deal architect

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.