deal architect

Lawson: I’m OK, you are not OK

Lawson announced plans to run its Enterprise and Talent Management software on the Amazon cloud. It also announced a subscription model around its license and maintenance cost.

First things first – this is a giant step forward for a vendor whose CEO was predicting the SaaS market would be collapsing about now.

But as I told my former Gartner colleague, Jeff Comport who is now SVP of Product Management at Lawson, this basically acknowledges ERP compute and storage cost is overpriced. It does not tackle Lawson’s license, annual maintenance cost, the cost of application (and database and other components) management, upgrade and other common ERP costs. And while Amazon costs can be elastic (depending on how Lawson will pass them through), the cost of amortizing the Lawson license, the annual Lawson maintenance, AM staff (or outsourcing arrangements) and upgrades have remained stubbornly fixed over the years.

To which Jeff’s response was those costs are not ready to be commoditized. Most of Lawson’s customers are not ready to move to the scale of shared services SaaS vendors are leveraging.

My first research paper at Gartner in 1995, where I reported to Jeff was on costs metrics surrounding various accounting, HR and other back office transactions. 15 years later we have not seen much of an improvement in those metrics. In this economy and given competing innovation projects, there is a screaming need for the cost of ERP transactions to be dramatically commoditized.

Today, using the phrase from Dr. Thomas Harris’ classic, Lawson  is telling its hosting partners “I’m ok, you are not ok compared to Amazon”. Sorry, Lawson you need to dramatically rethink the application costs as well, not just that of the infrastructure.

Kudos on making the move. Just don’t stop here.

Private (Cloud) Phantasies

I am hearing plenty of conversations around private clouds. The basic theme is “we will virtualize our processing and storage and get many of the benefits of public clouds”.  And, of course, “we will have none of the security and service level issues with public clouds.”

Incumbent application vendors encourage that thinking as a way of deflecting attention from their own bloated piece of the budget. Outsourcers see that as a way to sell VM services. Life goes on.

But here is what clients are signing up for with private clouds:

Few tax or energy or other scale efficiencies

In my upcoming book, Mike Manos who helped Microsoft build out its Azure cloud data centers says

“Thirty-five to 70 individual factors, like proximity to power, local talent pool, are considered (as location factors) for most centers. But three factors typically dominate: energy, telecommunications, and taxes. In the past, cost of the physical location was a primary consideration in data center design.”

So the locations that amazon, and Google, and Yahoo! and other cloud vendors have chosen for their data centers reflect aggressive tax and telecommunication negotiations. Their global networks of data centers also allows them to do what Mike calls “follow the moon” – scouring locations every so often for cheapest locations to process energy intensive computing. 

Additionally these new data centers have massive machine to man efficiency ratios – 3,000 to 5,000 servers for every data center staff.

Few clients will get any of these efficiencies from their own data center or even from their “private cloud” outsourcing or hosting provider.

Little AM leverage

The last significant productivity in application management most companies saw was through offshore labor arbitrage. Companies have gradually seen that dwindle with wage inflation, younger offshore staff and related turnover. And the irony is even in massive campuses in Bangalore and elsewhere, there is no real management “scale”. If you walk into one of those buildings you see fortified floors which cordon off each customer’s outsourced team. There is very little sharing of staff or tasks across clients. Compared to cloud AM models, that is hugely “unshared” and inefficient.

Persistence of broken application software maintenance and BPO models

This blog is full of posts which talk about how overpriced on-premise application maintenance (from an Oracle or SAP or Infor) is. Increasingly, clients are moving to BPO arrangements and saddling those providers with the same bloated application contracts. Here is the reality – we need a quantum improvement, particularly in basic transaction -  per check or per invoice - costs. That is low value stuff and costs per unit have stubbornly remained the same over last two decades in many environments – no justifiable reason. Private clouds will do little to change this – in fact they distract from the need to beat these costs down.

Scarce VM resources

Through history we have seen that technologies which rely on optimization and constraint based algorithms are the toughest to build labor scale around. I recently had a conversation with client where after months their outsourcer still get their hands around the VM environment – just don’t have the skills and should never have offered to support  it. And if clients want to hire those resources themselves, they better be ready to pay a sizable premium over other staff on their payroll 

Private clouds will give many CIOs the comfort of “being in control”. They better be ready for a sizable premium for that “control”

How liberating the iPad will be

Marc Benioff says it will move us to Cloud 2:

“It’s not about typing or clicking; it’s about touching. It’s not about text, or even animation, it’s about video. It’s not about a local disk, or even a desktop, it’s about the cloud. It’s not about pulling information; it’s about push. It’s not about repurposing old software, it’s about writing everything from scratch (because you want to take advantage of the awesome potential of the new computers and the new cloud—and because you have to reach this pinnacle). Finally, the industry is fun again.”

I interviewed John Dean, former CIO for Steelcase for the chapter on Interfaces in my book. He was one of the earliest adopters of tablet PC starting with the HP Compaq TC1000 in 2003 and a proud owner of several since. He said “If I could get 15 minutes to spend with anyone, I could convert them to using a tablet.”

