Markets, Coffee and Software

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From Tonx.

Quote below is from Sarah Britten’s South African Weekly Mail blog, Gondwanaland.  She is discussing Australia and Starbucks.

The news last week that Starbucks was to close 61 of its Australian stores with immediate effect — leaving just 23 stores in Melbourne, Sydney and Brisbane — was greeted with considerable interest beyond the business pages. The American interloper taught a lesson about what it takes to succeed in the land down under: this was more than just a business story, it was about Australian resistance to global hegemony.

Or was it?

What is striking about the Starbucks story is how it reveals the ways in which Australia’s post-World War II wave of immigration has affected its sense of national self. Australians didn’t take to Starbucks, the reasoning goes, because they already know more about coffee real coffee — than any American could ever teach them.

One Melbourne journalist wrote:

“With its trademarked frappuccinos and smorgasbord of syrup flavours, the day Starbucks came to Lygon Street was like Scientologists setting up in Vatican City. Sacrilegious.”

Similar things happen in HR software too. Biggish “global” players sometimes come into markets like Australia thinking they are the Bees’ Knees, to quote Kath and Kim.  Australians speak English, how hard could it be?

The global player soon finds out that there are local vendors offering neat technology but with the more valuable feature of  local market understanding. 

In the long run, global vendors only succeed if can help meet local needs. Offering a system in English simply isn’t enough.  

For Gartner Clients I explore this in more detail in this report Global Talent Management Isn’t Just Global (G00159366), 22-JUL-2008 

The Alps and Zimbabwe

A couple of years ago Sig, Dean and I rode up Mont Ventoux in France. It was great fun, and we also raised some money for a noble cause, Warchild. Our friends from around the world were remarkably generous, donating  a tidy sum.

Photo from the fantastic cycling blog of Will Davies. flickr stream here.

This year,in August, I’m being even more of an idiot.  I’m doing  a week long Alpine ride with a bunch of cycling mates, all of whom are leaner and meaner than me.  This time the money will go to the Zimbabwe Benefit Foundation. It is a very reputable charity, and has Desmond Tutu as its patron.

Violent and sustained attacks against civilian voters in Zimbabwe are leaving behind hundreds of mutilated and injured men, women and children. Many of them have also had their homes burned and their possessions destroyed. ZBF has launched an emergency response to support victims with medical supplies, blankets, food packs and basic building materials throughout the country. We appeal for your help now.

I discovered the charity via the Sokwanele blog, which provides brilliant but harrowing coverage of  the goings on in Zimbabwe.

The donations page over on the justgiving.com site, here. It would be great if you could head on over there with your credit card handy.

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Here’s hoping that by the time I’m back from the Alps, Bob is no longer in charge.

I’ll post a cyclogeek post soon, with the route, altitudes and so on.

Carbolic Smokeballs and software salesmen.

I’m continuing the law related ramblings, but some of you will be pleased to know I’ll rest the privacy stuff for a while.

Vinnie Mirchandani is normally a vociferous supporter of all things free-market, and the arch enemy of compliance. His dislike of the  Sarbanes-Oxley Act is legendary.

I was  surprised to read his call for stronger software industry regulation. Please read his post in full, then pop back here.

I won’t go into a discussion here on whether all regulations he suggests make sense or not, I’d like to pick up on them another day.

In part, I agree with Vinnie.  It amazes me how little direct regulation our industry has. Toys, insurance, cars, hairdriers and maps  all need testing before you can buy them, but any old idiot can set up a software company and try and sell stuff.  There is stricter certification for wiring a plug or installing toilet roll holders for a living than there is for coding software.  One of my earliest posts looks at this.

As the digital world becomes more and more vital to our personalities, our jobs, friendships, thoughts, politics and  beliefs should the web and the vast databases of information about us be determined solely by short term shareholder value?  

As software does more and more important stuff on our behalf, it is likely that it will face greater regulation. This may be no bad thing, but let’s tread cautiously.  Regulations, like technology, often bump into the law of unintended consequences. This can be a good thing in software, as may lead to Accidental Awesomeness. In law though, it tends to hurt folks it was supposed to protect, or protect things that ought to be protected. 

I will take on one of Vinnie’s points though:

Require systems integrators to be truthful

This was amplified by Nitin’s comment about outlandish sales claims.

Another one comes to my mind as a honorable mention as well:
– Regulate the advertising or hold vendors accountable for what they claim regarding profitability and efficiency. Vendors claim the moon – I cannot see any other industry where there is so much FUD and bogus claim

Software salespeople don’t live in a vacuum, and there is very little new under the sun when it comes to contract law, advertising and sales promises. To assert that software salespeople and marketeers are somehow more devious than their peers  is a tad insulting to the ‘ingenuity’ and avariciousness  of the generations of sales people that have gone before them.

