deal architect

Burning Platform: Not your grandpa's Services economy

In the 48th episode of the series we have Peter Bendor-Samuel of Everest Group, a research firm focused on IT, business process, and engineering services since it was founded in 1991.

I enjoy catching up with Peter on a regular basis to get his perspective on trends in outsourcing and the broader IT, BPO, strategy services market.

He says the market is broadly strong - "rising tide raises all boats" - with the confluence of digital transformations, modernization projects/ related legacy outsourcing and pent up demand from projects slowed down or postponed in 2020.

What's different is the influence of hyperscalers like Google and Amazon and strategy firms like McKinsey, BCG and Bain. We also discuss the trend of "servitization" - where industrial and other sectors are generating more service revenues around their products and moving to "as a service" models with subscription revenues and outcome based models.

BTW, on the last point about servitization, I have been researching that trend in detail over the last few months. You will hear more from me on that in the next few weeks. In the meantime, enjoy this conversation.  

We cover wide ground, as is common with my conversations with Peter. I always learn something new from him.

New Normal: A conversation with Phil Fersht of HFS Research

I have been doing video interviews with a number of CIOs, software executives and practitioners about acrobatics they have been seeing in various vertical sectors during the COVID-19 crisis and the "New normal" they can expect as the economy wakes up. Here is the index to all the interviews in this series.

This time it is Phil Fersht, Founder, CEO and Chief Analyst of HFS Research which covers global sourcing strategies.

He talks about acrobatics at Cognizant as they tackled the pandemic, a ransomware attack and are still delivering impressive results. He also mentions leadership and unique practices at Accenture, IBM, Infosys, Mphasis, Wipro and other firms.

He discusses practices around Digital Transformation, Cloud Computing and Automation.

We cover wide global ground - we discuss Brexit, the lockdown in India and Philippines, and of course England, where he is based.

Fascinating discussion of trends in a human intensive industry which has been significantly impacted by travel and work from home trends during the pandemic.

Burning Platform: Episode 3 - School Buses or RVs

In this episode of the Burning Platform series, Brian Sommer and I discuss the impact of the COVID-19 pandemic on SIs and outsourcers.

With travel challenged, they will need to move to much more remote projects and support. In doing so, they also have the opportunity to rethink their delivery models and include more shared services and automation.

Rimini Street tries to reshape AMS

I drove by the Renaissance hotel in Powai on the outskirts of Mumbai in India last month. It brought back memories - I had taken a client there 15 years ago on a due diligence trip as they looked to outsource their SAP application management, Basis support etc. Over the next few years I took several other clients to other Indian and E. European cities.

Then in 2010, I stopped doing so. The economics were just not as compelling, the staff quality was deteriorating/turnover was rampant, the overhead of dealing with staff often many time zones away added to an already complex environment. The offshore, and even domestic AMS model did not die, but it has been ripe for automation and a less labor intensive, more shared service/multi-tenancy model.

I have been encouraging Rimini Street for years to enter the market. They already support customizations to SAP and Oracle in their customer base. They have an agile, small team model. They could combine Level 2 and 3 support for customers. They have a generally happy customer base around the world, even if the publishers don't exactly show them much love.

They have finally entered the AMS market. Here is the announcement.

Is it too late? The AMS market is going through massive changes. SAP customers have been ring-fencing ECC with cloud solutions, and two-ERP subsidiary models. Many ECC customers will move to S/4HANA in the next few years. SAP has a whole new slew of products I describe in SAP Nation 3.0 - C/4HANA, SCP, SAC, AIN, IBP, Leonardo ML and IoT and on and on. It's not your Dad's SAP customer base.

Yet the ECC-centric AMS market continue to chug along at over $ 80 b a year. It was one of the biggest components in the models I had built of the economy in the first volume of SAP Nation.

So, it is good for customers to have another, quite different, AMS provider. In many ways, it is also good for SAP. Better late than never if SAP customers can see operational efficiencies in the Run phase. It will make them more willing to look at newer SAP products knowing they don't have to continue to live with circa 80s and 90s support models around today's products.

