deal architect

The disconnect between software buyers and vendors - about the role of SIs

In the case studies I wrote for SAP Nation 3.0 I noticed two common threads

A) Customers were using SIs cautiously - the last set of experiences with SIs and outsources has made them wary. A couple even thanked me for writing the first volume and bringing out the massive cost and poor quality of the SI ecosystem. “You opened our eyes” said one.

B) Several insisted I not include the name of their SI in their case study. It’s their prerogative and I did not pry why. It could be for legal reasons, but I got the distinct sense that they did not want to overstate the role of the SI versus that of their own staff. 

Both trends are healthy. In contrast, I am seeing software vendors go the other direction. They call SIs “partners”, brag about how big the SI staff counts are around their products forgetting that this is a direct cost to the customer, plus often another 15 to 20% in travel expenses. 

Even more I have noticed SIs are being brought it to present to analysts at the events, and in most cases the SI executives are unprepared or unwilling to answer tough questions. These three comments are in the last few months from SI executives at 3 different major vendor events. 

“We have 000s of consultants. We wont change overnight. But I can assure you we are not making revenue from what we did a decade ago”. 

“We mostly work on large, global projects and those are not really going to be automated”

“Either he leaves or I leave” - by an executive offended by a fellow analyst’s question about failure rates involving his firm

In each case, I should have challenged the SI statement as either inaccurate or too defensive. Instead being there as a guest of the software vendor I just let it pass. And the host in each case also let it pass.

I am seeing some software vendors start to bring improvements to the world of software projects. 

 

In this post, Jerry Foster, CTO at Plex described a machine learning project applied to parameter configuration. No reason other vendors cannot do the same and encourage their SI partners to train machines learn from their own work across 000s of ERP and CRM projects.

https://dealarchitect.typepad.com/deal_architect/2019//plex-ml-project-something-every-software-vendorsystems-integrator-could-emulate.

 

Workday has been more diligent about requiring its SI partners to certify their consultants and keep their certificates refreshed. It has also been pushing a series of project checkpoints as part of its Delivery Assurance initiative. Certification by itself is no indication of project success, but it’s a start. If they could enhance certification with customer feedback from each project the consultant has worked on, they could have the makings of a ‘FICO’ score - that could be revolutionary for the industry. 

 

As part of moves to S/4HANA, SAP customers benefit from its ‘Simplification List’ which identifies functionality which has been deprecated to remove redundant code in previous versions and its ‘pre-checks’ which examine customizations which may cause problems during the migration. If they can continue to bring more automation to common steps in every project - in data conversion, testing, testing - they could shrink at least some of the labor intensive tasks. 

 

There’s lots more to do. I can point to hundreds of small and major things software vendors can do to improve their services ecosystems. The question for many is why should we invest? Why aren’t SIs making their own investments? They are, but the business model has not evolved much - it still thrives on labor intensity. And with that comes the costs of staff turnover, travel, inconsistent quality and more. 

 

Somebody has to break the cycle. Buyers increasingly want changes. Software vendors need to help deliver them. 

Interview with Malcolm Frank of Cognizant: Davos and Digital

Malcolm Frank is, in my opinion, the best "analyst" on the outsourcing sector. He is not an analyst per se, but as EVP of Strategy and Marketing at Cognizant, he has a ringside view of trends in the sector. I make it a point to spend time with him at least twice a year and listen to him present and read what he writes every chance I get. I recently caught up with him on what he gleaned from his time at Davos, the digital and design thinking buzzwords in the market, automation and other trends in the sector. Here is part 1 of our conversation.

Malcolm, "Digital" is a hot theme with every outsourcer these days. Seems like you have been talking Digital for 5-6 years. Now that every one else is talking Digital, how is your thinking evolving?

When it comes to the "Digital" buzzword, I have a bit of a giggle about this. We're all going to look back a few years from now and say collectively, "Oh, that was so 2015." If you view it from the CXO perspective the term is still too ephemeral. Rarely do clients roll out of bed and say, "I have to solve a digital problem today."

You can see also see how the SMAC (social, mobile, analytical, cloud) stack has evolved in the market zeitgeist year over year. Around 2010 cloud was the rage, as it seemed everybody was marketing solutions around the “cloud” to the point where the term became meaningless. I think clients in particular got a bit annoyed by it.

Then around 2012 it was about building the social enterprise. I remember Salesforce.com focused on the concept and then a year later they pulled the plug on that and did not use the term again. Then in 2014 the market conversation seemed to focus on Analytics and Big Data.

