deal architect

SAP – Smooth and Relaxed?

Let me start off by saying I am really pleased I went to SapphireNow this year. I saw what I called the “dawn of intelligent applications” with Leonardo. I liked CEO Bill McDermott promising to do more for customers about toxic contract terms. I liked that the partner booths appeared much smaller than few Sapphires ago – books have been written about the massive and expensive ecosystem around SAP

But I am not sure customers want SAP to be “smooth and relaxed” as Dennis Howlett puts it after the recent earnings call. From a customer point of view there are areas where SAP should chill, others where it needs to be more assertive.

a) Be nice if SAP accepts that S/4HANA adoption in the incumbent customer base will be nice and gradual, as the product functionality incrementally evolves and the product becomes more stable. In volume 2 of SAP Nation, I presented the industry track record on next-gen products – at Oracle, J.D. Edwards, Infor, Microsoft and even at SAP with NetWeaver and I concluded:

a next-gen product takes years of development and maturation. Migrating a legacy customer base takes even longer. Those are just the laws of physics. SAP may be able to bend these laws slightly with S/4, but will likely not be able to break them.

So, personally, I have had modest expectations of S/4. SAP , or at least its marketing, does not agree and they claim it is “the fastest adopted product in SAP history (and) is available for all industries” Much of the adoption has been with smaller new customers. Existing customers are feeling the pressure to migrate when they find incumbent technology pretty stable and the migration costs, like a re-implementation, hefty. I would rather SAP savor S/4 progress like Charles Phillips, CEO of Infor commented about cloud adoption in his customer base in response to my note “If you hadn’t heard the 90,000 (total customer count) number, by any measure you consider over 8,000 individual companies (in the cloud) in 3 years a success.” S/4 is breakthrough in-memory, next-gen UX product. SAP has done well with sales so far. They should relish the progress not overhype its scope or coerce adoption within incumbent customers.

b) On the other hand, not sure SAP should be comparing itself to Workday and saying things like “And I can only tell you that based upon the way they’ve been purporting themselves in the market with letters, with fake news to customers and things like that we’re bringing our A-game.” Let analysts like me deal with such behavior, if true. Customers don’t want SAP fixated on Workday. They expect SAP to be aiming much higher – creating next-gen versions of hairy industry-specific books of record – retail merchandising, healthcare electronic medical records, utility billing – not being content with back office functionality. They expect it to be catching up to consumer tech leaders like Amazon and Google when it comes to data centers and artificial intelligence. In fairness, it’s not just SAP - for the amount of money customers pay enterprise software vendors, they need all of them to aim much higher.

c) Customers want SAP to be hyperactive in other areas. They have been loyal given the stability of the products particularly of R/3/ECC. But many are not happy with the cost – value from maintenance is low. The indirect access clause and other toxic contract disputes are frustrating many of them. Most have heavily customized SAP and surrounded SAP with cloud solutions. It is good to see SAP deliver tools like Transformation Navigator, but feedback from customers is they are aimed to help SAP sell its new products not as much un-tangle the hairball they find themselves in. Two decades ago, customers used SAP to replace tens, even hundreds, of departmental applications. Now their SAP landscape has become just as complicated.

SAP is doing lots of good things. It needs to do other things better. The end goal should be that customers feel “smooth and relaxed”.

The Clover-Leaf Talent Economy

In analyzing factoids from the recent listing of the Fortune 500, I came up with a startling data point. The F500 have a combined total revenue of $12.1 trillion equal to 65% of the US GDP.  Yet they only employ 28.2 million people worldwide. Assuming 60% of those are in the US, that is only about 10% of the US civilian workforce. What’s going on here? We have become a clover-leaf labor economy. Let me explain.

Management philosopher Charles Handy was prescient when he wrote in his 1989 book The Age of Unreason about the "Shamrock Organization." With Handy’s Irish roots, the shamrock seemed fitting as the organization he described also had three "leaves":

• The first leaf of the shamrock was made up of key executives and professionals who possessed the skills that reflect the organization’s core competence.
• The next leaf was made up of project specialists who are hired on contract and paid in fees for results rather than in wages or employee benefits.
• The third leaf comprised the contingent work force for short periods of engagement, usually paid by the hour or day, often through temp agencies.

