Introduction
The last month or so, I have attended an SAP Analyst Briefing, TaleoWorld, Oracle?s Open World, Salesforce.com?s Dream Force, SumTotal?s Analyst Summit, Kenexa?s Analyst Summit, the HR Technology Conference, SYSPRO?s channel partner conference, VAI Vormittag?s User Conference and other events. In the course of countless keynotes, several one-on-one interviews, about two dozen vendor briefings and several customer interactions, I have concluded that this last month is one where the software industry has materially, structurally and permanently changed.
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You couldn?t see all of the change from just any one event or meeting. No. You really needed to catch a number of these events to see the myriad pieces come together. The picture they paint, when taken in total, is pretty daunting.
Part 1 ? The Rise of the Utility
Mark Hurd, President of Oracle, made some extraordinary claims regarding the performance of new computing equipment from Oracle. He told members of the press and attendees of a plenary session at Oracle Open World about the substantial improvements with in-memory computing and throughput capabilities of the revamped ExaData, ExaLogic and ExaLytics machines.
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He said that reports could be produced as much as 100 times (not 100%) faster in some cases. He argued that data can be compressed by as much as tenfold. He claimed that certain workloads could be processed as much as 2000 times faster than previously accomplished. He described machines capable of holding approximately 26 TB of in memory DRAM. When several machines are clustered together, in memory databases of 222 TB (via flash memory) are possible.
For the Oracle readers, I may not have captured every number exactly right at the event (nor may we ever see these numbers verified by an independent source) but that is not the point. It?s the magnitudeof these processing and memory achievements that sends a signal change in the market: computers may be capable of a scale and have gotten so powerful that we have entered the world of utility computing.
Oracle is not alone in achieving massive improvements in processor speed, in-memory computing and other frontiers. Firms like IBM and Hewlett Packardare moving in similar paths and are also introducing ever more powerful computers.
But, if you are a CIO of a small to midsized firm, are you willing to put forth the capital expenditure required to buy one of these 7 foot tall mega machines? That decision is looking ever more doubtful as these CIOs will turn more and more to large utility providers of computing capabilities. Likewise, the market for these mondo-machines may be moving to cloud provisioners, systems integrators, hosting firms, large governments, very large businesses and some universities. It?s the old Cray super-computer space all over again.
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I recently conducted a webinar with the CIO of a very large credit union. His enthusiasm for moving his applications to a third-party cloud service center was equal parts infectious and enthusiastic. He has already witnessed firsthand the benefits of relying upon the scalar capabilities found in the solutions from large cloud provisioners. Granted, he is but one of some 1400 other customers using this facility, but, he is able to take advantage of the cloud provisioner?s deep, broad and talented bench of individuals, their disaster recovery capabilities, their enhanced security capabilities, etc. And, better still, it costs less, too.
The old world, where every business had its own data center, its own programmers, its own security protocols, etc. may be coming to an end. We should all liken this to what occurred a few centuries ago when local artisans and craftsmen in most every town and village were displaced by more powerful, larger scale, industrial age mechanized factories. It was scale and access to powerful water or coal-fired power systems that facilitated the Industrial Revolution. There?s a reason why few businesses today have their own power generation systems. They get their power from firms that make power generation their core competency. In today?s technology world, the introduction of new in-memory or flash memory-based computing systems brings scale and power to a massively new level.
If I were a CIO of a small to midsized firm I would get out of having a data center. For the same reason that very few businesses today have their own water wheels or coal fired power generation plants attached to their business. Modern firms will likely begin to transition away from their own internal data centers.
The implications of this change will be profound. Hardware vendors must re-focus their sales efforts to cloud solution providers and less to the corporate world. Application software vendors will likely find cloud provisioners (i.e., firms offering cloud computing services) a surprising force in software negotiations. Why? Smart cloud provisioners will want to wield their market aggregation power and negotiate deep software discounts for their customers. This gives their service a competitive edge.? Middleware and database vendors will likewise find themselves dealing more with cloud provisioners, too.
Software consumers will use more of the spot computing capabilities of these utility providers as they embrace more analytic applications, especially those that rely on big data. But, they won?t use their own tech to do these analyses. It just won?t be cost effective to do so.
Bottom line: on-premise is fading and utility computing has arrived. Cloud powered applications will be in ascendancy.
