Posts Tagged ‘On-demand (SaaS)’

I believe it is. What I refer to as SaaS 2.0 will be the “dagger in the heart” of the traditional enterprise software model. The first incarnation of SaaS, which was popularized by SalesForce.com, created a totally new value proposition for enterprises. It was a “knife in the stomach” of traditional enterprise software as it triggered a much slower growth rate in big, fat enterprise software sales. SaaS is just a much more efficient model for both the customer and vendor.

I believe what I call SaaS 2.0 will change the enterprise software model forever. Software vendors will take the entire risk of deploying major SaaS based software offerings – before the customer has to commit any monies. The SaaS 2.0 vendors will have to prove the value of their offerings in a production environment – not just some trivial demonstration.

When you think about it – enterprise software vendors have been getting away with the business equivalent of murder. If you think this is an exaggeration – how about getting away with fraud?  There have been billions of dollars and millions of man years wasted on failed enterprise software projects. Consumers do not buy any kind of other products (homes, cars, buildings, airplanes, etc.) under such a crazy business model.

CIO’s are justifiably sick and tired of an enterprise software model which is ludicrous. CIO’s also hate enterprise software offerings which are only useful to a very small user community. SaaS vendors have already addressed this issue.

How could a vendor offer such a riskless value proposition? The SaaS vendor must have a very strong balance sheet (to fund initial deployments), shorter more efficient deployment cycles, and more importantly have an offering which they know works!

Look out for SaaS 2.0 – it is coming!

You often hear that SaaS is a more efficient way to deliver software value to the customer. The main feature people point to is “if you don’t need it – just don’t renew your subscription.” This “clouds” some other real benefits of SaaS.

Deployments are still required for SaaS, but on average they are much less involved and costly.

Security is even a greater benefit of SaaS. An on-demand vendor has the greatest incentive to keep their service secure – it is called losing customers if they don’t. One of my favorite stories is about a large enterprise (years ago) who refused to go Saas because of “data security” concerns. Ironically, thirty days after this discussion they had a major breach of their own IT operations which became public knowledge.

I believe one of the greatest reasons to seek out SaaS offerings centers around system administration. Turnover in IT operations is common these days, so why wouldn’t you want the vendor who knows the offering to be responsible for system administration? As CEO of a SaaS company I am often asked why we don’t offer a lower cost on-premise version of our offering. I tell them I would have to charge more because we get more customer support calls due to increased system administration calls.

Having pointed out all of these indirect benefits – economics is still the largest reason to go the SaaS way. There were billions of IT monies wasted on what became “shelf-ware” – because vendors stuffed contracts with additional users or capabilities which were never used. What I have found with SaaS is customers only order the number of users they need in the short term, because it is easy to add users later on.

While there are still some “last remaining holdouts” on the movement to SaaS – it is now undeniable. A proof point is witnessing the “most secretive and data security oriented” large enterprises asking for SaaS!

With the holiday season upon us, many of us are concerned about making the numbers for the year. Most midmarket companies, whether they are public corporations or privately held enterprises, have revenue targets for each reporting period, usually by fiscal month, quarter and year. These revenue targets are obviously an important part of the financial plan and operational performance for the company.

With manufacturing enterprises, a variety of unforeseen events can occur on a daily basis related to customer demand and the supply of the manufactured goods, as well as the supply of required purchased components from vendors. Even with the best of plans going into a reporting period, actions need to be taken to adjust for these unplanned changes in demand and supply in order to meet the revenue target.

I read the recent report titled “Performance Management in the Midmarket“, by David Hatch and Max Gladstone, from the Aberdeen Group, dated November 2009. The thing that struck me is that based on data collected for the report, the top pressure related to performance management for both midmarket and large enterprises is “lag times and the inaccuracy of operational business decisions”. What is stated is that operational performance is negatively impacted when “the lag time for determining operation performance is greater than the decision window (the opportunity to affect performance based on taking or changing an action)”.

The report goes on to identify the major stumbling block is the identification of source data: “During a fiscal period review process, or within an operational performance review meeting, senior executives often ask for metrics and analyses that send their business managers and teams scurrying to find the data that supports the desired answer”. From my point of view, the problem is that data is not readily available to the decision makers. In addition, reports and analytics need to be available against the data for review and to enable effective operational responses. The data and reporting cannot just be looking at the past, but the analytics need to be forward looking to provide information to decision makers so that actions can be taken to meet the performance metrics.

