers

"As a result in my last two books, I have profiled the Microsoft Azure data center infrastructure and more recently the Facebook Prineville data center and Google’s massive wind and other alternate fuel commitments for its data center and other operations. They are the modern data center innovators and when you talk to them they don’t talk admiringly about IBM or HP. They talk about Amazon’s data center network, Apple’s iCloud, the Switch NAP – interestingly, mostly about other consumer tech companies."

Well, it dramatically affected infrastructure outsourcing. We don't hear much about EDS or Sun or telcos.  Its about AWS, Azure, Google and Alibaba. More shock waves are likely as customers settle on hybrid clouds and start to roll out 5G.

Packaged applications

As I wrote in SAP Nation (2014), services around SAP, Oracle, Infor and other enterprise applications had become a massive revenue stream for most outsourcers. SaaS vendors like Salesforce, Workday and NetSuite which bundled upgrades, hosting and application management into their contracts threatened to dent this market. Deloitte, Wipro and others managed to do well even with these vendors. Over a million SAP and other customers are still on the previous on-premise products, and the AMS opportunity persists there. Third party maintenance vendors like Rimini are starting to expand their focus and also get into the legacy AMS market.  As products like S/4HANA get largely implemented on-premise or in private cloud mode, the outsourcing opportunities appear to have increased. The pushback is coming more from buyers who realize that project failure rates in the last wave of projects were too high for the large fees and consultant travel that they paid for.

"Glo-ver"

Cloud application vendors did not globalize or verticalize sufficiently during the decade - it was what I called the "Glo-ver" miss for software companies. This has opened up major opportunities for firms like Accenture, IBM, DXC, TCS and Cognizant which have impressive industry practices. And for most large outsourcers to help customers with two or three tier globalization strategies. This showed in opportunities for firms to market their own IP, help software vendors (especially startups) develop contemporary functionality and to help customers custom build industry or geography specific operational functionality.  

BPO

Call center, payroll and other back office services continued to be the bread and butter in this category, and India and Philippines continued to lead in global delivery locations. While many firms tried to bring automation to low level tasks in these processes, most continued to take over legacy processes around expensive applications. Their value proposition would have been far more compelling if they could have also moved clients to "lighter" platforms.  

Digital Advertising

While every outsourcing firm chased after CRM projects, many of them missed out on the mega trend - digital advertising was outpacing TV, print, billboard and other traditional advertising. Google, Facebook, and more recently Amazon have been the big winners. Accenture Interactive, through a series of acquisitions, has became the biggest digital agency in the world. IBM with iX, PwC and Deloitte have also done pretty well.

Smart products

My 2012 book, The New Technology Elite had looked at how every industry was making their products and services "smarter" with software and sensors. While some firms like HCL did ok in market to help redesign products and services, the big winners were Foxconn, Flex and other contract manufacturers and design shops like IDEO and frog.

Digital transformations

This was a segment with a lot of hype. Like they did in the "reengineering" boom of the 1990s, if you check references of many outsourcing firms, their definition of digital transformation has mostly been about migrating clients to new, but undifferentiated, packaged software. The Digital Enterprise (2014), written for Karl-Heinz Streibich, looked at how some of the biggest brands in the world were rethinking their logistics, business models, channels and shop floors with new technologies; if you read the case studies in the book, you will see very few of them highlight substantive roles for outsourcers. Even later in the decade, if you look at many of the impressive transformations they were led by customer executives with limited contributions from outsourcers.

Automation

My 2016 book Silicon Collar looked at how automation - drones, robotics, machine learning, kiosks, wearables etc were reshaping every business process and job description. For the most part, outsourcers have focused on RPA and Machine learning as opportunities and there in white collar jobs. There are plenty of blue collar and trade jobs - on the shop floor, in fulfillment centers, in the operating room, in agriculture that outsourcers have not done much with.

Strategy practices

After decades of promise, technology is finally showing it can provide competitive advantage. So, it was not surprising to see strategy firms like McKinsey, Bain and BCG have built strong technology practices. Many of the larger outsourcing firms have, in reverse, built strategy groups. Many are, however, hired only in operational areas. For many clients they are also conflicted - the strategy groups reflect only about 10% of the revenues and their interest is in getting the far larger implementation and maintenance contracts. Analysts firms like Gartner have missed out on an opportunity to play a meaningful role around tech strategy consulting. They tend to be siloed across technology spend, and prefer to deliver their services in analyst mode. 

Big, macro trends that impacted the outsourcing market:

Global politics

As we started the decade, it was common to evaluate economies and policies in outsourcing destinations - will India's wage inflation continue, how will China's IP policies affect, is Ukraine or the Philippines stable enough? Now, it has become as important to also factor the source - How will US trade and visa policy affect outsourcing? How will Brexit affect outsourcing in the UK and EU? Global politics used to be the elephant in the room, now they are front and center for the outsourcing sector.   

The Alt-Job economy

 With so much fragmentation in the outsourcing market, it is easy to ignore what I have called the Alt-Job economy. This includes developers on Apple and other platforms, SMEs on eBay and Amazon Fulfillment, franchisees in every sector. This is "work" that outsourcing firms have missed out on - also these formats are now competing for their own talent.    

Focus on operational excellence

When you are given a multi-year contract, customers expect to see productivity improvements after the initial transition period. I used to constantly hear about CMM Level 5 and Six Sigma performance metrics, though mostly from Indian outsourcers. In the past decade, I have heard much less so. Same with shared services across clients and remote delivery to reduce travel cost and consultant burnout. While many outsourcing vendors have adopted PSA functionality to better track their staff and administer their time and billing,  a source of friction with many buyers is around automation of outsourcing delivery. Since large chunks of many practices involve repeatable tasks codified in methodologies the logical next step is applying machine learning, RPA and other technologies to outsourcing labor. This will be a major battleground for the coming decade.  

Service Procurement and Management

Buyer procurement and management of contract labor has significantly improved with tools like Fieldglass and Ariba. That around projects did not improve much - too many projects fail on metrics of economics and deliverables, and very few projects have outcome based economics. Those disciplines around long term contracts continue to be weak - little focus on continuous improvement, very basic SLAs etc. Ecosystem management by technology vendors similarly did not evolve much. Most vendors treat outsourcers and systems integrators like resellers and measure success as impact on their revenues, not as much on success in the field and customer satisfaction. Many outsourcers think weak buyer or partner oversight is good for them. It is at times, but it actually hurts them - buyers continue to depend on relationships, more than qualifications, shoddy delivery affects the entire sector's reputation etc. 

Takeaways from the decade

There are plenty of lessons for outsourcing vendors from this decade. Constantly keep expanding your definition of addressable market; keep refreshing your competitive intelligence database; stay on top of global trends and keep evaluating your delivery locations; get serious about automating your own operations and prepare for more sophisticated buyer and partner management disciplines.

And for buyers, the biggest aha was that their service procurement and management disciplines need to get much stronger. In 2005, I wrote about putting "Strategic back in Strategic Technology Sourcing". I said "The average technology sourcing department is outgunned in most negotiations". Read it again and 15 years later that statement is even truer today. The number of services keep on growing, so does the choice in vendors. It's easy to blame the service providers, but buyers need to quit making the same mistakes. And adding new ones to that long list.

It was a fascinating decade and portends an even more exciting next decade with newer services, new entrants, more sophisticated buyers and way more machines as part of the delivery mix.

7 Surprising Findings from Workfront’s Annual State of Work Report

A guest column from Steven ZoBell, Workfront Chief Product and Technology Officer. In his role at Workfront, Steve leads the engineering and platform hosting and operations organizations and works closely with the product and services teams to evolve the technology platform to meet customer and market needs. As the previous CPTO at ADP AdvancedMD and CTO at inContact, Steve brings more than 20 years of product development, software engineering, and business management experience to Workfront. Steve has been involved in the development of more than 25 critically acclaimed, award-winning, commercial software products.

"At Workfront, we regularly touch base with knowledge workers worldwide about the state of modern work, which is growing more complex by the day. Amid so much ongoing transformation, leaders—and their team members—often feel like they’re flying blind as they chart their course into an unknowable future. It’s hard to predict what changes in the marketplace will take hold tomorrow or next week, let alone within the next year or beyond.