But he was also realistic

“Organizations need to redefine what is a “good-enough” deliverable. I wish I could just share what I sketch out on my tablet. But today I have to translate it into language of the Word and PowerPoint world. Ideally, those tools should be used for a limited number of formal documents and external presentations.”

Let that sink in for a minute. Can you imagine how liberating that would be if we could reduce the role of MS Office to only a finishing role?

Now that would like Marc’s vision of Cloud 2 really complete!

David, with slingshot

The timing is impeccable. I just posted on the New Florence blog excerpts from Chapter 9 of my upcoming book which deals with arsonists, disruptors and rebels who drive so much innovation. Included are extracts from my interview with Seth Ravin, CEO of Rimini Street. I updated the interview when Oracle sued Rimini in January, and Seth basically said “ we are not rolling over”.

I was not so sure, but this morning Rimini Street sued Oracle. Dennis Howlett and Frank Scavo have written about it.

To me, the slingshot Rimini has brought to the fight is an impressive one – 3 specialized law firms and one street fighter who has lived through death threats.

If I was Goliath, I would walk away from this one!

Rimini counter-sues Oracle

The third party maintenance war heats up as Rimini responds to Oracle’s earlier lawsuit. Will have more analysis once I catch up with Rimini executives. 

Next-gen BPO

I was part of a panel at the Shared Services and Outsourcing Network (SSON) conference in Orlando this week, moderated by Prof. Anthony Hesketh from Lancaster University Management School.

Tiger Tyagarajan, COO of Genpact, George A. Price Jr. sell-side analyst covering services at Stifel Nicolaus and I had a lively debate which brought out the tension someone like Tiger feels between delivering to “value” expectations of a financial analyst like George and the “value” clients expect based on advice from buyer advocates like me.

My view is BPO, particularly horizontal process BPO (finance, HR, procurement etc) is due for a major upheaval. The vision for BPO has always been to optimize the transactional metric end point – price per check, price per invoice etc. Somewhere along the way the industry accepted the albatross called “and do it with my existing system”.  When I go to a restaurant, I don’t take my Weber grill along and insist the restaurant use that. I go there expecting industrial scale food equipment, economies of scale in their food and other procurement and for the finished product to be as advertised - wholesome, well priced, well served etc. But we have burdened BPO with existing Oracle or SAP’s annual maintenance, and all the associated hosting, application management, upgrade cost.

Does it matter how my payroll check or AP invoice gets processed so long as the cost, quality etc are attractive? To twist Larry Ellison’s words does the check have to smell of Chanel's latest or be in its shade of  fuchsia or puce?

I talked to a few BPO providers after the session and the questions were what would you do? I would leverage the data center processing and storage efficiencies coming out of clouds. I would learn to leverage massively shared application management services and 5 minute upgrades coming out of SaaS world. Either partner with them or build your own. If the client insists on bringing their Weber grill in show them your industrial scale grill. Easier said than done – many customers are unwilling to write off their massive ERP investment and pay early termination fees to get out of bad hosting and AM contracts. Others will use their auditors as the reason – they have already validated our existing system.

Well, show them the financial analysis. In most cases you should be able to reduce the cost of the technology by 5X, if not 10X. Most reasonable business people will find that attractive. But you have to step up and show you can do it, not just keep supporting the status quo path.

And if the client still insists on continuing with the legacy technology, please don’t call it BPO. Call it what it is - Business Task Outsourcing. You are touching a very small part of the business process – and frankly opening the door for someone disruptive to come along and optimize the entire process at the fraction of the cost.

BTW – Alan Alper at Cognizant recorded some more emerging BPO trends in this video with Ramesh Ramani, who leads Cognizant’s BPO efforts for the bank and financial services vertical and me.

The “new normal” in telecom

I led a lively session at the Cognizant Community in Phoenix with Deb Lucas of Comcast and Thomas Knight of AT&T. I used 2 slides (extract below) to summarize all the innovation and challenges around telecomms showcased in my upcoming book The New Polymath. 

Deb described the automation and efficiencies Comcast is building into its OSS/BSS areas and Thomas talked about all the process and technology going into streamlined provisioning as AT&T rolls out its U-Verse fiber services around the country.

When I asked it they would ever outsource pieces of their network to others (NSN and other equipment manufacturers are starting to support the network for smaller telcos around the world), none of them seemed excited with the prospect. Partly understandable, partly not when the excitement in the sector has been coming “around” not “from within'” the network in the application, devices and content from Apple, Cisco, Skype, Google, Plantronics and others.

Still, it was good to hear from both (and others in the room) about the internal innovation within the bowels of their networks and related customer service, and the billing processes. They shared a sense of frustration that in spite of their efforts,  the public perception of the sector continues to be poor.

I walked out of that room feeling far more optimistic about large telco/cable companies. There was a sense of humility and quiet determination most consumers don’t often see from the outside looking in.