Maybe I'm showing my age but I also struggle with the "Digital" term because I keep having visions of Robert Palmer and the demise of Digital Equipment Corporation.

All of that said, I think we're moving in the right direction. In the next couple of years you will likely see more digital solutions become crystallized and clients understand them better and how to procure them. For example, a bank will likely talk about to vendors about robo-advisory automation solutions as opposed to something “digital.”

Malcolm, I think you are being modest. For years now, you have helped guide Cognizant through its "Three horizons" strategy and you wrote the Code Halos book couple of years ago. Surely, that counts for some competitive advantage?

We think it's served us well in a couple of fronts. One is certainly in terms of establishing mind share and thought leadership because this is important to us. We're thoughtful about it as a company. We had our Center for the Future of Work. We've been at that now for 5 or 6 years. We have some very talented people as you know. That's certainly has gone well for us. It allows to see what's real in the markets and what's just talk.

Around the Code Halos book, I think the key nugget people picked up was that any person, place, or thing is going to have a virtual life as well as a physical life. It has its digital twin. We have seen a number of our clients pick up on that. It resonates with them. That clearly has been a very helpful construct.

I think a third construct that has worked well for us are both internally at Cognizant and for clients is our 3-horizon model. We hear a lot of talk today about two-speed and dual-track IT, and the 3-horizon model certainly applies to IT. Horizon 1, at least the way we have structured it applies to your core operations. These are things that are old to you and they're old to the market. The mandate there is run those better, faster, cheaper. Find ways to increase quality and reduce the cost.

Horizon 2 applies to things that may be new to that company but they are understood in the marketplace. We saw that in the automotive business with SUVs; firms like Chrysler had been making Jeeps forever. You had new entrants like a Volvo, BMW, Mercedes, Lexus, that came in about 15 years ago and said, "Hey, great category. It's understood in the market. It's just new to us."

There is a lot of activity there in digital. We see clients looking at use cases for their businesses which mirror the FANG (Facebook, Apple, Netflix, Google) vendors. That's a Horizon 2 model.

Then Horizon 3 is invention that is something that's new to you as a company and also new to the market. That's where we see a lot of our clients in banking, healthcare, insurance, and retail who are looking to reinvent their sectors. How can we think out of the box and apply digital and create completely new offers?

It's been a very good model to help clients to manage the change around them. Once you see an activity fits into one of the 3 Horizons, then you can get the appropriate model, staffing, budgets and goals to go against it. I think those are some constructs that have helped us in the marketplace to get more credibility in "digital".

Malcolm, if you think back to the 90s, "digital" back then spawned a variety of new consulting firms like Scient and Viant. In the Horizon 3 projects are you seeing a new category of competitors like digital agencies or design firms? 

Yes and no. You do see some new entrants, but it all depends on how the client frames the problem. If they define it as a design issue, you start to see some of the design firms showing up. If the client is truly just trying to figure things out, they may say, "Hey, I don't want to talk to the usual suspects. Why don't I go talk to one of these new strategy houses that is focusing on digital?" Others may define it as a data problem and go "Hey, that's big data. We need to get our arms around on this data exhaust and turn it into a business value." They may go to a shop that the focuses on that.

That said, as a general trend we see the market moving back to the usual suspects, meaning larger players like ourselves who sit at the intersection of business and technology. When clients get serious about digital – in moving the needle in their companies – they go beyond issues like planning, design and understanding the new technology stack. They say things like: "I need to figure out the business process change, I need to have somebody that has a vertical industry expertise to understand the regulatory issues, I need to have somebody who understands where the bones are buried in my internal IT. At the end of the day, I may have systems of engagement or systems of intelligence that are on the digital side, but they all have to tie back to the systems of record. I need somebody who knows that." and "If I want to do it on a global scale or at least on a broad scale, I need somebody who can do that heavy lifting". We’re finding that’s increasingly how clients are framing the problem.

More in Part 2 next week

NASSCOM: More Moore, less ABAP

My friend Phil Fersht was at the annual Nasscom event in Mumbai last week and wrote “More MBA, less ABAP is the recipe for India’s digital success”.