Let’s head back to Victorian England. .

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Contract – Offer by Advertisement – Performance of Condition in Advertisement – Notification of Acceptance of Offer – Wager – Insurance – 8 9 Vict. c. 109 – 14 Geo. 3, c. 48, s. 2.

The defendants, the proprietors of a medical preparation called “The Carbolic Smoke Ball,” issued an advertisement in which they offered to pay 100 to any person who contracted the influenza after having used one of their smoke balls in a specified manner and for a specified period. The plaintiff on the faith of the advertisement bought one of the balls, and used it in the manner and for the period specified, but nevertheless contracted the influenza:-

Held, affirming the decision of Hawkins, J., that the above facts established a contract by the defendants to pay the plaintiff 100 in the event which had happened; that such contract was neither a contract by way of wagering within 8 9 Vict. c. 109, nor a policy within 14 Geo. 3, c. 48, s. 2; and that the plaintiff was entitled to recover.

Read the full case here.

One supposes that this case could be seen as an early example of vapourware.

The law to hold “hold vendors accountable” or “systems integrators to be truthful” has been in contract law well before even the venerable Geeklawyer started out in practice.  

In my presales days  one of my best demo sessions was when the prospect videoed the complete presentation and workshop. 

The law has been clever enough to have a proper term for outlandish sales and marketing  bullsh*t. It  calls it “mere puffery.”  The presence of  video camera does tend to reduce the desire to engage in such puffery though.

Contract law and supporting legislation has developed over literally thousands of years, and courts have been largely successful at picking up unfairness in whatever happens to being bought or sold.

In UK law for instance, the practice of limited liability in IT contracts was struck down in the St Alban’s  DC v ICL case. They were able to claim damages for the cost of incorrectly calculated taxes, which were far higher than the costs of the solution. Harry Small, one of the UK’s leading computer lawyers, wrote up the facts of the case here. 

Software does create challenges for contract law, sure, as other innovations in the past have done too.  (I will return to  goods vs services  another day)

To those that argue that software and IT are a special case in contract that require unique regulation, I’d suggest that they read the classic 1996 Esterbrook Speech, Cyberspace and the Law of the Horse. Contract law has done remarkably well at protecting buyer and sellers for 1000s of years, and I’m not sure that commercial buyers of software need significantly more hand holding than the buyers of smokeballs had 120 years ago.  (Consumers do though)

I’m not a free-market zealot, but contract law is one of humankind’s most impressive creations.  

Dismissing a whole continent?

I met Jason Busch, fellow Enterprise Irregular, earlier this year at Sapphire. He knows the procurement space really well, and has a blog called spend matters, to which I subscribe.

I was saddened  to read that he basically wrote off the African continent from a sourcing perspective.

In my view, we would all do well to invest our tourism dollars in a continent as beautiful as Africa, not to mention our charity donations for medical care, safe drinking water and nutrition programs — among other causes — in the region. But Africa is about as far away from becoming a leading low cost supplier as it gets

This is stunningly patronising, and factually wrong.

Let’s take the automotive industry as an example. South Africa plays a major role as a supplier to the automotive industry.11% of the world’s catalytic convertors are made there. (see more about Fiat here)

In April 2005, General Motors awarded its South African arm a contract worth US$3-billion  to manufacture a new global version of its Hummer sports utility vehicle – the H3 – for export to markets in Europe, Asia Pacific, the Middle East and Africa. In 2004, Volkswagen SA announced a R25-billion export programme that will see the company exporting about 2 300 of its new Golf 5 cars each month through 2009, mostly to Japan and Australia, but also to New Zealand, Brunei, Singapore, Sri Lanka, Hong Kong, Indonesia and Malaysia. DaimlerChrysler confirmed that the new Mercedes-Benz C-Class would be manufactured in SA from 2007. The company plans to almost double production at its East London plant to roll out up to 80 000 units a year, a large portion of which will be exported. More here. and recently  here.

A shipment of Mercedes-Benz C-Class cars, built in South Africa by DaimlerChrysler South Africa, has headed off for the USA. The first shipment on 8 November consisted of close on 400 left-hand drive units destined for Baltimore, Jacksonville and Long Beach. It is estimated that around 225 000 cars will be shipped to this important market from the East London manufacturing plant as part of its seven-year contract to produce the model series.

And Airbus. yep.

 

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Have a look at the Johannesburg stock exchange performance vs that of the US. This is not just driven by tourist dollars, but by rapidly growing industrial and service sectors.

If you are really interested in what is going on in Africa, check out the recent TED sessions. This one on Aids, for instance.  Parts of Africa are booming, because of investment, local entrepreneurship and more stable government.  South Africa is not the only economy in Africa doing well, take Botswana….