You could argue that if Handy had written the book today he would consider a four-leaf clover as his defining metaphor, with the fourth leaf covering machines, robots, and other automation as an increasing another source of the "talent".

Actually, clovers can have many more than 4 leaves. The Guinness World Records says one was found with 56 leaves (see photo below). If you look at all the ways organizations utilize talent these days, they have clover-leaf talent models, most enabled by advances in technology.

Apple has several thousand employees on its payroll who develop products which are then sold in its retail stores. But those employees are just a small fraction of its talent base. Its contract manufacturer, Foxconn, employs thousands of employees and robots in its manufacturing plants in China. Those plants also have interns and other staff hired through third-party recruitment firms. Apple’s third-party logistics providers like Fedex have a similar mix of man and machine. Apple uses plenty of digital agencies, law firms, systems integrators, and architects. There are also millions of associated jobs around the apps, music, movies, books, and other items in the Apple ecosystem. Just around apps, Apple claims to support a broad community: "Nearly three-quarters of those jobs—over 1.4 million—are attributable to the community of app creators, software engineers and entrepreneurs building apps for iOS, as well as non-IT jobs supported directly and indirectly through the app economy.” Apple says its global developer community has earned over $70 billion since the App Store launched in 2008. Not peanuts.

Amazon has communities of authors who publish using its Kindle Direct tools, couriers who are part of its Flex delivery ecosystem, "providers" who complete tasks in its Mechanical Turk service, and a vast range of third-party merchants who utilize its fulfillment capabilities. (According to estimates, as much as 90% of certain product categories such as patio furniture sold on Amazon come from third parties.)

Uber calls its drivers "partners"—spread across 400 cities around the world. Airbnb has "hosts" who manage over 1.5 million properties that it lists. The partners and hosts are not employees. Rather, they use the technology platforms of these companies to connect with millions of users who use their apps for commutes and lodgings.

Then there is the franchise model, which has come a long way since Ray Kroc built the McDonald's empire starting in the 1950s with his phrase, “In business for yourself, but not by yourself.” Franchises of every flavor – from Ace Hardware to UPS Stores - account for nearly nine million U.S. employees.

Even more mainstream companies use various flavors of outsourcing. Companies use contract manufacturers, third-party logistics providers, digital agencies, product-design firms, law firms, IT providers, and business process outsourcing services that are "off balance sheet”

Most enterprises have been experimenting with customer self service via ATM machines and other kiosks, interactive voice response, mobile apps, and other technologies. It is a version of "the customer as worker"—helping them help themselves rather than depending on an employee for specific services.

Finally, there is the government sector and plenty of small businesses/professional firms which do not interact much at all with the Fortune 500. Think of alternate healthcare providers (acupuncturists, chiropractors etc.) or ethnic grocers or local traffic or divorce focused attorneys or CPAs.  

So, what does this mean for talent managers and talent watchers?

- Our systems are too focused on hiring and managing full-time employees. This when our talent base may be 80% to 90% outside our organizations and we may have little understanding of or quality control over that talent.

- There are lots of career choices available to our employees. We should be thinking about recruiting and retention policies with this broader landscape in mind.

- Academic institutions (and their students) have tended to prioritize Fortune 500 brands in their placement activities. They may start to play the probability game and start focusing more on the labor economy surrounding the F500. 

- Economists have not been tracking the “surround” economy well – they glibly combine all these talent sources and call it the “gig” economy and even more glibly just talk of all this as the “Uber economy”. From that you get the toxic “the middle class is dead” talk. They don’t bother to check why Costco and Southwest Airline and GM dealer aisles are full. It’s not the 1% ers or the F500 employees. It is the vibrant surround talent economy.

It is highly unlikely the F500 will reverse the trend and start bringing this talent back in. They like the flexibility of this clover-leaf model. They need to be nimble. Only 10% of those on the F500 list 60 years ago still make the list this year. They cannot afford life time employment models and related pensions and other benefits when their average life is under 20 years.

But it does mean our talent management principles need to evolve quite a bit to better understand the other leaves of our clover-leaf organizations. And we need to also focus on what accelerating automation and smarter machines will do to these talent models.

