Thursday, July 31, 2008

Food For Thought: Can You Have It All - Faster, Better, Cheaper?

Return of the FBC Mantra
With pending economic uncertainty in sight, almost every conversation in the past 2 months has referred back to the mantra of Faster, Better, and Cheaper (FBC). Maybe it's part of living here in the heart of high tech companies where product life cycles are as a short as the next haute couture dress on a Paris runway model. But we're hearing it more and more across all industries. Is this a new client based reality or just another step towards the price-based commoditization whirlpool? Let's take a look at the components:
  • Faster. Can you get this to market faster? Can you reduce the time it takes to sell the product? Will you be able to collect money more quickly? Can you respond to a safety issue more quickly?
  • Better. In the eyes of a customer, is this a significant improvement? Are the trade offs we make worth the effort. Will this compel someone to select our offering?
  • Cheaper. Can we do this for less? Can we do this with less people? Are there regulatory or compliance issues that prevent us from reducing cost? Do we have to hire so many people? Do we have to hire so many good people?
Market based reality shows it's tough to achieve all three: One could argue that it's been next to impossible to support all three for all industries. For example, in the March 2000, NASA FBC Spear Report, a former NASA engineer stated that "the faster, better, cheaper" approach that pushed agency engineers and scientists to crank out more frequent, low-cost, and stripped down missions was a failure. In learning from the aftermath - we are seeing that top technology trends in the enterprise software industry do not normally support all three either. Two out of three seems to dominate current trends. For example:
  • SaaS. Faster - rapid deployment, real-time upgrades, 99.99% uptime and reliability. Better - more dynamic UI, newer functionality, configured not customized. Cheaper - this remains to be seen. Today ROI studies over a 10 year period show that SaaS is cheaper for companies with less than 1000 employees. Once over 1000 employees, we see SaaS costs comparable to on-premise. This becomes more of a life style thing.
  • Third party maintenance providers. Faster - this is debatable in terms of responding to regulatory updates, vendor changes, etc. Better - users often find that vendors like Rimini Street optimize the instance when they bring over the product. Cheaper - up to 1/2 the cost of maintenance price can be reduced which frees up money to invest in all the other projects that have been neglected for some time.
Your turn.
You've heard my view. Got an example where all 3 work? Or do you think this is all a fallacy? Maybe it's true that, "You can only have 2 - Faster, Better, Cheaper" in enterprise software? Looking forward to your comments!

(The personal contents in this blog do not reflect the opinions, ideas, thoughts, points of view, and any other potential attribution of my current, past, or future employers. All NDA's have been honored.)
Copyrighted 2008 by R Wang. All rights reserved.