Botswana has maintained one of the world’s highest economic growth rates since independence in 1966, though growth slowed to 4.7% in 2006. Through fiscal discipline and sound management, Botswana has transformed itself from one of the poorest countries in the world to a middle-income country with a per capita GDP of more than $11,000 in 2006.

The world’s largest Titanium mine is due to come online in Mozambique, a country until recently ravaged by war. The mozal Aluminium refinery in Mozambique is one of the lowest cost producers in the world. Expect to see more refining moving to Africa.

Corruption in Africa is not just an African challenge. You will find that many of those doing the bribing are from developed countries. And actually, South Africa ranks better than  both India and China in the bribery index.  The US is not corruption free either.

Parts of Africa offer huge sourcing opportunities, and world class service and product. It won’t just be in manufacturing either  Service Centres seem likely to do well too. This is from a recent interview with the CEO of ContactinGauteng. (Gauteng is a province in South Africa)

Gauteng is already playing a leading role in driving new growth through investment into Gauteng, and assisting South Africa to position itself as a preferred destination because of our high voice quality, relative accent neutrality, unscripted conversational ability, our warm and friendly approach, our cultural affinity and time zone compatibility with the UK and Western Europe. Recent research on UK call centres shows that 90% of calls into the UK did not question where the calls were coming from, and of the 10% who asked, over 70% reacted positively on hearing that the call was from South Africa. This is key to our competitive positioning in call centres.

South Africa hopes to be rated among the top five outsource destinations for call centres globally within the next 10 years. In view of this we are aiming to create 60% of the 100 000 jobs set as a target by the dti. This is 60 000 jobs by the end of 2009, approximately 25% direct (agents on phones and email response), and 75% indirect (team leaders, supervisors, managers in a call centre operation plus catering, cleaning, transport and related services). The growth has been phenomenal and is set to continue.

The dti’s BPO&O Government Assistance and Support (GAS) programme, launched in March 2007, has given much-needed impetus and ammunition to attract the large international companies located, for example, in the UK, to set their sights on South Africa. As a result, there has been unprecedented international interest from companies in the UK, and even the US, and there is serious investment potential in the pipeline.

Former parts of the French colonial empire are developing their call centre businesses too. Between 2001 and 2004, 55 French language call centres have been set up in Morocco, employing 6,500 people and generating total revenue of euro 85 million (US$105 million).

In the face of intensified global competition, French companies have sought ways of cutting costs by off-shoring production and outsourcing some business processes, especially client support and promotion. This is where a French-speaking former colony, like Senegal, or protectorates, like Morocco and Tunisia, come in. Some 10,000 of France’s 250,000 call center jobs have been outsourced to these Francophone countries.

This story from Senegal is worth a look. Or ACS in Ghana.  Or Rising Data, also in Ghana, KenCall in Kenya. These are small beginnings, sure, but Africa is not all broken water pumps and devastation.

That Africa will not take over China and India anytime soon in all areas of sourcing is obvious, but it is not the basket case that Jason makes it out to be.

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ByDesign is here

Warning.  A year or more of NDA makes for a rambling gush.

Most of the launch coverage in the blogsphere has been positive, even some of SAP’s more strident critics are upbeat about the vision and progress. Dennis provides  an extensive  review of the enterprise irregulars coverage.  Herewith my take after watching the cast and reading a goodly number of posts.

A1S now has a name.  I heaved big sigh of relief that there is no number in the name, and personal pronouns are absent.   I really like the prominence of the word design in the name. Design thinking needs to be at the centre of what SAP does, so seeing it in a product name is a damn good way of reinforcing that.  

Having a sharp focus on a defined segment of the market helps SAP defeat its biggest competitor in the long term.  SAP’s biggest competitor isn’t Oracle, Microsoft, or even the cannibals.  It is complexity.  This is our  Bauhaus moment.

It is also good to see  SAP’s leitmotiv, Integration so prominently mentioned in the presentation. The message is as relevant today as it was when the company was formed. 

Testing and learning.

Several months ago I spent a day  testing the HR part of the solution. I hired an employee, gave them biographical and compensation data, work schedules, and so on.  I didn’t need any training, and I didn’t look at a manual.  Sure I found some bugs, but this stuff works.  The commitment and intensity of the development team  really impressed me.

I’m with James Governor on the GUI form. The 5 shades of Beatrix Potter’s Peter Rabbit Baby Blue doesn’t really do it for me.  But this is version one.

Leo mentioned ADP in his presentation.  More than any company in the world, ADP understands delivering software as a service at a competitive price point at  a  profit. By working closely with ADP SAP will learn alot about what it takes to really scale this offering profitably.  ADP gets hugely  significant new channel to market. So it is a win-win.  This relationship points to a new form of partnership. 

Fine young Cannibals.

