deal architect

Microsoft Business Applications virtual summit - a missed opportunity?

James Phillips, President of the Microsoft Business Applications group had a nice slide in his keynote this morning at their virtual Applications Summit. He showed call centers evolving every twenty years - in his voice over he said "there are more differences in hairstyles and clothing than in the applications "

I was thinking he could have added a setting for the last two months - masks, video cams, young kids at home Zoom bombing (ok, MS Teams, not Zoom).

Also that the entire session could have completely focused on agility in the last few weeks. The keynote mentioned some of the customer acrobatics in passing but the session overall came across aspirational that business will continue as usual.

They mentioned how Swedish Hospital in Seattle has worked with them to develop a COVID-19 Emergency Response App (CERA). But it was 50 minutes into the session and they only spent a minute on it. They mentioned mixed reality at Ikea but could have expanded that section to talk about how Ikea has scaled eCommerce and shipping logistics with its stores shut during this phase. They mentioned l'Oreal hand sanitizers but could have drilled into impact that new SKU has had on their sourcing, manufacturing and distribution. They had a section on Chipolte but did not touch on workplace or supply chain hygiene, or contactless delivery. They mentioned stats on MS Teams usage but could have had a nice customer case study on extensive use of that platform. They could have included gesture and voice interfaces and examples of how ML and AI have helped customers.

I have been conducting Zoom interviews with C level executives in many industries and they are telling me about acrobatics in their sectors and likely new normal going forward. Last mile delivery, production planners at auto companies repurposing components for medical equipment, optimization around supply chain breakdowns, food sector drive throughs and home deliveries, retail curbside pickups, pop-up hospitals, telemedicine, distance learning, work-from-home and massive video traffic demands on IT, professional services doing remote configurations and testing, their extensive planning for return to work as states re-open and on and on. Over and over I hearing expressions like “years of change in a couple of weeks”

Microsoft has a web page called "Together" which summarizes some of the ways they have been helping customers during this phase and they could have pulled many other examples from there.

It was a professional keynote but Microsoft could have hit it out of the park by largely focusing on applications which have been dreamed up and delivered in the last quarter.

In fairness, the event goes on a couple more days and somewhere on the agenda they likely will cover other customer heroics. Perhaps Microsoft will help me navigate to relevant replays and I will post an update.

Not just Microsoft, I hope SAP, ServiceNow and other application vendors do similar in their upcoming virtual events. There is a new normal or abnormal they need to reflect.

Enterprise Software: Emergency Apps and Empathy

I was talking to a vendor exec last week and I mentioned the agility and innovation I am seeing in various sectors - agile manufacturing, re-jigged supply chains, reshaped shopping experiences, last-mile delivery, telework, telemedicine, teleschool- as we are fighting the COVID-19 war. Examples are here, here and here.

He turned around and showed me under NDA in our Zoom session the impact and innovations they are cataloging in their B2C and B2B customers. I am willing to bet their R&D team is already factoring them for their next-gen vertical apps. I have had similar conversations with other software and SI execs. Most are taking similar notes but are not ready yet to publicly talk about them. Two reasons - One, they don't want to come across as bragging in this traumatic phase. Second, it will provide them or their customers competitive advantage and they will discuss their plans when and if they are ready.    

However, many of them have publicly shared what they are doing. The common thread is most of these are timely and they show empathy.

In an analyst briefing yesterday, Bill McDermott, CEO of ServiceNow talked about the incident management structure to lead the outbreak response they developed with the State of Washington, which was the first US "hot spot" for the outbreak. They have since released emergency response apps - for outreach, employee self-reporting and exposure tracking. They are offering them free through September 30 to other public health entities.  

Plex has been presenting dashboards on the impact on global supply chains. It has 20 years of anonymized, compiled operational data from the approximately 700 manufacturers on its software. This group collectively runs 1,200 active production facilities in 29 countries, representing the aerospace, automotive, fabricated metals, food and beverage, industrial machinery, and plastics and rubber industries. I will have more from the CTO, Jerry Foster. Here is a graph on their China dataset. They have others for Italy, the US and other markets here.

Zoho has been helping the work-at-home economy by offering 11 of its apps free (see video below) till July 1. The Remotely free offer started in early March and they already have over 15,000 businesses availing of it. They are also offering existing customers with up to 25 employees a 3 month fee waiver. Details here. They also have a live global dashboard for COVID-19 case tracking.   I am planning an interview with the CEO, Sridhar Vembu - he always has such a positive world view.

Every day, we are hearing of massive dislocations in supply chains - shortages of certain products in one area, plenty of supply of the product elsewhere. SAP has opened up access to Ariba Discovery for free for 90 days so any buyer can post their immediate sourcing needs and any supplier can respond to show they can deliver. SAP has also opened up other workforce and program management apps as detailed here 

Salesforce has launched its Care package (see video) free for 90 days for up to 10 licenses.  Its Tableau unit has various COVID-19 related visualizations. 

Plenty of empathy

I have been impressed with the empathy software vendors have been showing to their customers and employees.

Workday has sent two-weeks additional pay for the majority of employees to help accommodate any unforeseen costs and needs at their discretion. It has also opened up a year's access to Headspace, a research-backed app that offers meditations on everything from stress and anxiety to focus and sleep.  

Alex Shootman, CEO of Workfront, who is an impressive executive and human wrote a really inspirational blog post about resilience in demanding times.

"I’ve always believed that great leadership is forged in the crucible of adversity, but great leaders are those who respond with empathy and vulnerability even when making the toughest decisions. We all need reserves of determination and positivity at precisely the moments those qualities are stretched thin. Where do those reserves come from? In my book, Done Right, I explored a number of ways to build resilience."

Read more here. I have an interview planned for more of his guidance.

