deal architect

Time for a pivot in enterprise software

On Saturday, I watched the Berkshire Hathaway annual shareholder meeting. Warren Buffett was less than optimistic: “During the last six months or so, the “incredible period” for the US economy has been coming to an end”

Earlier in the week, in a welcome letter to analysts for the Zoho event in Austin,  Vijay Sundaram , Chief Strategy Officer pointed out

‘The SaaS model, as validated during the pandemic, will stay and thrive. But many providers won't. We believe that the next 10 years will be influenced by the recessionary conditions that have begun. Venture capital will now chase AI—the new shiny object—leaving less capital on the table for SaaS. Valuations will drop for the vast majority of companies that remain unprofitable and cannot feed the growth-at-any-cost monster. The industry will restructure as value shifts back to customers.’

It's hard to argue with either, but I am sure Buffett will find diamonds in the rough even in a challenging economy, and Zoho is doing well with its very different business model especially in emerging economies that are growing even as Western economies are slowing down. As Peter Maier of SAP, who I am moderating in a session at Sapphire next week, would say as his recent book does – it’s time for Business as Unusual.

In the doom and gloom in tech these days – valuations are down significantly; layoffs are up significantly,  there are at least four market segments which still show strong growth potential.

Vertical “edge” applications

A whole bunch of vertical edge applications became viable/necessary as a result of “shocks’ from COVID, Ukraine crisis, massive digital transformations and impact on every sector. They include servitization driven CPQ (to handle product, various services, spare parts, financing etc.) in industrials, smart insurance using new risk analytics, telemedicine in healthcare, curbside pickup and smarter ecommerce returns processing in retail, EV charging management and billing in auto etc. We are tracking over a hundred “edge” application areas. Most of them we could not have imagined 4-5 years ago – industries have been reshaped so rapidly in recent years by those shocks.

Emerging economies

On the recent trip to India I spent time in 7 states across the country. I saw a very different energy and pace. They are in a hurry to make up for lost time during COVID and to match China’s speed. We have long talked about “two-tier” ERP opportunities around subs of multinationals around the world. That opportunity is still wide open. The bigger opportunity now, though, is with fast growing, midsized local enterprises in not just BRICS countries, but also Indonesia, Nigeria, Chile and many others. However, they need different functionality, go to market and price points than selling in the West.

Generative AI

We are still in the first innings of what machines can dream up based on massive data we can train them on. And most vendors are still focused on the plumbing – should we use tools from Microsoft, Google, IBM and others or cobble together our LLMs using open source components. The winners. to me, will come from those who focus on differentiated use cases and gather mountains of relevant data.  All the more reason to invest in industries and geographies which differentiate you.  

Low code custom development

The vertical and geographical solutions I describe above are needed today. Many buyers are not willing to wait years. Others are tired of the cost and pace at which enterprise solutions are delivered.  They have started to arm their domain experts with low code solutions to at least get version 1 of the functionality in place. Too many software vendors think the low code tools are their differentiator. This is a bigger opportunity for service providers – again, those with deep industry and geography credentials.

Each of these markets will require new investments, not spray painting of existing solutions. Does not mean existing ERP, CRM and other markets will go away. But repaving older cow paths does not generate adequate ROI, especially when so many analog processes are screaming for digital innovation.  

Time for a pivot. Time to think Business as Unusual. New frontiers await.

Analyst Cam: SAP Verticals – Aerospace & Defense

As we have moved to virtual briefings, I have increasingly been excerpting short video segments (with permission) as part of my Analyst Cam series.

This time it is Torsten Welte, Global VP and Head of Industrial Business Unit for Aerospace & Defense at SAP.

As you see in the image (and much more in the video ) below, the coverage is mammoth but as he says it's only the "guys that make the toys, not play with the toys". SAP's Travel and Transportation Group covers the airline operators, the Public Sector group covers space agencies like NASA and ESA, SAP's SuccessFactors and other units cover the human side of these large customers.

I tell him I am envious he gets to go to Paris, Farnborough and other airshows. The technology in modern spacecraft, avionics, eVTOLs and naval equipment he covers is drool-inducing and the design, manufacturing, monitoring, maintenance, earned value calculations, contract management have all evolved to keep up. Torsten talks about smart factories, digital twins, augmented reality, robotics, ML-enabled inspections and more as part of the solutions SAP and its ecosystem is delivering.

When we recorded the session, he was getting ready for the industry Innovation Day SAP hosts every year. This year it was in Huntington Beach, CA.

Torsten told me later they had “over 250 experts from the industry.  During the innovation days, the community comes together to network and exchange their best practices and learnings.  Our host company provides insights into their operations and innovations.  This year, Northrop Grumman was our host. Besides touring their facility, we got insights on the James Webb (telescope) project.  Truly an amazing innovation in technology and how it was launched in space.”