But knowledge is power, and that’s why we conduct our annual State of Work report. This global survey helps us gauge conditions on the ground, provide valuable insights into how work is being done, discover opportunities for growth and improvement, and identify the things top-performing organizations are doing to gain a competitive advantage in an unpredictable environment.

As we crunched the data from this year’s report, we uncovered seven surprising findings that may change the way you think about the modern world of work.

1. Employee engagement is not a problem.

It may seem like common knowledge that employees struggle to stay engaged in their work responsibilities. After all, Gallup has reported that more than 2/3 of employees in the U.S. and 87% worldwide are either not engaged or actively disengaged at work.

But that story doesn’t hold for every sector of the job market. According to our report, most people surveyed feel proud of their work (91%) and believe their role matters (89%).

This is welcome news. But it leaves one vital question unanswered: is everybody engaged in the right work?

2. Strategic alignment is a problem.

“No” is the answer to the previous question. Enterprises today struggle mightily to keep their people engaged in the right strategic priorities. Another Gallup poll, the State of the American Workplace, revealed that 70% of employees feel disengaged as a consequence of failing to see how their work helps move their business forward.

Likewise, in our State of Work report, only a third of respondents would describe their work as “harmonious and connected,” while 15% went as far as to call their work “uncoordinated and disconnected.” And the larger and more dispersed your organization is, the more challenging strategic alignment can be.

These survey results signal the need for leaders to bridge the gap between team members’ daily activities and strategic enterprise goals. Connecting the work and the why creates outcomes-focused thinking and work that improves employee engagement, productivity, and talent retention.

3. Agility is about more than speed.

As we studied the results of our report, we determined that companies that outpace their rivals focus on agility as a core competency. And their commitment to an agile mindset goes beyond making work move faster or increasing employee productivity. Instead, they seek a more fluid, dynamic, and holistic approach to work, which embraces change, empowers new leaders, and enables them to regularly redeploy at every organizational level to drive new opportunities in the market. As McKinsey puts it: “Enterprise agility is about the distinct qualities that allow organizations to respond rapidly to changes in internal and external environments without losing momentum or vision.”

4. Employees want to be rewarded based on their contribution to results.

“There are two worldviews in leadership,” writes Workfront CEO Alex Shootman in his book Done Right. “Some leaders believe people go to work with the intent to do their best. Other leaders take the view that people’s prevailing instinct is to shirk.” Which worldview do you believe is closer to the truth? According to our State of Work data, it’s the first.

Knowledge workers aren’t there to punch a clock or pass the time. They sincerely want to contribute, and have their contributions noticed. “Everyone wants to be trusted to do the job they were hired for,” Alex continues. “Good ideas exist at every pay grade.”

5. Visibility should go in both directions.

The tools of modern work are better than ever at providing downward visibility. In other words, leaders have a greater ability to watch how work is progressing than ever before. But equally important is the employees’ ability to see upward, connect their daily tasks to the company’s greater vision, and understand how and why business decisions are made. According to our State of Work report, there’s a lot of room for improvement in this area.

6. Work itself needs to be platformed.

We’ve reached the point where enterprises of all shapes and sizes are accustomed to the idea of platforming their sales, marketing, HR, and finance activities using enterprise work management technology that streamlines processes, increases visibility, and connects the myriad digital tools we use to get work done.

But today’s top-performing organizations are realizing that they also need to platform the work itself. Without the ability to look at work strategically and cohesively, it’s not possible to adapt, evolve, and continuously improve enterprise work processes, which is increasingly vital.

7. Employee experience matters as much as customer experience.

Our final surprising finding from the State of Work report reveals that 91% of knowledge workers crave modern technology solutions. They expect the same ease and simplicity from their work tools that they find when they use Google, Instagram, or Amazon. And 87% believe their leaders are missing opportunities by not adopting more cutting-edge platforms.

While the sentiment itself is not surprising—of course digital natives expect their work tools to be user-friendly—the strength of the response is remarkable. Almost everyone agrees that workplace technology should provide seamless connection, access to information, a good user experience, and even personalization. That’s what they get from the apps they use at home. It’s only natural they’d desire similar usability from the tools they use at the office.

Empowering leaders with the insights they need to succeed

The more business leaders understand what leading companies are doing to conquer the increasing complexity of work in the modern age, and the more they can peer into the minds of their team members, the better they’ll be able to differentiate themselves, remain competitive, narrow in on what will move the needle, and keep people not just engaged at work, but engaged in the right strategic priorities."

Source of all images: Workfront 2020 State of Work Report

 

The Evolution of SAP Analytics

I had been invited to an SAP Analytics influencer summit earlier in the year. Many of the sessions were under NDA, so I had not written about it. However, my notes showed:

• Ambitious, exciting vision, but fragmented execution across portfolio of  tools. Presentations did not appear well connected.
• SAP should be drawing on the operational data and scenarios it has access to across so many industries and geographies. Many of its presentations focused on financials and hcm data.
• The Qualtrics acquisition is still new, but should give SAP a chance to blend X and O metrics - that could be a significant differentiator
• SAP has a partnership with Cloud Elements to access 150 cloud data sources
• 3 customers who presented got into operational metrics, integration with other SAP tools like IBP.
• Lots of Microsoft product mentions across the sessions - O365, Power BI, Surface Hub, HoloLens etc.
• Microsoft with all its tools, Workday with Prism Analytics and Adaptive Insights, and Salesforce with Tableau, MuleSoft and Einstein scenarios, appear to be doing a better job presenting their analytical credentials in the field

This week I heard an update webinar and the messaging was much tighter (with not as much focus on HANA, the database and related services in this webinar). BTW - click on each slide to enlarge.

The SAP Analytics Cloud continues to evolve as a "one-stop shop" for BI, broad enterprise planning and augmented analytics (use of machine learning for pattern recognition, insights etc)

 

SAC is being gradually embedded into various SAP cloud properties. Slow integration (not just with SAC) across SAP cloud applications is a sore subject with many customers so it is good to see this progress

 

BusinessObjects lives on and will continue to be supported till (at least) 2027, (see SAP statement of direction here) and as customers adopt SAC will call for various hybrid management strategies.

I would like to see SAP Analytics continue to evolve so it stands out in the competitive landscape - here's where I will be looking for progress

• Embedding SAC into each SAP cloud app is a good start, but ideally should allow for bi-directional navigation across the properties
• Plenty of sophisticated customer data is in SAP tools like Qualtrics, IBP, AIN, Leonardo ML. Be nice to see them show up in SAC demos.
• Be nice to see more real life customer scenarios in demos, especially those with operational data.
• As it tightens its relationship with Microsoft around Azure, clarify how will that impact the "frenemy" status when it comes to analytics
• We should hear more about automated migration and hybrid management tools SAP is developing to help customers move from the on-premise to the SAC world
• Similarly be nice to hear how license conversion credits will work for customers looking to adopt SAC.

Look forward to the continued evolution.

The Future of Work is....Dystopian?

Most conversations about the Future of Work that we hear in professional circles are similar to those in this Cognizant webinar and report. The comments tend to be tough, but fair. 

In mainstream media, however, I am seeing increasingly hostile pieces about the state of work, how workers are being driven "insane", how Americans have less than $400 in the bank, how "unequal" are our corporations and our wealthy. In just the last couple of weeks, I have read the 3 pieces below. I am not particularly political and there I am a registered independent. I read these articles because they were brought to my attention by colleagues and in one instance I heard the writer present at a tech event. And because they are talking about workers and workplace technology - those are topics I am definitely interested in.

A New Republic book review titled "Life under the algorithm": "Seen from Guendelsberger’s point of view, America’s working class is quivering in stress and fear, hurting from torn-up feet, and all covered in honey mustard."

A Washington Post piece which is about a miserable Thanksgiving air travel experience (which we can all empathize with) then turns into a much angrier piece about the state of work : "Like 78 percent of U.S. workers, I live paycheck to paycheck. We hear numbers like these in our political debate, where they usually signal how ill-prepared Americans are for disasters and medical emergencies. Like 40 percent of U.S. adults, I regularly wouldn’t be able to scrounge $400 in a crisis."