Inforum: Mixed emotions

Updated with comments from Charles Phillips, CEO of Infor

The buzz at Infor’s annual user conference (and a side analyst summit) was around Coleman, the AI platform Infor announced to use “powerful machine learning to improve processes such as inventory management, transportation routing, and predictive maintenance”. The name Coleman is a nice touch – honors Katherine Coleman Johnson, a NASA pioneer depicted in the movie “Hidden Figures”. But I left with many questions about the technology, as I have done with the spate of such announcements from most ERP vendors.

I was more impressed with a few other things at the conference

- I liked a talk by Steve Feilmeier, the CFO of Koch Industries which has recently invested $ 2.5 billion in Infor. Koch is one of the largest private companies in the world with a broad portfolio of investments. He said the investment in Infor was driven by “paranoia”. He cited how Uber had impacted the car rental business, how evolution of seed genomics is affecting farming – in effect, STEM is transforming every one of their portfolio companies. Infor brings them a portfolio of skills and IP which can help the digital transformation of many of these companies. At a tactical level, they will adopt Infor HR, financial and asset management software. But Infor also brings a lot of smart human capital, I have previously written about, including Hook and Loop Digital and Dynamic Science Labs which can help in much more creative transformations.

- I also liked other customer examples I heard of as in Infor’s role at one of the largest mixed commercial and residential developments in the world and at the Commonwealth Games at City of Gold Goast (Australia) helping with among other things utility billing and permit applications. That reminded me of the One Microsoft strategy where a single vendor can bring a wide range of capabilities to bear. Like Microsoft, though, Infor executives are afraid of the tag “systems integrator” and want to continue more with a “build once, sell often” model (and one reason I have not written about One Microsoft in a couple of years)

- I like the progress Infor has made integrating and modernizing two recent acquisitions, Birst, a BI platform and GT Nexus, a network of global logistics, trade and related finance

CEO Charles Phillips summarized the progress his team had made since they arrived six years ago, in the slide below.

They have turned around what was an unwieldy and uninspiring portfolio of products, but I think they could have delivered so much more on the bottom layer - the vertical strategy they embarked on. By now they could have had dominant products in retail merchandising, utility billing, healthcare EMR, hospitality CRS – each screaming for modern architectures and choices beyond players like SAP, Oracle and Epic. Instead, Infor has some basic vertical functionality as with healthcare features in Lawson’s finance and HR modules. That to me is horizontal functionality with a thin veneer of vertical.

In contrast to the products, Charles and team have not been as successful in turning around the customer base (in fairness, other legacy ERP vendors have not done much better). Initiatives like UpgradeX launched years ago should have delivered considerably more transitions than the 8,500 customers it reports in its cloud.  The reality is the majority of the Infor customer base of 90,000 (per its web site) is slow moving, and you cannot ignore that when you consider the innovation talk from its management team.  Which brings me back to Coleman, the AI platform. Charles: On the 8,500 customers, keep in mind these are business critical applications and our larger enterprise customers.  Getting that many in 3 years is a stunning number.  And we did while maintaining strong margins and growth.  There aren’t too many companies that have done anything at this scale.  Whether we have 9,000 or 90,000 total customers isn’t the issue.  It’s how many absolute numbers of customers is reasonable to move given the mission critical nature of these apps and how many projects can the ecosystem handle in a year.  If you hadn’t heard the 90,000 number, by any measure you consider over 8,000 individual companies in 3 years a success.   Each customer needs to assess the new product, analyze customizations, get funding, get approval, review integrations and reports, and evaluate cloud security, and migrate terabytes of data.  This is not moving your email.  It just doesn’t happen in days.  And it’s the larger more complex companies that were more attractive economically so that’s who we are moving first.  That’s larger than the customer base of most companies in our industry. It’s absolute numbers not just percentages. 