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Part 2 ? The Permanent Leader Board Change in ERP
When Workdaywent public a couple of weeks ago, it was if Wall Street and other investors thumbed their collective noses to the old guard of ERP software. Workday?s stock was originally priced to go out between $21-24 per share and was re-adjusted up twice (to $24-26 per share and then to $28 per share). Yet, the stock opened up at $48 per share and has been going past that since.
Cloud is so in now. Even Larry Ellison came around on the issue of multi-tenancy at the latest Open World. He?s now in favor of it but only if companies can deliver multi-tenancy at the database or container level: a capability that (drum roll please) Oracle provides.
Vinnie Mirchandani opined recently in his Deal Architectblog that it?s now half-time in the ERP world.
I think he?s way too optimistic or nostalgic with that assessment. I?d argue that the game forclient server ERP is over now. A new game has begun, for cloud ERP, and it has a number of other players in it.? Since Vinnie introduced the football metaphor, I?ll carry it (past the goal line) some more.
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Vinnie: The team buses for SAP, Oracle, Infor and others must have gotten stuck in traffic and they missed the kickoffs for the cloud ERP games.? I?d posit that some vendors are at least 5-10 years behind in traffic. Salesforce.com was launched in 1999. Workday was spawned in 2005.Plex Online was another late 1990s entrant. And, there are NetSuite, Intacct, Xero, a zillion talent management solutions, etc. that all have cloud solutions ? the vast majority of which are also multi-tenant.? There are also multi-tenant cloud ERP solutions beyond Plex. Companies likeRootstock and Kenandy are coming into the limelight. There are also cloud warehouse management systems (e.g., Deposco, Logfire, and others) and transportation management systems.? Bottom line Vinnie: it?s hard to win a game when you?re not even there to participate in the coin toss.
Oracle?s Hurd offered these stats for their Fusion applications. He said that they had over 400 licensed Fusion customers with over 100 live. Of these live customers, 28 were on Fusion HCM. Contrast this with the number of multi-tenant cloud HCM customers that Workday (321 as per their IPO prospectus), Cornerstone OnDemand, SilkRoadand dozens of other HCM companies count. Yes, Oracle?s purchase of Taleo helped their cloud marketing story just as SAP?s acquisition of Success Factors did. But, buying one?s way into innovation isn?t really very inspiring nor is it a talisman of future success in those markets.
Worse, some of these vendors are still trying to mollify existing customers and are diverting their time and R&D budget to products with decidedly short life spans. That?s right ? the old client server ERP vendors are spending customer maintenance monies on developing bolt-ons for older client server products. In the auto industry, there are firms that make aftermarket parts for out-of-production automobiles but the automobile makers keep innovating and create all-new cars (not finding ways to make a 1955 DeSoto get better fuel economy).
Vendors need to be focused on the future not the past. Sadly, too many historians are remembering the past glories of their client server ERP firms and directing their firms to burnish the products of yore. It?s really sad to see this level of waste and shareholder value erosion underway.? I think Wall Street sees this too, and that?s why Workday?s stock is up so much.
But enough of Vinnie?s football analogy.
Let?s look at who is partnering with whom today. I went to separate briefings by Kenexa andJobVite. Guess who one of their strategic partners is? Workday. ADPis partnering with Workday, too.? In fact, there?s a line of firms who want to partner with Workday. Why? Workday and others like them are the future ? it?s where the sales and money will be at.
At Oracle Open World, Zach Nelson, CEO of NetSuite (a company that Larry Ellison has a sizeable equity stake in), brought out a Deloitte partner on stage with him. Deloitte is a strategic partner of NetSuite?s. They discussed how NetSuite software is being used by subsidiaries of large enterprises. Cloud solutions like NetSuite are displacing older client server products in all sized firms and are now clawing their way into the largest firms via the subsidiaries. Remember,Salesforce.comwas able to bag a lot of large enterprise software deals because they made their solution so easy for any salesperson to use. It was a Trojan horse strategy that other vendors, like NetSuite, are adopting and adapting. And, they?re succeeding with it, too.
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Competition in high tech often behaves like termites or carpenter ants. They find little areas of vulnerability in the structure and begin taking out small bites. In high tech, the new entrants start in the peripheral applications (e.g., HR, CRM, office automation, etc.) and gain footholds into the install base of an older, entrenched vendor. Instead of matching the capabilities and technologies of the new entrants, the old guard vendors pour investments into their old products and spread FUD (fear, uncertainty & doubt) about the new entrants. Next, the new entrants broaden their footprint and wage attacks on multiple fronts. Before long, it?s too late for the old, established vendor to react as the competition is all around it and they?ve done too little, too late about it.