“Presenters showcased projects which tackled supply chain planning and manufacturing constraints.  It was all about visibility and operational improvements through digital. They showcased solutions to manage data to make the right decision to improve throughput, cost, optimize constraints, and stay flexible.

Very exciting to see SAP solutions helping the industry to not fly blind.”

Torsten does a really nice job covering all of that in half an hour.

Analyst Cam: SAP Verticals - Semiconductor

As we have moved to virtual briefings, I have increasingly been excerpting short video segments (with permission) as part of my Analyst Cam series.

This time it is Jeff Howell, Global Vice President, Head of High-Tech Industry Business Unit at SAP.

We have all heard about the geopolitics and risks of continuing to be dependent on SE Asia for a steady supply of chips. We have heard about the chaos in the auto sector with the inadequate supply of that increasingly important component as vehicles get smarter and electrified.

Jeff takes us through a much more nuanced perspective on the complexity, the long lead times and capital intensity of the semiconductor sector. I was first introduced to him as I was helping SAP with research on the recently released Business as Unusual book (available on Amazon – click on badge on left)

Here are just a few excerpts from the conversation in the video below:

• The semiconductor industry amounts to 0.3% of the U.S. GDP, yet semiconductors are required to produce 12% of the U.S. national output. It is even more pronounced in Japan -  with impact on 30% of their national output
• If you and I decide to go into the chip making business we would need to come up with $10 to $15 billion and spend about two to three years building that production capability
• Over 400 chemicals are used in a combination of solids and gases to make those chips. Over a dozen noble gases on the periodic table are critical supplies
• Roughly 30% of the neon that's needed in the semiconductor industry comes from Ukraine
• 2 to 4 million gallons of ultra-pure water are required every day during the chip production process. Almost half of all the world's chips are manufactured in Southeast Asia. Well, a couple years ago, there were droughts in Southeast Asia  
• Every wafer produced in a typical fab generates two to three gigabytes of data and you multiply that by 24 wafers in a lot and 1000s of lots per day, it's very easy to come up with terabytes, and generate even petabytes of data every day.
• The little known fact is more than 80% of that data is never even looked at - not enough process engineers who can examine that data

He spends a fair amount of time talking about networks like Catena-X which is auto industry-centric but heavily depends on semiconductors. He cites use cases at companies like NVIDIA and Wolfspeed (a critical supplier of silicon carbide) and partners like PDF which helps companies analyze that mountain of operational data for better yields and other outcomes. He also discusses how SAP is blending financial and operational data for the sector.

It is a master class on critical components for so much of the economy and the unique systems the industry needs. Very nicely done in about half an hour – he could easily have gone much longer

Analyst Cam: SAP Verticals - Chemicals

As we have moved to virtual briefings, I have increasingly been excerpting short video segments (with permission) as part of my Analyst Cam series.

This time it is Matt Reymann, Global VP of the Chemicals Business Unit at SAP.  He provides an overview of SAP’s extensive work in the sector. Did you know 99 of the top 100 chemical companies run SAP? And that SAP's first customer 50 years ago was a chemical company, ICI. So, as Matt says “Chemicals are in SAP’s DNA… as technology has evolved, as our customers have evolved, we've evolved with the industry.”

Matt has example after example of innovations in the sector like molecular recycling. He shares use cases across the enterprise as in the graph below.

He also covers business model changes where as with complex industrial products, chemical companies are learning to sell their products and capabilities as a service. He also cites examples from the new SAP book, Business as Unusual.

Very nicely done in 30 minutes. His passion for the sector really shines through. And you get a really nice perspective on the macro trend in a sector which has an impact on most everything we use on a daily basis.

Salesforce: Plenty of growth markets

Most of the recent analysis I have read about Salesforce has focused on the stakes taken by Starboard Value and Elliott Management. Activist investors play a useful role as they push for efficiencies and resets to increase shareholder value.  I hope in this case, however, the activists don’t just use old playbooks and benchmarks. We have entered a very different world of enterprise applications. Four big drivers – COVID, the Ukraine energy crisis, climate change urgency and major digital transformations – have opened up a slew of new enterprise application markets.

Take intelligent returns in retail as nearly 15-20% of ecommerce sales are returned and have to be efficiently restocked, refurbished, scrapped or donated to charity. Or complex CPQ as companies “servitize” and bundle products, services, spares, financing and more in outcome based contracts. Direct to consumer models that take advantage of new micro-fulfillment ecosystems. Field service of complex equipment which leverage mixed reality and digital twins. Smart insurance as cars get smarter and more connected. EV battery charging operations. Applications for the emerging hydrogen economy. Applications for the growing utility prosumer market. Telemedicine. Digital mortgages.