Deja Vu all over again

I was in India last week and visited with a couple of outsourcing firms. In my travels, I got reminders of several due diligence visits I had helped clients with from 2003 to 2010. The Renaissance in Powai reminded me I had stayed there with a client during a visit to TCS. A Cognizant executive reminded me of visit with another client to Chennai. A drive-by the Hinjewadi building of Persistent reminded me of a visit with yet another client.

A bit of deja vu, all over again.

My firm, Deal Architect has helped a number of clients evaluate SIs, negotiate hosting and AMS contracts. Before that I had a marketplace startup which helped customers develop digital services RFPs and evaluate responses. Prior to that at Gartner, I helped a number of clients with their ERP SI evaluations. India and E. Europe have actually been a small part of the landscape across which we have helped clients with services procurements for a couple of decades.

The time is right to help clients with their new wave of services procurements - as they move to S/4HANA, as they evaluate cloud infrastructures, as they look for post implementation support around their cloud apps.

It's a new world - not sure vendors have evolved enough in skills, methods or automation.

Clients need a deja vu to avoid some of the mistakes we all made in the last wave. Look forward to helping several of them.

SAP's evolving partner economy

Ask about who has had a successful platform strategy, and most people will point to Salesforce. I beg to disagree – compared to revenues Apple has generated for its partners and itself from its iOS store and Amazon with its fulfillment engine over the last decade, Salesforce is a distant laggard. While customers have built plenty of custom objects, the revenues generated by ISVs on the platform is relatively small. Still as enterprise software goes, Salesforce stands out.

Ask who has had a good reseller channel and people will point to Microsoft and HP. I cannot disagree with that. They do not not get much recognition but SAP’s reseller channels around its BusinessOne and BYD products would get more recognition if they were independent units. Instead, they are dwarfed by SAP’s powerhouse direct sales engine which is the envy of most enterprise competitors.

That SAP direct sales focus has also meant association with a vast ecosystem of systems integrators and outsourcers. Again, that is the envy of many competitors, but if you read the first volume of SAP Nation this ecosystem has also been a burden on the customer base. And for the ecosystem cost (which ranks alongside GDP of largest 50 countries around the world), the failure rates have been unacceptably high.

So, with all these conflicting thoughts running through my mind, I went to SAP’s Partner Summit in NYC this week. They did a good job bringing together a mix of ISVs like Hrizons (a SuccessFactors implementer which also offers complementary software), resellers, small/midsized SIs like Beyond Technologies and large ones like Deloitte. And customers like Cintas and Pregis talk about their use of old and new SAP products and the partners who helped them in their journeys.

My feedback:

It was nice to spend some time listening to Diane Fanelli, SVP describe how SAP is showcasing in its App Center a growing number of ISV offerings using tools in its Cloud Platform and Leonardo offerings. In previous attempts, SAP has tried to do similar around NetWeaver and HANA. The customer access is much more digital this time around, the Cloud Platform leverages lot more open source and the barriers to partner participation appear much lower. It is fledgling at this point in terms of revenues for the ISVs and SAP (Fanelli says focus is adoption prior to monetization). I hope they continue with her statement “the future is small, simple applications that snap into existing landscapes. You go shopping [for them] on your phone." Which also means the onus for vertical and other books of record will stay with SAP. Too many vendors abdicate heavy lifting to their platform partners.  

In my research for Volume 3 of SAP Nation, I have seen many customers use smaller SIs for their S/4HANA projects, SuccessFactors and newer SAP projects. So, it was good to spend time with Blue Marble and Nimbl at the event. I do worry that SAP continues to seek bragging rights by talking about 18,000 partners. That’s way too many. It would do better for itself and its smaller partners by ruthlessly culling the number.

SAP also continues to be enamored with its bigger SI partners. I understand their view that such partners are a channel or at least an access path to influential client executives. I don’t understand the continued lack of certification or controls. SAP’s brand suffered considerably from the overruns and failures in the first wave of ERP.

