deal architect

Happy New Year!

to all my readers

Have been busy on work on a book…details to come out in a few weeks.

But in doing research have been cataloging all the “grand challenges” mankind faces in engineering, environment, health, IT etc.

Damn, it should be one heck of an interesting decade!

What if?

CIO Magazine has issued its annual “State of the CIO” set of reports (registration required)

In a survey of 600 CIOs in its Executive Council, 34% of CIOs are classified as “function heads” - only 4% of them were focused on “driving business innovation” whereas 79% of them reported they supported “improving IT operations/systems performance”.  And they still spent 5.1% of their revenues on IT.

Another 45% of the CIOs were classified as “transformational” and 40% of these reported they were “driving business innovation” while spending a bit more - 5.5% of their revenues on IT.

Finally – another 21% were classified as “business strategist” and 70% of them reported they were “driving business innovation” and they spent 7.2% of revenues on IT.

So, for slightly more spend the second - .4% more and third category – 2.1% more - are far more focused on innovation.

Now can you imagine if we could slash the baseline 5% of revenues across all three groups and use that towards innovation?

Cloud Competition: Sunk IT costs

You know the expression “It’s tough to soar with eagles when you are surrounded by turkeys.“ Well, its even tougher when you are even lower – as in swimming with crabs at the bottom of the pond.

In the last few weeks, I have heard from several organizations, they are getting less and less concerned about cloud security, availability etc. But they are scared to go to the CFO and say let’s write off that sunk cost of infrastructure or the unamortized ERP project cost. Or go ask for the early termination fee to cut themselves out of traditional data center outsourcing deal. Even though the new cloud economics being proposed are  attractive.

So, instead they dream up feel-good projects called “private clouds” which via virtualization should bring some efficiencies – but will never allow their scale to exceed  even .1% of what Microsoft and salesforce and amazon are building.

Yup, that slowly depreciating piece of asset sunk at the bottom of the pond is stopping them from soaring in the cloud. 

Cloud vendors cannot pretend the issue does not exist. Best if they model for each prospect the impact of the writeoff versus the savings they could be getting from the cloud and play that back as part of the sales process.

Poor Poor pitiful AT&T

The Fake Steve Jobs  unloads in a hilarious post on AT&T for trying to create “incentives that would encourage people to stop using AT&T’s data network so much.”

Along comes Randall Stross in New York Times and quotes Roger Entner, senior vice president for telecommunications research at Nielsen

“AT&T does not publicly defend itself because it will not criticize Apple under any circumstances”

and Randall ends with

“AT&T, send some engineers to redesign the iPhone to make better use of the country’s fastest wireless network.”

Wow, this is what Denny Strigl of Verizon would call ‘unfairly maligned”

Somehow, I don’t think the facts support AT&T:

a) They have had 8 years to roll out 3G. Can understand their white space in say, Wyoming– but even there,8 years is a long time –  but problems in New York and San Francisco, two of the most important and affluent markets?

b) for a while, now they have been encouraging iPhone consumers to shift network load to Wi-Fi – so Verizon FiOS and cable networks have already been bailing AT&T out

c) if they are having contention/capacity issues why do they keep signing up newer 3G demands via Netbook campaigns? And why are they still running 3G ads? If you need to demarket, seriously demarket and fix the delivery issues

d) why not take a page out of the playbook of telcos like Vodafone in Europe and Bharti in India and outsource the network to the equipment manufacturers like Ericsson or Nokia-Siemens? Let them manage the capacity needs if your folks are not able to.

e) quit whining about data plans being underpriced unless you are willing to open up about SMS pricing which is overpriced by a factor of 20, and open up about double charging for voice – minutes to the caller and the receiver.

Like Fake Steve says “Randall, baby. we’ve got a hit on our hands.” Quit whining and start delivering…

Normal Accidents: Accenture and Tiger

Tiger Woods says on his personal website he is taking an indefinite break from professional golf. Wish the man well as he tries to be a “better husband, father, and person”

It also gives his sponsors a graceful out – after all, if he is not going to be playing, why keep up the sponsorship? Much easier to exit now than have to use messy moral values as the reason.

