deal architect

SAPPHIRE PartnerTalk

I walked the Sapphire booth space to catch up with a number of SAP services partners. There is a sense of excitement around SAP’s traction, though with an offshore vendor occupying every 3rd or 4th booth, there is a sense there are some "checks and balances" the ecosystem will not get as crazy as it did in the late 90s.

Some perspectives:

“We should expect to get a premium around SAP’s more recent CRM, SRM, Netweaver functionality”. I agree if a) you truly have those skillsets not just a training "spray paint" and b) the premium also needs to be on much more realistic pricing for older modules like FI, SD and MM – 2005 rates not 1998 rates

“We think PeopleSoft customers could lower their SOX and other compliance costs if they migrated to SAP” - was a response from a SAP partner to a question how a PeopleSoft customer could justify the significant migration cost to SAP. Talk about a low ROI project. I think the average company would spend less money lobbying for repeal of Sarbannes Oxley. It is good, though, that SIs are looking for payback areas - hopefully those with real savings.

“On BPO deals, the software value is coming in at lower than 5%”. I have predicted that BPO will cannibalize and commoditize software sales, but it may be happening much quicker than I projected

Finally, a PwC partner (now IBM) told me yes PwC people were leaving (see my blog about this) – but mostly the older generation which wanted to retire, and younger staff. The core partner group IBM bought is still intact, and in fact in key roles in IBM’s services unit.

One data point on Delta's problems

Delta is in bad shape. I do hope they survive...I have a lot of miles left with them. More importantly, my family has many fond memories of various places they have taken us.

But here is just one example of a company which seems to be so focused on labor issues, that it has missed out on revenue, markets and customers.

Every major Indian offshore vendor gets over half its revenues from US companies.  US IT and software execs going there. Many Indian consultants coming this way. A booming Indian middle class spending its new wealth at Disneyland and Times Square. This means a lot of traffic between the US and India.

Yet till recently Delta has had just one flight a day from Paris (and before that from Frankfurt) to India. It funnels traffic from US to the Paris hub, then onwards. Delta is considered the flagship US carrier to India having serviced that route for decades (it acquired Pan Am's route rights there). One flight on a 767 rated at 204 passengers each. In comparison BA and Air India have been averaging 6 flights a day from various Indian cities to London - most of them 747s rated each at 325+ passengers. Then you have other European carriers. So, Delta has less than 5% market share in a robust market. They just added another flight. Great - but India and Britain announced they are tripling  flights to India, so Delta's market share shrinks even more!

In the mean time Delta has been arguing for over a decade its labor rates are out of whack and that is its major problem... its pilots and attendants make more than Southwest's but the average Delta plane holds 25% more passengers so on average it cannot be that badly off.  Control your costs by all means, but jump all over busy routes like to India. Give us a decent product at a decent price - we will support you. Focus on your customers going forward, not the unions.

Lou Sobs, oops Dobbs

I was in an airline lounge the other day sharing with an IBM sales exec a power outlet for our laptops. We looked across the lounge to see a group of people watching "American Idol", then "Lou Dobbs", and we were jealous they had the time to just sit and watch ...aspiring records and a broken record!

Lou was right to bring attention to growing offshoring 2 years ago - but he keeps going and going. On his portion of the CNN website he has a list of companies "exporting American jobs" But most of those companies also show up as the strongest brands in Business Week's list of global brands - Coca Cola, Microsoft, Gillette, Ford, GE and a bunch of other American companies. They get to be strong global brands by exporting US products. Lou, you cannot have it just one way. If you are going to beat them up for exporting jobs, give them credit for exporting products.

CNN has become a global network watched in the souks of Middle East and in the Japanese Diet. The more they keep giving Lou his platform, the more they are encouraging a set of Monsieur Dobbs, Sheikh Dobbs and Dobbs-san around the globe to push for similar narrow minded thinking. That would be great for American exports, huh?    

"It's COTS to be Good"

Jeff Tash's blog today with this title reminded me that in the government (and defense) sector packaged applications are called COTS (commercial-off-the-shelf). The term is not much used in the private sector client base I work with. I always chuckle when I hear the term...only with government budgets can you call a $ 5 m SAP or Oracle license "off the shelf"!

Talking about expensive, custom developed software is called "bespoke" in the UK...who can afford Saville Row suits these days especially with the dollar the way it is...

Kagermann, Diplomat

In this day and age how easy is it for a German to talk admiringly about anything American to a French audience? Dr. Kagermann, CEO of SAP kicked off his key note at Sapphire in Boston today describing how in his global travels he talks admiringly about US IT. His explanation – not only do Americans spend a lot on IT, but they also spend it smart.

I have written before he is a very nice man. A lot of his customers also think so. At the CIO panel that followed his talk, he was hugged by a number of them. Stacy Smith, CIO of Intel started to ask him “Dr. Kagermann, we do need to talk about SAP time and cost to implement”,  then shut up – like to be a fly in the wall to watch when that private conversation happens.

But overall he brings a sense of decorum – I say he would be a good successor to Kofi Annan.