I’ve not figured out all the cannibalising discussion, but to me it boils to down to brand management.  It is a challenge that successful product companies have to deal with all the time, whether they sell toothpaste, mainframes,  high end bicycles,  golf clubs, processor chips or cars.  It takes skill and timing to manage a product portfolio.  

James Governor told  me that IBM have managed multiple product lines for years, and did it well.  Consider the As/400 and the RISC line….His  post is  spot on.

…BusinessByDesign is exactly the kind of shop that would traditionally buy a packaged application running on an AS/400. The kind of customer that would forget about its server and put it behind a drywall…

This reminded me of an interview that Hasso Plattner did in 1997. (exact unedited transcript)

HP: Yes. The idea of R/3 was to build a system for the AS 400. AS 400, small computers, so we wanted to cover the low end of the market, because R/2 was well established on the high end. We had no intention to shut down the R/2. So R/3 was meant to cover the low end of the market. Now we can’t run on the AS 400. It didn’t work, physically didn’t work. C was not there, and all the ingredients of SAA never arrived in those days on the AS 400. Now it was obvious that SAA will collapse. The Whitewater Project collapsed in IBM, Advanced Manufacturing Project in Atlanta. They shut this project down. Two thousand people working on a manufacturing system. Our biggest threat ever. And Office Vision was struggling, and later abandoned. We said now we have to move on Unix and we go for the low end of the market. Despite we had this experience of nearly unlimited computing power, we were only limited by the database, a simple database computer. The capacity of the database computer.

The first prospect in Germany for R/3 we thought is a so-called medium sized market company dealing with screws. They are a large screw dealer. When we learned more about the company, the company had two billion in revenues in 1991. The company was operating in eighty countries in the world. So this mid-sized market customer all of a sudden had one of the largest warehouses in Germany, was–as far as transaction rate is concerned–larger than the largest R/2 customer in operation. That means from day one all these ideas how we go for the low end of the market got stalled

There are black swans lurking in the most unlikely places. The genius of Plattner, Hopp,  Tschira, Zencke , Kagermann and the gang in the 1990’s was to exploit it.  Changing your mind decisively is a rare skill.   Peter Zencke played a vital role in that decision back then, so the chance that SAP has forgotten the power of a serendipitous challenge accepted is slimmer than a Kate Moss look alike  contest  line up.

And on a sartorial note it was good to see HPK wearing a different tie. 

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Who exactly are you calling a laggard?

In recent post (s) on ZDNET, amongst other things, Dennis Howlett has another go at SAP for being too conservative, brittle, wedded to the past, and so on. I disagree with him, but he is entitled to his own opinions. 

I might be mellowing; but If I commented on everything on the ZDNET blogs written about SAP and ERP that I disagree with, I wouldn’t get any day job done, talk to customers, or see my family. 

However, this statement….

…It may satisfy in the short term and absolutely plays to the laggard businesses to which SAP must be selling.

Made me fume. Calling our customers laggards is low, shallow and simply plain wrong. It is also downright rude.

 

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 (photo thanks to David Terrar’s Sapphire Flickr stream)

 So Dennis,  41,000 laggards? 

Customers trust us to help run their businesses. They don’t want us to experiment with their invoicing, supply chains, customer data, core banking systems and inventory systems. They don’t want us to jump from fad to fad.  If we let something new loose on 41,000 customers it had better work. This is a huge responsibility. To knock engineering is to fundamentally fail to understand the business that we are in. Our customers demand consistency, reliability and innovation. Learning from the best companies in the world is a serious competitive advantage, it is also damn hard. Sometimes we get it wrong.

When we ship product, it isn’t an experiment.  Perpetual beta is not a good model for payroll or availibility to promise. Businesses stop working when this stuff fails, as is often and rightly pointed out.  

We need to balance this operational reality with the need to innovate for the future. This is what Dan Farber missed when he talked to Denis Browne about the imagineering team. With a big chunk of the world’s economy running SAP software, healthy scepticism about this weeks’s next great thing exactly what is required. The insight to spot the real innovation in a sea of neat ideas and hyped up concepts and mobilising it in a SAP relevant context is what Denis Browne and his team does profoundly well. 

 

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opinions and evidence. The Trouble With Enterprise Software.

I had a great two weeks away from all things online, so I’m jumping into this debate rather late.

Part of my sporadic academic work of late has involved re-reading quite a lot of impenetrable stuff about the limits of empirical research in social sciences. Karl Popper etc. Do not fear, I will not attempt to force them on you here. In fact, I’m going to ask for the opposite here right now, I want a big solid pasta plate full of empirical research.

The blogosphere is full of folks dashing off opinions. Some are very erudite, others not. 99% of the blogs I read are  opinions. That’s cool, there is nothing wrong with an opinion. I have a whole archive of them here on this very blog. It is just that an opinion, is well, just an opinion.

