2020s - Embracing Complexity in Enterprise Tech

I wrote couple of weeks ago about missed opportunities in the 2010s in enterprise software and in outsourcing. That backlog did not disappear - it has created even more opportunity for this decade. However, as I caught up on my reading, podcast listening and keynote watching over the holiday break, I have become even more convinced that enterprise vendors and customers will need to make sure the 2020s are very different. In this post, I will explain how and why. Next week, I will discuss how we at Deal Architect hope to help the industry aim much higher.

A) Inspiration from FritoLay/PepsiCo

I had a chance to listen to Michael Lindsey, SVP, Chief Transformation Officer, and Strategy Officer at FritoLay present at Dreamforce. His portion starts around 29:00 in this video 

Here are some of his comments on how they have "embraced complexity" at Frito and its parent, PepsiCo

"Consumer expectations are just exploding in complexity....it used to be the case that we'd have five or six of our classic billion-dollar brands and that would be 90%-ish of the consumption...Lays, Ruffles, Cheetos, Fritos, Doritos, the ones that everybody knows and loves and it'd be in a relatively small number of flavors. Used to be the classic orange Cheetos. But now, we have flaming hot. Organic Cheetos. White cheddar Cheetos. White cheddar puff Cheetos. White cheddar crunchy Cheetos.

And now we have banana chips...apple chips... seaweed flavored snacks. The world is exploding around us in terms of what consumers want as we get more cross-cultural pollination. That variety introduces just an immense amount of complexity into our system.

One of the things that's unique about FritoLay besides the breadth of our portfolio is how big an end-to-end system we run. We have more trucks and a larger fleet than UPS, than FedEx, and the reason we do that is because we can control the entire process at FritoLay from the seed that's used for the potato to where it's manufactured to the distribution systems to the trucks that deliver to the store. When you go into one of our favorite customers on a Saturday and you see somebody working the shelf, that's a Frito Lay employee who is making that shelf look perfect for us.

Retail is absolutely still our dominant channel. But even within retail our large customers have become omnichannel. It's not that the store will go away, but the way that the customers, their shoppers interact with the store is shifting over time as well where people are pursuing new models, whether it's click and collect models, whether it's order and have it delivered from the store to their home. We have to be able to both supply that from a product supply standpoint to keep it always in stock, always on the shelf with perfect availability. We have to continue to invest and help our retailer customers understand their shoppers and their consumers in-depth in a way that perhaps they can't within our specific category.

Across the world about a billion times per day somebody is eating or drinking one of PepsiCo products. We have an agricultural system that touches 60 countries across the world, so we recognize that we're a big part of the overall food and beverage ecosystem and that we have to do our part to make sure that we can drive sustainability on water, on agriculture, on plastics, etc.

Our new CEO and chairman, Ramon Laguarta, developed this mantra on winning with purpose, which is that we're going to win, but we're going to embed purpose in everything we do all the way down to the way that brand is executed on the shelf to make sure that the packaging, the way that we advertise, the way that we market, the way that we develop our products has purpose and sustainability threaded throughout."

And then was to me his money quote that enterprise vendors need to factor. Too many of them defined their customer needs, their TAM and competitive landscape too narrowly in the last decade:

"(It's our) fundamental cultural idea to embrace complexity. That's one of the challenges, one of the mantras that we've been using internally because, as the world gets more complex, it's natural to then try to work your way through and manage through the complexity, trim out the long tail of SKUs. But if you want to capture every last moment of growth, every potential consumer or shopper out there, you have to just embrace that complexity; accept that the world is going to have a lot more products, a lot more channels, and you have to find a way to use technology and data to manage that and manage that effectively to delight your consumers and your shoppers."

In contrast, I next read a BusinessWeek article about Larry Ellison and Oracle and I was dismayed how "un-complex" they made Oracle applications sound.  "Ellison said doing well in the database market and with financial applications is enough for him. “If we’re successful in those two markets, it should be enough to make a living,” he said during a September call with analysts." I went back and checked the call transcript and Larry actually said "ERP back-office in the cloud, Autonomous Database in the cloud, we're successful in those two markets, should be enough to make a living." So, his scope was a bit more expansive but my reaction was "The Number 2 apps vendor in the world (at the start of 2010 but no longer so at the end of 2020 as it missed out on digital advertising, IoT, various verticals) is content just selling back office apps?"