Salesforce has paused all customer outreach including requests for customer references for analyst evaluations. I listened to a SuccessFactors analyst briefing last week and was struck by how little bragging there was about recent competitive wins. I also listened to several SAP vertical industry webinars. Peter Maeir, who is President of SAP Industries, somewhat humbly opened each with a statement that SAP had considered canceling or postponing them. I had a chance to tell him I am glad SAP ran them. We have to keep going - our sector has to keep the lights on while businesses scramble to change their priorities.

I heard someone say the medical profession and pharma sector have a chance to come out shining from this crisis after years of brand damage from price gouging and other negative stories. You can already see the adulation for front-line medical professionals around the world.

Enterprise software has a similar opportunity. I am proud of what enterprise software vendors are doing during this crazy phase. I will be even prouder if they learn from the agility of their customers and reshape their offerings. No industry sector will come out of this unscathed. Industry-specific agility and innovation will be at a premium. Bureaucracy, huge price tags and compliance functionality much less so.

It will open up all kinds of opportunities to rethink enterprise software as the economy turns around. For now, I look forward to cataloging all the positive stuff software vendors are doing.  

More COVID-19 impact - the age of agility

The one thing I vividly remember from my first few days as an audit rookie at PwC was a class where the instructor said "never forget - an internal control should deliver more savings than the burden it puts on a process. If it does not, don't be pedantic. Let it pass"

I did not stay on the audit side for long, but over the years I have seen SOX, HIPAA, GDPR and many other compliance-oriented acronyms forget that simple guidance and the cost-benefit lens. As a result, while well-intentioned, they have slowed down innovation, made processes complex, cumbersome - and slow.

A wise man once wrote "Many of our job designs, work flows, control mechanisms, and organizational structures came of age in a different competitive environment and before the advent of the computer. They are geared toward efficiency and control. Yet the watchwords of the new decade are innovation and speed, service and quality." That wise man was the late Dr. Michael Hammer. He wrote that in 1990.

Three decades later, it is taking a disaster for us to say - screw old thinking and change old laws. Just do it! I wrote about agile manufacturing and rejigged supply chains last week. Here is this week's installment. 

Fedex is running its Memphis hub like a military base on high alert. Countless distilleries are now re-purposing their alcohol to make hand sanitizers. Sysco which has traditionally focused on the food service industry (restaurants, hotels) is shifting its vast supply chain to stock grocery stores. Carnival is offering its cruise ships to be turned into floating hospitals The Navy is already preparing to deploy its floating hospitals, the Mercy and Comfort. 

3M is doubling production of its N95 respirator masks. Nike is looking at making protective equipment for healthcare workers.

Siemens and Aucma developed in just one week, from design to sample production, intelligent disinfection robots which have joined the battle against the virus in hospitals.

Medicare did not previously cover telemedicine. At least for this crisis it will. Also HIPAA rules for telehealth will be relaxed. This will be useful to limit exposure and free up hospital capacity. 

A couple of startups are trying to reduce two annoying occurrences in US healthcare, made worse during this crisis. Yosi is trying to eliminate the countless paper forms you fill every time you go to a clinic. Navimize is trying to eliminate the doctor's waiting room - saving you time and allowing for social distancing.

I have heard of countless companies whose IT was well prepared for a work from home scenario, and many others which have struggled. Guess what - that is going to be a critical element of business continuity plans going forward.

Jason Perlow writes at ZDNet "Previous privacy concerns about revealing our whereabouts and tracking for the sake of convenience will give way to how best to service a population with a demand for goods and services while still maintaining social distancing requirements." and " With a home-based work population, the regular, 9 to 5 business days are likely to shift to more flexible working days, and a more significant segment of the workforce is expected to become "night people" and have off-hours and rest during the daytime while others are working."

Finally, listen to Lt. Gen Todd T. Semonite, commander of Army Corps of Engineers discuss in video below plans to quickly convert hotel and college dormitory rooms into ICU-like units. He talks about "super-simple" and "good enough" solutions to an "unbelievably complicated" problem.

Just do it!

The positive impact of COVID-19

Somebody once told me I could make a brown paper bag sound interesting. Not sure if that was a compliment but I do find interesting aspects to most anything. While there is so much doom and gloom around the coronavirus and the impact on the economy, I am also seeing amazing agility and innovation.

Healthcare: in spite of the huge size of the industry or probably because of it, it has always been bureaucratic and wasteful. We are starting to see telemedicine take off, clinical trials get accelerated, new diagnostics, vaccines and therapies being investigated. We are seeing infrastructure changes - drive-through tents for testing, operating and other rooms being turned into ICUs at hospitals.  China constructed a 645,000 sq. ft hospital in just 10 days in Wuhan! In the US, the Army Corp of Engineers is being brought in to increase hospital capacity, floating Naval hospitals like the Mercy are on standby (I wrote about the Mercy way back in 2009. It is a massive former oil tanker.)       

Re-jigged supply chains: Since the outbreak in China in December, most supply chains have been scrambling. McKinsey has this nice graph about impact of China on supply chain of various industries. The ripple effects will continue to be be felt for months with people evaluating other global sources, re-evaluating modes of transport, rethinking stock at distribution centers v. shipping direct to customers and so many permutations.

I wrote about Amazon's Kiva and other robots in its distribution centers after a visit here. It uses concepts like "chaotic storage". It is adding to the chaos by prioritizing medical supplies and household staples in its orders. Hard to imagine it could do that quickly with traditional warehouses. 

Agile manufacturing: 3M is ramping up production of its N95 respirator masks, GM and Ford are shuttering auto production for a few weeks and looking to make medical equipment like ventilators. Paper product makers are shifting production to more toilet paper. Distilleries are churning out hand sanitizers. Scaling production or changing assortments of products is not unusual - the speed at which they are being done is striking.