This is a common phenomena in high tech and it?s playing out now in the ERP space. NetSuite is going after subsidiaries of big enterprises that use products like SAP and Oracle. Plex is moving into ever larger enterprises with their full cloud ERP suite.? Workday is chipping away at large enterprises (and many mid-market firms) often with their HR solutions first and following up with their financial applications. Salesforce is expanding beyond CRM. They?ve entered the HR space and are creating new Marketing applications, too. The client server ERP fortresses are staring down siege engines, trebuchets and more from a wide array of new armies all pitching cloud solutions.
One era is in serious decline and another is in ascendancy. Prepare for a new leader board?.
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Part 3 ? The Structural Changes in HR/HC/TM
I?ve covered HR (human resources) applications for decades. Originally, I did so as part of my responsibilities for Accenture?s (nee Andersen Consulting?s) global Software Intelligence Unit. I?ve also done this as I?ve re-written a couple of payroll applications over the years. I?m well acquainted with the space.? And, this space is going through a lot of change: people changes, culture changes, technology changes, ownership changes, venture funding changes, etc.
Culture Changes
The culture of several human capital software firms is in for a shock. Some of the largest talent management solutions in the market have been acquired by firms with very different cultures. Some hip, single-product family, entrepreneurial firms have been gobbled up by large, bureaucratic, command and control firms. For some people in these acquired firms, they?re going to feel like the poor souls in the fictitious firm showcased in 1999?s movie ?Office Space?. They?ll be subjected to consultants interviewing them, the loss of some newly redundant folks, and the movement from one cubicle to ever more hideous office locations all the while trying to hang onto their red stapler.
Another culture change is occurring within the pure-play firms, too. Many of these are undergoing significant organic growth. As a result, they have to supplement their team with new talent, many of it from competitors. The new talent brings new, different cultural components to the mix. And this change, like any good change management professional will tell you, has the potential for introducing conflict.? But, the real culture hit comes when a firm brings in a better executive over the one who?s toiled at the firm since its startup days. I?ve had a conversation or two lately with some people on both ends of those kinds of deals.
Investment in HR Technology
Venture money into the human resources/human capital/talent management space appears to be undergoing change, too. Money may no longer be pouring into the cloud-based talent management (TM) solutions much anymore. Investors like spaces where they can put money in and get a liquidity event out in a couple of years. With SAP?s acquisition of SuccessFactors,Oracle?s acquisition of Taleo and Salesforce?s Rypple deal, who is left to do an acquisition? Infor? The list of potential M&A suitors has dropped a lot lately and this would give investors cause for pause.
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Another exit strategy for venture capitalists (VCs) is the IPO (initial public offering). Workday has now gone public and SilkRoadis drafting right behind them. How many more public talent management firms will Wall Street support? Probably not many more.? When Wall Street gets interested in a space, the VCs will likely move on ? if they haven?t already.
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The only other exit strategy is the rollup. Here the venture firm convinces 2-3 similar firms to combine into one larger firm. The combined firm gains in customer count, internal efficiencies, etc. and is better able to compete with larger firms. In theory this works but often the combined firm faces daunting integration issues for years as it must rationalize all of the different development tools, product lines, etc.
Where money may be flowing is in the niches ? especially niches that utilize technology beyond the big three: cloud, mobile and social. Money certainly seems to have found its way to video interviewing firms. It?s also going into HR analytics. For these firms, I?d recommend taking all the VC money they can get, while they can get it. And, in a year or two, when a bigger HR or ERP vendor offers to buy your firm, take the offer.
Structural Changes
There are a lot of other changes underfoot in the architectures of HR/HCM (human capital management) software. More than a couple of vendors are considering changes to their SOA stacks, user interfaces and/or other components. Here are some of the interesting changes:
-? SumTotalhas completely revamped all of their architecture this year to a single, common environment. This is no small accomplishment given how many different HR technologies they have acquired over the last few years. Now, the company is in a position to dramatically scale new functionality and can assimilate other niche products with ease.