The operational requirement to meet revenue goals for reporting periods is a common concern among midmarket enterprises and could also be viewed as a fairly standard process across entities. Also, given that the absence of source data and the required reporting and analytics is also common, there exists a real opportunity for a standard solution. Midmarket companies can increase their effectiveness at meeting revenue goals by implementing an out of the box solution. The best solution will have the following key attributes:

• Standard integrations with various MRP/ERP systems
• “Cloud computing” enabled – midmarket companies can subscribe to the software rather than having to stand up and manage the infrastructure and software
• Simple to use with little or no training required
• Easy to tailor and configure if needed

Of course, many other operational issues could be targeted other than revenue management and with today’s technology, many solutions that only large enterprises have the resources to invest in can be made available to the midmarket. What do you think?

Twas the night before 2010; and all through the supply chain

So many problems were stirring, like a runaway train;
The 2010 initiatives were set in the boardroom with care,
In hopes that inventory reductions and delivery improvements soon would be there.

The executives were nested all snug in their beds,
While visions of corporate success danced in their heads;
And IT with their servers, and you with your supply chain cap,
Had just settled down for a 2009 nap.

When out in the market there arose such a clatter,
You awoke from your nap to see what was the matter;
Away to the computer you made with a dash,
Logged in to the system and saw a big flash.
The light on the screen with the words that appeared,
Gave the lustre of hope to supply chains next year;
When, what to your wondering eyes should you see,
But many new initiatives for businesses.. to your glee!

Software as a service is easy and quick,
Just log on to the web and that does the trick;
Rapid implementations are the name of the game,
Just whistle and shout and get rid of your mainframe.

Now, SIMPLE, now FAST now COST EFFECTIVE and PRACTICAL!
On SaaS, on CLOUD, on DISRUPTIVE and INNOVATIVE!
To the top of the supply chain! To the top of your stock!
Now dash away dash away costs - go plummet like a rock!

But as forecasts increase or your customers don’t buy,
You miss your targets and inventory mounts to the sky;
You’re left with poor systems and the consultants just flew,
With all of their knowledge and your confidence too.

And then, in a blog, or a website you heard,
The news of new technology …but it sounded absurd!
As you sat with bewilderment and was turning around,
Down the IT stack it came and oh, with a bound.

It was dressed in one solution from the Demand to the Supply,
And its interface was kind of Excel like…it really caught your eye;
But it also looked flexible and user friendly for many on your team,
You smiled and laughed and started to dream.

With this service you could change demand and watch inventory replan on the fly,
With this service you could say to the word ‘latency’ GOOD BYE;
When your business changes your processes can too,
And adoption will spread as quick as the flu.

Now wouldn’t it be nice to start 2010 without any troubles?
To have demand and supply so smooth without any bubbles?
Well we know that won’t happen; volatility is here to stay,
The question is what to do since it won’t go away?

Do your homework, ask questions, but don’t look too far and beyond,
There are technologies out there to help with the way that you respond;
Your competition may be doing it right so make sure and listen,
Many companies are using services that make their eyes glisten.

All the best in 2010,
Good luck with your plan;
But remember,
You need sensible sense and responsive response as fast as you can!

Start out your new year by attending SCM World Live – The Free-to-Attend Virtual Supply Chain Conference . Link here: http://www.scmworldlive.com

I think the best way to look at this question is to ask a few other questions. Why is Oracle buying everything under, over, and including the SUN? Why did SAP’s licensing revenues decline 31%? Why are CIO’s getting “Suite Fatigue”?

• Oracle is only able to achieve 0%-5% licensing growth by making dozens of acquisitions each year. This is about financial engineering – not innovation.
• With the tremendous corporate political power possessed and well leveraged by SAP – it is hard to imagine their licensing revenues falling 31%. Something is seriously wrong!
• As I travel the world meeting CIO’s – I have now heard the term “Suite Fatigue” in three different continents. I think the ERP vendors are even confused by their dozens of three letter software modules.

There is no question corporations are running out of patience and frothy IT budgets to implement ERP systems – which are only really useful for processing transactions. My belief is right now they are dying a slow death.