Last-mile delivery: The US last-mile delivery infrastructure has been evolving over the least few years (I recently wrote about it here)  is now being tested at scale. Downloads of Instacart, Walmart's grocery and Shipt apps have doubled and tripled. Domino's is offering contactless delivery - adding features to its already extensive delivery capabilities.

Drive-throughs - most fast food restaurants, banks, pharmacies are seeing massive use of their drive-through infrastructure, their kiosks and other automation. Pioneered in S. Korea we are starting to see drive-through tents in the US for testing for the virus.

Re-purposing of technologies: It is nice to see creative uses of technologies. I was one of Gartner's first remote analysts starting in 1995. Since then I have done thousands of calls, interviews, webinars from my home office, more recently with extensive use of Zoom. Most of us improved home infrastructure to cut cable and install smart appliances. Now, it is being used like never before for work from home.  This infrastructure is allowing for home schooling and telemedicine.  As Peter Diamandis writes "drones above various parts of China are sharing information on loudspeakers, carrying signs with QR codes (for no-contact registration purposes), spraying disinfectant, delivering packages, and taking people’s temperatures." Singapore has required citizens to scan QR codes at various public places and even in taxis to be able to allow for digital tracking. Israel is using its surveillance technology to similarly track people flows.

Of course, as the crisis shrinks, we will hear complaints about too much automation, too little privacy, loneliness in work from home, the slow start to testing for the virus in the US. For now, we are seeing an amazing use of technologies and concepts we have been maturing for years, and brand new ones.

And yes, about that humble brown paper bag. I find it even more interesting with the increase in drive-throughs and home deliveries we  are all experiencing. 

Stay safe and sane, folks!

The Passion Play

It is the start of the new decade. Which means the beautiful town of Oberammergau in Bavaria, Germany will be hosting its 42nd once-a-decade Passion Play this summer. It is also the 15th anniversary of both my blogs, Deal Architect and New Florence, New Renaissance. They have been prolific logging over 12,000 posts on a wide range of science and technology topics.

To celebrate all these milestones, I decided to re-start the Tech and my Passion guest series. The response of contributors has been overwhelming, and since late January I have run the following columns. Many more coming. The timing has also been right for readers - a nice distraction from angry politics and scary virus stories.

Some interesting patterns. Lots more ladies are sharing their passions. You appear to have an unfair advantage if you have the name "Bill". Lots more STEM is showing up in columns - wearables, mobile apps, smart homes, material science. Lots more exotic travel locations, charities, musical interests and foods are being featured.

I like to say this is the best time ever to be alive. This is what Florence must have felt like during the European Renaissance. That same joy comes through from each of the contributors below. Spend some time with each of them. They will brighten up your day.

Bonnie Tinder  Her Lab, Grommet                  

Bill Wohl  Volunteer Firefighting           

Row Henson  Animal Rescue                        

Bill Hewitt  Co-Everything                                    

Karin Tillotson  Hiking                                     

Jim Caldwell  Camerawork                          

Lexy Martin  Quilting                                  

Craig Cmehil  Ring Making                        

Erica Gunn  Baking                                     

Henry Bruce  Salt Water Fishing                 

Melissa Carpenter  Carpentry                               

Ton Dobbe High Wave Surfing                 

Margaret Newman  Day Tripping                           

Ton Brennan Bluefin Tuna Fishing              

Sukumar Rajagopal Digital Storytelling                

Bill Kutik Expedition Travel 

Bill Kirwin Humor 

Catherine Marenghi Poetry in Mexico 

Denis Pombriant Painting

Mary Keith Birding

Laura Lederman Organic agriculture/medicine

Tammy Powlas Crochet

Priya Kumar  Flute

Erik Keller  Horticultural Therapy

Roy Altman Continuous Improvement

Jeff Nolan Urban Farming and Food Security

Jason Busch Health Protocols

Norm Katz Data Driven Athlete    

Sandy Lo Piano

Susanne Beck Stained Glass

Michelle Turman Reinventing Nonprofits

Bonnie Tinder Figure Skating

Vinnie Mirchandani Stories 

Jim Shepherd Boat Building

John Appleby Smart Old Homes

Nitesh Mirchandani 'Tele-cooking"

Chris Selland Body hacking and tracking

Katie Nittler Landscape Gardening

Nancy Murrah Raptor Rescue

Sophie Bean Stupid Pet Tricks

Minal Neuman Elegant Dinner Settings

Nancy and Jim Richardson Austistic Adults

Bill McNee  Birding, Photography and Nature

Eric Dirst Quarantine Cocktail Nights

Charlie Bess Woodworking 

Nick Hortovanyi Self-driving Cars

Tamas Hevezi Effective Digital Communication

Vittorio Viarengo Producing Music

Look for more columns over the next few weeks! Lord, we need more of these positive, passionate messages in these rough times.  

How the heck did the great European Renaissance emerge from the depth of its Dark Ages?

I kept asking that question during a family trip to Italy in 2004. That puzzle led me to consider writing the New Florence, New Renaissance blog, in addition to the Deal Architect blog.

Both blogs are celebrating their 15th birthday this quarter. Hard to believe but they have racked up over 12,000 posts. DA has stayed true to its focus on enterprise technology, especially application software and outsourcing. NF is the wanderer - looking for innovation beyond IT in cleantech, healthtech, agritech, product design, space. And looking for it in obscure places, in any country, in any industry.

Every time I see a panic, I go back to inspiration on NF.

A few years ago, there was pitch fever around automation killing jobs. My NF research led me to write Silicon Collar which was much more optimistic. Automation makes workers much more productive, that society has speed breakers against too much, too fast effects of automation. 

I was in California during last year's forest fires. While most of the media was calling it "the new normal", I was talking to rangers about prescribed burns and learning a new set of acronyms like WUI for Wildland Urban Interface and PSPS for Power Safety Planned Shutdown. They have been around for a while - as have the terms Santa Ana and Diablo winds. The fires and outages are also leading to a slew of innovations which will result in widespread improvements in weather forecasting, fire fighting and even outage program management.