-? NorthgateArinsohas created BPaaS ? a business process as a service world. Here, the company has a variety of products for handling a number of payroll, HR and other processes on a client and geographic need basis. This is already on top of their ability to run a functionally enhanced, improved user interface, multi-tenant version of SAP?s HCM solution.
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-? Several firms are considering new PaaS (platform as a service) changes. Force.com and Microsoft Azure environments are getting a serious look-see although it?s too early to tell where the market may move here.
Social technology seems to be a big area of interest in every solution provider. Sadly, while interest is high, details and thinking on the incorporation of social media and social data seems wanting for now.
The other big structural change appears to be in the area of sales effort and market focus. While a number of talent management vendors were successful in landing some impressive Fortune 500 sized accounts, the real push to displace HR systems, payroll systems and more is just now underway. Dislodging incumbent (often ERP) vendors is no easy task. But, it?s happening. More firms are bringing in more professional sales team personnel and are amp-ing up their marketing efforts. The installed base in HR systems is clearly under siege now.
Bottom line: These changes (structural, cultural, capital, technical, etc.) are impacting human resources technology firms in a big way. But, they?ll also hit other cloud based software firms, too. Growth, acquisitions, a changing technology landscape, etc. will require all manner of software companies to adapt. The question is: Who will weather these storms the best?
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Part 4 ? The New Deployment Variants ERP Must Provide
Analysts and Influencers have some back-channel communication networks where we talk about new technologies, rumors and, sometimes, each other?s half-baked postings.? Recently, a pile of the Enterprise Irregulars got off on a veritable religious debate regarding my old friend: multi-tenancy.
On one camp we had the purists who advocate that the only good cloud solution is a full blown multi-tenant solution. The other camp argued that customers will want single-tenant solutions. These polarized perspectives were sort of interesting from an idealistic perspective but were now out-of-date.
When I waded into the discussion, I decided that both camps are only partly right/wrong. Businesses will want what they want and software companies will try to appease them. Here are some of my points:
?This argument isn?t going to go away easily or quickly as vendors, in their quest to close every dollar/euro of business, will continue to find ways to ?deliver benefits and flexibility?.? It?s for this reason we have purist vendors, SaaS-querade vendors, hosting companies, and more. Buyers, as I heard today at an analyst summit, are getting smarter by the day and are really seeing differences in products, architectures and deployment options. Sadly, some will still get fooled (cue the Who?s ?Won?t Get Fooled Again?).
If you want to really blow your mind, check out NorthgateArinso. They let customers stay as much as 2 versions back on their SaaS multi-tenant software. They?ve created mechanisms for large global firms to have different subsidiaries run the same multi-tenant cloud product but on different versions without a problem. When ERP (not just CRM or HR) goes full-blown cloud, this type of flexibility in cloud deployment may become a prerequisite.?
Yes, I can foresee ERP software buyers wanting flexibility in deciding ifthey?ll ever upgrade their software. Firms that want to forgo upgrades often have highly customized applications.
When I hear a firm saying they want to heavily customize their new ERP software, I know that they are:
- probably not a good fit for cloud software; or,
- unaware of how easily and powerfully most new cloud solutions can be tailored; or,
- living under the delusion that they truly are ?unique?. As a consultant who?s done a ton of software selections, it?s truly rare to find a firm whose fixed asset accounting is ?unique?. (If it really is, I?m calling in the SEC to investigate.)
I can also foresee businesses wanting to decide whenthey upgrade their software. Some companies have specific business activities scheduled at the same time a multi-tenant cloud solution upgrade could occur. Almost every cloud solution provider I?ve dealt with knows this can happen and many offer a several week window to perform the upgrade. Some vendors even let a firm (or one of its subsidiaries) lag 1 or 2 upgrades.
Some software buyers don?t want flexibility in choosing update frequencies or timing. They wantabsolute controlwhen and if these updates occur.? A process manufacturer or airline reservation service may not want their systems down for even a second to process an upgrade. Some applications like warehouse sortation or conveyor systems operate at speeds faster than the latency found in some internet based solutions. In these cases, a cloud application may not be appropriate. For some companies, they can afford some planned downtime for maintenance but it has to be on their operations schedule and not necessarily the schedule of a software vendor. For some time then we may see a number of companies moving their accounting, HR and other less time sensitive systems to cloud environments while some applications that require split second responses stay in-house. But, the move to the cloud will continue.