However, in my opinion, when corporations are offered a disruptive option (10X more efficient) for what is essentially “add a record – delete a record” – we will see a fast and massive ERP blood bath like no other in history of the hi-tech industry. One smaller hi-tech analogy which I witnessed as a young man was the overnight disappearance of the multi-billion dollar Mini-Computer market. The workstations and PC annihilated what was once a robust business.

My guess is a new Internet-based paradigm (platform) for processing transactions combined with emerging SaaS-based enterprise offerings will cause the death of traditional ERP systems (and their alphabet soup ecosystems). Large corporations are figuring out that customizing SAP and Oracle ERP systems is killing them in multiple ways (implementation cost, consulting, training, user adoption, etc.).

The ERP vendors of today will likely not be the ones who “eat their own children”. My guess is an Amazon (or Google) coupled with SaaS companies offering configurable enterprise applications will spoil the ERP Boondoggle.

In 1994, before Amazon was “Amazon” – I was on a financial talk radio show with Jeff Bezos. I can tell you he is very smart and not afraid of any sized vendor. In fact, he views them as a larger market opportunity.

Stay tuned and stay clear of the blood!

Recently, this message from SearchSAP.com hit my email… “SAP, Microsoft align against Oracle in business software market”.

I couldn’t help but have this vision of these big dinosaurs fighting each other while completely unaware of the potential danger of their extinction. The rest of humanity is hard at work redefining how to work and play without them, and quickly coming to realize that there is a better, faster, cheaper way, thanks to cloud computing, Google, and the pioneering work of Salesforce and Amazon. These clumsy slow-motion giants don’t seem to get it. They are quickly running out of people willing to sign $250,000,000 checks to deploy what is supposed to be a “software product” on their own hardware. This change couldn’t come soon enough.

I am attending Dreamforce 09 in San Fran and trying not to get too caught up with the hype. And I don’t really have the expertise to “get” a lot of the technology stuff behind the “cloud” anyway.  But it is really great to hear Marc Benioff, the CEO of salesforce.com,  make fun of the current software business model, especially amongst the ERP vendors.  He referred specifically to the idea of charging 24% maintenance as a “tax”.  Marc’s keynote from Thursday morning is well worth watching. You might ask “So what, Marc has being saying this for years?”

What is new is the development of enterprise applications on force.com to satisfy a variety of processes, including an ERP solution.  And these are being developed in 3-8 months from initial concept to go-live.  Vetrazzo developed production planning, inventory management, order management, returns, warrantees, and ton of other ERP capability in 4 months!!  At a fraction of the cost that would have been required to purchase let alone implement SAP or Oracle. Even better, the CEO of Vetrazzo used to implement SAP systems, so he knows the full (in?) capabilities of SAP. OK, OK, so it does not have any accounting capability. But who cares, accounting packages are a dime a dozen and not related to your operational effectiveness.  Plus there are any number of applications available on AppExchange for linking salesforce.com to accounting packages. 

I can only imagine how SAP and Oracle execs are sweating. Even if we discount the technology story, the change in the business model is profound and is going to rock them to their foundations.  In our own customer base, customers that a year ago flatly refused to go on-demand are now discussing the option with us.  And these are companies over $20B!!  Yes, that is a B as in billion, not an M as in million.

What do you think?  What is the timeline before we see full ERP systems developed native to the cloud?

I recently read an interesting InformationWeek article titled “Global CIO: Will Oracle or SAP Blink First on 22% Maintenance Fees?”.  Having spent 16 of the last 18 years implementing on-premise, perpetual licensed ERP solutions, I found the topic compelling.  It was compelling because the author is trying to determine whether Oracle or SAP will be more Wall Street focused or customer focused as it relates to their maintenance and support structure.  The IT marketplace is more competitive now and customers are more savvy in looking for ways to cut costs.  The author suggests that there are three possible scenarios on how this may play out.

1. “SAP and Oracle stick to their guns.”  This scenario is where they change nothing and customer satisfaction decreases.
2. “One of them seizes the initiative and flips the model.”  This scenario assumes that one chooses to change their model to be more progressive and win the customer satisfaction game.
3. “Outsiders crash the party, but Oracle and SAP get the hangovers.”  This scenario is where another company offers support for Oracle and SAP at a lower price.