That does not mean I am gullible. DA keeps me pragmatic.  I write plenty about wind and solar power and cloud computing. But I have been disappointed that wide chunks of the economy from aviation to shipping, and even utilities who have moved away from coal have not been able to take advantage of it. I have since moved to a position we need to balance out our energy strategy and revisit nuclear and hydrogen sources. Similarly, cloud applications have not verticalized or globalized enough and they have not automated migrations enough. I now accept that custom development and ring fence/API strategies are essential components of any CIO's arsenal.

These days while people are panicking  about the contravirus, I am studying the feverish pace at which pharmas are rejigging older, proven vaccines and working on new ones, how Chinese doctors are applying AI to study lung CT scans. How they are using drones, infrared thermometers and robots as they try to contain their exposure. How S Korea is pioneering drive through clinics. Will some of that tech be used for surveillance and other improper uses? Sure. I focus on the art of the possible and positive uses. 

So, go back to what I asked at the start. How did the Renaissance spring from the depth of the Dark Ages? Because humanity does its best when we are challenged. Necessity is the mother of invention, said Plato.

With that positive outlook, I am throwing a 15th birthday party for my blogs. Every morning for the next week you will see a guest column in the Technology and my Passion series. You will hear from your fellow colleagues how they find joy and satisfaction in their hobby, interest or charity. Instead of one column every Friday, I am running one every day. It's my way of trying to distract you from all the angry political and negative contravirus news.

Look every morning for one of your colleagues as they describe how baking, fishing, surfing, quilting and so many other passions keep them motivated.

Now is a great time to seek solace in Camus: “In the midst of winter, I found there was, within me, an invincible summer."

Two must-read series of posts

Most of my writing tends to be about technology vendors and most readers enjoy that. However, I also like to share my podium with many others. I wanted to highlight two sets of interviews/guest posts you may have missed

Global Trends

The media is full of coronavirus news. I ran 3 interviews in the last couple of weeks which did not mention that at all. They are all optimistic in different ways

Karl-Heinz Streibich, President of acatech, the National Academy of Science and Engineering in Germany talks about prospects for Germany and the EU in a changing world of trade and climate change.

Alan Alper of Cognizant reported from the ground level and inside sessions at the WEF at Davos. It is a perspective you don't get from the media which focused more on the controversial appearances of President Trump and Greta Thunberg.

Sridhar Venbu of Zoho talks about rural revival, why he believes being small is no longer a major disadvantage, data privacy - you may not agree with everything but it is rare to hear a software CEO talk about socio-economic trends, not just about his product and profitability.

Passion/Hobby series

I have restarted the Technology and my Hobby/Passion guest blog series on New Florence. I did it for several reasons - it is a new decade, it is the 15th anniversary of that innovation blog, and it is an election year. We need to focus on what makes us happy and relaxed not just stew over what's on CNN and Fox. Click on this link and scroll down to see them all.

Some neat patterns in this batch so far

a) people have way more interests these days - several people have asked me - should I write about A or B or C?

b) several repeat contributors - they wrote the first one years ago, and have acquired new interests, have moved to new places, or have aged and tastes have changed

c) many more ladies are contributing

d) way more science/technology described in the posts - lots more wearables, mobile apps, new material science

e) lots more charities/causes are showing up as passions - nice to see.

4 columns have already run - one every Friday

• Bonnie Tinder and the Adventures of her lab, Grommet
• Bill Wohl on Volunteer Firefighting
• Row Henson on Animal Rescue
• Bill and Leila Hewitt on Co-everything

The next few are

• Karin Tillotson on Hiking
• Jim Caldwell on Camerawork
• Lexy Martin on Quilting
• Craig Cmehil on making Rings
• Margaret Newman on Day Tripping
• Henry Bruce on Salt Water Fishing
• Ton Dobbe on High Wave Surfing

Many more are coming in the series that is expected to run till May. Look for them every Friday. Actually based on the flow of ideas I am getting, I may need to increase to two columns every week. Enjoy!

The Remarkable Effect by Ton Dobbe - a book review

With seven books under the belt, a number of first-time authors ask me for advice about book-writing. I am honest with them. I tell them to me the most enjoyable part is the extensive research, interviews for case studies etc. Don't just opine - let your interviewees and facts speak for you. I also tell them how painful the multiple versioning and editing, the case study sign off process is. I warn them marketing requires lots of time and travel and is not cheap. That often scares off many of them.

When Ton Dobbe of Value Inspiration told me he was working on a book, The Remarkable Effect: The Essential Book for Tech-Entrepreneurs-on-a-Mission I knew he was disciplined enough to write one, even though he humbly says in the book,

"I never aspired to write a book. I never thought I actually could do it in the first place. It’s fascinating how you can surprise yourself by just starting and then committing."

He did not just write a book based on opinions, he did lots of research. In his case he did so through interviews on his weekly podcast - he just crossed the century mark. You can find them here.

Having participated in a couple of those podcasts, I know how much work he puts into them, and how he has mined them for the book. There are tens of emerging and established software companies in the book, and he invokes Seth Godin, Tiffani Bova, Tim Ferris, Geoffrey Moore and many others along the way as he describes the 10 traits of successful, sorry remarkable, software companies (click on image to enlarge)

While there are plenty of CRM, HCM and infrastructure software companies he describes, I was particularly interested in those that play in untapped verticals and geographies (I have writing about many of them in the Glo-Ver series here). His book includes Aerobotics from S. Africa focused on farming, Xeneta from Norway focused on container freight, Corti.ai from Denmark focused on surgeons, Fracta which helps water utilities with predictive maintenance around pipes,  and many others.