There is much to like in what he says, but I would go further

a) Much Less ABAP

My book SAP Nation shows a $ 200 billion a year ecosystem ready for disrupting, even collapsing. Part of it can come from Indian firms cannibalizing their own services in that market. Much more could come from Indian firms diversifying to SaaS vendors that SAP customers are migrating to and providing  third party maintenance to SAP customers. Unfortunately, many will just tell their customers to wait and see how SAP’s next-gen product, S4HANA matures.

b) Digital with Big D

As I wrote in this post, Digital Transformations require a wide portfolio of skills. “There are so many opportunities to digitize products, channels, shop floors, logistics, business models etc.  So many legacy systems need to upgraded and integrated to. The portfolio of skills needed to build a vibrant Digital Enterprise is very wide.”  Many Indian firms have some of these components in place, but many need to acquire digital agencies, product centric/R&D focused practices, and as Phil says maybe even some MBAs for digital strategy and business model transformation.

c) Refocus on Moore’s Law

This is probably the biggest change Indian firms need to make. They have to quit leading with labor intense models. A blend of symbiotic man-machine skills is key. Indian firms should have been leading the automation of knowledge work. They missed the last wave where Google, Amazon, Microsoft and others have shown the art of the possible. Plenty more to be done there. And even where the model is labor heavy they need to dust off their CMM and Six Sigma disciplines they religiously applied 10-15 years ago. As I wrote here, Moore’s Law is back in the enterprise, and to offset the wage and real estate inflation that plague India, Indian firms need to become even more acutely focused on continuous improvement.

d) Become geographically agile

When I interviewed Mike McNamara, CEO of Flextronics, the large contract manufacturer last year, I was struck by his comment that they moved a quarter of their physical plant across borders. Manufacturing has become agile – to take advantage of changing US energy economics, to be closer to emerging middle classes in Indonesia, Brazil or wherever and other trends.  If physical plant can be moved quickly even with all the logistical challenges,  there is no reason why labor pools cannot be similarly agile. Indian firms need to evolve the delivery model – doing the bulk of the work in India may not be the best way any more to service clients in the throes of complex digital transformations.

Indian outsourcing at the cross roads

Vivek Wadhwa writes “Why I have become pessimistic about Indian IT”

“It is not that Indian outsourcers have become less capable of servicing Western needs. It is that their customer base—the CIO and IT department—is in decline.”

He is right and wrong.

Actually there are large chunks – over $ 300 bn a year in IBM, Accenture, EDS, Cap and other outsourcing business (and over priced contracts  at incumbent Indian providers like Infosys and Wipro) for the Indian firms to still target. So, by flying low – and aiming for what HCL calls the “rebid” business which I estimate will be for about half that contract value – the short term road is still ok. When it comes to scale, IP protection etc Indian firms continue to have an advantage over E. European, S. American, Chinese competitors. But they have to compete vigorously on economics not continue with poor habits they have picked up in last few years. And dust off the continuous improvement ethos which was a hallmark of Indian outsourcing a decade ago.

In the other half of that incumbent spend and in newer markets, the challenge for Indian firms is more from clouds, crowds, cybertech and  customer priorities.

Clouds apps vendors like Salesforce, NetSuite and Workday have shown the world tens of thousands of customers can be supported and upgraded by a few hundred staff. That is quantum more efficient than the current Indian model where a single SAP customer needs 20 to 100 support staff. Cloud infrastructure vendors have invested billions in hyper efficient data centers and networks. Most Indian firms are capital allergic and have made few such investments (other than in broadband pipes to the West)

Crowdsourcing is starting to affect chunks of the outsourcing model – low end stuff like testing, but with models like Kaggle even high end work.

Activity after activity is starting to factor robots, drones, machine intelligence. We have moved into a world of cyber-physical IT but most Indian firms are still persisting with head count heavy business models.

The biggest challenge comes from growing customer investments in product and revenue centric technology. Many companies are beefing up their own technology staff to do that and looking for creative product design firms, digital agencies, contract manufacturers and logistics providers with scale. Few Indian firms fit that bill. Most have chased after Microsoft or Oracle and built relatively “safe” practices around mature, horizontal IT tools, not in emerging and creative vertical areas. 

As Vivek says “There are new $100 billion opportunities that could revitalize this industry. But from what I’ve seen, Indian executives seem incapable of steering their ships in the right directions.”

That may be too harsh an indictment, but it is clear what worked for Indian firms in the last five years will not be sufficient going forward.

The danger of linear thinking

I am seeing clients come up to end of 3-5-7 year SaaS and outsourcing deals I and others helped them with. And I often hear things like “routine renewal” or “let’s re-bid with a slightly different group of vendors than we invited last time”. There is a sense of “steady state” in many of these scenarios which makes me uncomfortable.