A Time editorial which talks about the new 'Gilded Age" and ends with "The age of capital has been facilitated by a remarkable solidarity among the ultra-fortunate. Putting that period in the museum will take other, broader solidarities."

My analyst instincts kicked in and I ended up with a bunch of questions. Writers are entitled to their individual perspectives, but I wondered if the editors at these publications ask questions similar to what I came up with to balance out their coverage.

a) Where does our middle class work?

I realize politicians like to focus on extreme ends of the wealth bell curve and there is glib talk about our middle class being dead. But consider this - Costco has over 90 million members, most in the US, and the average family member annual income is about $95,000. That is a large chunk of the US population.  Automakers continue to sell over 15 million vehicles a year, again largely to the middle class.

That middle class - not just Warren Buffet, Mike Bloomberg and Bill Gates - owns a large portion of our $28 trillion in IRAs, 401Ks and retirement assets. The real estate we own or are likely to inherit is valued at over $32 trillion.

Clearly, a large portion of the population has way more than $400 in the bank. Why are we not hearing more about their work and workplaces?

b) Don't employers have to compete for talent?

Forbes, Glassdoor and others regularly survey for employee satisfaction and compile lists of "best employers". You would think few fast food employers would qualify as leaders. Yet, Chick-Fil-A, In-n-Out, Starbucks consistently do. In retail, you would think they are high turnover machines. Yet employers like Costco, and Wegmans consistently show up as leaders. In outsourcing, IBM and Deloitte do pretty well. So, if McDonalds, Amazon and Covergys are poor employers (as the book in the New Republic piece focuses on), don't they feel the pressure to do better, especially in a full employment economy?

c) Why is there not more labor mobility?

The Bureau of Labor Statistics tracks over 800 occupations and has been reporting nearly 160 million civilian workers for several years now. Many more are employed by the government.  The BLS stats also show many more job openings than people looking for work. Sectors like trucking have been reporting chronic shortages year after year.  We also have a large (and not well understood) Alt-Job economy. As I wrote here, that includes developers on Apple and other platforms, SMEs on eBay and Amazon Fulfillment, franchisees in every sector, ethnic grocers and on and on. We hear plenty about rideshare, fast food  and call center employers as villains, but is it fair to ask why those workers do not seek out other opportunities where they would be less miserable?

d) What do consumers want?

I find many consumers empathetic to workers. Many refuse to use self checkout kiosks to not deprive a fellow human of a working opportunity. I don't know too many consumers who wake up for the opportunity to scream at a call center worker. Most customers chuckle about the sad state of CX and blame poor process and policies, more than workers.  If Amazon and McDonalds are tough task masters (I wrote here after a visit to an Amazon fulfillment center. It is a model of efficiency but that does put demands on its workforce), would consumers be willing to accept slower deliveries or slower service? If not, the history of automation shows machines take over dull, dirty and dangerous tasks. Are consumers ok with that?

With the resources these big publications have I would love to see them explore those questions. In return, analysts like me would enjoy a dialogue. Many reporters use the HARO service to get analyst input. We should ideally expand that to discussions about the present and future of work.

Our workers, especially our younger ones, need a fuller and more balanced coverage of their opportunities. 

The Future of Work will be ....fascinatingly complex

Let's face it the term "future of work" has been hijacked by technology vendors and "thought leaders" of every stripe - often peddling products and one-dimensional concepts which are spray painted to cover their distant past.

So, it was refreshing to watch this webinar where Ben Pring of Cognizant moderated a panel with Soraya Darabi, a General Partner at Trail Mix Ventures; Michael Schrage, a Research Fellow at the MIT Center for Digital Business  and Desmond Dickerson, a Manager in the Cognizant Center for the Future of Work.

They covered wide ground with 10-12 minutes each on the five broad themes in the graph below (click on graph to enlarge). My notes highlight things like portfolio careers and slash/hyphenated titles and nuggets like "meetings that can be emailed", "thermostat settings are likely to go up as you recruit more ladies", "bring a dentist to work". Well worth listening to the replay - about an hour.

Actually they just scratched the surface - 42 "From..To" scenarios are covered in the companion report.  You may not agree with everything from the panel or in the report but they will make you think how different workplaces, work automation and work policies are likely be.

And if you think all that sounds very different, consider this: One feedback point I sent to Ben. "I thought the focus was mostly on white collar work. In my conversations with manufacturing, logistics, utilities, property insurance, agriculture etc with lot more blue collar and trade skills there are very different future of work conversations from drones to initiate property claims in disasters, to AR in design, to vertical farming, to Amazon fulfillment center robotic and ML applications."  

Yes, conversations of future of work will increasingly also be industry specific, geography specific, gender specific and on.

Complex and fascinating.

Decade-end review: Enterprise Applications have NOT eaten the world

Over the last couple of weeks, as we get ready to welcome the 20s, I have been reviewing blog posts, books I have written and notes from advisory work helping clients pick vendors, negotiate contracts, review vendor performance etc from the last decade

The decade started off so optimistically. In June 2009, I had a series of guest columns from execs I called "cloud pioneers". I celebrated Workday's IPO in 2012 - not just as a bonanza for investors but for the payback to tech buyers. I called Infor a "grown-up stealth startup" in 2013 and looked forward to all kinds of micro-vertical coverage. In 2013, I was excited about "One Microsoft" - as they started to leverage a wide portfolio of technologies to redefine industry applications

Vendors have done well by Wall Street standards but as a whole, I think enterprise application vendors have underachieved using Marc Andreessen's lens when he wrote "Why Software Is Eating the World" in 2011

"Six decades into the computer revolution, four decades since the invention of the microprocessor, and two decades into the rise of the modern Internet, all of the technology required to transform industries through software finally works and can be widely delivered at global scale."

Marc was correct in part - in many consumer markets that is turning out to be true. In enterprise applications, it has not. The major enterprise software vendors have not cannibalized adjacent hardware, telecom, services markets. In fact they have barely "eaten" previous generation of applications - we are still running, for the most part, applications 20, 30.40 years old. The majority of over a million ERP, CRM, EPM, other enterprise application customers are still on-premise.

And these vendors certainly not transformed many industries - they continue to sell horizontal applications.  After 20 years of cloud applications, you see mostly white spaces in 80% of a grid across industries and geographies. There are plenty of accounting, hcm, crm applications, very few vertical applications. Global support? Hardly. Try finding vendors that will support your plants in Malaysia and Brazil and Slovakia as you expand manufacturing to meet changing middle class markets around the world. You can find decent choice in only in a handful of global markets.

I went back and looked at over a 100 case studies in 3 of my books - The New Technology Elite (2012) had looked at how every industry is making its products and services "smarter" with software and sensors; The Digital Enterprise (2014), written for Karl-Heinz Striebich, looked at how some of the biggest brands in the world were rethinking their logistics, channels and plants with new technologies; Silicon Collar (2016) looked at how automation - drones, robotics, machine learning, kiosks, wearables etc were reshaping every business process and job. These case studies described what Marc was talking about - how software was reshaping every aspect of business. Interestingly, very few of the case studies talk about the role of Oracle or Unit4 or  SAP applications. These vendors were mostly watching these transformations from a distance. 

The vendor's own numbers tell the story even better. Compare them to IDC estimates that buyers have been spending nearly $ 5 trillion a year on software, hardware, telecom etc.

Based on presentations to investors in the last few weeks, Salesforce and Workday, by far the most exciting application vendors of the last decade only lay claim to $168 billion and $88 billion of that spend, respectively. And their actual revenues this year together will be under $ 20 billion, only 8% of their own definition of addressable market. And less than .5% of the total IDC estimated technology spend.

SAP, the biggest enterprise application vendor, and in many more industries and countries than either Salesforce or Workday was not much more ambitious - it claims an addressable market of around $300 billion and will have revenues in the range of $ 30 billion.

I meet executives from these companies all the time - they run really hard, and yet the overall market keeps expanding way beyond their reach. In the last decade, we have seen Google and Facebook run away with digital advertising spend. Amazon has commoditized order taking and fulfillment functionality by offering it as a service to millions of SMEs, Foxconn, Flex and design shops have taken over contract manufacturing as products of every stripe get smarter with embedded technology, GE, ABB, Rockwell and others are getting the lion's share of IoT generated revenues. None of the major enterprise application vendors have seen much revenue from any of these markets. And in industries like financial services, many customers are back to custom building and even becoming vendors in their own right.