I was especially impressed with his storytelling style. He is an avid surfer (and I hope he contributes on that topic to my Hobby/Passion series on New Florence) and he weaves the book around conversations during a trip he takes with the CEO of a FinTech company. That's a bonus - you will get a lesson in geography. The crow would fly in a straight line across his home on the Mediterranean to the stunning waves of the Atlantic Ocean, but Ton went from home in "Javea to Valencia, where I’d take the train to Barcelona, get on a Ryanair flight to Porto, where I’d pick up a rental car and drive to Nazare, which is about two hours away from the airport, right in between Porto and Lisbon."

After reading about so many software companies in the book, will that dissuade future software entrepreneurs? I hope not. I am quoted in the book saying:

"Cloud Business Software is twenty years old now. NetSuite was born in ’98, Salesforce was born in ’99. However, if you do a breakdown by global world region, by industry, by business process, only about 20% is filled. So, the vendor community hasn’t delivered enough. And on the other hand, the buyer community has been very slow to adopt it".

Entrepreneurs will definitely benefit from the community he is growing that he calls the Remarkable Effect Tribe.  

One final bonus - the book will make you hungry. At various points of the journey he describes, he also shares Spanish and Portuguese meals he and his companion enjoy including jamon de bellota, salchichón, bolo de caco and pão de Deus. Better have some tapas ready!

An advisory to small businesses about mobile bank deposits

I am big fan of automation and how it can make workers more productive and customer-friendly. In my book, Silicon Collar, I had a number of examples of automation which led to "super workers" - drivers who can drive millions of miles without accidents, massive data centers which can be operated by only a handful of employees, robots which save warehouse employees endless walking and picking and allow them to be much more productive on cognitive tasks.

On the other hand, we have all seen movie theaters and airport counters with broken kiosks and long lines for human assistance. Self-checkout aisles which take our videos without our permission and yet subject us to manual checks on the way out. It is no wonder many consumers deliberately (and proudly) avoid using such automation.

I have been a big fan of our bank's (a big brand, national bank) mobile app, especially the check deposit feature. I especially like it because I find going into its branches unpleasant. Many are overcrowded, have untrained or inattentive staff and others who are always trying to sell you something new. I tell my friends that every quarter I do not have to go into a bank branch is a good one. Our bank's mobile app has a few quirks - for some reason the bank has a monthly deposit limit. A dumb one which only resets once a month - not a rolling one after a check has cleared. It also has a picky image recognition feature - which is understandable because they need a sharp image of the front and back of the check. Nonetheless, I have come to depend on the deposit feature.

In the last six months, I have had two very unpleasant experiences which has made me lose faith in the mobile app. The bank has put 10 day holds on two checks. This led me to conversations with several other small business owners about their banking experiences. I also spoke to some banking systems consultants. Here is what I have learned:

Holds are not unusual. Banks do them with new customers - in our case, we have been with our bank for decades. Banks do them when a check is written on a small bank - in our the checks were written on Citibank and Silicon Valley, hardly small ones. Banks will do it if the mobile check image is fuzzy - our bank's mobile app is pretty fussy about image recognition. In Florida, many banks will use "anti-money laundering" as a pretext. If they were to read our Deal Architect's publicly available books and blogs they would see all kinds of global companies and executives. We are a small company but punch above our weight when it comes to global business. We have faithfully given our bank travel notices every time I travel overseas, 3-4 times a year. They and their partner banks have made lots of fees when I use their ATM card overseas. Similarly they have charged plenty of fees for wire transfers through global banks like Barclays.

Nonetheless, I understand why holds are needed. But how do you explain continuing the hold when the funds have been received by the bank?

In both cases, my customers were nice enough to give me proof of the cleared checks and that their bank accounts has been debited within two days of our deposit. However, our bank steadfastly refused to acknowledge that was the case and kept the hold going for another 8 days.

It could be a shady practice since banks get longer float and charge customers for bounced checks while they claim insufficient account balances. I think it is because our bank's automation is primitive, yet does not give its employees much leeway to even verify that the check had cleared. In both cases, in my conversations with our bank employees the response was along the lines of "NOBODY can remove the hold. It will automatically be released after 10 days".

Ironically, our bank does not appear to have an even more important algorithm around Lifetime Value of Customer. They would see how much they have made from us over the last few decades and how much they will lose if we move our business. We have put our bank on probation and are interviewing other banks.

Here's something for you to consider as a small business. Ask your customers to pay you via ACH transfer. Unfortunately, too many accounts payable groups continue to prefer paying by checks since they get a few more days of float. Ask your customers to work with you and provide you documentation if a hold is put on one of their checks. My customers were very helpful.

Finally, and honestly as an automation fan, I hesitate to say this. Consider not using their mobile app. Go in to a branch to make a deposit, particularly if they are large ones. Ask for an immediate explanation if they put a hold. By the way, that should also wake up the bank. If you increase their labor costs, they will have more incentive to make their automation much smarter and their escalation to human review much more customer-friendly.

Finally, file a complaint with state and federal regulators. I just have about my bank. Banks don't pull such stunts with their larger customers but feel it ok to do so with small businesses. Let's watch out for each other - and let's get regulators to also watch for our interests.    

Auditor Independence and ERP/CRM projects - a conversation with Francine McKenna

Francine McKenna is a prolific commentator on the accounting, audit, and corporate governance issues affecting public and pre-IPO private companies. Since 2006, McKenna has been an investigative reporter and feature writer for publications including Dow Jones MarketWatch, Forbes, American Banker, Financial Times, Chicago Booth Review, Accounting Today, and Boston Review. At MarketWatch she monitored and reported on public company accounting, fraud and financial investigations, and the often questionable financial reporting practices of pre-IPO companies. McKenna spent more than 20 years in public accounting and consulting, including for KPMG/BearingPoint in the U.S. and Latin America, and at PwC. She is also an adjunct professor of international business in the MBA program at American University’s Kogod School of Business. She speaks often at universities, conferences and other forums. You may also know her from her blog, reTheAuditors.com. She also writes an online newsletter, The Dig.