Cynthia Rettig recently published a short piece in the SMR called The Trouble with Enterprise Software  Part of the piece is a rehash of ERP is complex, and therefore doomed argument. It is like the stuff Bobby Cameron did about SAP in the mid 1990s. The article also  links to research about how CEO’s view CIOs. (similar results to how they view other C-level execs, I thought), and some commentary on large system complexity.  It was strung together neatly enough, but it wasn’t based on any real research, at least in a recent enterprise software context.

The article’s core argument,

At present, however, corporations see in software’s seductive invisibility and seemingly open-ended flexibility a never-ending frontier of promise, where hope triumphs over reality and the search for the next new thing trumps addressing difficult existing problems.

Is tantamount to calling corporations stupid.  Very few are, either that or us vendors have a conspiracy going that would defeat even Jason Bourne.

Some of my fellow enterprise software bloggers jumped to praise and expand on the article   ERP is in a mess, and a donkey so they say.

Sensibly, Andrew McAfee points to some peer reviewed empirical research to counter this doomsday view of enterprise software.

The sober and understated language of this paper’s abstract contains a vital insight for people who question the overall value delivered to companies by their information technologies: if IT were not delivering value, rational decision makers would not keep investing in it. Rettig’s argument falls into a long line of pessimistic writing about the value of corporate IT. Much of this writing takes the implicit, and at times explicit, view that the executives who make technology decisions are dupes, perennially falling for a “triumphant vision” of software. These executives are presumably swayed by vendors’ sales pitches and the consistent message from IT’s ‘helper industries’—an ecosystem of analysts, journalists, consultants, and (yes) academics—that everything’s different now, so investments must be made.

10 months ago I read this paper Scale without Mass:Business Process Replication and Industry Dynamics  (I’ve blogged about it a number of times.and sadly I even brushed up on some statistics to understand the methodology) 

I wonder why the much enterprise blogosphere has largely ignored one of the most significant empirical research projects on the link between IT and Productivity, yet hypes up a neat little polemic that offers nothing new?  Perhaps because the empirical evidence jarrs with those dearly held opinions?  After all, where is the techmeme spike for the post “SAP and Oracle worked fine in 10,000’s of business again today”? 

Over on the Enterprise Irregulars board Dennis Howlett dissed McAfee’s post . Dennis said…

This from Andrew McAfee: struck me as being incredibly simplistic and avoiding the reality that’s out
there.

Odd that. I’m out ‘there’, and McAfee’s post describes exactly the ‘reality’ of much of my day job. The other week I was talking to a bank that is merging  yet another take over and a huge utility dealing with deregulation. I spent most of a day recently with a very large chemical company that had gone from 47 core HR systems to one.  The chap who normally sits opposite me is closely involved with a  project at the largest food company in the world.  Next week I’m at a leading high tech company helping work out what bits to run on the ERP, and what bits to run on niche applications, building a joint roadmap to reduce integration complexity. No, it is not all triumphant vision, but this stuff works. What all these companies have in common is that they are simplifying their businesses with an ERP system.  The core ERP business is healthier than I’ve seen it since the late 1990’s.

If you ask P&G about how they absorb takeovers, their ERP system is a big part of this success.

“Staying the same will not work. The supply chain can hold your business model back, or propel you ahead,” says P&G CEO AG Lafley. “SAP allows us to get more in tune with the dynamics of the supply chain, with our consumers and with our customers.”

Or what the Nestle CEO says about the globe project, linking it to Nestle’s impressive business results.

…we’re fully benefiting from Globe, which now covers about 90 per cent of sales. That allows much better management of working capital and trade spend.

…”He puts Globe paramount among his enablers. “Globe allows us to have a much tighter management. A much greater level of transparency. Not only is the system now covering virtually all our businesses, we’re updating some of the earliest applications.”

But then, I’m just swopping anecdote for anecdote.

  Digging a bit deeper, I read Hackett studies that say

by moving to a single ERP system for finance and at the same time implementing consistent data and technology standards, companies can cut the cost of finance operations by 23 percent, according to Hackett’s Book of Numbers™ Research. But companies that take either of these approaches independently may see little to no savings, or even a slight increase in finance operations costs, Hackett found.

World-class finance organizations rely on both of these approaches, which help them spend 31 percent less than their peers on finance, operate with nearly half the staff, and also complete their financial reporting cycle more quickly each month.

And further

Hackett’s research found that world-class Fortune 500 companies run these functions at lower operational costs of $134 million/year ($7.1 million/billion of revenue) compared to typical companies, and process automation and IT enablement play a very significant role in realizing these lower non-IT back-office costs. In addition to this efficiency impact of IT, a direct correlation was found between performance of the IT function and effectiveness in finance, procurement, and HR

This stuff works.