In this greatly fragmented market we are seeing many opportunities in "edges" and "junctions" - Zoho is finding new customers in Nigeria, UAE and other markets that bigger vendors have ignored, Plex is moving into MES as plants are increasingly modernized, Rimini is doing fine with third party maintenance as companies stay with legacy, Workfront is finding traction in new buying centers that have increasingly been digitized - Marketing Operations, New Product Development, and various corporate shared services. RPA vendors like Automation Anywhere, tools like Prism Analytics from Workday and MuleSoft from Salesforce are increasingly bridging gaps across the enterprise fragmentation. The big caveat from this fragmentation - application portfolios are screaming to be rationalized.

There are plenty of lessons for vendors from this decade. Hire functional and industry visionaries, not just good technology architects; constantly keep expanding your definition of addressable market; keep refreshing your competitive intelligence database; make your platform vibrant - like the Apple iOS store and the Amazon Fulfillment ecosystem make your platform lucrative for your ISV partners and, in contrast, shrink the labor component in your partner ecosystem.

And for buyers, the biggest need is to revisit legacy applications. Those old applications are recruiting liabilities, compliance and security risks, they cannot support innovations like multi-tenancy and machine learning. But don't just replace old with new. Look for applications which will "eat" your own inefficiencies and truly help you improve your products, and your customer relationships to eat your competitor's lunch.

The roaring 20s are back! The enterprise buffet is served and waiting to be eaten.

Trailblazer by Marc Benioff - a review

I have been reading Marc Benioff's new book and also factoring what I heard at the latest Dreamforce, Salesforce's annual conference.

At times, I felt like I was re-reading Frederic Laloux's "Reinventing Organizations" and his points about companies like Patagonia and their deep "sense of purpose". At times, it sounded like Benioff's memoir - he introduces us to his late father, Russell; his mother, Joelle; her father, Marvin and many others and the influences they had on him.

Most times though I felt like he was talking to me. The first person tone of the book brings out plenty of authenticity and comments like "Vulnerability is scary. But it also makes you stronger." I have known Marc as a technology analyst for a while and watched Salesforce take off like a rocket. He has been generous with forewords to my books and invitations to plenty of events where I have found anecdotes for my books and blogs. I chuckled even as I winced when I read how a fall had convinced him to give up on an acquisition bid for Twitter. I had a fall in a restaurant in downtown San Francisco a few days prior. No Twitter bid for me - just reminded me people over 6 feet like him and me just are a bit clumsy and have farther to fall! So, yes, I enjoyed the personal tone in the book.

What's interesting about the first person tone is over 400 Salesforce executives helped shape the book. I understand there was an elaborate process involving coded copies and NDAs. And it shows in the rich set of anecdotes in the book. Which to me was the most enjoyable part. I liked the section he calls the "Merrill Stumble" - if they had not been able to salvage that customer, it would have likely had a significant impact on thee financial services vertical Salesforce has done so well in. I liked how they creatively sold Toyota with an early IoT network called Friend, how they worked with Home Depot to think digitally about a community not just brick and mortar stores.

I also like that the book is generous by citing a wide range of his mid-level executives like Simon Mulcahy, Cindy Robbins, Srini Tallapragada, Molly Ford, Tony Prophet and many others.  

You have to admire Marc for his bravery and the stands he has publicly taken on LGBTQ issues, gender pay equality, homelessness in San Francisco and many other issues. He certainly lives up to a moniker he uses in the book - Activist CEO. He was initially uncomfortable with the term, but with so many causes he has been associated with, the tag fits.

What I would have liked more of is around the other moniker he uses - Chief Answerer of Questions. I ended with many questions reading the book

a) By now, he must be a magnet for all kinds of causes. At Dreamforce his keynote was interrupted by protesters. What filtering process does he use to prioritize which causes should get his attention?

b) A question I have asked a couple of his execs and did not get a good answer. Technology is bought based on functionality, architecture, economics. As an right-brained analyst, I doggedly tell customers not to assign more than 5% of scoring to "intangibles". Should we break that paradigm and give Salesforce a lot more credit for its being a good corporate citizen?

c) As a customer advocate, my biggest "cause" is value and innovation for customers. In the last few years, I have heard from several customer execs they could use a better internal advocate for their R&D priorities especially when it comes to vertical functionality, their quest for productivity over the multi-year contracts they sign, their concern about the cost of all the SIs and other "Trailblazers" in the Salesforce talent market economy. I would love to hear more about that.

Marc is a remarkable human with a heart as big as his hug. His conferences break the mold  - musicians, philosophers, politicians walk the corridors. So, anything he writes draws on his optimistic point of view and his fascinatingly rich network. This book definitely does. Highly recommend it - with the recommendation that you should let the left side of your brain savor it more than an analyst can allow.   

A much better Day 2 at Dreamforce. A fantastic one, actually

Updated for the CPG keynote on Day 3

Day 2 was much, much better than Day 1. It was a day for apps - not causes. Especially vertical apps. Readers know I have been screaming for those.

I watched four sessions on Manufacturing, Auto and Energy; Financial Services and Health/Life Sciences and Consumer Products sectors

While the verticals are vastly different (and Salesforce's groupings are unwieldy in size and coverage), some common threads apply:

Salesforce has big brands working with it in each of the industries - Kawasaki Motors, BMW, Engie Energy, State Farm, Barclays, Johnson and Johnson, NYU Langone Health Frito Lay and Shiseido (cosmetics) among others.

Salesforce is helping modernize some really antique/complex corners of these industries - you have healthcare which is single-handedly keeping fax machines in business, you have equipment dealers who continue with some of the oldest printers in the world, insurance agents who cannot afford tech staff and cramped retail store space

Salesforce is not doing the vertical heavy lifting - yet. The operational systems of record are still the Epics, SAPs, proprietary claims and dealer management systems. However, Mulesoft is freeing up and helping share data locked up in those systems. In the next wave, Salesforce and its AppExchange partners may be able to gradually move into these operational areas.

Salesforce is bringing mobile apps, voice interfaces, machine vision (to help with the CPG store planogram), Einstein AI and Tableau to each of these markets. The end result is pleasing, consumer grade technology that users lap up   

Its sophisticated clients are doing neat stuff of their own. State Farm described drone initiated claims processing. Johnson and Johnson talked about how it personalizes its contact lenses with fitting calculators and other tools (and has dramatically improved doctor visits to conversion ratios). Engie is at the leading edge of renewable energy generation, smart grids and digital energy technology. Frito-Lay says it is actually "embracing complexity" with exploding choices in snacks, go to market channels and yet need to drive sustainability in products.

The customers and Salesforce are feeding off each other. They are building a new generation of vertical functionality. It's exciting for their industries and for the enterprise applications sector. We have had way too much focus on horizontal apps.

A disappointing start to Dreamforce

I wrote last week I am excited about Salesforce's verticals and that I planned to watch many of the industry sessions scheduled at Dreamforce today. However, last year's CEO Marc Benioff's keynote did a really nice job showcasing customer case studies - I shared this post with several other vendors asking them to use as a guide for their own customer stories. So, I was hoping for a redux and set aside a couple of hours to listen to this year's opening keynote - here is a replay.

Marc and his team did profile a couple of customers - State Farm Insurance and Louis Vuitton. However, the focus was more product-centric and rushed. Just did not have, at least for me,  the same impact last year's format did.

Worse, there was a protest which interrupted the session. I have been reading Marc's new book, Trailblazer, and while I admire the positions he has taken on LGBTQ issues, gender pay equality and homelessness among others I have been wondering if that just attracts more causes which clamor for his and the company's attention. I got my answer during his keynote. CNBC reports

"A man standing near the stage started reading from a piece of paper, criticizing Salesforce’s contract with U.S. Customs and Border Protection.

 “Okay, we’re going to let you talk for 30 seconds,” Benioff said to the man. “But, however, at the end of the 30 seconds, you have to agree that you’re going to leave. Do you agree?”"