I could highlight another hundred such applications which have emerged or accelerated in the last few years. These are nascent markets and easy to dismiss.  There is plenty of wishful thinking – help me find the next ERP or CRM market. I have been in the industry long enough to have seen when both ERP and CRM were tiny markets. I have seen them mature and I am seeing them get commoditized as too much investment has chased after core functionality in each.

I have spent a fair amount of time with Salesforce’s vertical teams and many have presented in my Analyst Cam video series. They are not anywhere as deep as SAP’s vertical capabilities but that is by design. Salesforce focuses on front office, revenue centric apps, not as much on operational areas that SAP thrives in. But compared to other enterprise vendors and even hyperscalers, Salesforce is very well positioned when it comes to many verticals. 

As I like to say business as usual, circa 2019, is a recipe for mediocrity. We have had too many black swan events in the last few years to pretend the world has not turned upside down. One of my recommendations as Salesforce and its investors chart a new course is to double down on its application savvy and lead its customers with a new generation of enterprise applications. Plenty of growth opportunities to mine and generate shareholder value. 

Analyst Cam: SAP S/4HANA as “next-gen” ERP

As we have moved to virtual briefings, I have increasingly been excerpting short video segments (with permission) as part of my Analyst Cam series.

This time it is Jan Gilg, President of S/4HANA Development at SAP.

I invited him to provide an update on S/4HANA. He spends most of the presentation discussing how this is a very different iteration of ERP beyond just the cloud-driven architecture which too many vendors emphasize even after 25 years of SaaS.

There is a lot more focus on new business models and industry networks, on the changing mix of  products and services at most customers, the need to be much responsive to climate change urgency, and the transition to very different UX with the impact of AI and collaboration products like Teams.

As I mention to him, I was part of the Gartner team which popularized the ERP term in the 90s. This is definitely not that vision of ERP. It has come a long way.

I have invited him to come back and present on how customers are seeing different value points in justifying their moves to S/4HANA and also on how SAP is delivering vertical industry functionality in and around S/4.

Very nicely done in about 25 minutes.

Burning Platform: The demise of the mainframe has been greatly exaggerated

In the 79th episode of Burning Platform, we host Hari Candadai, SVP of Service Innovation and Thought Leadership at Origina. They are a third-party software maintenance company focused exclusively on providing IBM Support. As he says “Over the last decade Origina has perfected the third-party software maintenance model for IBM Passport Advantage customers around MQ,  Cognos, DB2, Informix, FileNet and  other products down the list.”

We discuss why we have for decades discussed the death of the mainframe and how it continues to survive and thrive especially in airlines, banks and other high transaction volume environments. IBM continues to breathe life with the latest z Series architecture and is reporting numbers which are delighting Wall Street.

However, that is no reason to put up with the high cost and shrinking talent in that world. We cover why third-party maintenance is attractive around IBM products – the lack of skills at customers and even at IBM (and how Origina has built its talent pool), the high cost for relatively stable environments (and how Origina can shave half off), and the need for interoperability with all the systems that keep on mushrooming around the backbone applications on the mainframe.

He goes into plenty of detail and spends some time describing their long journey with the utility. Southern California Edison.

McKinsey recently wrote “For many companies—and many industries—the COVID-19 pandemic set off a period of head-spinning change. They realized they were capable of moving faster than they ever thought possible. They went digital in a matter of days, not years. They offered new services almost overnight.

If companies sustain this newfound speed and agility, it’s conceivable that more innovation will happen in the next ten years than in any previous decade in modern history.”

That innovation will need money and staffing commitments. Another reason to consider a firm like Origina. Nicely covered by Hari in about 20 minutes  

 

Gartner and Oracle: Why I am missing their major events this week

Sneak Preview – Workday Rising

It’s an annual ritual, or used to be till COVID interfered. A Workday executive does our readers a favor and shares a curtain raiser on their Rising event.  This time it is Patricia Harris, Senior Vice President, Solution and Revenue Marketing. She has over 25 years of industry experience including several years at SAP, at the industry research firm IHS Markit, and the IT Service Management firm Hitachi Vantara.

Here are some excerpts from our conversation

Patricia, welcome back to my home state, Florida.  I presume Rising is a hybrid event as many have been with COVID. Let’s start with the demographics of the audience you are expecting in Orlando and virtually and the overall vibe you expect.

Vinnie, to start off it is going to be so nice to be back in person. We're expecting over 9,000 people on site – we are sold out for our in-person experience - and tens of thousands attending digitally. I think it will be a different kind of hybrid event than you may have seen from others. I am really excited to be one of the co-hosts of the Digital Experience and to make it compelling for those who cannot attend in person. We'll be doing a live broadcast from the Expo Floor. We will be giving viewers a nice warm lead into all the major keynotes and supporting them with deeper discussions as they come away from those keynotes.  