In some software customer interviews I did late last week, I heard from a couple of CIOs who are still lamenting their difficulty in getting super-fast Internet connections at all parts of their firm. Some locations in rural America or overseas are still pulling DSL or dial-up speeds. Yet, to the one, they all agreed that the coverage issues are declining and the trend of near ubiquitous, high-speed Internet connections will come to pass soon.
I also spoke at an ERP virtualization event recently. During down times, I spoke with large ERP customers and their migration plans to virtual and cloud environments. What I learned is that:
- Most firms are already virtualizing at some level. Many firms reported long-time virtual Microsoft Exchange or SharePoint environments. They will continue to do more virtualization, too, as it is a big savings generator for disk storage, electricity, labor, etc.
- With virtual environments, companies can speed up the creation and deployment of new test or production environments. This is seen as a great facilitator for firms to get many of their different subsidiaries/divisions onto the same version of their ERP software.
- Modifications/enhancements to their ERP software are often the big holdup to more frequent upgrades and to companywide ERP standardization.
- Moving to virtual environments and to a private cloud will help in their cloud migration efforts.
- IT leaders, though, are definitely dealing with change management challenges in their organizations. Some of their staff, particularly those assigned to maintaining, patching and operating application software, may need to develop new skills if they are to remain relevant.
What all this means is that some companies are taking a slower path to full-blown cloud solutions as their current environment cannot support a full-blown switch overnight. Interim steps like virtualization and private clouds may occur before they move to public cloud applications.
Bottom line #1:Cloud is coming to ERP and a data center near you. An IT group may not be able to implement it all just now but it is coming. Moreover, the transitions are occuring. Office automation, HR and CRM apps have gone to the cloud and more will follow as operational systems (like MRP) and some telco matters get sorted out.
Bottom line #2: Many different instantiation methods will be needed for short-term (and some long-term) customer needs. Purists who argue one extreme or another will look like, well, extremists as more rational and understandable solutions must be created to help firms bridge their way into cloud solutions. That said, fewer and fewer businesses will be able to justify an on-premise only way of operating going forward.
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Part 5 ? The Reality of Laggard IT Shops and the Cloud
In a customer interview last week, I asked a CIO about his cloud plans. He said: ?Well, I?m from an older generation and I?m just more comfortable having all my systems in house?.
And, there it is: a generation gap in IT.
I?ve seen this movie before.
In the early/mid- 1990s, when client server systems were all the rage and mainframe/minicomputer systems were in decline, a CIO at a major airline showed me his key-to-disk machines. That?s right, a major airline was still keying data in neat 80-column format on devices that didn?t even have a monochrome screen. The lesson is that the move to cloud will not come all at once, will not move all IT shops simultaneously and will take time. Time eventually catches up even with the laggards.
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Cloud may be the defining point in this, too. A younger CIO I know is all over cloud computing and is actively trying to get his IT group out of the application and infrastructure management business. Why? It doesn?t create value for the enterprise.
When more non-IT executives question the economics and rationale for staying on-premise, especially as the number and maturity of cloud-based solutions increase, the ability of an old-school CIO to continue to have their own private IT world will go away.
One of the benefits some vendors offer is the ability of a customer to take a cloud solution back in-house if they choose so. This one sounds good from a marketing pitch but will likely never catch on. Here?s why:
- A company that moves its ERP solution to the cloud will likely dispose of (or repurpose) its hardware and drop maintenance or licenses for some of its middleware, systems management, backup/recovery and database software. It may also re-jigger its IT staff complement, too. For this company to bring ERP back in-house, it would need to replace all of these. It?s a massive cost and one fraught with risk. I doubt many CFOs have the appetite for this.
- Companies that move from in-house distribution centers to third party logistics providers often find this to be a one-way path, too. Once they?ve disposed of their warehouses, sorting equipment, etc., it?s hard to justify the expense of bringing it back in-house again.
Some of the largest organizations (e.g., governmental entities, financial institutions, etc.) will likely stay in-house or go with a private cloud solution. If an organization utilizes a lot of custom coded applications, they are not a great multi-tenant cloud candidate. At best, they?ll be a single-tenant cloud solution user or a private cloud user. This way they can modify the code. They can keep their data and applications physically (not just logically) separated from other firms.
Of course, there will also be entities that for national security or other reasons must have closed IT systems. They may never be cloud candidates or will only do so for certain, non-sensitive systems.