A giant digital timer on the screen then began ticking down. “We’re going to put the clock up. You have 28 seconds left,” Benioff said."

"Minutes later, another protester started shouting, but the comments were inaudible.

“We’ve heard from your group, and we will [be] happy to have a further conversation with you,” Benioff said. “We gave you your time. We will continue to give you other opportunities to speak. Thank you very much.”

I thought Marc handled the protesters very well and even scored points when he said he supported free speech. But with the timer and a security lady in the picture you got the distinct sense that Salesforce was prepared for this and even bigger protests outside Moscone. Honestly, I was filled with dread - what next?

I had hoped Benioff would do his fireside chat with Tim Cook of Apple as part of the keynote. It was actually later in the day when I had a conflict. Instead, the stream had a fireside chat with Anand Giridharadas, Editor-at-Large for TIME. His focus was what he calls "Voluntary Virtue" - the faux concern he thinks the wealthy show in solving societal issues like inequality. He talked about his book Winners Take All: The Elite Charade of Changing the World. He was particularly tough on Jamie Dimon, CEO of JPMorganChase. (btw I am a Chase customer and personally think their customer service sucks but I thought Anand was unfair to Jamie). More than anything as an editor of a leading magazine I wish he had been balanced. Instead he focused on the two ends of the wealth bell curve and ignored our still-substantial middle class. I tweeted him after the session

By now, I was distracted with calls and had the Dreamforce feed in background. I did see bits of pieces of two sessions which both focused on AI and ethical issues. 

I am approaching the decade milestone of The New Polymath. In that book, I had laid out many thorny technology-led ethical issues. I had interviewed lawyers, academics and analysts on these issues including Dr. Herman Tavani, professor of computer ethics at Rivier College. I had observed

"Clearly, this walking encyclopedia on cyberethics is not being leveraged enough by technology practitioners and future business leaders. (Professor James Moor at Dartmouth also confirmed he is not often consulted by technology vendors.)

In the last few years I have seen it flip. We are proactively worrying about potential ethical issues around AI and autonomous cars when they are years from becoming mainstream. As one panelist observed " AI is like teenage sex: everyone says they’re doing it, but no one actually knows what it is." Exactly, but we still seem to spend hours fretting about potentially biased algorithms, not about the productivity and payback from these new technologies. In contrast, long festering ethical issues I had laid out in my book are still being ignored.  

Look, Dreamforce has always been a "different' conference. It is a Tony Robbins type rah -rah, scream your throat hoarse event. You run into will.i.am and Deepak Chopra and Colin Powell and Richard Branson and who knows who else here.

But at the end of the day, I shuddered that a certain line may have been crossed at Dreamforce. I go out of my way to avoid political media, and in this sanctuary of a tech and innovation event, I should feel sheltered from that.    

I just hope today's vertical sessions focus much more on innovative customers and products. Yes, feel free to call me boring.  

Salesforce's vertical journey

As part of my series of posts on vertical solutions, I had an excellent briefing this week from Neeracha Taychakhoonavudh, EVP of Industries at Salesforce. I am also impressed at the wide range of sessions by industry that are being offered at Dreamforce next week. Here, for example, is the "trail map" of sessions for the financial services sector. They have similar for travel and hospitality, retail and consumer goods, public sector, media and communications, manufacturing, health and life sciences.

It would be fair to say that Salesforce's vertical journey to date has come in fits and starts. In his new book, Trailblazer, CEO Marc Benioff describes the "Merrill Lynch Mutiny". Merrill (and parent Bank of America) in 2013 was at the time Salesforce’s biggest customer and nearly threw the vendor out. As Marc describes they creatively worked out the issues, but as you can imagine a failure there would have significantly slowed down its financial services drive. Similarly, he describes a brilliant piece of marketing to get them to position the Toyota Friend IoT platform and then leverage that to other manufacturing customers. But these were opportunistic moves, not well thought out industry strategies.

Also, after a decade of AppExchange there still aren't many partners that offer detailed operational books of record - like insurance claims processing or retail merchandising or clinical coverage in healthcare on the Force platform. While Veeva which sells in the pharma sector has a annual billion dollar revenue run rate, most of the others are sub-$ 100 million - so somewhat modest after a decade, compared to Salesforce's own rocketship growth selling more horizontally.

The Merrill hiccup seven years ago is a distant memory and its the pace of industry focus has accelerated.  Salesforce's own vertical functionality tends to be in its wheelhouse - in customer-centric, front-office areas like mortgage borrower apps in financial services and local government licensing and permitting in the public sector. 

Given the massive size of the verticals they are targeting, the Salesforce/partner coverage is still limited. But one slide in particular Neeracha presented shows their momentum. They are showing up in more industry specific events like HIMSS and not only attracting more prospects from those verticals (who in turn clamor for more industry functionality) but also getting a chance to understand and potentially recruit the operational vendors who present at those events.

I look forward to next week's industry sessions at Dreamforce and also tracking Salesforce's partner ecosystem growth. 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. So many white spaces beckon. I am truly excited about Salesforce's accelerating commitment to verticals.

 

A perspective on the SAP Capital Markets Day

I am a customer and market analyst and tend to not attend too many earnings calls or Wall Street presentations. But I made time to listen to the SAP presentation yesterday. It was a coming out event for the 2 new co-CEOs, Jen Morgan and Christian Klein and there has been much speculation (with a capital S in my opinion, not fact based) about the activist investor impact on SAP trajectory. The full set of presentations is in the video here - without the breaks its about 3 hours long. The theme was "Growth and Operational Excellence" and I liked quite a bit of what I saw and heard.

To me, growth comes from market differentiation and here are key areas where SAP executives scored well

Momentum in Asia

Both Jen and Adaire Fox-Martin made repeated points about Asia/Pac. SAP is very well positioned in that region as I wrote a couple of months ago "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."

Cross-selling

I always shake my head at how little cross-selling has taken place across SAP's product portfolio (listen to Jen starting around 0.16 and Christian around 0.34 about inter-dependence and synergy across SAP products). Most of their competitors can only play in one or two categories.  I am seeing many customers look at application rationalization, and reverse a decade of "ring fencing" their ERP with best of breed cloud applications. As SAP better breaks down its many siloes, starts to show more coherent road maps and delivers better integration, its broad suite should open up many new opportunities within its incumbent customers. 

S/4 adoption

SAP is associated with large, multi-national customers, but the CIO of Chobani, the yogurt company, Parag Agrawal (starting 1:29) was a good representative for the mid-sized, fast growing market that S/4 is doing well in. 40% of S/4 adopters are net new to SAP. The ECC to S/4 conversion market is also gathering steam. As Adaire says, the question for most customers is not 'if" but "when" "why" and "how". As I described in SAP Nation 3.0 - "tilting its bell curve of customers" is its largest single opportunity.

XM and CX

Qualtrics is still a missionary sell to many operationally focused ERP buyers but Ryan Smith humorously reminded the audience that precisely a year ago, he was presenting in a road show which valued the company at nearly $ 5 billion, and that now, as part of SAP, the deal size and customer growth has accelerated. It is another differentiation for SAP. Similarly, SAP has had fits and starts when it comes to the CRM market. But with all the musical chairs in the executive suite at many CRM vendors in the last few weeks you get the sense that market is poised for disruption. SAP's CX portfolio, especially the Commerce piece, and with new leadership under Bob Stutz, will get another shot.    

The Microsoft "embrace"

Microsoft and SAP have been 'frenemies" for decades. At Gartner and since I have written about many joint initiatives like Mondecino and Duet (nearly 15 years ago). The collaboration around Azure opens up support of the vast Microsoft channel, and also simplifies the hyperscaler choice for many undecided customers (while keeping open support for customer loads on AWS, Google and Alibaba clouds). The cloud version of S/4 and SCP should in particular benefit.   

Turning to Operational Excellence, there was quite a bit of focus on margin and cash flow improvement.