Wednesday, July 16, 2008

News Analysis: SAP Moves All Customers Onto More Expensive Enterprise Support

Margin Pressures Drive Maintenance Fee Increases
Announced at the 2008 Field Kick Off Meeting (FKOM), the elimination of the Standard and Premium support offerings was originally developed just for new customers. However, today's announcement that existing customers will be "transitioned" to Enterprise Support as of January 1, 2009 will come as an unpleasant surprise to SAP's 17,000 customers on basic support. This move may stem from a variety of factors including:
  • Increasing complexity of the SAP user landscape. SAP often cites the movement towards SOA environments and the growing complexity of IT landscapes as the main drivers for a more comprehensive, differentiated, and streamlined support offering. In fact, SAP customers would concur that their environments have become more complex to manage and own. Many of SAP's largest customers have decided to skip the upgrade to ERP 6.0 and wait for SAP's next major release.
  • Failure of Business ByDesign launch. Inability to scale BBD in a cost effective manner and delays in moving BBD onto the new NetWeaver 7.1 platform have led to a major loss in potential revenue growth. Most notably, SAP will not reach the 1000 customer target by 2008 as promised in its Q4 2007 earnings call.
  • Margin pressure exerted by Oracle. During the 2007 Q4 earnings call, Oracle’s CEO, Larry Ellison, stated an overall goal of reaching 50 percent margin and 20 percent earnings annual growth. The effect - SAP has had to react with an equivalent profit margin growth strategy. Combined with the recent $83M payout to i2 and the pending TomorrowNow legal issues, SAP has been left little choice but to respond with a maintenance fee increase to achieve double digit earnings growth.
Compared to the Rest of the Software Industry, Enterprise Support Does Deliver Relatively More Value...
Despite the price hike, SAP should be given credit for holding maintenance fees at 17% for over a decade. Unlike the policies and practices of other vendors, SAP's increase does comes with additional benefits:
  • Free trial period and graduated increase. Customers will be moved to Enterprise Support as of July and not begin payments until January 1st 2009. Expect increases of about 8% a year until the 22% maintenance fee is reached. For most customers this will occur around the 2011 - 2012 period.
  • Upgrade commitment. SAP provides a technical upgrade commitment that every installed base customer can be upgraded to the next release. In addition, SAP commits to deliver all the tools required to manage a technical upgrade. However, customers must migrate to ERP 6.0 to take advantage of Enhancement Packages (EHPs).
  • End to end operations support. Enterprise Support comes with a central test plan for core business processes, a quality manager that will validate test execution and completeness, and a central transport mechanism and change control system. SAP also commits to 7 X 24 support advisory, 7 X 24 root cause analysis, and continuous quality checks via remote access and supportability.
... However, Most Customers Barely Use What They Have.
In conversations with over 100 SAP customers, most express minimal utilization of the existing Basic Support offerings. Basic Support typically includes problem resolution, quality management, SAP Solution Manager, SAP standards for solution operations, knowledge transfer, continuous improvement, and access to the SAP Service Marketplace. The average customer claims to connect with SAP less than 5 times a year. This is the software equivalent of getting an expensive but comprehensive insurance policy and never utilizing it.

The bottom line.
Maintenance fees continue to erode the value of a perpetual license. At 22% of net price, customers pay the equivalent of 2X their original license cost over a typical 10 year ownership lifecycle. Maintenance continues to be the most expensive cost component of enterprise software. Customers should take action by:
  • Considering third party maintenance options. Rimini Street's recent announcement to provide third party maintenance in 2009 is worth a look. JD Edwards and PeopleSoft customers who have considered this option already save up to half of their Oracle maintenance fees.
  • Galvanizing the SAP User Groups to take action. Now is the time that customers should leverage their independent users groups to organize a campaign against this maintenance fee increase. Groups such as ASUG, DSAG, SAP Users Group UK & Ireland need to step up to the plate and find a solution to this increase. This will be the real test of these users groups effectiveness. It will become painfully obvious which individuals in leadership positions have been under the influence of SAP and which individuals will be willing to back the end users.
  • Determining long term SAP containment strategy. Most SAP customers adopted a single vendor strategy. The initial benefits were driven by a fear for complicated integrations, desire for process standardization, and need to expedite deployments pre Y2K. This strategy has led to vendor lock-in and vulnerability. Long term apps strategy should consider how to contain future risk in a single sourced ERP scenario.
Your turn.
You've heard my view, but I'm looking to see how you feel about this latest increase by SAP as well as the Oracle price increases.

For more details on how SAP has raised maintenance fees see the Forrester Report from March 3, 2008 "SAP Raises Maintenance Fees for New Customers"

For some other interesting posts on this topic check out the news time line:

(The personal contents in this blog do not reflect the opinions, ideas, thoughts, points of view, and any other potential attribution of my current, past, or future employers. All NDA's have been honored.)
Copyrighted 2008 by R Wang. All rights reserved.

Monday, July 14, 2008

Reality Check: Sales reps matter more than product

I haven't posted for so long, butI felt like I had to give Mr. Analyst of the Year a break and actually write something.

Over the last year I have become increasingly aware of something and wanted to share it with a larger audience. When I have conversations with companies about a pending software purchase (usually CRM or eService), they tell me the core business problems they are trying to solve, then give me the list of vendors they are considering. And almost every time, I hear a little jingle from Sesame Street in my head:

One of these things is not like the other
One of these things just doesn't belong
Can you guess which thing is not like the other
By the time I finish this song?