My view is ERP vendors, not just Infor, are out-marketing each other with AI buzzwords and monikers (and players like Salesforce with its own impressive moniker, Einstein). If they were serious about automation, they would already be doing lots more with robotics, drones, wearables and 3D printing in shop floors and warehouses to help customers move to newer advanced manufacturing and logistics models (as I describe in Silicon Collar)

AI has been evolving for decades and the current excitement is we have oodles of data and compute power to teach machines. Infor has been doing custom analytical projects optimizing prices and inventories for some customers. But it is a small sample. The faulty assumption is ERP vendors have access to lots of data. On-premise implementations or single tenant clouds do NOT have much easily accessible data, certainly not diverse enough data that you can get across pools of customers. Then you have privacy and permission issues which further reduce the usable data.

I have a feeling Coleman for a while will mostly deliver on what the press release says “uses natural language processing and image recognition to chat, hear, talk, and recognize images to help people use technology more efficiently.” Infor has a strong relationship with Amazon as its cloud partner. It can use its Lex, Polly, and Rekognition AI services. But so can anyone else.

In Infor’s case, you have decent volumes of data in pockets - in the GT Nexus network or collected via ION in customers which have adopted that middleware. So, it will be interesting to see the use cases they do announce for Coleman. There was not much in the way of specifics at Inforum. Given the slow-moving customer base, the caution may be justified.  Charles:  We also have data in the cloud via Birst. Birst is a pioneer of native cloud BI.  They created the concept of networked BI – the ability to create semantic consistency across federated data sources at the source.  They ‘ve always had a strategy of propagating data to the cloud from on premise or other cloud services.  They then help customers with a wide range of analytical services from visualization, and discovery on the front end to automated data refinement at scale across complex, disparate schemas.   So they are used to getting data to the cloud as part of every project.  Customers have multiple apps and databases across multiple locations in different lines of business.  Moving that data to a central location in the cloud is standard procedures for Birst customers. 

Overall I left with more questions than answers – one reason I prefer more dedicated analyst summits.  User conferences are for customers – they deserve the executive attention. 

SAP Leonardo: The dawn of intelligent applications

At SapphrieNow a few weeks ago, SAP’s Hasso Plattner painted the vision of “Intelligent Applications” to include

• Intelligent Transactions – automate high-frequency repetitive tasks
• Analytics – make data-driven insights available to everybody
• Collaboration – tap into the collective intelligence of knowledge workers
• Digital Assistant – provide the right answer at the right time

SAP also expanded its Leonardo innovation toolkit beyond just an IoT stack to allow for more innovation technologies as a way for customers to built their own version of intelligent apps.

I was pleased to see that. Brian Sommer and I have been surveying Digital Transformation at a number of companies and we find rethought processes bound together by a coalition of automation, mobile, analytical, social technologies is allowing them much better options that waiting for vendors to deliver updated, packaged processes.

At an Industries update, SAP showcased how Leonardo would be its toolkit for such innovation. One way is through a series of "accelerators" with projects lasting between 2 and 6 weeks

The other path is more customer-specific and more open-ended using their Design Thinking services and the Leonardo toolkit. This could take 12+ weeks. My immediate reaction was this may be a bit too services heavy.

But that concern dwarfs compared to another one when I saw this slide (click on image to expand)

Look at the systems of record in the slide. There is no industry functionality – no utility billing, no retail merchandising, no electronic health records. They mostly cover the back office, and horizontal processes at that. S/4 at present is mostly finance, the others cover hr, t&e, procurement and eCommerce. Most impactful Digital Transformation projects are developing next-gen smart products and services and rethinking business models. 

I think SAP is at a crossroads – it needs to get serious about modernizing its industry solutions (think of what in-memory computing can do to turbocharge many of those transaction intensive solutions and how much the processes need to be updated for the new world of AI, robotics and other automation) and it needs to focus Leonardo and its ecosystem on product and revenue-centric processes at its customers.

I am not convinced when and if it will do the first (in fairness Oracle, Infor, Epic and others have not modernized their vertical solutions either). The second will require collaboration with a new batch of design firms, contract manufacturers, IP attorneys etc.  who live and breathe the world of product engineering and business models. SAP keeps going back to its “old, faithful” stable of Big 4 firms, IBM and Indian heritage firms. It will need to expand that club.

The concept of Intelligent Apps is hugely exciting. But with a huge percentage of revenues coming from traditional transaction systems, can SAP make that transition and lead customers there? It will be interesting to watch.