Much of this blog is a rant against complexity, and if I look around here at SAP, I’d say fighting complexity is our biggest competitor. Sure we have much to learn about simplification, and we must get significantly better at reducing and managing complexity. But if there is one thing that I loathe more than unnecessary complexity it is the oversimplisitic. ERP is complex, so is the Belgian tax code. Many of those that damn SAP and Oracle for its complexity seem to suspend business reality when discussing the next great start up that will blow us away.

I’ll restate my rumplestilkin test.

Lock your new paradigm busting vendor in a room and only let them out when they have a compliant Polish payroll.

That sounds trite but most of what ERP applications do is complex ugly stuff. Companies do this stuff, not because they want to, but because a lawmaker, auditor, union or some regulatory authority demands it.  I’ve argued before that putty and lego are not good metaphors for the software that helps run your business. If you can sprinkle some magic ceteris paribus dust on business, and create a neat guns or butter world, then enterprise software would be simple. Actually, you could do it on a napkin. But tell that to the folks who thought up the Norwegian (or was it Finnish) business travel per diem rules. (especially the ones about mileage rates for reindeer sled travel)

So  keep the comments about ERP salespeople and Porsches rolling.  But where is the big stonking empirically solid research that shows me that ERP is dying or that it doesn’t work?

 As much as I hate to quote a competitor success story, herewith a small sprinkling of irony… Andrew’s Ducati wouldn’t be on the road today if it wasnt for enterprise software. 

I’ll finish this long opinion piece by quoting a bit more Andrew McAfee.

I agree that it’s important not to naively accept anyone’s triumphant vision of corporate IT. But it’s also important not to make claims in the other direction that are too sweeping. Perhaps most fundamentally, it’s critical at some point to stop floating hypotheses about IT’s impact (or lack thereof), and to start testing them. We have enough history and enough data to permit more excellent studies like the one conducted by Aral, Brynjolffson, and Wu. Designing and executing resarch that is both rigorous and relevant is difficult, at times dismayingly so, but as these three show it’s well worth the effort.

 Bring on the empiricists.

SOX again. Getting to the real numbers.

I sense a series of enterprise software and law-compliance posts brewing.  I tried to explain some compliance stuff last night via email, but I failed.  Signal-noise ratio was wonky.  So I’ll post instead.  Warning if you find law, finance costs and software boring, stop reading now.

I’d rather pick up on other laws than the Sarbanes-Oxley Act of  2002, it tends to crowd out discussion on other important laws, and paints a very US centric picture of compliance.   But given that the Act is undergoing a timely fine tuning, I figured it was worth a revisit.

Details here on the SEC site. 

Congress never intended that the 404 process should become inflexible, burdensome, and wasteful. The objective of Section 404 is to provide meaningful disclosure to investors about the effectiveness of a company’s internal controls systems, without creating unnecessary compliance burdens or wasting shareholder resources,” said SEC Chairman Christopher Cox. “With the Commission’s new interpretive guidance for management on the evaluation and assessment of its internal controls over financial reporting, companies of all sizes will be able to scale and tailor their evaluation procedures according to the facts and circumstances. And investors will benefit from reduced compliance costs.”

You can watch the SEC broadcast here.  (nice transparency!)  I’ll explore the implications of these changes in another post, but it seems that the US is moving to a more principles based control framework, which is more like the UK’s FSA model.  SOX isn’t being scrapped or radically transformed, but after 3 years of year-ends   the SEC is a better position to improve the “protection-cost” ratio.

Vinnie has a regular go at  SOX, SOX costs,  and indeed those selling compliance tools.   His recent post is no exception, commenting on Oxley saying he would have done things differently..

Wish he had said that 3 years ago – but sounds like we are back to “normal times” after pissing away billions on gun-to-the-head compliance spend.

In this post I’d like to explore SOX costs in a little more detail, because I’ve been privy to some interesting research.  As part of my job I have access to the Hackett Group Research, and I’d really urge anyone who is interested in understanding technology and best in class performance spend some time reading their stuff. It is thorough, independent, compelling and worth the money.

In 2005 Hackett commented.

This is the first time in Hackett’s 14-year history of benchmarking that finance costs have risen for typical companies.

2005 was the first year that Section 404 really hit home for most companies: they had to begin to comply with the requirement in their annual reports for their first fiscal year ending on or after April 15, 2005.

Hope Hackett don’t mind me linking the graph here.

 

Again in 2005 Hackett said.

Hackett’s research also found that world-class finance organizations now spend 42 percent less in the finance function than typical companies, and have 44 percent fewer finance staff. According to Hackett’s research, world-class finance organizations now spend 42 percent less than typical companies overall (0.73 percent of revenue versus 1.26 percent). Typical companies have seen an 18 percent increase in total finance costs since 2003, while world-class finance organizations have seen a 5 percent drop during the same period.