Mike Capellas - only the hyper thrive

Ever been to a fast paced movie that left you exhausted or a book you could not put down and left you similarly drained? I felt that after LISTENING to Capellas, CEO of MCI present at Sapphire today in Boston. In fact, on several occasions his words kept trailing off, as his mouth tried to keep up with his thoughts. And this was a post lunch speaking slot.

I expected him to primarily talk about the recent Verizon and Qwest bid for MCI – he spent a minute at the end of his Q&A on that. The rest of the time was spent on the exciting times on the business (not consumer/content) side of telecommunications – why private networks are growing in the face of the increasingly attacked public internet, the excitement around WIMAX, the growth of global connectivity. I doubt I have seen anyone from the telecommunication sector make the business side sound so exciting.

He then described their SAP project as part of their accounting clean up (roll back of detailed accounting of a number of subsidiaries going back several years). As we have read in the media they needed more than a routine scrub. This was not your garden variety fast implementation or let’s make sure we are SOX compliant – the master data and clean up issues sounded like a root canal, especially since the regulators had threatened them with a specific shut down deadline.

And then, as part of his day job he has been discussing with his board for the last few months the competing bids from Verizon and Qwest?

A few years ago, I had heard Compaq’s CIO describe the IT integration project when HP had acquired them. It sounded like another very well executed, rapid exercise. Guess what, Capellas was around that one too.

Hey, may be more former CIOs like him should be allowed to become CEOs. If they are organized, fast paced, and know how to judiciously apply technology they could revolutionize a number of other companies.

"Evil Empire"

I did not hear much nasty about Oracle at Sapphire today - of late SAP and Oracle have gone after each other often. The closest swipe (not sure if intentional) was when Bob DeRodes, CIO, of Home Depot announced that as part of their “Digitizing their Depot” initiative they were adopting SAP’s retail merchandising functionality – so, who needs Retek when you have the world's 2nd largest retailer?

If anything Dr. Kagemann’s talk and a number of SAP booths were focused on SAP’s services oriented architecture and related move to their Business Process Platform. Have you ever heard Larry Ellison talk about applications? Little about functionality, vertical best practices - it is usually architecture and tech geek talk etc – Sapphire’s tone was more in line with Larry’s.

I had expected a sneak preview in meanness as I take my kids to see Darth Vader’s Evil Empire tomorrow…

Wachovia Panel on Offshoring

Ed Caso's analyst team at Wachovia Securities has a good handle on a wide range of services companies (system integrators, staffing firms, offshore firms)

They recently hosted a panel of offshore execs and sourcing advisers. Healthy data points from an investor perspective - concerning from a buyer's perspective:

a) Rates are growing at 5 to 15% a year, at least on new deals. At this rate, within 2-3 years there will be likely parity as Western firms discount their own rates (or what I call "hasslefree" parity - why go offshore unless there is at least a 20% to 30% cost advantage) Reinforces my point offshore firms need to focus on labor productivity improvements.

b) Buyers are starting to consolidate around the bigger Indian vendors.  They made this same mistake around the western "Big 5" in the last decade. There are plenty of choices in the market. If you take Nasscom's list of top Indian vendors, and add in Accenture, IBM, EDS, Perot's offshore capabilities and a series of mid tier US and European vendors like Covansys, Intelligroup, Syntel, Sapient, Xansa you have at least 25 vendors with offshore revenues of at least $ 100 m each...pretty viable players . GE has been masterful at bringing in second tier vendors to keep its offshoring rates in check.

Other interesting perspectives - You can listen to the recording of the panel through May 26 at  800.642.1687, passcode 6195225.

Acquire an application, inherit an architecture

was a favorite saying of my colleague, Jeff Comport when I was at Gartner. Of course, when you had many applications you ended up with "architecture soup" (not as tasty as alphabet soup!). At the other extreme, a number of companies just end up adopting the architecture which comes with their friendly ERP or other backbone transaction processing vendor. Ditto for other major IT infrastucture components.

A continuing voice for not outsourcing your enterprise architecture and in fact pro-actively managing its direction and components is Jeff Tash, and I am pleased to see he has launched his own blog...some of it is educational (he is a patient teacher), some of it more commentary ..even architects like me, the deal kind, can learn from it...

Geoffrey Moore on Open Source

Geoffrey Moore, a brilliant observer of tech trends, comments that Open source has crossed the chasm and is heading straight for the tornado. We heard somewhat more sobering views from CIOs at MR's conference. Yes, Linux is there, so are Apache and JBoss, some would even say Mozilla and MySQL, but the enterprise application layer is no where near there, though new players like Dave Duffield may have a hybrid model there - so across the "stack" there are varying levels of success.

The huge nugget from his talk is " that competitors should engage the open source community to manage the commonality across the industry. Commonality is fundamentally anything that does not differentiate competitors or does not provide a competitive advantage. The rewards for adopting this strategy is that resources, which were previously working on commonality, can be repurposed to work on value creating activities". Could not agree more...however as we have seen with offshoring, many software CTOs there too have gone and created their own captive capabilities, rather than leverage available third party embedded in commercial software.

The other thing that has to be resolved is if such open source components are embedded in commercial software, what will buyers face in the way of potential future liability for that IP. I know several CIOs are terrified about this.