I had a chance to talk to her a bit about the history of auditor independence issues and some of the risks of using accounting firms as implementation partners on ERP and other enterprise software projects. In part 2 tomorrow we will talk about differences in automation in the audit and consulting practices of such firms.

Francine, I read your story about the SEC’s recent auditor independence enforcement against PwC and thought, "What are some of the risks that companies that use accounting firms may be exposing themselves to on their consulting projects?" Talk in terms of something around an ordinary business executive, not necessarily a CPA would be able to relate to.

The rise in ERPs and the large software vendors like SAP and Oracle mirrors the rise of the Big Four public accounting firms involvement in consulting, especially systems implementation, design and implementation consulting. When you think about when Enron happened and when Arthur Andersen collapsed, if you go back to the late nineties, you had the emergence of ERP software. They started to work with systems implementers like the Big Five auditors including Arthur Andersen and other systems integrators.

Then, unfortunately, you had Enron's bankruptcy and the collapse of Arthur Andersen. There was a push already to look at how the rest of the Big Four public accounting firms were addressing or working with issues around doing both audit and consulting, in particular systems design and implementation consulting, for the same client. The firms were already under pressure.

A lot of people think that three of the four Big Four firms sold off their consulting arms because of Enron but, actually, the pressure was on them before that. They were already being criticized for potentially compromising the integrity, objectivity of audit work because of their disproportionate focus on consulting and consulting revenues from the same clients.

When Enron occurred, there were already, I think, at least two of the four had already sold their consulting arms. EY sold to Capgemini, KPMG spun off BearingPoint, and PwC eventually sold their consulting arm to IBM. Deloitte, uniquely, never sold. It's not that they weren't planning on doing it but they actually just never got to it. I think I've written more than once that they never ended up doing it because, once the other three sold their consulting arms and Deloitte saw that even though they hadn't, no one was coming after them. There was no significant enforcement of new auditor independence rules enacted as part of the Sarbanes-Oxley Act of 2002. There were no new enforcement actions at least in terms of significant scrutiny over whether they were doing consulting, systems integration, and design implementation work in their audit clients. The actions the SEC did take related to actions prior to 2002 that were egregious violations of exiting rules.

The SEC and the new audit regulator, the PCAOB, never really aggressively implemented or enforced the new rules that were put in place to try to prevent that kind of combo audit and consulting work that was blamed for Arthur Andersen’s mistakes with Enron.

Deloitte, I think, just decided, "Hey, let's hold onto it and keep going." They ended up being able to build on that base and now pretty much dominate the consulting business in the Big Four, although PwC is a pretty close second.

When I think about the conflicts of interest inherent in being a public accounting firm, Accenture got out of that issue a long time ago. When the consulting arm of Arthur Andersen split off and became Accenture, they eliminated that worry. Accenture can do any projects for anybody they want. Certainly, Accenture can have conflicts of interest like any other professional service firm, but they eliminated the inherent conflict of interest that a public accounting firm has when you're an auditor for a large public company.  In that case you're restricted, in particular now, post the Sarbanes-Oxley Act of 2002, from doing audits and financial reporting-related systems design and implementation at an audit client. Sarbanes-Oxley is the law that came into effect in reaction to the conflicting priorities issues that people thought had occurred at Enron, WorldCom, HealthSouth, and some of the other corporate frauds that occurred during that period.

The SOX auditor independence rules prohibit an auditor from doing systems design and implementation work at an audit client. It's strictly prohibited. What's happened is that those services, that software, that activity, which are the kinds of things companies want from big consulting firms has grown, changed, and developed. Now we have lots of different modules for all of the different large ERP systems and many of them can arguably not be tied directly to financial reporting, the direct financial reporting and financial statement preparation, which is where the prohibition comes into play. In other words, the auditors are not supposed to be designing and implementing software, implementing the controls, the internal controls and the configuration, developing the training and the user instruction associated with how you use those systems if they're going to go back, turn around, and go back and supposedly independently audit the company's use of those systems.

What happened after the financial meltdown? Did that have any effect on the accounting firms? Was there any scrutiny after that?

Yeah, absolutely. Actually, the financial crisis was a boon for them. Let's go back a little bit. One of the big reasons why Deloitte and PwC dominate in this arena as opposed to KPMG and Ernst & Young is that BearingPoint, the KPMG consulting firm that spun off and went public, ended up going bankrupt in February 2009. PwC and Deloitte split that carcass. Deloitte bought the federal services portion, so all of the big public sector clients of KPMG consulting, which became BearingPoint, and PwC took all the commercial clients. Those two firms got a really big head start in the midst of the crisis, which was approximately right after PwC’s non-compete clause with IBM expired.

The crisis deepened. The crisis root cause analysis really didn't focus on the accounting firms.  The perception was the financial crisis was about this cataclysmic economic event that no one could control, it wasn't perceived initially as a sort of broad kind of a corporate fraud-related crisis. It wasn't the auditor's fault, in other words, at least at first.

Later, when it became apparent that there had been a lot of fraud related to subprime mortgage origination and securitization, mortgage and foreclosure processing, mortgage servicing, how people who went through or were threatened with foreclosure and were charged multiple fees, in error in many cases, then that sparked or was a catalyst for a whole new area of consulting called GRC, Governance Risk & Compliance. Many of the biggest banks and many other financial firms ended up on the wrong side of regulators in terms of how they had addressed those issues. In order to get out of civil and criminal liability for those issues, they signed settlements and consent decrees that said they were going to go back and fix those problems. They were going to calculate what the damage was to consumers and find a way to repay consumers for that damage.