My slide content from chapter on networks: 

Innovation in the “new normal” in telecommunications

• Limitless telco opportunities – global markets and nomads, sensory networks, cloud computing, social networks
• Golden age of applications - Cisco telepresence, Westwood One digital audio, various mobile apps stores, Go Go wi-fly, Seanet, many more
• Global revolution - S. Korea, Estonia, Macedonia, Tibet, Rwanda, next gen telecoms
• Device richness – Apple, Android, Plantronics, Netbooks, Tablets, Navigation systems
• Infrastructure innovation – NSN, Huawei, greener technology, managed services
• Social CRM opportunities – ComcastCares, managed services
• Content/media churn – citizen journalism, weakening of previous “channel masters”

Challenges in the “new normal” in telecommunications

• Reputation International – telcos - 4th lowest of 25 industries across 32 countries
• Fall out from iPhone 3G service issues
• France Telecom spate of suicides
• Community discontent – Lafayette, LA; more aggressive FCC, Google Broadband
• Quasi-government image – stodgy customer service, high taxes, surveillance wariness
• Economics – telco/cable versus thermostat
• Global Competition – MPLS, roaming options, EU caps, cutting teeth on ARPU of $ 5 (a quarter)
• Perception of innovation “around” not “from” telco/cable cos

More book excerpts

From upcoming book - The New Polymath

Consumerization of Technology - highlights the trend of the last few years where we have given the consumer unbelievable access to technology – and how that empowered consumer is changing every aspect of business.

The Irish version on St, Patrick’s Day - The book celebrates innovators from around the world including two from the Emerald Isle.

 

A thousand curses on Google!

So, I have roughly a week to go through the copy-edit of my book and slip in any updates since I filed the manuscript in January. And I find I have to mention Google’s broadband plans in the chapter on networks. And the Nexus One. Have to mention Buzz in the chapter on the other networks – the social kind. Touch on the Google-China spat in the chapter on ethics. Fit in the Apps marketplace in the chapter on clouds.

Slow down, will you, Google?

Actually for a book on innovation, Google is a fire hose. It is not one of the anchor 8 Polymath case studies in the book, but its presence is felt in many, many parts of the book.

Of course, it’s not just Google. Have to work in the Apple iPad in the chapter on interfaces, the Bloom Box in the chapter on sustainability, Obama’s health plan ups and downs in the chapter on singularity, the Altimeter SCRM study into the chapter on social networks. And a couple of mergers, a couple of executive moves, a couple of lawsuits that affect my interviewees in various chapters.

As a wag told me “Next time write on a more static topic – like dead people!”

I did not have the heart to tell him the book does have several dead people. And I would not let them rest in peace. In the climax chapter I bring 10 Polymaths from history – Da Vinci, Ben Franklin, Plato and others – back to life.  They inspire and lead a conference on innovation.

I just hope these reincarnates don’t start learning to drive and start having wild parties. I have no interest in updating the book further with any such escapades.  And frankly, every passing week just gives Google a chance to grab even more ink in the book.

Time to tie the bow. 

As it stands now, the book ends with Michelangelo proposing a toast to the uomo universale, the Italian term for Polymath…

BTW – excerpts from book are here and here. More to come.

The IT Industry's Shame

The last few months have been joyful. I have had a chance to mingle with a number of innovators as I wrote my book. Many are focused on the Grand Challenges the word faces - environmental, engineering etc. It is so exciting to see them focused on the big, honking, hairy problems we face.

In contrast, one of the darkest moments in my career came a few years ago when I was visiting the chief executive of a well-known institution. They were about to start an ERP project but he might as well have been a man headed for the gallows. Head hung low - all he could talk about how much of an overrun he needed to prepare his organization for. And his project had not even started. I felt sick - never felt so un-proud of my chosen profession. I could not give him much hope that his pessimism was unjustified. Even after the experience of hundreds of thousands of ERP and other enterprise projects, they fail at alarmingly high rates.

Why do we continue to accept this industry blight, smart as we are as an industry? And worse, why do we blame "stupid customers" for these failures? Or why do smart people like my friend Mike Krigsman continue to talk about "everybody's to blame"? Shared blame without root cause analysis is no blame. It's the cop out as when cops choose not to issue tickets in car accidents. It's the equivalent of the car insurance company saying "let's all be one happy family and share the cost of an accident equally".

In custom development projects, with no external consultants, of course the buyer is to blame for a failed project. In projects where they recklessly ignore the implementer's advice, you can understand it's their fault. But when a systems integrator who in proposals boasts about having done similar projects hundreds of times, and when the software vendor trains and certifies the consultants and does pre-go-live checks - versus a buyer team which is likely implementing it for the first time, how can we in good conscience blame the "stupid customer"?

It's not just ERP projects. IT and telecom vendors get 80 to 90% of the average company's technology spend. It's time for them to step up - mano a mano - and take responsibility, not get their attorneys to posture customers deserve most of the blame.  And for pete's sake, when will we be embarrassed as an industry after decades we cannot still do well such mundane implementations compared to some of the Grand Challenges others are stepping up to tackle.