In terms of an overall theme, we are humbly acknowledging what the world has gone through over the last few years. It’s not just the pandemic, it's also the vast change in technology. As you know, we have released so many new solutions over the last few years.  On top of that, we've had social change on so many different issues. And so this year, we are honoring that change and acknowledging all the Changemakers. It will be about our customers, the ones that are driving this change in their organizations, and also thinking about our role as a technology company as we help them drive that change.

There will be a lot of focus on customer stories. You will see Coca Cola, Comcast and Capital One among 47 customer speakers at this event. We will also have 85 partner speakers featured. It’s our way of bringing customer stories to life.

We will also use the event to honor several local charities like the Orlando Alliance and job seeker networking sessions and Veteran Career readiness meetups.

The Executive Keynotes

I think you will hear a very optimistic tone from Aneel and Chano, our co-CEOs. There is so much change in the world that when people talk about it there can be a dystopian vibe to it. But we believe the changes we have gone through can also be uplifting.  Aneel and Chano will touch on how to elevate the human experience. Aneel will focus on how to stay connected no matter what your Return to Office plans. How to keep employees engaged and more deeply understand what is motivating them as well as what might be negatively impacting their performance.  Chano will salute the Changemakers, our incredible customers who are the driving force behind all our innovation. He will touch on the value of our Enterprise Management Cloud.  Broadly, Workday leaders will also talk about solutions, our Extend platform and plans for Industry Accelerators.

(Vinnie’s note - for those watching virtually, the graph below provides a nice overview of the keynotes)

Major product announcements

We will have plenty to please our three big buying centers – the CHRO, the CFO and the CIO.

Here are a few teasers - low code, no code capabilities in our Extend platform, frictionless finance with ML significantly improving productivity, planning at scale, and lots about ESG, supplier diversity and how we are enhancing our already rich Skills Cloud ontology with external data.

Vinnie, you will be particularly pleased to hear about our Industry Accelerators for healthcare, banking and capital markets, insurance and technology. We have developed them in close collaboration with Accenture, Deloitte, KPMG and PwC. Each partner has a really unique value proposition.

(Vinnie's note -- more detail available in the press releases below)

Monday, 9/12

1. Workday Launches New Industry Program to Accelerate Customer Cloud Transformations with Expansive Partner Ecosystem
2. Frontline Industries and Certain Geographies Show Increased Levels Of Employee Burnout Risk, Workday Report Finds

Tuesday, 9/13

1. Workday Unveils New Technology Innovations, Redesigns User Experience to Help Customers Adapt in a Changing World
2. Workday Introduces Skill Interoperability to Help Organizations Support Evolving Talent Strategies
3. Workday Innovations Help Power a New Era for the Office of the CFO
4. Workday Announces New Innovations to Support Customers in the Changing World of Work 

The Expo Floor

So, you know the Orange County Convention Center is massive. It allows our show floor to be very creative with that space with 95 booths of varying shapes and sizes. The bigger the sponsor the bigger the booth space.  Think of it as interconnected spaces. So if someone is focused on finance,  they will be able to quickly see where they need to go. We will also have industry specific areas, and featured areas for our partners. 30 Workday Ventures portfolio companies will also be represented on the floor. 

And, as I mentioned I will be co-hosting the Digital Experience from the floor, so come say hello!

(Vinnie’s note – Workday has invited me to meet with several of the Ventures portfolio companies one-on-one. I expect I will invite a few to present in my Analyst Cam video channel, like several of their peers have in the past)

Fun stuff

We are really excited to have John Batiste. He’s a Grammy Award winner for Album of the Year. And, he's had plenty of accolades like the Academy Award for Best Original Score for the Disney Pixar film, Soul. We also have a night where we will take over Universal Studios.

Lots more at the event - Peloton rides, 5k Run, sunrise yoga, reflection rooms, hula hoop, wellbeing groups, and one of the crowd favorites, the Must Love Dogs meetups.  The Expo floor is going to be busy.

Vinnie, I hope we have you excited about the buffet of activities we have planned.  Look forward to seeing you and so many others in person. It’s been too long!

Analyst Cam: Reveal Value

As we have moved to virtual briefings, I have increasingly been excerpting short video segments (with permission) as part of my Analyst Cam series.

This time it is Martin Rowan, Managing Partner of Reveal USA, based in Chicagoland.

Their website says “Our mission is to use our knowledge of the supply chain as an indispensable link toward commercial success and social good.”

Their client base ranges from global companies like BP to local Chicago-based companies with two common threads - they run SAP and they run some kind of a supply chain. “So, they make, buy, sell, distribute something - whether it's minerals, petroleum, petrochemicals or consumer goods.”

With 160 projects over the last couple of decades. he says he can actually guarantee results for clients - inventory reductions, turns and service level improvements, process efficiencies and product production throughput increase.

I like the client maturity model and the operational use cases he shares. And the sherpa metaphor he uses to describe how they help clients scale mountains.

Nicely done in 20 minutes.