Compliance costs have risen significantly for both world-class and typical companies since 2003. World-class now spend 36 percent less on compliance than typical companies (.060 percent of revenue versus .094 percent). For instance we see that the typical company is spending an additional $340,000 per billion in revenues or a total of $940,000 per billion in revenues for additional internal finance and external resources to meet today’s compliance requirements.

There are a couple of things I’d like to pick up on this.

1. The impact of SOX is clear here. The big jump in costs can largely be linked to SOX related projects, especially the panic projects that drove early spend.  Interesting though that the world class companies cost of compliance post-SOX is lower that of the peer group pre-SOX.  The impact of SOX is less on world-class companies than on the peer group too, the jump in absolute terms being significantly smaller.

2. Now, let’s  move on to the more recent numbers from Hackett. (I don’t have a graph  I can share publicly, but book of numbers owners can look it up)  The finance costs as a percentage of revenue for world class companies have now dropped down to  below pre-SOX levels, whereas for typical  companies the cost continues to climb. The delta is growing. For those companies that lurch from audit to audit and spreadsheet to spreadsheet the cost of compliance will spiral,  as SOX is just one wave in the ebb and flow of compliance demands.  For those that invest in compliance automation, strong foundation systems and smarter processes, the picture is a whole lot better.  Hackett has the numbers to prove it. 

The message here is clear. Moan about SOX all you like, but the best companies in the world have focused on putting in place the processes and the technologies to drive down the cost of compliance.  Every year they will relentlessly improve their  processes, further automate and drive out more costs. Yes, compliance costs, but how big that cost becomes is entirely up to you.  SOX will not be the only law that causes compliance challenges.

I’m not sure where the  shame comes into it.  The finance folks that I talk to want a finance function that provides transparency, control and trust at the lowest possible cost.  And that is just for starters.

 

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Pondering Sapphires

I’d been vaguely  planning to write a more serious Sapphire tome sometime this week. The prod to do it now, on Sunday evening, came from Inside-IT.ch (a Swiss-online IT magazine).  It took a gentle potshot at us bloggers for not being serious enough.  Too much talk about ties and pictures of shockhorrorfun on flickr apparently. I was going to respond on the site, but the registration pages put me off. I just want to comment, not move to Switzerland.  German speakers can read it here.

 In theory I suppose I should split this up into more bite size chunks, but I find that difficult to do. (A bit like SOA)

Much of the blog commentary on the Sapphires has been on the brief sighting of A1S, whether it is market changing , the business model, whether SAP gets SaaS , and what it will cannibalize. This discussion is goodness and I hope those running A1S will read and absorb what’s been written.  I’m pleased that Salesforce are dissing us already, this probably means we are doing something right.

Hasso Plattner’s focus at Atlanta on the cloud and massive in-memory computing means that down the road there will be some fundamental changes in architecture and delivery mechanisms, even in the highend of the market.  Lots of ponder on then. (see Zoli on Hasso at Software 2007)

Other themes – SAP’s “embrace” of social media and blogging received lots of coverage, both from Atlanta and Vienna.  SDN especially has received heaps of positive feedback.  Harmony and other web 2.0 for the enterprise endeavours are also good news. Lightweight is a word I’d like to hear more of at SAP.

Charlie Wood has a super take on Sapphire, thoughtful yet concise. Please Read it.  (And if you are a SAP ecosystem guy, Charlie is exactly the sort of chap we need ISVing and making a good living off the SAP platform. At the moment he is doing stuff with salesforce.) Also have a look at Charlie’s post on the Pascal Brosset meeting.

But I work for SAP, so what was my take on Sapphire- not purely  as a blogger, but as an employee?  My day job focuses on the executives at our bigger companies, so fascinating though A1S  is, while it remains under the covers and focused on the space between B1 and All in One, it doesn’t impact my 9-5 existence much.   So what did I take away from Sapphire to motivate me?  What are the things that will drive business this year in my day to day? 

1. GRC is rocking. It has moved way beyond SOX, and with the Risk product coming on line this growth will further accelerate.

2. Office of the CFO focus. I’m a huge fan of the non-technical sell.  I expect the tuck-in acquisitions of Pilot and Outlooksoft will begin to pay off in q3-q4.  As with the Virsa solution, it will take a couple of quarters for the sales force to get on the ball, but once they do, this will ramp up seriously.

3. Microsoft is serious about Duet.

4. ERP and Netweaver adoption is there for all to see.  Both ASUG and  DSAG confirm this momentum. The naysayers have been proved wrong on this one. 2,000 new productive systems in year.