Christian has led a digital transformation within SAP for a couple of years and it is accelerating. It's the tagline of "Best Run Business" applied to SAP itself. His points, starting around 0.38, lay out the high level agenda.  Adaire described some of the digital and AI impact on the sales function around 1:26. Thomas Saueressig, starting at 1:09 talks about changes in the development organization. He also addressed the thorny issue of integration, especially across the slew of acquisitions in the last decade,  that customers constantly complain about. In his previous role as global CIO at SAP, he is acutely aware of the pain points (It's also something Bob Stutz in the CX area will have to accelerate). He also touched on centralization of infrastructure. which CFO Luka Mucic quantified (starting at 1:40) as they move from 25 mostly acquired technology stacks to a converged one, and also shifting many cloud loads to the 4 hyperscaler partners.

Luka also touched on improvement of cloud gross margins and marketing and SG&A efficiencies - consolidation of many sponsorships, supplier base among others.

Three areas I would like to understand more:

Margins at the expense of customers?

There is plenty of fat to be removed from within SAP and that should deliver the improved margins SAP is promising to investors. But the temptation in our industry is also to milk the customer (Oracle and the fast growing SaaS vendors are not much better). In the last few years, we have seen quite a backlash to Indirect Access and other SAP audits. I am also seeing SAP propose license conversion fees to move from on-prem to cloud versions. Customers are willing to pay for new functionality, not so much for what they have already paid years in maintenance. So, trying to extract more from older function points, which frankly have been commoditized over the last couple of decades, will only slow down incumbent customer traction.

Focus on total cost to customers?

Historically, SAP has not been very good at benchmarking and managing its partners. That led to my quantifying the huge "GDP" of SAP Nation. As we look at moves from ECC to S/4, I am starting to again see scary SI proposals. Labor intensive and not much automation, with the suspect quality and economics those threaten. Now with the 4 hyperscalers customers could face significant additional exposure. SAP likes to brag it has 000s of partners - without pointing out that cost is borne by customers. I would like to see more SAP detail on how it will better manage its ecosystem, and accelerate its automation and application of ML to its many of the routine conversion, testing, training and other tasks - see more ideas here. Adaire did mention conversion factories - like to hear more about that.

Not enough R&D or Capex to grow the functional footprint?

There was surprisingly little on industry functionality. SAP keeps promising its partners are working on it. For the next few years, it appears there will be little excess R&D or capex for acquisitions. While SAP needs that discipline in the short term, markets don't wait for ever. Beyond verticals, as I wrote earlier this week "the definition of the "enterprise" continues to rapidly expand and morph, and I see a very fragmented market for the next few years". SAP says it has a shot at a TAM of $ 500 billion by 2023. In my opinion, they could already be aiming for a trillion.

Overall, there was much to like in the 3 hours. As an analyst, it is my job to keep pushing vendors to do more for customers, but realize the new executives already have a very full plate to tackle. Should be a very exciting next few years. It is a great way to kick off a new decade!

I will see Josh's five and raise him ten!

Josh Greenbaum has a fascinating post - how Microsoft and SAP plan to take over the enterprise software market. There is much in there I agree with. All the recent executive changes - Jen, Christian, Bill, Bob - are exciting for the industry. Microsoft's infrastructure cloud is on a roll - the SAP "Embrace" and the DoD JEDI contract only add to the momentum. But I see much bigger changes in the enterprise software market beyond what SAP and Microsoft will touch.

To me, Google, Facebook, Amazon and agencies like Accenture with their share of digital advertising and CMO access will continue to significantly influence and morph the CRM space

The customer service segment will be significantly reshaped as IoT, satellite, drone based concepts mature. I expect industrial asset makers like Siemens and Caterpillar and logistics providers like UPS and Amazon to also be major players.

Contract manufacturers like Foxconn and Flex and boutique design firms will have more than their fair share of influence in the product engineering and manufacturing areas.

Amazon, Alibaba and other big commerce sites will continue to commoditize fulfillment functionality for countless SMEs and set a bar for broader supply chain and logistics functionality.

Robotics and other automation vendors will reshape many a business process. Similarly, Google will help many an enterprises rethink processes with machine learning.

A whole bunch of customers are themselves reshaping their industry specific operational systems with custom development and specialist startups - they are tired of waiting for modernized vertical packaged software.

Major economies like China, Japan, Brazil and others have seen so far only modest traction with modern enterprise applications. I have a feeling regional players will have a bigger role in the next few years.  

Josh has a lot of ink about activist investors. To me, they play a vital role in shaking up status quo, but smart as they are, I dont see them as significantly reshaping technology markets. In later, more mature markets, private equity investors have more influence in consolidations and other seismic changes. But we are not at the stage in the current iteration of enterprise software.

Net-net to me : SAP and Microsoft will continue to do well in traditional transactional areas. But the definition of the "enterprise" continues to rapidly expand, and I see a very fragmented market for the next few years.     

Of course, Josh may well be right. My little bet is my ticket to what will be a wild ride. Cannot wait for the 2020s!

A vertical that is growing...well, like a weed

I have been imploring software vendors to globalize and verticalize their applications for a while now - after two decades of cloud apps, less than 20% of the grid of applications across countries and operational processes is filled. I have been increasingly writing about fintech, shop floor, healthcare and other industry functionality. But I wasn't sure when Tom Brennan, CMO of the Salesforce platform-based ERP vendor, Rootstock wanted to discuss what he calls the "Cannabusiness" vertical. I have known Tom for over three decades going back to Coda and more recently, Financial Force. He is a straight shooter, but all kinds of word associations crossed my mind as I thought about roots and weeds.

As background, cannabis legalization has been spreading across North America – 10 states plus Washington, D.C., have legalized recreational marijuana over the last few years, and full legalization came to Canada in October 2018. That made Canada the first G7 nation to do so.  Tom adds "Then you have the hemp side of the market – such as CBD (cannabidiol) oils, which claim to have many health benefits." In many other parts of the world, irrespective of the legal status, enforcement of cannabis and hemp is increasingly lax. While this inconsistency causes nightmares for HR groups in terms of employee drug testing and compliance and for law enforcement, the industry itself is growing rapidly.

According to Rootstock "In just the past three years, industry employment has grown 110%. That’s faster than the ten-year projections for the trendy sectors of solar, wind power, and health care. And it’s why the industry was estimated at $10.4 billion in 2018, accounting for more than 250,000 jobs, and is slated to grow to $21 billion by 2021."

The challenge for the industry is less about selling, much more about quality and consistency. While there are clear exceptions like their professionally run customer, Aphria described later, for many companies in the vertical, the need is one of differentiation earned through reliability.

Tom says "many companies that have entered this market must consider state-by-state regulations. A lot of them implemented entry-level systems or used spreadsheets to manage orders and inventory. But with a booming market, they’re now facing significant challenges around operations, inventory management, compliance, and keeping up to date with changing regulations. Many found themselves in a tough spot."

Rootstock partners with another AppExchange vendor, ComplianceQuest. I had a chance to catch up with Prashanth Rajendran, CEO and Shalini Chowdhary, VP of Marketing and Strategic Alliances.  They have long offered quality, inspection, compliance and risk management to industries like life sciences, cpg, and aerospace. They recently raised a $36 Million Series A round led by Insight Partners. 

The combination with Rootstock offers "seed to sale to service" to the Cannabis industry as the schematic below shows (click on image to enlarge)

According to Tom, the flow is "companies take seeds and cultivate them. And then they have to perform testing and QA to measure potency and ensure consistency in their product. They want to process orders efficiently and compete on both the service and quality fronts."

"On the CBD and recreational fronts, after they’ve packaged their products, they’re fulfilling orders to retailers or selling it through their own store fronts or websites. And all cannabis companies – both recreational and medicinal – have to be able to track incidents, in which customers may have had an adverse reaction. This is a huge challenge, and lot and traceability features can help."

Recent scrutiny of the vaping market is drawing even more interest in quality management and traceability.

"We have track and trace capability where you can drill down from a CRM system. Companies will have the service case. They have the serial number or the lot number and can track it in the ERP system. They can see if it was tested in the ComplianceQuest system. Then figure out, do you need to pull the whole lot? "

Many states are deploying tools like Metrc to track and trace cannabis inventories and products to origin when there are health issues. Besides the compliance issues, there is the inventory shrinkage issue. As Tom says "Companies have cannabis products flying out of their warehouses at a fast pace. When issues arise, they need to be able to track back to where those products came from, from which suppliers and what type of testing was done."