But, as I covered in the first part of this series, we?re moving to a utility computing world. Most firms are going to move to solutions that operate in cloud environments.? The economics for doing so are too good to ignore. But, it is the multi-tenant option that will be most attractive.
?As to the benefits of full multi-tenancy, the numbers are clearly there. I?ve done the homework/calls/interviews and the reviews of plenty of business cases. In a head to head comparison, multi-tenancy will trounce on-premise.?
And there will be some companies that utilize a hosted version of an on-premise solution. The question that must be asked is why will they do this? In many cases it is because:
- There is currently no multi-tenant solution for their industry yet.
- The multi-tenant solutions are too immature or incomplete at this time.
- They want to modify the software (see above).
- Their current software vendor does not offer a viable cloud solution.
Bottom Line:businesses will want multiple ways of using ERP. These multi-instantiation options are different enough from the old, familiar on-premise world that they require more study as to true costs and benefits.
I would love to hear from more companies who are exploring any of these new deployment models and discuss your economic assessments of each.? And, in particular, I?m eagerly looking for a company that wants to move through many of these instantiations. That is, are you planning to go from in-house, on-premise to a virtual deployment to a private cloud to eventually a public cloud solution? While I?m having trouble understanding the economics of such a plan, I?d still love the opportunity to have someone explain it to me.
Again, the modern business needs more than 1 or 2 ways to deploy ERP software. Buyers need to be smart about picking the right path for their firm.
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Part 6 ? The Lack of Vision in Some ERP Vendors
At an interview session with some of my peers, I got really frustrated with an ERP executive who wouldn?t articulate a vision for his firm?s ERP products. This firm is continuing to invest in all of its native and acquired on-premise product lines as well as several native and acquired cloud product lines.? I wanted to know what they saw the future of ERP software to be. I wanted to know if they had more to their vision than just continuing to add more runway to all of these diverse products.
His response to my pointed question was ?It would be suicide? to articulate such a vision to their customers. Beyond that, I got nothing.
His response is particularly telling. What he?s saying in effect is that his firm:
- has made a bunch of bets and can?t decide which, if any, will pay off; and/or,
- needs time to stall its current on-premise customers from switching to its own or competitors? cloud solutions
That latter scenario is the really scary concern. If a customer decides to do a real software selection, they will likely open the door for competitors to possibly get into this account. If a selection can be deferred, then there is no competitive threat. If the selection can be replaced with an upgrade decision, the incumbent vendor wins again. Replacing a selection with an upgrade is really clever but it means that the vendor must provide:
- functionality identical to (or better than) the on-premise products
- a painless, riskless migration path to the new solution
Where all of this hits a wall though comes in how well a vendor has treated their customer in the past. If an ERP vendor has subjected a customer to a lot of surprise usage audits, forced maintenance price increases in a down economy, threatened litigation,? issued frequent incremental license fee (ILF) invoices, etc., I?ll bet their customer isn?t too inclined to continue to do business with them even if the cloud solution is just a painless upgrade.
And, this is where I start to get really uncomfortable. Some ERP vendors are financially motivated firms that are designed to delight their shareholders. Some are innovative firms that are motivated to delight customers.The difference is telling.
If an ERP firm can?t or won?t take a position on where the market is headed, then they are either clueless or disingenuous. A company with a solid grasp on the software market and its future would have known what to build and when to build it. They would have created applications that are at least on track with the market or ahead of it. The suicide scenario only applies to vendors with products that are still trying to catch up to the innovators.
The model most application software vendors should aspire to is Steve Jobs?:
?Steve Jobs didn?t believe in market research or focus groups. He instilled the idea that Apple would create products that people hadn?t dreamed of yet. Jobs? genius was to create experiences that people didn?t even know they needed.
Walt Disney had that idea before Jobs was even born.?
(source: http://27gen.com/tag/steve-jobs/ )
The real genius in ERP is not found in buying lots of other cloud solution providers and then running off their best and brightest talent. The real genius is in the delivery of products users haven?t dreamed of yet. Sadly, the vision today is limited to a lot of me-too fast following. UGH!
I liked how the folks at Workdaydid a lot of research on event-driven (REA) accounting prior to designing their new financials software line. That?s innovative!
I liked how the Intacctfolks built CPA dashboards for their customers. That was cool.
I could go on and on. The real innovation is popping up all over in pockets of entrepreneurial firms.