But it will not help Accenture much. Tiger is part of their physical infrastructure and marketing collateral all around the world. It will take them months to completely unravel from this. I saw Brian Sommer earlier this week. He used to be an Accenture partner and told me he had raised with his alma mater on at least a few occasions the questions he raised in this blog post

I was talking to Paul Kedrosky on another matter this week and he mentioned Charles Perrow’s Normal Accidents – the catastrophes that can result from complex and tightly coupled systems. More than the other sponsors who diversified their celebrities, Accenture was “tightly coupled” with Tiger.

Accenture has long built in expensive exit clauses in its outsourcing contracts with clients. They are now having to themselves pay for a vendor who they allowed to get “lock-in” since the relationship started in 2003.

If I were a client of theirs, I would ask  where was Accenture’s “disaster recovery data center”? Where was its “business continuity plan”?

These are top of mind due diligence items they ask of Accenture – but Accenture seems to have neglected to do for itself.

Update: Sunday, 12/13. Accenture cancels Tiger sponsorship and says likely new campaign later in 2010. As I mentioned in my post it will take them quite a while to remove Tiger marks from their offices and collateral.

SAP BusinessByDesign versus NetSuite OneWorld “shootout”

Ray Wang and I were recruited to judge a “shootout” at the Sapience conference Helmuth Guembel had organized in Cambridge this week.

Mark Siller,  Project Manager Steinbeis-Transferzentrum demoed the OneWorld product along with Mini Peiris, VP of Product Marketing at Netsuite. Carsten Brockmann, Chair of Business Information Systems and Electronic Government, University of Potsdam demoed on a test version of BusinessByDesign.

Mark and Carsten walked the audience through various financial, CRM and manufacturing processes. Ray, Helmuth and I scored the products on the functionality as demonstrated and on a variety of look and feel, usability and technical factors.

Our composites showed NetSuite scored 7.58 and SAP scored 6.34 on a scale of 1= low, and 10= high.

Dennis Howlett captured our summary evaluation comments in this video. Helmuth plans to provide more detailed clips soon.

Some “apples to oranges” comments are appropriate. SAP will be releasing version 2.5 of  BusinessByDesign next year. So far, it has had a controlled early release it has been supporting about 100 customers on. NetSuite, on the other hand, was demoed  on a production system which supports 6,000 or so customers.

Also, SAP did not have a marketing rep help on the demo. Not that we expected to given the perception this was an “anti-SAP” conference. But if they had, we may have seen a better – or at least less choppy - demo. In reverse, we did not factor economics – SAP plans to list at $ 149 a user a month, with a minimum of 25 users. NetSuite has various plans which list at $ 99 per user a month, some with a minimum of 2 users.

NetSuite can feel very good about itself. They have pioneered the SaaS market and toiled for over a decade and it shows in the richness and robustness we saw.

I look forward to judging a fuller, more robust BusinessByDesign in the months to come –with SAP’s active participation. I hope they accept that for the next few years, ByD will be an underdog and catching up to a decade’s lead pioneers like NetSuite and salesforce.com have. It needs all the publicity – good and bad - it can get.

The Real Deal: Lisa Lovas on the “Total Cost of Offshoring”

This continues a series of columns from practitioners I respect. The category "Real Deal" describes them well.

This time it is Lisa Lovas, a seasoned executive, who has more than 20 years of experience in sales and executive management and sales leadership positions for IBM, Aon Corporation and Affiliated Computer Services (ACS). She has a proven track record in IT consulting services and processes, HR transformation, complex outsourcing contract negotiation.

Here she argues it is a myth that offshore testing is “cheap”

“Offshoring? Nearshoring? Business Process Outsourcing? You can’t just look at labor cost differentials. Key factors influence the “true’ cost or “fully loaded cost” of using an offshore center.

According to a recent article in CFO magazine, “A lot of people who jumped on offshoring for the cost purposes never truly understood the market. They got some savings, but generally not as much as they thought. There were unexpected outlays, error rates that rose too high or more frequent trips to India and elsewhere-that affected underlying cost assumptions. Toss in wage inflation overseas and wage deflation at home and suddenly the calculus shifts again.”

