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Survey Indicates SAP Customers are Not Yet Committed to S/4 HANA

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Today’s theme is Cloud ERP and the tendencies among technology customers towards adoption or conversion to the Cloud. In addition to this week’s update on Oracle financial performance indicating building momentum, noted enterprise blogger and friend Vinnie Mirchandani tweeted our attention to a recent survey among SAP ERP customers.

Rimini Street, a provider of enterprise software products and services, and a support services provider for Oracle and SAP applications, released the findings from a recent global survey of SAP licensees to better understand SAP ERP application strategies and future needs.

The report, “Rimini Street Survey: 2017 SAP Applications Strategy Findings,” was based on responses from CIOs, CTOs, IT VPs, directors, and managers from a broad range of industries and company sizes across North America, Europe, Latin America, and Asia-Pacific.

A key finding, according to the authors, indicated that 65 percent of the survey respondents have no plans to, or are currently not committed to, migrate to SAP S/4 HANA, with the number one reason for not committing cited as “no strong business case and unclear ROI.”  Further indicated by 89 percent of respondents, was to continue running their proven SAP ERP releases, given that the rich functionality met existing business needs and further formed the foundation of a preferred hybrid IT model. Regarding the latter, 30 percent indicated that they are already adopting a hybrid IT strategy to maximize the value of their core SAP system as a system of record, while freeing up funds and resources that can be used to drive innovation through systems of engagement more quickly and flexibly. According to the authors, a hybrid IT strategy offers the best of both worlds – providing the ability to reliably run the business on a robust core ERP application, and at the same time enabling an organization to more quickly adopt new innovative applications and services, including cloud, mobile and analytics.

What we found as a rather important technology buyer indicator, was the following statements:

In addition to citing “no strong business case and unclear ROI,” for the low commitment to S/4 HANA, another top reason by survey participants for the low commitment to S/4 HANA is the “high migration and reimplementation costs.” Of those respondents who have committed to S/4 HANA, 56% estimated the total cost of reimplementation for a move to S/4 HANA to be between $10 and $100 million, an expensive undertaking which makes it difficult to build a positive business case for the move and is financially untenable for many organizations.”

No enterprise Cloud software provider wants to read or hear such statements from existing customers. If not already, this should be a clear call-to-action to both fully understand what a strong business case needs to be to prove to customers that such applications are flexible and robust enough to support needs for business and process innovation. For the specific area of existing SAP applications supporting supply chain management, manufacturing and product lifecycle process needs, we believe that the business case for upgrade is reflective of a perception in lack of understanding in various applications and technology roadmaps, coupled with functional and line-of-business uneasiness on the disruption, cost-of-ownership and/or performance tradeoffs of adopting SAP HANA as a backbone database. Instead, customers are indeed turning toward select supply chain edge systems for such needs.

At the recent annual SAP Sapphire and ASUG customer conference, there was a special emphasis on communicating the existence of product roadmaps and in declaring that the bulk of ERP innovation was completed. Kudos to SAP for at least listening and processing customer feedback. However, from the feedback and discussions we have had, more work remains in any compelling business case for upgrade adoption. Meanwhile, market introduction of added innovation of edge systems is increasing every week.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Oracle’s Fiscal FY17-Q4 and Full Year Financial Performance Garners Market Attention

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Oracle reported its Fiscal Q4 and full FY17 financial performance results and the Wall Street and individual investment community seemed very pleased by what was termed as a phenomenal quarter and an impressive transition towards accelerating Cloud based revenues and margins.  Investors drove Oracle stock up 10 percent in after-hours trading. Oracle OW16 sized450 300x172 Oracles Fiscal FY17 Q4 and Full Year Financial Performance Garners Market Attention

Co-CEO Safra Katz characterized a tremendous quarter in just about all business areas including Cloud, software license and earnings and declared that Cloud has now become the predominant growth engine for Oracle. Co-CEO Mark Hurd went a step further, declaring that this was the best quarter that Oracle ever had, and that the company performed very strongly in bookings, billings, and revenues, all at record levels.

Financial performance highlights for Fiscal Q4 included:

Total revenues rising 2.8 percent to $10.9 billion.

Software as a Service (SaaS) revenues up 67 percent to $964 million.

Total Cloud revenues up 58 percent to $1.4 billion.

Total on-premise software revenues of $7.5 billion, essentially unchanged from year-earlier.

Net Income rose 15 percent to $3.2 billion.

Gross deferred revenue now at $2.3 billion, up 67 percent and exceeding goal established at the beginning of the fiscal year.

 

For the full fiscal year:

Total revenues rose 2 percent to $37.7 billion.

SaaS revenues rose 70 percent to $3.4 billion.

Cloud, PaaS, and IaaS revenues up 63 percent to $1.4 billion.