Tom describes some of the customers in this vertical. "NuLeaf is based in Colorado. The company makes CBD oils from hemp. KIVA Connections makes gummies and chocolate bars with THC (tetrahydrocannabinol). Michigan Pure Med is going after the medicinal space and they consider themselves a pharma company"

But their most prominent customer is Aphria which is listed on both the Toronto and New York Stock Exchange, and is one of the largest cannabis companies in the world. In Canada, cannabis is legal for both recreational and medicinal purposes.

Aphria hopes to benefit in a number of ways from the Rootstock/ComplianceQuest functionality and the Salesforce platform including:

• Competitive advantage over other cannabis producers. This gives Aphria an advantage in time-to-market, license approvals and external audit readiness.
• Fast and flexible compliance in a quickly changing, regulated Industry.
• Demonstrable compliance with Health Canada and GMP/GxP Regulations.

Aphria is bringing a professional image to the industry and as the video below shows their "manufacturing" process is increasingly automated. The more this industry matures, the more it should also help the vendors position for other process industry and other regulated verticals.   

Constellation Research event: Expansive, respectful vibe

Let's face it - industry events are increasingly formulaic. Most vendor conferences are predictable - keynotes and product futures, rock bands, large partner booths. Most research firm events tend to be siloed around their category definitions and what currently excites them. So, I particularly enjoy events like Cognizant Community which are about conversations with peers, mind expansion, and not so much about bragging or selling.  

I had a chance to spend a day at Ray Wang's Constellation Connected Enterprise event this week. The event honored a wide number of innovative customer executives, definitely different from other events where vendor executives dominate. It is different from the Cognizant vibe - the content here was much more dense and rapid fire. But I liked the panel and fireside chat formats. Way too many events have one talking head after another. I find in my own presentations, the conversational style with a moderator improves audience engagement. Of course, in the 30 minute CCE session format, there is not much time for audience questions. Instead you get to ask questions one on one. In fact, many attendees were outside networking. Ray had opened the event with - 'you are all here because you are intelligent, innovative...and impatient'. I was clearly a rookie - most attendees had been to 3 or more of the 9 annual CCE events. They get their value from the networking outside the sessions. Impatience personified:)

The wide breadth of sessions was refreshing, if covered a bit shallowly. CCE had sessions on sports, economics, fintech and much more. People know me as a SAP or an outsourcing analyst, but the reality also is my New Florence blog has racked up close to 7,000 posts over the last 15 years and books like the New Polymath have focused on the exponential payback from combining cleantech, healthtech, agritech and more. I enjoy diversity in topics.

I could have participated in the event remotely. Every session was streamed like this chat with Aneel Bhusri of Workday. Every session had a visual story from Heather Willem artists like the one above and below. Given Ray's own prolific Twitter habits, the audience provided instant feedback in tweets on every session. However, I am glad I was there in person and here is what I observed in the few hours I was on-site

Honoring the Past

Ray had his parents in the audience. That was very respectful as was his fireside chat with Vint Cerf. It was good to see on-stage executives from MicroStrategy, Tibco, Infosys. These companies are not dead by any means - they are reinventing themselves. It was good to see Jim Cavalieri of Salesforce and Aneel Bhusri of Workday in different sessions look back and honor Marc Benioff. In many ways, it was nostalgic and feel-good. As an industry, we don't do enough of that.

Savoring the Present

To me it is puzzling that so many people are miserable and angry when the economy is so vibrant. I like meeting content people so it was nice to spend a few minutes with Ray's wife, Tina who balances so much with a smile. Ditto with Ray's associates like Dion, Holger and Nicole who are always positive. I only had one meal at the event but have to point out several people at my lunch table went back for the to-die-for crab bisque. The administrative and event staff did an excellent job with logistics.  Dr. Alan Beaulieu of ITR Economics had an informative and humorous session on the world economy and assured the audience the US economy is healthy short-term given its energy and manufacturing balance, but cautioned about longer term impact of national debts and aging demographics.

Inviting the Future

It was nice to see Ray's son, Nathan and his school mates at a table - a good metaphor for what's coming next. There were sessions on spatial computing, blockchain, quantum computing, global opportunities. In my conversations I heard of next-gen applications - very little mention of today's vendors, much more of start-ups, custom development, platforms from Google, Amazon and Microsoft. 

Some quotes out of hundreds I heard give you a clue to the future world that was discussed - not all positive, but should give you a flavor for the variety of conversations

• The notion of pure anonymity on the internet may evaporate
• We need to get beyond Next Best Action to Next Best Conversation. If you don’t understand me, how can you support me?
• Teach your kids French. Africa will play a big role in the future and French is a common denominator on that continent.
• 3D designs that look crappy look REALLY crappy in VR
• Digital strategy should run parallel to corporate strategy - Under Armour needs have evolved from apparel footwear industry features to that of a fitness platform
• We are significantly increasing our attack (vulnerability) surface as we head into 5G and with massive amounts of IoT.
• Tracking your lettuce from farm to store doesn’t implicitly add security or prevent it from spoiling. It made zero sense to me when I first heard that use case and it still makes zero sense today.
• “Our equipment works equally well on the earth or the moon for intelligent data processing. We will have mining operations on the moon in about 15 years.“

If you were looking for a string to pull all the pearls together, sure Ray has it. I was only there for a third of the event so have no right to expect that. His loyal fans who show up every year will likely say - who cares? It is a good forum to enjoy Ray's hospitality, get some pretzel logic, energize body and soul and to renew long-term friendships. Mission accomplished. Glad I could be part of it.  

The disconnect between software buyers and vendors - about the role of SIs

In the case studies I wrote for SAP Nation 3.0 I noticed two common threads

A) Customers were using SIs cautiously - the last set of experiences with SIs and outsources has made them wary. A couple even thanked me for writing the first volume and bringing out the massive cost and poor quality of the SI ecosystem. “You opened our eyes” said one.

B) Several insisted I not include the name of their SI in their case study. It’s their prerogative and I did not pry why. It could be for legal reasons, but I got the distinct sense that they did not want to overstate the role of the SI versus that of their own staff. 

Both trends are healthy. In contrast, I am seeing software vendors go the other direction. They call SIs “partners”, brag about how big the SI staff counts are around their products forgetting that this is a direct cost to the customer, plus often another 15 to 20% in travel expenses. 

Even more I have noticed SIs are being brought it to present to analysts at the events, and in most cases the SI executives are unprepared or unwilling to answer tough questions. These three comments are in the last few months from SI executives at 3 different major vendor events. 

“We have 000s of consultants. We wont change overnight. But I can assure you we are not making revenue from what we did a decade ago”. 

“We mostly work on large, global projects and those are not really going to be automated”

“Either he leaves or I leave” - by an executive offended by a fellow analyst’s question about failure rates involving his firm

In each case, I should have challenged the SI statement as either inaccurate or too defensive. Instead being there as a guest of the software vendor I just let it pass. And the host in each case also let it pass.

I am seeing some software vendors start to bring improvements to the world of software projects. 

 

In this post, Jerry Foster, CTO at Plex described a machine learning project applied to parameter configuration. No reason other vendors cannot do the same and encourage their SI partners to train machines learn from their own work across 000s of ERP and CRM projects.

https://dealarchitect.typepad.com/deal_architect/2019//plex-ml-project-something-every-software-vendorsystems-integrator-could-emulate.

 

Workday has been more diligent about requiring its SI partners to certify their consultants and keep their certificates refreshed. It has also been pushing a series of project checkpoints as part of its Delivery Assurance initiative. Certification by itself is no indication of project success, but it’s a start. If they could enhance certification with customer feedback from each project the consultant has worked on, they could have the makings of a ‘FICO’ score - that could be revolutionary for the industry. 

 

As part of moves to S/4HANA, SAP customers benefit from its ‘Simplification List’ which identifies functionality which has been deprecated to remove redundant code in previous versions and its ‘pre-checks’ which examine customizations which may cause problems during the migration. If they can continue to bring more automation to common steps in every project - in data conversion, testing, testing - they could shrink at least some of the labor intensive tasks. 

 

There’s lots more to do. I can point to hundreds of small and major things software vendors can do to improve their services ecosystems. The question for many is why should we invest? Why aren’t SIs making their own investments? They are, but the business model has not evolved much - it still thrives on labor intensity. And with that comes the costs of staff turnover, travel, inconsistent quality and more. 