Why? Because the obvious vendor(s) who are specialists in their problem are not on the list, and they are selecting from a group of vendors who all do something else. So I ask, "Um, why isn't Vendor X on the list?" And here is the universal reply. "Oh, we started with them, but their sales rep was an asshole."

I don't think developers and marketers at high tech companies have any idea how many deals they are losing based on the personality of the sales rep. What is really shocking is how many times the obvious 'best fit' vendor is dismissed from a deal because:
  • The sales rep was arrogant (I've heard this a dozen times about 1 vendor in particular)
  • The sales rep was late to multiple meetings and conference calls and the company felt the vendor didn't want the business
  • The sales rep didn't know bumpkis about the product functionality and tried to BS their way through--always a big turnoff

Maybe I'm a troublemaker (OK, I admit it, I am) but sometimes I contact the vendor who lost a particular deal and asked them about it. So far, not a single time has the 'win/loss' report had anything about the sales rep or the sales process. Usually it is a useless excuse like, "they weren't ready to make a decision," when that obviously wasn't the case. Or, "we couldn't meet their price," when I knew the discussions never even got that far.

This is all very frustrating for me, because I want to see companies buy the right product to fix the right problem, and when there is a mis-match from day 1, it isn't good for any of us. The customer ultimately doesn't receive the ROI they expect. The vendor never has a referenceable customer. And I have far fewer success stories to write about than I should.

There is so much pressure in my industry (service and support) on after call satisfaction surveys, I wonder why companies aren't doing a better job of understanding the impression their sales staff is making on customers? Why doesn't the VP of sales follow up with prospects after the initial sales visit and ask how it went? Why doesn't someone other than sales create the win/loss reports so at least companies know how much business they are losing because of sales rep hubris?

So all you Software Insiders who read this blog, ask yourself, "when was the last time I did a 'ride along' on a sales call?" Regardless of what your role is (engineering, support, marketing, etc.), maybe you should start making your presence known in more customer facing sales situations. From what I'm hearing, you may be shocked at what you see.

Thanks for reading!

John Ragsdale

Ragsdale's Eye On Service

Tuesday, July 1, 2008

News Analysis: Infor Teams Up with IBM Global Financing

Vendor Financing Options Provide a Key Weapon in Battle for Tech Spending
On June 28th, 2008, Infor and IBM Global Financing (IGF) announced a worldwide customer financing program for Infor customers. With the worsening global crunch on credit, this program provides Infor's customers with:
  • Access to a line of credit for key tech investments. Similar to other IGF deals, the program includes more than just Infor's entire line of business software. Other eligible items include software, services, hardware, and maintenance.
  • Flexible payment options. Customers can spread traditional up-front payments over time. Flexible payment plans for loans or lease extend up to 60 months. Interest rates are country specific.
Key facts about the deal:
  • Geographies: All
  • Products: All products, No IBM hardware or software required
  • Length of program: Up to 5 years, typically 24 to 36 months
  • Interest rates: Country specific
  • Partner eligibility: Open to all partners
  • Program inclusion: software, services, hardware, and maintenance.
The bottom line.
Vendor-led financing options and payment alternatives provide users with opportunities to avoid up front payments and efficiently deploy capital. While financing options do not address the issues of recurring costs for support, upgrade, and hardware infrastructure, the bundling of professional services, hardware, and other related software offerings provide a compelling business case to choose one preferred IT vendor while deferring capital outlays. Financing will continue to prove to be the game changer in this consolidating and competitive software market.

For more details on how other vendors have accomplished financing options see the Forrester Report from August 29, 2006,"Assessing New Software Vendor Financing Options" .

Your turn.
You've heard my view, but I'm looking to see how you've used vendor financing and if you see this as a game changer or not. Looking forward to your reply.

(The personal contents in this blog do not reflect the opinions, ideas, thoughts, points of view, and any other potential attribution of my current, past, or future employers.)
Copyrighted 2008 by R Wang. All rights reserved.