The issue is less about SAP, more about the slow evolution of SIs and outsourcers. There is little automation in their service delivery, and still way too much consultant travel. The CTO of Deloitte, Darwin Deano responded to my question with "We're 20,000 people. It's not going to completely change overnight. But I can assure you that every SAP project is benefiting from things like automation and other new ways of working”.  I would love to see much more remote delivery,  more use of automation in data conversion and testing, more use of machine learning in parameter configuration. I would also like to see much more proactive commitment to multi-tenancy and public clouds.  

Way too many SAP partners are proposing private cloud or on-prem deployment of S/4 (and possibly C/4 going forward). Not only will that continue the previous cycle of expensive ECC implementations, hosting, upgrades and application management, it will also complicate SAP’s efforts to have sufficient data in the cloud across customers to train its machines. So, this is definitely an area SAP needs to step up and guide, and if necessary, control the ecosystem. Seeding the ecosystem with more “born in the cloud” SIs who were raised with Google, Amazon, Salesforce and Workday technologies and agile methods would also be a smart move.  

Overall, it is nice to see a partner ecosystem in transition around SAP. I, for one, would like the pace of change to accelerate. And the SAP focus be on customer success and economics not just on channel revenues. Many analysts are also hoping there is a role for the recent acquisition, Qualtrix in measuring the partner experience going forward – it may go a ways to help justify the large purchase price.

Implementation Groundhog Day

I was recently introduced to Bonnie Tinder, founder of Raven Intel. Her startup is on a mission to “quantify the quality” of HCM implementation projects, especially the role of the SI partner. As her site says “We’re amplifying the voice of the past customer so the future customer can find the perfect partner.” It is a noble mission and she has a white paper out in time for HR Tech this week which summarizes findings from the initial 100 projects her team has analyzed using net promoter scoring and other techniques. 

In talking to her, though I felt like “déjà vu all over again”.  At the start of my career at PwC I remember a firm-wide event where the tagline was “Selling is only the beginning”. We had had a few major disasters and the leadership was trying to push a quality drive in the rank and file. In the mid 90s when I analyzed ERP integrators at Gartner I co-authored a report on SIs which started with a quote from a US District Court case “A Michelangelo should not charge Sistine Chapel rates......for painting a farmer's barn".  Our study like Bonnie’s focus had surveyed countless customers and we had also scored SIs on a number of ERP project dimensions. In 2000, a few of us set up a digital marketplace for customers to more objectively procure SI services for SAP, Peoplesoft, ecommerce and other projects. We had planning tools for customers, proposal engines for vendors and we had looked at the whole supply chain of such projects. Our timing was poor with the tech market meltdown and the startup failed a couple of years later. In the next few years, I was enamored with the CMM Level 5 and Six Sigma focus at Indian firms and took a number of CIOs on due diligence trips there and to E. Europe. By 2010 I slowed that down as I saw the rigor failing and the firms getting greedy. In 2014, I wrote SAP Nation because I saw an out-of-control SI and outsourcing ecosystem. Now as I write the next volume of SAP Nation I am seeing folks like Jarret Pazahanick talk about the “Wild West” of implementation consultants around the more contemporary crop of cloud solutions.

Like I said déjà vu all over again.

Some things never seem to change. Buyers don’t seem to have the muscle memory of the last major project failure. Vendors continue to treat SIs more as a sales channel than a delivery arm. So, you have Salesforce flagrantly bragging how many $ partners make for every $ of software, when customers want to see that tightly managed. As I wrote in “Fool me twice, shame on me” I worry that SAP did not learn from the last wave of massive project failures which hurt its brand, not that of SIs. SIs continue to brag about RPA and other automation, but show little movement to more machine, less human in their delivery. We have done hundreds of thousands of ERP, CRM type projects in the last few decades. It’s not rocket science. There should be predictability and there should be significant economies of repetition.

And yet in other ways things are changing. The upgrade and application management onus has moved from SI to the SaaS vendor. The hosting has moved to the IaaS vendor. We should expect Six Sigma and CMM 5 productivity from these vendors. The buy versus build pendulum is swinging as software vendors neglect vertical markets. That brings different expectations of SIs.

What has not changed is that customers are still expected to absorb all the risk. As Brad Keywell put so well in this profile I did of him “Most troubling, the customer is left taking all of the risk, outlaying all of the money, and then holding the bag if the implementation is a failure – the legacy risk-reward model is out of whack. Legacy software vendors ask for money but then avoid accountability for outcomes.”