Not just picking on Oracle. Every vendor played "small ball" in the last decade.

B) Inspiration from Apple

I was re-reading Marc Benioff's new book, 'Trailblazer" (I have a longer review here). He mentions how he played a role in the launch of Apple's AppStore 

"For me, it was exciting and humbling. And Steve (Jobs) had unwittingly given me an incredible opportunity to repay him for the prescient advice he’d given me five years earlier. After the presentation, I pulled him aside and told him we owned the domain and trademark for “App Store” and that we would be happy and honored to sign over the rights to him for free. By 2019, (Salesforce's platform) AppExchange had more than five thousand apps available for purchase, ranging from sales engagement and project management tools to collaboration aids. And nearly 90 percent of Salesforce customers were using them."

Marc rightly deserves credit but he neglects to benchmark his store's revenues against that of Apple's. His store has been in existence longer and by my estimate generated less than $3 billion in revenue in 2019 compared to nearly $40 billion at the Apple store. That means significantly higher royalties for store partners and much more choice for customers. Still, Salesforce has done much better than SAP's many stores - around mobile, HANA, cloud platform etc - and those of other enterprise vendors. The industry needs to embrace complexity to make their platforms and partner programs much more attractive to ISVs.

C) Inspiration from Tesla

While there is a big opportunity to grow bigger ISV communities, in reverse there is a significant opportunity to shrink the SI/outsourcing burden around enterprise apps.

I was fascinated by the visceral, loud reaction to Elon Musk's Tesla Cybertruck concept. As this designer, however, points out "Despite the radical aesthetics, the Tesla Cybertruck is a shining example of function-over-form, and it is perfectly designed."

Can you imagine if SAP similarly looked at function-over-form in its services ecosystem as it tries to migrate its customers from ECC to S/4HANA?

It could make consultant certification much more vigorous, it could push for more automation, shared services and virtual delivery in its services partner. Even better if its service partners did things differently this time. They have implemented millions of ERP projects in the last couple of decades. They have enough data to train machines to automate configurations, to develop conversion and testing routines, to develop training routines differently. They can use multi-tenancy concepts. As an industry we can and should make these projects predictable and much more affordable. Yes doing so will bring complexity, but we need to embrace that complexity.

D) Inspiration from Andreessen Horowitz

I was watching this video from Frank Chen, partner at Andreessen Horowitz look ahead to what life may look like in 2030 - he uses his daughter for scenarios around diet, exercise, virtual work etc. 

Frank may be sticking his neck out projecting a decade ahead but it shows how his fund is thinking.

I was hoping Infor's new management would have similarly showcased scenarios around what the retail store might look like in 2030, or even 2025. Or the hospital emergency room. Or the shop floor. Or last mile delivery. And how they are helping make those scenarios a reality. Verticalization is Infor's path to differentiation - has been for a decade. Of course, it would be much more complex, but in a recent presentation, they barely touched on what it is planning to innovate around industry applications.  

Not just picking on Infor, most vendors have invested in brilliant technical architects but missed out on process visionaries who would have allowed them to think very differently like, for example, Amazon has with its "chaotic storage" warehouses. 

I could go on - so many other opportunities for enterprise tech vendors in terms of new function points, globalization, multi-cloud infrastructure, continuous improvement in delivery and other areas.

It's not just vendors - enterprise customers have to embrace complexity as well. Many are content to stick with legacy apps which are compliance and security risks, and increasingly recruiting liabilities and unlikely to support machine learning and other innovations. They also keep waiting for the elusive single-source, wall to wall solution from a single vendor when they can already re-imagine every business process by integrating a set of modern tools.

And so do us enterprise analysts. Next week, I will describe how we hope to help buyers and vendors do things very differently this decade. To help them become more comfortable embracing complexity, we ourselves have to become so comfortable ourselves.