But the real question is whether the on-premise, perpetual software license model even makes sense anymore in this cost conscious environment.  The maintenance fees are primarily for bug fixes, enhancements and upgrades.  However, most customers do not take advantage of the enhancements (let alone the majority of the functionality delivered at time of sale) because they do not stay on current release of product and the cost of upgrading is way too high.  So, I think there is a fourth scenario to consider which is the SaaS model many software companies are adopting.

The SaaS model delivers a lower cost of entry, as well as lower costs for IT staff and hardware infrastructure (assuming on-demand hosting).  Every SaaS company is different, but on average the subscription term is 3 years, thereby forcing  the software company to provide a compelling value proposition for the customer in order to have the customer renew their subscription.  This should drive product innovation, high levels of customer support, and engagement from the software vendor to help the customer assure end user adoption.  All of which are good for the customer.  In addition, the software vendor has a significant incentive to provide easy upgrades at low or no cost particularly if the customer is hosted.  If the customer is hosted, then typically the vendor keeps the customer current on the new version of software for no additional charge, which allows the customer to take advantage of new product features and functions thereby deepening the use of the product at the customer site and hopefully ensuring a subscription renewal.  The SaaS model should drive customer satisfaction by its focus on ensuring subscription renewals. 

While every model has it’s pros and cons, I think that at this point in time the focus on the customer that the SaaS model forces is something that should be considered by companies when evaluating their software choices.   I suppose that is why even the big guys, Oracle and SAP, are offering some of their products in a SaaS model.  It will be interesting to sit back and watch how it all plays out.

For most of us, we’re experiencing unprecedented economic challenges. The implications to the supply chain management profession are profound. We’ve gathered some of the industry’s brightest minds to discuss these challenges and seek innovative solutions. We hope you enjoy the Kinaxis Supply Chain Expert Series as we challenge these experts on these issues.

Mary Hayes Weier
Editor at Large

InformationWeek.com

Mary Hayes Weier joined InformationWeek in 1994. Prior to that she had reporting stints with Metro newspaper in San Jose, Calif., the Contra Costa Times, and the San Jose Business Journal. Mary enjoys both writing and editing, and has moved back and forth between those roles in recent years. She’s covered (or has managed reporters covering) nearly every key area of IT, and is the recipient of several editorial awards. She’s now back to writing, covering enterprise software, business intelligence, and RFID.

Kinaxis:  We are experiencing a rapid and perhaps long-lasting downturn in the economy.  How is the slow economy impacting software spending behaviors?  Where is the pressure being felt most?

Mary: We’re hearing of software projects that are getting canceled, and of software vendors having problems drumming up new business. Vendors that have strong, established customer bases from which they can pull a continuing stream of maintenance fees will best weather this economy.

Interestingly, the tightened IT budgets, combined with the emergence of new software and delivery models (SaaS, open source, Web 2.0 computing, etc.) have more CIOs questioning those maintenance fees. Several years ago fees were typically 17%-19%, but more vendors now charge around 22%. That means for a $1 million software license, a customer pays a yearly maintenance fee of $220,000 for the life of the license.

Software vendors are largely unapologetic about their maintenance fee structures, saying they need those fees to invest in better, more innovative software, attract great developer talent with great salaries, reward shareholders for their investments, support increasingly complex IT environments, and of course, keep the upgrades coming and pay the support staff. Vendors also say the software industry works as it is because there’s a good balance between what customers pay and what software vendors provide in return. That’s a difficult argument to poke holes in. And as a result, I think the burden of proof lies on the vendors of SaaS and other disruptive approaches to show customers that there’s a better, cheaper way.

I would like to see more evidence that the SaaS industry can thrive long term. It concerns me that so many SaaS vendors are still not reporting positive net incomes for their quarterly earnings. It may indeed take time to reach the point of profitability, but with some SaaS vendors it seems to be taking a very long time. Choices and alternatives are good, but the model must be sustainable.

Kinaxis: What lessons can be learned from the downturn that can be applied to enterprise technology adoption in the short term and in the long term?

Mary: I think it’s great that tight budgets are prompting CIOs to question, and sometimes investigate, whether there are better, cheaper, faster, and easier answers to enterprise software. When things are cozy there’s little incentive to change. But when the CEO demands, “Figure out a way to do it better and cheaper,” there’s little choice but to spend some time and effort exploring alternative options.