This Big Four firms stepped into that arena in a huge way, in particular in a process called the foreclosure reviews that were ordered by the Fed and the Office of the Controller of the Currency. Three of the Big Four firms participated in the process in addition to Promontory, which was an independent consulting firm and now is part of IBM, and a couple of other smaller firms.

They did these humongous projects at the banks, which were essentially sort of hybrid audits. They went in looked at systems, looked at compliance with agreements and they tried to develop and extrapolate calculations of damages to consumers from having been inappropriately foreclosed on or inappropriately charged fees or other kinds of penalties related to mortgage servicing and processing.

Deloitte made out big, but PwC was the biggest winner in that arena. For everybody that PwC or Deloitte or EY didn't audit, they could do that foreclosure review. Deloitte, however, did a big project at JP Morgan that focused on mortgages at Bear Stearns and Washington Mutual that JP Morgan bought in a forced acquisition, essentially a bailout of those firms. Deloitte had been the auditor of Bear Stearns and Washington Mutual. PwC and Promontory did almost everyone else. Ernst & Young did a few small ones.

The only one who didn't really do much on that was KPMG. That created an enormous opportunity to do that kind of work in many other realms later. Any time a company is charged with some kind of a regulatory issue, whether it's anti-money laundering or something, like in the banks, related to their processing of some kind of consumer loans or something like the subprime loans, you have an opportunity for someone to be appointed as a monitor or as some kind of a consultant after the fact to help that organization correct the issues, often systems related issues.  The Big 4 consultant or monitor then also does the work to calculate the number used to repay customers for the damages that occurred from the violation.

The firms have cleaned up on GRC. And it’s a whole new area of software that Oracle and SAP have incorporated into the ERP systems that’s required by regulators.  The Big 4, especially Deloitte and PwC, now partner with Oracle and SAP to implement the software on behalf of clients.

What I'm seeing is that a lot hasn't changed since the time when I actually was last working in a Big 4 firm. The last firm I worked for was PwC in 2005 and 2006. At that point, I was part of an internal team looking at how well PwC was responding to the new rules under Sarbanes-Oxley, things like auditor independence and making sure that they were prepared to respond to inspections of audits under the new independent regulator the PCAOB, established by Sarbanes-Oxley.

There were things that I was concerned about then, things I looked at and said, "Hmm. You know, I don't think that some of the people in the firm understand that they can't do these things anymore." The ability of the large global public accounting firms to control partners, to monitor partners' activities, and to actually have good governance to make sure that there's a structure that identifies and addresses when somebody wants to go rogue or do something that is against the rules is always, always a challenge. The bigger they grow, the harder it is, especially because they're global firms.

Tell us your opinion about the recent SEC enforcement action against PwC

I looked at the recent SEC enforcement action against PwC that covered almost a five-year period from 2013 to 2016 and it said there was one person responsible for implementing governance risk and compliance systems from Oracle in multiple audit clients. PwC, as a firm was charged with violating the auditor independence rules in 15 different clients 19 different times during that short period and seemingly attributable to one partner. The SEC said one partner was the cause of these violations.

That one partner was a hybrid IT audit partner, who participated in the audits with as a specialist, with expertise around IT general controls and other IT controls. He was also a partner who was responsible for identifying opportunities for advisory or consulting projects related to Oracle ERP products.

That sort of hybridization of partners, with a dual incentive structure, is inevitably going to lead to potential conflicts and will present a constant challenge to try to interpret the rules, and for somebody to actually be willing to say, "No, you can't do that." When you say, "No, you can't do that," you're forcing the partner to turn down revenue. I saw that that was going to be a challenge for some partners to comply back in 2006, and it seems like PwC has not implemented any better rules or governance structures in all this time. PwC had one partner running around doing this over and over and over again and obviously without any real, effective constraints.

Given that, now talk about two audiences - the clients and the software vendors. When a company is implementing packaged software, it could be ERP, CRM, whatever. They look at consulting firms and they end up hiring a Deloitte or a PwC, an accounting firm. Are they exposing themselves to some risks?

They're exposing themselves to multiple risks, and not just the risk that a regulator is going to decide to crack down on this and they're going to be left without a consultant or having to change consultants suddenly, mid-project. When the rules were implemented in 2002, we saw companies come down into two different camps, and they're kind of distinct. One is the company that loves, loves, loves their auditor, that's been with them for 99 years and has built their whole professional services relationship around that firm. Usually, it's obviously one of the Big Four and if it's one of the Big Two, PwC or Deloitte, it’s a special problem because of their ubiquity in consulting.

Companies still get full service from that firm. They look for every opportunity to use that firm whenever possible. They know that there are some things that are prohibited. But if the firm and someone else within the company, in their board of directors audit committee, can find a rationalization or can find a way to interpret the rules such that that audit firm can do the work, that company will always choose the audit firm to do the work.

On the other hand, you have companies that only tolerate low risk. They're very much oriented around following the rules and not buying anything beyond the audit. It's so obvious, it's so stark, the comparison between the two kinds of public companies.

These companies have very, very, very strict rules that the audit firm can do nothing but the plain vanilla audit. But then those companies are faced with, whenever they want to do something else, any kind of systems implementation, any kind of upgrade to an existing system, any kind of evaluation of internal controls, any kind of enhancement of any kind of operational system, they put out a tender, entertaining bids and reviewing RFP responses, doing the whole vendor demo thing, and being forced to select from another firm. Then obviously, they have to work with another large firm on something financial or accounting related, negotiate another big professional services contract and vendor relationship and manage all the complexity that entails.

They've signed up for the fact that they're going to have to manage multiple, significant professional services vendor relationships and they do that because they want to keep everything nice and clean and legal. They don't want any trouble with the SEC, and maybe they don't want to let any one vendor get too much power over them. There are advantages and disadvantages to both approaches.