During the 90’s with the emerging outsourcing market, HRO,FAO and major application development efforts, large organizations such as ACS, EDS, IBM and others used the common process of “baselining” costs to compare savings when outsourcing. Wage arbitrage provided an immediate impact, but long-term gains came through process improvement.

In the Quality Assurance world some of the same “soft’’ dollar factors hold true. Differences work ethic, poor project management and high turnover, can derail even the most well planned QA test effort, especially when a software production deadline is not met. Although the hourly cost is lower in some cases, the increase in the total number of hours as well as resources to get the job done add to higher costs. And then consider the fact that most offshore efforts require both on-site and remote coordination, at both client and offshore center, you are looking at coordination costs that are equivalent to 8 or even more extra software execution resources. Specifically, at one large financial services client this year, we were able to achieve a 3 to 1 ratio of offshore testers to Questcon’s onshore testers, all due to extra layers of coordination and project management time.

Other factors we have experienced that have to be considered as part of a “fully loaded cost” are as follows:

Onsite Proximity

Onshoring makes sense with complex projects with issues that need to be seen and discussed as a team. This is especially true in projects that use more recent agile development methodologies.

Communication Clarity

Being Onshore means more communication clarity. There is also a better understanding because the locals understand tax and compliance issues and often have more familiarity with local business process nuances.

Geo Political Instability and Wage inflation

Financial Fraud, terrorist and currency fluctuations are some of the complications we have seen with teams in international locations.

It’s all Dollars and Sense

So what do the numbers show? Our largest on-shore test center client found that for manual testing Questcon beat the rate of both their captive providers in China and India, at a “fully loaded cost” average of 20 dollars per hour for a test center resource executing 900 scripts. In fact, due to the quality of Questcon resources, and the elimination of communication and coordination barriers, Questcon in fact executed 3 times more scripts per week than the clients own internal testing resources, price for price savings of 66%.

In “THE NEW CALCULUS” the recent article featured in CFO by Josh Hyatt, clients are looking at not just cost savings, but other factors that drive Outsourcing, such as gaining access to new technology and skills, as well as transforming processes. This is never more prevalent than now in the QA marketplace through what I call Saas for QA, as companies such as HP partner with us at Questcon to offer what used to be pricey enterprise HP test software licensees on a rental or project basis.

At one of our clients 1000 Virtual User days for Performance test software was $284,000, one time use rental from Questcon, was $ 7,000. Most clients, particularly in performance testing engagements find renting the licenses for a load test to represent 80% savings on average, using Questcon test center services.

As with everything else, companies are finding the right balance of fiscal strategy and geographical balance in talent. It’s all in the “baseline” if the fully loaded costs are evident.

Lisa Lovas can be reached at [email protected]

SAP Enterprise Support – turning the tables

Forrester’s Duncan Jones summarizes why I did not go to Uwe Hummel’s session on Enterprise Support at the SAP Summit.

“In fact, (SAP) is so convinced in proactive support and the positive impact on customers' SAP application management and operation costs that it decided to protect them from making the mistake of declining to buy it - by making it mandatory.”

Passions are already running high in the customer base around the topic that I did not need to go annoy Uwe even more than I have in the past.

In all the discussion about KPIs that SUGEN is tracking at over 50 member sites, I have been puzzled.  If KPIs at customer sites are important, should that measurement not be independent of the vendor – and certainly not involve them dictating terms like usage of tools like Solution Manager?  

But more importantly, we seem to have forgotten who is the vendor and who is the customer. Should not the vendor be disclosing its internal metrics? SAP’s own cost of support has declined nicely over the years particularly for more mature customers – with fewer support calls, with lowered offshore support of its own, more automation of frequently asked questions, and increasingly more routine queries being handled in the SDN community. 

It also justifies the move to 22% because Oracle charges that knowing fully well from its TomorrowNow sub (now in litigation with Oracle) that Oracle’s maintenance is one of the sorest points in its relationships with its customers. And that SAP has a higher application license base value per customer.

It’s time for the conversation to turn to SAP’s internal metrics – and for it to show what its customers are paying on average per support call, per bug fix that applied to them etc.