In the last two decades most CIOs have expanded their stable of service providers – contract manufacturers, 3PLs, digital agencies, design thinking firms, service arms of industrial asset vendors. Many look at me and shake their heads when I tell them they still have to keep an eye on their HCM and CRM and ERP implementers.

Why are we still fighting that battle decades later, they ask? Welcome to Groundhog Day.

SAP and Outsourcers: Fool me twice, shame on me

I am often asked why I was tough on SAP in SAP Nation. I usually correct them and say I was tough on SAP’s partners and how SAP did a poor job monitoring and managing them.

I must say I groaned when I saw the SAP announcement where it plans to team with Accenture, Capgemni and Deloitte to accelerate verticalization in specific industries. I saw the tall signage of the partner booths at SapphireNow and went, Here we go again.

If SAP needs design input on the automotive sector, especially Tier 2 and 3 suppliers, they would do far better to watch this Plex keynote and work with the likes of PTC and Kors Engineering. They have so many customers in Germany which have been pioneering Industrie 4.0 projects – we wrote about several in The Digital Enterprise. If they want to hear about automation in the oil and gas sector, they should ask for time with David Truch at BP, one of their customers I profiled in Silicon Collar. He described pioneering work with robotic crawlers on rigs and drones to monitor remote locations. In The New Polymath I had described some of BP’s sensory networks going back over a decade – way before the term IOT was coined. If they want to hear about innovation in process industries there are so many innovative pharma, food and chemical companies in their customer base they can learn from. If they want grey hair on cloud implementations they should scour the Salesforce and Workday ecosystems.

Not saying they should not leverage their bigger SI partners but this time around they should expect much more automation in implementations. Oracle just announced their Soar offering which automates several steps in a migration, and I think SAP should push its SI partners to develop similar for migrations from ECC to S/4HANA.

Finally, I hope SAP systematically monitors its partners a lot more this time around. There are so many partner management tools, scoring tools,  and yes, they should tap into the collective memory of so many botched projects and unhappy clients from the last round to remind them they have to do better this time.

BTW President George W Bush dispenses the advice better than the title of this post does

Infosys in a world of Amazon, Workday and Foxconn

Vishal Sikka has resigned as CEO of Infosys. In a blog post he says

“It is clear to me that despite our successes over the last three years, and the powerful seeds of innovation that we have sown, I cannot carry out my job as CEO and continue to create value, while also constantly defending against unrelenting, baseless/malicious and increasingly personal attacks.”

When he arrived from SAP I was excited he would bring an IP centric mindset to a company which, in many ways, carries the pride and the burden of employing ever increasing volumes of human labor in its populous home country. I was also concerned his enterprise software background would bring along expectations of sky high gross margins.

The reality is he tried to turn around a company which is caught in a time warp.

In the 90s and early 2000s, Infosys delighted its customers. Its CMM Level 5 and Six Sigma certifications showed in productivity in the form of tangible cost reductions and lowered code error rates.  In my opinion, one of the worst things to happen to Infosys was the glowing coverage in Tom Friedman’s book The World is Flat. The Bangalore campus became a tourist spot to bring government leaders from around the world as a showcase of India’s software capabilities. This went to Infosys’s head, even as performance on customer contracts was declining and labor teams and cost grew more and more.

I saw this first hand when I took CIOs to Bangalore. Infosys would talk with pride about the campus and the accolades and usually pull in some of the founders and early executives. In moderation, nothing wrong with that but when it took a couple of hours out of the day, it did not help present their credentials for the specific projects the clients needed help on.

Then, you saw a wave of underwhelming presentations at Oracle Open World in the 2010-13 timeframe. After paying millions for the pole position just prior to Larry Ellison’s talk, the pitches, many by early executives would literally put the audience to sleep. You could see the firm was slipping while clinging to its version of a glorious past. (the keynotes at OOW improved a bit when Vishal took over)

All this while Amazon was redefining “continuous improvement” with 50 price cuts over a decade around its cloud storage and compute services. Workday was taking an average of 5 employees to support every customer, using its multi-tenant model and in-background upgrades to delivering ever improving functionality to all its customers. Other SaaS vendors were delivering similar efficiencies. And Foxconn was delivering billions of high quality Apple and other devices under intense delivery and secrecy pressures. Even in a country like China which like India has to encourage labor -centric models, Foxconn was rolling out robotics and precision equipment.