In the Big 4 firms, obviously, individual partners are rewarded for getting what we used to say way back in the '90s at KPMG, “A bigger portion of the client wallet.” That's not changed. Even though it might be frowned upon for the audit partner or anybody else to get a bigger piece of the client wallet for the firm by selling more consulting or tax work, in the end, the Big 4 firms have become these very large organizations with gray lines between the various practices.

From a customer's perspective, though, there's no legal risk. The risk is what?

There is somewhat of a legal risk. For example, if the audit committee and the company executives are not aware of the auditor independence rules, do not fully evaluate those rules when contemplating opportunities for the vendor to do certain kinds of work, and they choose the auditor despite the fact that that work will violate the auditor independence rules, the SEC can sanction the company or sanction its officers or its audit committee. That happens rarely – rarely, rarely.

In the case that I wrote about with PwC, what happened was it all came down on PwC and on that partner in particular. They didn't even name the names of the companies that were subject to these 15 engagements and 19 different instances. They don't want to embarrass the companies because they want to make the assumption that it's the auditor's responsibility to fully inform the client and, in particular, as cited in the PwC case, if the auditor or the audit partner fudge the information in the scope of services, in the engagement letters in order to kind of get in under the wire or fool somebody, then the SEC really holds the auditor and the audit firm responsible.

What happens then? You have to look at the company, you have to look at its audit committee, and you have to look at sort of the company executive who is the purchasing executive or the one that's responsible for hiring, evaluating the vendor, and say, "How could they not know? They know what they want to have done and they are allowing for a contract or scope of services to not accurately state the work that's going to be done." What's going to happen then if there's a dispute?

In order to get in under the wire and be able to use the auditor as a vendor, the SEC enforcement action against PwC implied that there were executives at some of these companies that knew very well that they were fudging the information in the contracts, scope of services, and invoicing. That presents a very significant risk to the company if they do that and then there's a dispute.

Certainly, if the SEC wanted to come back to the company or come back to the audit committee, they could if they thought that there was some kind of collusion in order to create an opportunity, let's say, for a particular official to get some kind of kickback or if there was some other kind of illegality involved. You could have a situation where an official of a company or of a board of directors allowed for this kind of a situation to occur in return for some kind of an illegal payment.

How about software vendors? Do they have any liability given these situations? You look at Salesforce or Infor or whoever has these as partners. Do they have any risks?

As you know, most often when these types of big projects occur, the Big Four firm, the consulting firm, whether it's Accenture or whether it's one of the public accounting firms, they take the lead as the prime contractor. They might have subcontractors and the software vendor is the subcontractor. To that extent, they may be sort of "see no evil; hear no evil" in that situation. It may be that, as a subcontractor, they're doing their part and they're not responsible for the other piece.

What was stated in this SEC enforcement action against PwC is that there was an ongoing relationship between this PwC partner and the Oracle rep. There was probably an ongoing multiple engagement relationship and the vendor provides all kinds of other monetary and nonmonetary benefits to PwC as a strategic partner, an implementation partner, and also to this specific partner potentially on a personal and a professional level. In the end, the SEC said the partner actually provided nonpublic material, nonpublic information to the software vendor about at least one client.

That's public knowledge?

Yes, that's in the SEC enforcement action. I'm assuming that if this partner felt compelled to provide nonpublic material, nonpublic financial information to the software vendor, it was probably so that that software vendor could evaluate pricing or creditworthiness of particular clients. That to me is not very kosher.

What other risks does a software vendor have when they evaluate an accounting firm as a partner?

Well, certainly, if the accounting firm is fudging the information in the scope of services or in the contract in order to get it under the auditor independence wire and they're a subcontractor, if for some reason someone in the company or someone at a regulator determines that that's not allowed, prohibited, and tells them they have to stop the project, well, the software vendor is going to have a break in the project. They're going to have a delay. They might have the contract canceled and have to start all over again with a different integrator or, potentially, have some kind of a breach of contract with regard to the software licensing because the whole contract is canceled if the system integrator has breached some kind of terms.

That's hypothetical, right?

Right.

You don't know of any that have gone to that extent.

Well, in the case of one of the clients cited in the SEC enforcement action, PwC bid on two different projects at one client. I identified that client as Logitech. In that case, PwC had to resign as the auditor because of these independence issues.

Now, in some sense, that might actually be a blessing in disguise because, once you resign as auditor, then you're free to do the consulting work. But the question is, did that cause a stoppage of the project or were the projects delayed because these issues are being fleshed through and potentially there's a lot of back and forth and issues around whether or not the contract is going to go forward or whether or not the contract is going to be completed.

What else should buyers of consulting projects, implementation projects be aware of when they look at accounting firms?

Well, I think the biggest lesson from the PwC enforcement action was that audit committees either are still not aware of these prohibitions against the auditors doing certain kinds of work or they're willfully kind of trying to deflect the understanding or appreciation for those rules to other people. In other words, executives and board members, including audit committee members, claim plausible deniability or delegate the responsibility for evaluating auditor independence.  Sometimes they delegate it to the auditor itself.

When you ask the audit firm itself to evaluate whether it's independent in providing services, you're basically giving the fox access to the henhouse. The vendor is not the one who is supposed to be evaluating whether or not providing those services presents an auditor independence risk to the company.

I would say the biggest lesson was that audit committees, in particular, and executives who are hiring the firms for these types of projects really need to get better acquainted and take more seriously these prohibitions. They are on the books. Whether or not the SEC or the audit regulator, the PCAOB enforce them at any point in time doesn't mean that they can't come back later and doesn't mean that a sudden spike in enforcement action or scrutiny is not going to disrupt the project for the company as a whole and cause a lot of money and a lot of delays on perhaps a mission-critical project.

I'm sure some people will say, “She is a little too alarmist.” I think it's healthy – it's important to look at a segment of the market from different eyes.

Tomorrow, we will talk about how the audit and consulting arms of the accounting firms have evolved differently when it comes to automation.