I used the HfS Blueprint fireside chat this week to gently warn folks about the “calm before the storm”  - the storm as in 5 market disruptions we discussed during the session (slides included below)

I used 3 personal anecdotes from my international travels in the 80s

a) a visit to Berlin just before the Wall fell and almost losing my passport to the E. German bureaucracy

b) a trip to Paris with a Japanese colleague from PW and explaining to French customs the 3 large bagfuls of trinkets from Harrods would not stay in France but were gifts for his friends in Japan

c) a bus ride in Israel and being pelted by rocks as the first Palestinian intifadah started.

I told them I (and many US diplomats and economists) used linear assumptions  through the 90s – that E. Europe would continue to be a communist mess, that Japan would continue its economic march, that the Middle East protests would continue in relatively harmless ways. We were wrong on each and I am afraid many clients are going into their next phase of IT outsourcing with similar linear assumptions.

Ned May of HfS did a great job pushing and probing me on the disruptions. I will see if we can share a recording. In the meantime, download the slides we used.

BTW HfS brought together a really nice group of outsourcing buyer, vendor executives and advisors to the event in New York, now in its third year. Kudos to Phil Fersht and his team.

Download Vinnie Mirchandani BPS Presentation Final

A new world of ERP service providers

NetSuite has a ERP Consultant Certification program. In reviewing the announcement it struck me they are doing customers so much better than their on-premise peers have done for the previous generation of ERP customers.

a) They are recognizing integrators are  more about specific qualifications and talent versus good old relationship selling and paper based RFP responses . “Unlike the word-of-mouth and phone call processes of yesteryear, prospective clients today typically evaluate service and solution providers over the web by such measures as certification, demonstrable expertise, recommendations, thought leadership and brand or personal image—all before making a phone call.”

b) They are bringing to their customers a wide choice in VARs and accounting firms and big outsourcers. The certification program leveraged “Accenture, Aminian Business Services, Deloitte, Demand Solutions Group, ERP Guru, Explore Consulting, First Hosted, TrueCloud, McGladrey, Ncompass Business Solutions, NetSoft, NXTurn, Sixred and The New Office.”

c) The biggest impact they (and other SaaS) providers have brought to services is in massive multi-tenant, shared services through hosting, application management and tuning and upgrade services – all provided by NetSuite rather than to one customer at a time in the previous model.

The Brave New World of Software and Services

On the anniversary of GE’s launch of the Industrial Internet, CEO Jeff Immelt presented an update last  week in Chicago. You can watch his full talk here.

Couple of things stood out from an outsourcing industry POV

As I wrote during the launch last year, GE is the biggest outsourcer (and software company) most of us have never heard of. And it is delivering services not as much with armies of humans but with a growing number of  its "brilliant machines". An example is its 2.5-120 wind turbine. Analyzing tens of thousands of data points every second, the turbine integrates energy storage and advanced forecasting algorithms while communicating seamlessly with neighboring turbines, service technicians, and customers.

The other thing is GE announced Amazon Web Services, Kaggle and Accenture as three of its II partners. Amazon has pioneered infrastructure as a service and Kaggle is pioneering crowdsourced talent as a new type of outsourcing. The Accenture here is not the SAP SI of old. This is a joint venture with them called Taleris which leverages GE Aviation’s predictive analytics technology to make recommendations based on this analysis to optimize aircraft maintenance and flight operations.

Also, notice who is missing. The Indian outsourcers. That is striking because GE more than other company in the world contributed to formative growth at Infosys, Wipro, Genpath and many others . It still leverages a number of Indian providers for its internal IT but - not yet anyways – for external facing opportunities.

Finally, look at the likely impact on the software industry as its medical devices, locomotives, appliances and countless other products incorporate algortihms and commuunicate with each other and the world and allow for predictive maintenance, performance monitoring etc. A GE executive I interviewed this summer said "The greatest software companies in the world don't sell software". Indeed.

Talent Sourcing – fool me twice, shame on me

McKinsey says we are already critically short of “data scientists” even as the hype about Big Data takes off. IBM goes even further and says we are short talent in every aspect of what Cognizant calls the SMAC stack (social, mobile, analytics and cloud). Around the world.