In a comment, Infychallenger says the “world has changed from commodity to digital” and Infosys has not kept up.  Actually, only a fraction of the world has. Even though I write plenty about innovation, most of IT is stuck in 15, 20, 30 year old tech. Way too many companies define digital narrowly – social media or web commerce. The truly transformative companies are making their own products and services smarter, turning their business models upside down and looking at new automation as they rethink supply chains, and move to advanced manufacturing concepts. These innovators are not using Infosys (and in fairness most other outsourcers). But they do want Amazon, Workday and Foxconn type efficiency in their back offices.

In 1995, Michael Treacy and Fred Wiersema wrote their best seller “The discipline of market leaders”. They argued dominant companies picked one of 3 focuses – operational excellence, product leadership or customer intimacy.  Can Infosys become a product leader without beaucoup, particularly industry and geography specific, IP? Not likely. Can it become customer intimate? Possibly, but not with a headcount of 200,000. 

Infosys could again become an operational efficiency leader like it was twenty years ago. But it would need to do that with a heavy focus on automation. Vishal tried that in small doses and even that met resistance. Its time for Infosys to become an operational leader like it used to be not just wallow in the glory of what it was.

“Big Brains focused on Big Things”

Five years ago, I heard Jeff Immelt, CEO of GE use the term Industrial Internet of locomotives, wind turbines, aircraft engine and MRI scanners to differentiate from the Consumer Web that Apple. Google, Microsoft, Amazon and others have made part of our daily lives. GE has since inspired many of its customers and even those of its competitors to think about “Digital” from that complex, yes even boring, enterprise lens.

Around the same time, Cognizant CEO Francisco D’Souza could see significant changes coming in his client base, and outlined plans for his “three horizons” in his 2011 Shareholder Letter.

This  week, at Cognizant Community in Austin, D’Souza sounded like Immelt (he sits on GE’s board) when he told an audience of customer executives “Don’t fall into the FANG (Facebook. Amazon, Netflix, Google) trap” “Be inspired by them, but don’t copy them”. “They were born digital – you will always be hybrid”.

His EVP of Strategy, Malcolm Frank said its time to move from “Digital that’s fun” to “Digital that matters”. “Facebook is not going to run an airline, Google is not going to run an emergency room” “Systems of engagement were a head fake. We need to move to systems of intelligence”. In an excellent keynote (I will post a video shortly), he covered wide ground on the big things enterprises need to focus on.

The theme of Community this year was “Mastering Digital” (later in week I went to HPE’s Discover event and Digital Transformation was a frequently heard term there also) and I, for one, like this evolution.  Way too many initial digital projects have focused on social and mobile. Important, but superficial in terms of impact. Way more important is a move to smart products, rethought business models and channels, reconfigured supply chains and manufacturing.  Keynotes by Michael Porter on smart products and Peter Evans on platforms expanded on that thinking. 

Interestingly, in talking to Cognizant executives, it is industries that feel most threatened by the consumer giants and startups – retail by Amazon,  autos by Google and Uber, banking by several fintech startups that are showing the most urgency to undertake significant digital transformation. Others like insurance still appear to be waiting for their wake up call.

I would also be remiss if I left the impression that the consumer digital stuff is easy to deliver. In my books I have written extensively about Amazon’s highly efficient Kiva driven warehouses, postal injections and other supply chain innovations, Apple’s mind boggling quality across billions of devices via its contract manufacturing network and retail excellence, Facebook’s highly efficient data centers, Google’s sustainability initiatives and Alphabet’s wide array of R&D.

Still, as D’Souza says they were born digital and did not have to worry much about legacy. The rest of the Fortune 1000 and beyond does not have that luxury. For them, digital will be much more complex, especially when too much time and money is going into that legacy.

It is time for some Big Thinking.