 This means that there are now lots more upgrade references, so this will drive further adoption. The dropping of the that dumb 2005 moniker will cause a little confusion and a ppt find and replace fest here in Walldorf, but I’ most of us are relieved to see it go. Henning Kagermann noted several times that this is the fastest release adoption in SAP’s history.  This tells me that the business is healthy. 

5. PeopleSoft replacements continuing. I received an RFP from an organization during Sapphire that nearly caused me to fall off my chair.  If they want a new HR-payroll, then, gosh.

6. Appliances. Enterprise Search, BI accelerator, and Duet. I need to find out more about these.

7. Endorsed solutions like Ruleburst. I have another post about them in the works.  We need to do a better job at helping sell other people’s stuff.

What else?

Henning’s concept of Business Network Transformation will become increasingly significant. How well a business integrates with customers and partners will be a major determinant of success. The same applies to SAP.(That is a familiar rant here)

 So, while much of the hype and ink spillage was on the SME, there is much for us enterprisey types to get on with selling and implementing.  The partners I spoke to at Sapphire are all busy. (Well done Axon, btw)  There is a healthy buzz in the ERP space. Nobody seems to be sitting around waiting for A1S. 

But my biggest takeaway remains Hasso’s comment at Atlanta.  Here is the clip.

This is SAP’s competitive advantage. The best companies in the world run our stuff, and want it to improve it.  I’m convinced that much of SAP’s success has been that great companies have bought our stuff, and told us how to make it better. We haven’t always listened, but now, more than ever we need to. Increasingly the future of business is not about internal process improvement, it is about the network. We need to gulp the kool-aid of quality collaboration and co-innovation.  Unlike most startups we have customers that lead their industries and trust us. Startups need to guess smart, we just have to ask.

Those that think that nothing is happening in ERP miss the significant architectural changes that have taken place over the past few years. Ask anyone who is building SAP add-ons today compared to 5 years ago.

The challenge is to still manage the add this field or sort out the molga  stuff, while elevating the discussion to a business level. This is what the Industry Value Networks and the Enterprise Services are supposed to do (neat wiki use BTW). Over the next six months or so I’ve decided to learn as much as I can about the Industry Value Networks and Enterprise Services. (a side project)

Personally, I’ve never been a huge fan of the term  “industry go-to-market”, it tends to drown out the need to focus on the cross-industry processes that are SAP’s bread and butter.  But from what I have seen of the Banking Enterprise Services, I’ll probably need to change my mind.  Have a look at what the forestry and paper IVN is all about. The enterprise services and the IVN need to get more aligned, I made the same typo as Maggie did and I work here. We need to simplify how we label and explain these concepts.

 But basically if we really listen to this lot…

 

And get them doing this with us.

Who knows where this could go? 

All SAP employees ought to  read Sig’s post. He sums up this place better than I can, and I work here.

As in few companies, it seems that the “engineering” is still in the driver’s seat.
After the (only one it was) distinctly marketing theory driven presentation I suggested that one should draw a parallel to the car industry – BMW and Porsche are engineer driven, GM is purely marketing DNA. Then you know the rest…
Yep, SAP seems to be an engineering and product (tangible) driven firm, while… you know who… seems to acquire and drive forward for more marketing oriented reasons

Update: forgot the photo credits to David Terrar and Marilyn Pratt. more on flickr, tagged sapphire07

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Excellent move Lawson

In my little euro-centric large enterprise echo-chamber I tend not to think about  Lawson much. By many accounts they do very well in Healthcare and Retail in the US and they have a excellent relationship and technical tie-in with IBM, but even with the Intentia acquisition I don’t see them much in the EMEA HR and Compliance space.

I have more than a passing interest in corporate social responsibility (CSR) , and I firmly believe that strong CSR makes economic and moral sense. Sun seems to be leading the charge from the hardware vendor side. James Governor has much to say on the green theme.  

Back to Lawson. Please read this press release.

Lawson Software (Nasdaq:LWSN) today announced a new initiative to provide organizations and companies software-based options to help them manage their growing array of environmental and social programs. Lawson’s Corporate Social Responsibility Initiative aims to harness information technology to automate and integrate the management of these programs to help companies meet their social and environmental targets, whether government-mandated or company-set.

 AMR see a market for solutions to support CSR.

Detailed research conducted by industry analyst firm AMR Research suggests companies are ready for an information technology solution to support corporate responsibility initiatives. According to the survey of 150 individuals in mid-size and large companies in Europe and North America, more than seven in 10 plan to use IT to manage corporate responsibility initiatives within the next two years.

Great move Lawson.  There is lots going on here in Walldorf, but I believe it is high time SAP started a CSR conversation with the market. Both Lawson and Salesforce.com are teaching the industry a lesson here.

 

 

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