If it feels like deja vu all over again, you would be right. In the late 90s, in the run up to Y2K, there were supposed shortages in ERP, testing, COBOL, Assembler skills. And wages and consultant rates rose. In the dot.com boom which continued even after Y2K, hustling became an art form. There were eCommerce, marketplace, Java teams which had to be “hired within 24 hours,  or a competing client would get them”

Expect more of that this time around, but let’s be smarter:

a) Most outsourcers do not have the SMAC talent themselves. How many can show resumes in the social space – with Yammer or Radian6 experience? In reverse, how many are positioning their Lotus Notes and collaboration experience as “social”? In mobile, the majority of the million+ apps in the iOS and Android marketplaces did NOT come from the major outsourcers. They came mostly from mom and pop shops. When it comes to analytics, sure they can show they have had some HANA training, but how many of their staff have even rudimentary pattern recognition skills?  When it comes to cloud, how many of them have cloud data centers which could compete with Amazon? How many have shared service centers which could compete with NetSuite when it comes to apps management? What really makes them cloud qualified? We need more disciplined sourcing – buy qualified teams, not the brand name. Even better buy smaller qualified teams and more IP and automation to do the job.

b) Most companies are far more outsourced than they were 12-15 years ago. Dangerously so, in many cases. Not many will do what Randy Mott, CIO at GM has announced – move from 90% outsourced to 90% insourced. He is also prepared to do it in big chunks - he has already announced plans to transfer 3,000 staff back from HP.  But if companies feel they need to outsource the newer skillsets, they should be at least be looking at bringing some of the more mature skillsets in-house. At the HCL event last week, I heard there is $ 190 billion in “re-bid” IT outsourcing coming up in the next 3 years. Should not internal IT and HR be invited to also “bid”?

c) Insourcing is easier said than done. The basics of recruiting and employee development have deteriorated in most companies. Jason Corsello, who heads strategy at Cornerstone OnDemand, which recently released its own survey results on the talent shortage, summarizes some of the challenges:

• Too much emphasis is spent finding the next “rock star” instead of building the stars themselves
• Companies are doing a terrible job giving employees feedback
• Employees aren’t getting the necessary development and training. Programs today aren’t built for the 21^st century leveraging modern technology (mobile, social, etc.)
• Very few employees actually get career development guidance or establish career goals.

The skills shortage will likely vary by staff category and country. If we are not careful though, we better get ready for another round of hustling and employee discontent.

You know how the expression goes: Fool me twice, shame on me.

Whither Outsourcing Advisory Services?

Phil Fersht has a sarcastic post on the Insight HCL event we both attended on Tuesday.

To start with I think he is a bit too tough on HCL.  I thought they did a fairly good job with  the event logistics and the customer showcasing – enough for me to include those items in my “Best of 2012 events” post.

Now on the composition of the advisers in the audience – I sent him an email to verify which bucket he put me in :)

My own observation was how long many of those advisers have been in the outsourcing industry – either at providers like EDS or advisory firms like TPI. While that grey hair protects their clients interests in some respects, not sure they are aware of all the disruptions happening in adjacent markets that they could be leveraging to their client’s benefit.

As I wrote on that day  “Over the last few years, I have cataloged on my blogs what Salesforce and Workday have been delivering in massive efficiencies in application management and upgrades, and what Amazon and other cloud infrastructure providers have been doing to redefine the data center. “ 

There is much  more in my books and blogs about disruptions and innovations which could, in fact,  should have already made its way into the IT outsourcing world.

HCL mentioned they are well positioned for the $ 190 billion in “re-bid” business (that is currently being serviced by competitors like IBM, Accenture, Infosys etc) coming up in the next 3 years. Since  those customers will likely use many of the advisers in the audience, I think there will be churn in providers and maybe a 5-10% improvement in economics and performance SLAs.

The sad truth is the impact could be far, far more dramatic.

The new talent war

As Apple convenes its developer conference in San Francisco, it is a good reminder on the new war for talent between Apple, Google, Amazon, Microsoft, RIM and others.

In my new book, I devoted a chapter to these new ecosystems. The chapter, extracted in PDF below, highlights the high quality of talent these ecosystems are attracting like Gerlinde Gniewosz of Zuztertu:

Gniewosz has experience at Yahoo! (the web company), Orange (the telecommunications company), and McKinsey & Co. (the strategy  firm). She has an MBA from Harvard Business School. She was born and educated in Australia, went to business school in the United States, has worked in Germany and the United Kingdom, and has traveled the world.

and Charlie Wood of Spanning

Take a look at Spanning, based in Austin, Texas, whose stated goal is to become “the Norton Computing of the cloud computing era.”They want to be the provider of all the things that should have come “in the box” with modern cloud applications like those from Google, Microsoft, and Salesforce.com, but didn’t. They are well on their way, with tens of thousands of customers in 58 countries and just six full-time employees.

The Enterprise is feeling the riptides from this change in talent markets. In the chapter I ask:

Will SAP move away from its traditional partners like Deloitte Consulting and go with individual developers as Apple and Google have?

Read on…

Download Ecosystem Chapter