Where it?s absent are in firms where the ERP vendor has been late to:
- Social
- Multi-tenancy
- Cloud
- Video
- Etc.
Bottom line: If your vendor?s behavior has been less than admirable, their innovation has been me-too (and late), then why would you reward this vendor with additional business? I?m betting a lot of ERP buyers/users will be asking this question a lot in the next couple of years.
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Part 7 ? Rising IT Buyer Smarts & the New Economics Every Buyer Needs
Taken together, there are some powerful changes underway in IT and ERP. But, has anyone really looked at the new economics that could adversely impact your firm (and your most recent IT purchases)?
For example, let?s say you bought one of those newfangled monster servers with a bucket load of flash or DRAM memory and some of Intel?s latest and greatest processor chips. Maybe there are several chips in there. So, what will this do to your software contracts? Possibly a lot!
Standard software contracts permit the application software vendor to raise their license fee should you move their software to a machine with faster and/or multiple processors. They believe you are getting more usage of their software. You may have only retired an old server. Nonetheless, you?ll pay and pay for that upgrade unless you proactively re-negotiate that contract (preferably before you buy the new iron).
Likewise, your database management software vendor (and other systems management vendors) will want to hit you up for more money, too. They?ll point out clauses in your contract that allow them to charge incremental license fees (ILFs) for system upgrades like these. But wait you say. What if the server we?ve been using isn?t made anymore. How can they charge me for just replacing a server? They can because you signed a contract permitting them to do so.
But the fun doesn?t stop here.
Each ILF also provides another gift that keeps giving: you get to pay increased maintenance fees for these new license extensions. Worse, you probably signed a contract that stipulates that the ILF and the maintenance fee calculation will be based on ?Current market rates?.? So, even though your firm negotiated a 90% off of the ?then current prices? for the software license, the ILF will be priced at 10X the original price (plus COLA or other interim price increases). This is gonna hurt.
But Brian, we?re not buying a bigger or more powerful server. We?re going to virtualize our ERP application. Virtualization efforts could also trigger new fees, too.
A number of licenses, especially older ones, are often silent on the matter. You might think that?s a good thing but it may not be. If your application or database gets spread out over several servers, gets moved around a lot, or, gets placed on a bigger server that can handle the ERP and other applications, expect to pay for the privilege.
In all of these scenarios, some of the pain can be avoided upfront if you negotiate these scenarios into a contract. The next best scenario is to add these situations into a contract extension deal (e.g., where you license an additional module). The least optimal scenario is to contact the affected vendors just before you move on a new project. You might actually have some success with this. But, as in all negotiations, if there is no ?alternative to a negotiated solution? (i.e., a credible Plan B often with a competing product), you have no leverage. No leverage equals no luck.
Moving to a hosting or cloud center can sound like a cost saver, too, but as the above scenarios point out, the vendors need to be on-board or your firm will pay, pay, pay.
Before you even think about going cloud, virtual or hosted, you should instead pour a lot of time into reviewing your existing application, report writer, database, middleware, systems management and other contracts. Assume the worst from a billing, audit and incremental license fee perspective. Then, develop a re-negotiating strategy to preemptively deal with this BEFORE it becomes a problem. Power through all of the scenarios, price changes, etc. and develop at least a 10-year financial plan to really understand the dollars and cents of the new technology environment. Only then should you start your re-negotiations with the affected vendors. And, during all this, talk to a lot of hosting firms to see what kind of bulk discounts they have with your software vendors.
We need a new set of economics and best practices to deal with the new IT reality. We need a way to measure every cloud, quasi-cloud, SaaS-querade, hosting, etc. option. We need new ways to understand the true costs of operating any of these choices. We need a level of transparency not currently available. And, we need to be able to compare, apples to apples, the return on investment (ROI) or total cost of ownership (TCO) of every option and every vendors? solution to another. And the people looking to do several interim changes (e.g., from on-premise, to virtual, to private cloud and finally to public cloud) may need these tools sooner rather than later. I suspect that group of software buyers may be in for the most expensive cutover of all but we need the analysis to answer that once and for all.
We don?t have these analysis tools yet. Maybe Ray Wang (@ Constellation Research) will soon have a new buyers? bill of rights for cloud users regarding this.
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Source: http://www.enterpriseirregulars.com/54877/the-month-it-erp-permanently-changed/
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