I am on record as saying the $ 600 military toilet looks cheap compared to what SAP charges at that unit of measure level. As I have written several times before even 17% maintenance is too high for many mature customers. Let’s start with that cost=plus hypothesis rather than 22% is justified based on “value” which SAP may or may not be influencing.

SAP and the Boston Park Plaza

The SAP analyst/media summit this year was at the Park Plaza, a building which dates back to 1927. When it opened it had all kinds of innovations "in-room telephones, mail & laundry chutes on each floor and the "Servidoor," a panel in each guestroom door which allowed the valet to deliver laundry without disturbing the guest."

Today, the hotel is quaint. My room was huge, but mostly wasted real estate. The electrical outlets were few and hard to reach. The room heated inconsistently - with the washroom like a sauna. The wi-fi was spotty in the large conference rooms with chandeliers and thick walls. Not very practical for today's connected business traveler.

I could not help compare it to the state of SAP today.

We touched on plenty of innovations during the session. There were demos and discussions around mobile interfaces, surface computing, in-memory, Google Wave, multi-tenancy, smart electricity girds and other sustainability topics.

But underneath it all was accounting data in the analytics, hr time sheets in the mobile interface, allocation of iTunes revenues, billing functionality in the breakout on utilities (smart grids and meters allow them to collect usage data every 15 minutes rather than on a monthly, manual basis and force them to upgrade their back office), asset management to help utilities as they get set to invest trillions in new renewable fuel sources, carbon accounting and compliance in the sustainability track. 

SAP has become very good at latching on to innovation coming out of Apple, Google, cleantech and other sources and basically tacking 10-20-30 year old functionality to it, and calling it "their innovation".

Ironically, as Tom Wailgum of CIO magazine tweeted that the term ERP has been banished from the SAP vocabulary - when over and over again, once you peeled the skin of the "innovation" layer it was good-old ERP. For the talk of agile and rapid 3 month projects, in the energy industry breakout was a utility CIO describing an Accenture project of 40,000 man days to implement SAP functionality to update his customer information system. If such backoffice projects at SAP and Accenture pricing are not ROI killers and make a mockery of the energy saving innovations coming out of smart meters and smart grids, not sure what is.

But more concerning is it struggles to get even those innovations into broad release. And the long time it is taking to get mainstream adoption in customer base (ECC 6.0 is now in its 4th year, with half the customer base there - many there primarily because of earlier versions being de-supported)

Is SAP better than Oracle, Lawson and other old-guard vendors in at least experimenting with newer technologies? Absolutely.

Is it delivering value? Like the Park Plaza if you are a tourist and history buff, yes. But as a businessman, not really.

I wish SAP would dramatically retro-fit the old structure.  It is being done in a number of older hotels the world over. Takes a house cleaning mentality. At Intel they call it "eating your own children"

An hour with Jim Hagemann Snabe of SAP

One of the nicest things about going to an SAP event is an hour they organize with one of their executives. When I was at Gartner, we used to look forward to Hasso Plattner, unmuzzled at their annual Sapphires. More recently Henning Kagermann started a tradition of meeting with bloggers.

Leo Apotheker continued it, though the first meeting with him led to fireworks. The next one was much more cerebral.

This time we had a chance to meet Jim Hagemann Snabe,member of the Executive Board of SAP AG and head of  Business Solutions & Technology organization, responsible for product development of large enterprise solutions, SME solutions, and the technology platform.

I thought it was a very good session. He handled questions effectively - why ECC 6.0 adoption was still only up to half of the R/3 customer base. His answer "how many other enterprise vendors can boast half their customer base is on a SOA enabled platform". Why did he not touch on sustainability in his morning talk? "Oversight - so much else to cover" Consultant certification "Looking at business process centric certification." Ecosystem management "Seriously looking at SAP consulting taking a much more active role" . Big challenges - each one of them - and there was a quiet humility with which Jim addressed them

Of course, the fact that Jim met us and Leo was not at the Summit let to all kinds of speculation about Leo's role in the company.

I, for one, accept SAP's explanation Leo was busy focusing on December 31 customer deals. I look forward to another session with Leo in the near future - hopefully another of the knock-down, drag-out kind:)