Kinaxis:  The adoption of software as a service (SaaS) increased dramatically in 2008 for non-core processes, and even for some core processes such as CRM and, to a lesser extent, Procurement.  What are the drivers for this adoption?

Mary: Certain types of applications lend themselves to a SaaS model. In some instances, business divisions initiate these deals and IT isn’t even called into the negotiations. It’s a pretty attractive concept to hand over the management and upgrades of software to the vendor and bypass the hefty license and maintenance fees, too. SaaS may also start to look more attractive to IT shops that are forced to cut their workforces as a result of the economy.

Kinaxis: What are the barriers to wider adoption of SaaS for core business processes, such as ERP and supply chain management?

Mary: I think there are considerable barriers to ERP adoption, particularly for large companies. Many companies view their ERP platform as the heartbeat of their business, and every new application, capability and process that they develop may, in some way, tie back to that platform, particularly in this era of Web services. So what company wants to hand over management of all that to a SaaS vendor, and is there a SaaS vendor even capable of doing that yet? That’s akin to a massive outsourcing engagement. That’s why it’s more typical to see SaaS for specific, departmental implementations.

It’s so tempting to pose the question of what’s better, on-premise software or SaaS. But I don’t think the answer is black and white; there are lots of shades of grey here, no matter what the vendors on either side of the fence would like you think. I believe SaaS will continue to grow, but on-premise software will not go away. The on-premise vendors, however, will learn from the SaaS approaches and implement the best stuff into their own offerings, or risk losing customers and market share.

For most of us, we’re experiencing unprecedented economic challenges. The implications to the supply chain management profession are profound. We’ve gathered some of the industry’s brightest minds to discuss these challenges and seek innovative solutions. We hope you enjoy the Kinaxis Supply Chain Expert Series as we challenge these experts on these issues.

Simon Ellis
Practice Director, Supply Chain Strategies
Manufacturing Insights, an IDC Company

Simon Ellis currently leads the Supply Chain Strategies practice at Manufacturing Insights, one of IDC’s industry research companies that addresses the current market gap by providing fact-based research and analysis on best practices and the use of information technology to assist clients in improving their capabilities in key process areas. Within the Supply Chain practice, Ellis specializes in advising clients on LCS (Low Cost Sourcing), Lean, Six Sigma and more.

With over 20 years experience in the industry, Ellis most recently was the Supply Chain Strategy Director/Futurist for Unilever North America, a $12 billion division of Unilever, the maker of such well-known products as Dove, Suave, Wisk, all, Q-tips and Vaseline. Simon was responsible for leading the implementation of key new technologies that impacted the future of the Unilever Supply Chain. Specifically he led the North American RFID and e-Catalog teams, and was the project leader for the new Data Management Organization.

Kinaxis:  We are experiencing a rapid and perhaps long-lasting downturn in the economy.

• What lessons can be learned from the downturn that can be applied to supply chain management in the short term and in the long term?
• What specific supply chain initiatives can be applied in the short term that will have greatest effect on a company’s financial performance and sustainability?
• How can companies balance short-term cost cutting objectives with the need to strengthen their position for an eventual recovery?

Simon:  We are seeing manufacturers really focus on capital preservation and maximization of existing assets. So, ensuring that physical plant and equipment and working capital is being used as efficiently and as completely as possible – but also leveraging intangible assets like brand reputation and ‘trust capital’.

Most of the large manufacturing firms we speak with also realize that with a downturn comes an inevitable recovery. Even the automotive industry talks about past patterns of their industry being “first in, first out” when it comes to a recession and being ready to serve the pent up demand.

Economic downturns also represent an opportunity for manufacturing companies to recalibrate their operations. Channel partners can be rationalized, inventories reduced, production assets modernized, and, most importantly, supply and demand can be rebalanced in preparation for a recovery. We also expect to see continued investment in modernization of the supply chain – particularly on the execution side where investments in physical logistics, inventory and network optimization tolls can offer quick payback.

Kinaxis:  We have seen the globalization of demand, especially in the BRIC countries

• Notwithstanding the current economic downturn, will this trend continue?
• How will this impact the supply chain, especially with respect to outsourcing, which has tended to look at the BRIC countries as cheap(er) manufacturing centers?
• How will this impact product development, and by extension the products available in the developed countries?