 

Somebody has to break the cycle. Buyers increasingly want changes. Software vendors need to help deliver them. 

Gradually, then suddenly

Lots of people are rattled by all the executive changes in the industry over the last few months ...Bill McDermott and Rob Enslin at SAP...John Donahoe at ServiceNow...Mark Hurd and Thomas Kurian at Oracle ...Charles Phillips at Infor....Bob Stutz at Salesforce....

There is plenty of speculation ... Call me old fashioned, but I take the long view and being one degree of separation removed from many of these executives, I prefer to do my usual 360 degree calling around. Besides, as a colleague said "The signals were there if you knew where to look". Hemingway was even more poetic when he wrote “How did you go bankrupt?" Two ways. Gradually, then suddenly.”  

To me, change is healthy. And often builds up over a couple of decades. Unlike many, I am not that agitated by what is happening in Washington or London. I ignore the shenanigans and the political media but I can see why we got to where we did. And look at ways to adapt to the changes.

Same thing with enterprise tech. In my recent book, I cataloged the last twenty years and described how Apple near dead, Google, Amazon, Foxconn and many others, mere babes then have thrived. I looked at how over a million on-prem customers have not budged. How 80% of the geographic and vertical white spaces have not been filled with modern solutions. Systems integrators continue to try and do business the same old, labor intensive ways they did in the last go-around. 

It would be silly to not expect major changes given this build up. The key is not to confuse individual with corporate trajectories. The good news is we are seeing new leaders like Jen Morgan get a chance to put her imprint. With McDermott headed to ServiceNow and Stutz to SAP, we will see plenty of activity in the customer/revenue-centric segment of the market. There will be lots more activities in areas that did not see investment in the last few years.

Here's my advice to customers. Take time to revisit your application portfolio. There are plenty of opportunities to modernize, consolidate, better integrate your applications. Your legacy has security and compliance risks and plenty of recruiting risks as you look to attract younger talent.

To vendors - question what may have worked over the last decade or so. Plenty of new opportunities and threats to focus us.

There will be plenty of distracting noise and speculation as we are seeing in politics.   Ignore all that, disrupt yourself and embrace the change.  Lots coming.

A wide open race in enterprise software

If you are into speeds and feeds, last week in sports was particularly interesting. It marked the 19th anniversary of Dale Earnhardt's improbable win at the Talladega Superspeedway. Seemingly hopeless in 18th place with just 4 laps to go, Earnhardt somehow went on to win that NASCAR race. It was his last major win. Watch the last few laps in the video below.

Earlier in the week, Eliud Kipchoge of Kenya ran 26.2 miles in Vienna is a record-breaking time for a marathon in just under two hours. It was not an official race but it showed the art of the possible when technology (supplied by Nike, INEOS and others) and technique come together as I posted on New Florence. 

As we approach the end of this decade, I have thinking a lot about the race in enterprise software.

In my recent book. I looked at the last 20 years in software. By many metrics, the pace of change has been glacial. Over a million on-prem customers have not migrated core applications to modern cloud or in-memory architectures. On the vendor side there are all kinds of neglected white spaces when you look at industry or country specific coverage.

And yet the vendor landscape has changed considerably. You could argue Apple, Amazon and Google have had more of an influence on enterprise applications than did SAP, Oracle and Microsoft. Salesforce, ServiceNow, Adobe, Workday and others have become major players. Plenty of global and vertical players are nipping at the heels. With customers building more than buying applications players like VMWare have become more influential. Service providers have evolved - many these days are as much contract manufacturers, digital agencies and third party maintenance providers. Telcos are gearing up for a next wave of 5G and satellite services. Customers are themselves becoming tech vendors as they make their own products and services smarter with software and sensor support.

When I talk to CIOs these days, I hear of opportunities and challenges like vendor end-of- life dates, automation, digital transformation, multi-cloud leverage and application portfolio consolidation. They increasingly worry about their recruiting profile as younger tech staff show little interest in supporting their legacy applications.  Vendors are themselves showing signs of big change - there is new management in the last few months at SAP, Infor, Oracle and Unit4.

It should be an exciting next few years. May be the roaring Twenties again? But they also raise some interesting questions: Will we see an Earnhardt break away from an increasingly crowded vendor market? In that race he was described as"...suddenly, seeming out of nowhere, Earnhardt charged forward, parting the field like Moses parting the Red Sea.."

And who like Kipchoge is working on stuff that makes you go wow. 

In my role, I am paid to help clients put bets, so I have my views on the likely Earnhardts and the Kipchoges.  But I would love to hear your perspectives. Comment away!

 

RIP Mark Hurd

Larry Ellison hinted at this in his keynote at Oracle OpenWorld last month. He joked he did not have many friends and that he would hate to lose Mark Hurd. In a corny way that was quite a tribute to the man, who at 62 passed away way too young.

Over the years I had come to respect the man - we had conversations around complex supply chains and global policy matters. Most people did not realize how analytical he was and made Oracle marketing a digital marvel and made their sales organization much younger. He had an interesting presentation style and preferred to come off the stage and podium - that puzzled some folks but I thought it was humble of him to come down to the level of his audience.

His presentations always invoked data on market trends. Which is where I did not always see eye to eye with him. Given the market opportunities he presented, I wondered why Oracle's products and investments did not always take advantage of those white spaces.

It's not the time to bicker. Oracle and the whole tech industry has lost a disciplined operational executive and as a personal tribute, I have to add, we have lost a damn good analyst.  

RIP.

Workday Rising: The peaceful, easy feeling

OK, it could have been just me. I drove to Rising and parked for the duration. No airports or highways to worry about. Unusual week for me. I was certainly in a relaxed state of mind.

However, I noticed it wasn't just me.

Could have been Jerry Seinfeld who kicked off the event. Unlike most stand up comedy these days, he did not invoke any politics or use any foul language. The crowd continues to be amazed by his observational comedy about every day life. Like why do restaurants feel the need to announce daily specials? If they are so darn special, should they not be on the menu? People were talking about Seinfeld days later.

Or it could have been Harry Potter's magic. Instead of some loud rock band, Workday had Universal Studios open up a glorious Orlando October evening as a thank you to the Rising audience. 

Perhaps it was the vendor feedback. Many loved the layout at the Orange Country Convention Center which brought lots of foot traffic to their booths. The startups in the Workday Ventures floor space were cheerful talking to me even on the last morning when usually roadies are packing and shipping their stuff.

Maybe it was customers who love that Workday continues to mature features like the Skills Cloud and surprise them with Procurement, Planning and other new features even after 33 releases of the product. And also keep them buzzword compliant. This event was big on machine learning with features like the Accounting Center, Discovery Boards and  People Experience.  Blockchain in the form of credential technology and the WayTo mobile app shared with event attendees. Unlike other vendors who recruit partners by the hundreds to develop on their Cloud Platform, Workday has been developing apps with a handful of early adopter customers like Flex and Sun Life before the planned GA next year

Or it was the omnipresence of CEO Aneel Bhusri. User conferences are hectic for vendor executives, but Aneel was remarkably accessible. He took photos with several attendees. I introduced him to several much to their delight. Earlier in the year, he had promised to make more time for analysts.  He delivered that in q&a and less formal settings.

Workday stock took a hit during the event with the fear of slower revenue growth. That did not appear to faze Aneel. I certainly see all kinds of wide open white space for Workday. Even after two decades of cloud computing, industry and geographic coverage is spotty — by my estimate, less than 20% filled. After 20 years, over a million on-prem customers continue to use ECC, BusinessOne, Oracle EBS, PeopleSoft, J.D. Edwards, Lawson, Baan, Microsoft, IFS, Sage and Unit4 products on-prem, with no benefits of multi-tenancy, machine learning or other contemporary innovations. They continue to be Workday prospects. Importantly, unlike with some other vendors, people actually like doing business with Workday. Even more importantly, Workday leadership has been steady, if a bit conservative.

Perhaps it was all of the above, but I found myself thinking of the late Glenn Frey quite a bit during the event. Yes, that relaxing, peaceful, easy feeling.

 

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.