Simon: We have written quite extensively about the globalization of demand and its implication on manufacturers supply networks in a concept we call Profitable Proximity Sourcing. Briefly, we see manufacturers looking to balance cost and lead-time optimized networks with the growth in consumer demand. We think that a narrow focus only on low-cost country sourcing can actually lead to a sub-optimized global supply network, particularly as service implications and logistics become a bigger part of the cost equation.

We do expect to see the continued globalization of demand as countries like China and India transition from low-cost producers to emerging economies, and for certain labor-intensive categories, those countries will remain a cost-efficient place to manufacture. But as those economies mature and workers begin to demand a ‘globally fair wage’, manufacturing will have to look much more closely at a total landed ‘profitable proximity’ cost approach to global sourcing.

Kinaxis:  Outsourcing has been widely adopted in the developed world over the past two decades

• Will brand owners, in particular, continue to adopt contract manufacturing as a way to reduce overheads?
• Will the trend of using off-shore contract manufacturing continue, or will near-shoring and even local sourcing become more dominant?

Simon: This point picks up again some of the points in our research on profitable proximity sourcing.
Outsourcing continues, particularly as manufacturers increasingly narrow their definition of core competency, and we expect that to continue.

In the US, particularly, as companies feel the cost and profit squeeze, we may actually see an uptick in outsourcing over the next year or so, but eventually we expect to see leading companies move more towards a total landed cost/globally balanced supply network where manufacturing cost is just one component of the equation along with lead-times, global demand balancing, sustainability issues and risk management (including quality and IP protection).

In that context, we do expect to see a balance of off-shoring and near-shoring, with local-to-demand sourcing being an important component.

Kinaxis:  Ford a century ago used to have a fully integrated supply chain from steel manufacturing through to the sale of a car. Now other companies make the steel, most of the components are manufactured by other companies, and yet other companies sell the cars.

• Will this trend in supply chain specialization concomitant with outsourcing continue at the current pace?
• What will be the effect on the supply chain if this trend continues?
• Is there a “natural” number of actors in a supply chain which gives greatest flexibility while limiting complexity?
• What will this mean in terms of systems requirements to support supply chains with many actors?

Simon: This is what we call the ‘commoditization of the supply chain’ and it continues to blur lines between the brand owners and their contracted suppliers. The outsourcing trend seems unlikely to reverse, given the enormous cost pressures, so a return to the integrated supply chain model is unlikely.

IP and brand protection is critical and brand owners must be very careful to recognize what gives them competitive differentiation and maintain careful control over those ‘assets’. We expect to see a broadening and deepening of the brand owners supply ecosystem to the point where it will be many layers deep. In this kind of ecosystem there is a fine line between control and chaos and the brand owner must have adequate visibility into the network to be able to make the right decisions at the right time. Visibility and networking tools will be increasingly important to maintain an efficient supply network.

Kinaxis: The adoption of software as a service (SaaS) increased dramatically in 2008 for non-core processes, and even for some core processes such as CRM and, to a lesser extent, Procurement.

• What are the drivers for this adoption?
• What are the barriers to wider adoption of SaaS for core supply chain processes?
• Will this trend also lead to the outsourcing of the process itself? In other words, will we see the emergence of companies that specialize in procurement for, say, pharmaceutical manufacturers?

Simon: We expect to see pretty dramatic growth of SaaS over the next few years, particularly as manufacturers get more comfortable with the security of their information.

The movement of SaaS into supply chain analytics, for example, has been an interesting trend to watch as companies have done their fair share of hand-wringing over moving proprietary data outside their firewalls, yet, the pressure on costs and productivity makes this an almost inevitable trend. SaaS, essentially, offers manufacturers with a lower risk, more efficient way of implementing capabilities with a higher ROI and shorter payback – all things they are looking for in a tough economic climate.

The interesting side effect of this though, is a continued ‘commoditization of the supply chain’ where if everyone is using a particular SaaS capability, it cannot by definition be an area of competitive advantage. It is for this reason that we do not see a complete outsourcing of complete business processes as companies try to hold on to the bits that they believe drive their differentiated value proposition.