Operating income up 3 percent to $16.2 billion.

 

Two Significant Takeaways

From our technology industry analyst lens, we observed two significant reader takeaways regarding Oracle’s latest quarterly and fiscal year performance.

The first is a response from Wall Street and the company’s investors that Oracle has reached the termed tipping point where customer Cloud adoption as reflected by ongoing recurring revenues are reaching a point of significant momentum. Oracle senior executives hosting the briefing with analysts and investors indicated that the company achieved its stated goal of surpassing $2 billion in annualized recurring revenues, a rather important metric for Cloud technology companies. Co-CEO Hurd pointed to a $6 billion annualized run rate which is another pertinent indication of momentum.  As we have often pointed out in our prior Oracle focused commentaries, Oracle’s business strategy of all-in for Cloud software, database, computing hardware and infrastructure was very bold, and is now paying dividends from many business perspectives.

Cloud ERP

Within the latest performance was evidence of market traction and momentum in two very important application areas, ERP, and database. In his feedback to analysts, Hurd rattled off stats as to 1575 new SaaS customers coupled with 1138 termed expansions, namely customers that acquired both Cloud software and associated platform and infrastructure technology. For ERP Cloud, Hurd noted 868 new customers (not including the recent NetSuite acquisition numbers).  Some manufacturing industry nameplates included Ball Corporation, General Electric, Kraft Heinz, Motorola, NCR, Newell Rubbermaid, and Volkswagen, among others. Of that adoption rate, almost 200 were noted as expansions, meaning adoption of extended modules, examples being either procurement, supply chain or manufacturing support. Of added significance was the statement that roughly two-thirds of new Cloud ERP customers were brand new Oracle nameplates. This adds some credence to Oracle’s messaging of faster technology adoption and customer benefits with Cloud adoption. Of course, there is a flip-side to this statistic, namely that existing Oracle on-premise customers are still undecided.

In total, Oracle now has 13,550 active SaaS customers, and when NetSuite is added, the number approaches 25,000. This is noteworthy momentum both in customer adoption and future pull for expanded technology needs, particularly supply chain related.

Database Cloud

During the quarter, Oracle announced a very significant and strategic database deal with AT&T, which according to executives operates over 10,000 Oracle databases. The company elected to move to the Cloud to gain the benefits of database provisioning along with consolidation of in-house infrastructure. Because AT&T is subject to regulatory directives for data management, the deal called for adoption of Oracle’s Cloud database on premise, where Oracle will operationally manage all databases and infrastructure, very like services performed for public Cloud. When completed, this one customer has the potential to be a key strategic customer reference for many other large Cloud database deals.

Speaking to Cloud database adoption, Chairman and CTO Larry Ellison indicated that newer versions of Oracle database technology are experiencing very rapid adoption uptick because of the needs for multi-tenancy and enhanced memory capabilities.  Oracle utilizes a design that places large amounts of flash cache memory in front of hard disk memory, along with a sophisticated storage hierarchy system. Obviously, such remarks were directed at competitors such as Amazon Web Services, Microsoft, and SAP. Ellison noted that Oracle can now provide rather high performance at a dramatically lower cost than competitors. As customers evaluate the movement of millions of Oracle databases to Oracle Cloud, Ellison anticipates that Oracle PaaS and IaaS will eventually surpass the company’s SaaS business. Here again, Oracle’s broader strategy of software and hardware has the potential to bear significant market traction. Hurd indicated to analysts:

This is an example where we have talked about before, we take our Oracle cloud machine and we are able now to do all of that with them on their premise and give them all the benefits of the cloud, we manage, we patch, we basically run the cloud for them and we help them get all of that done.”

Final Note

Oracle obviously has additional work ahead, both in making the business case for existing on-premise ERP and applications customers to initiate their path to the Cloud, along with continued focused messaging directly to line-of-business teams on the business benefits of moving to the Cloud. But, the fact remains that momentum is clearly part of Oracle’s favor at this point. We highlighted the database technology aspects for our readers, because line-of-business and supply chain focused IT groups are in various stages of evaluating whether to transition to Cloud-based databases, as well as which strategic vendors provide the more compelling business case in performance, user acceptance and lifetime cost. We still do not observe senior Oracle executives directly citing Oracle Supply Chain Cloud uptake and we will work to share those numbers with readers in a subsequent posting.

For any new enterprise or supply chain focused technologies, increased customer adoption momentum is a rather important metric. This week, Oracle’s announced performance was all about such momentum, with an indication that its broad market strategy of software, infrastructure and services is drawing attention.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

Disclosure: Oracle is currently a client of The Ferrari Consulting and Research Group, operators of the Supply Chain Matters blog. The author does not hold any Oracle stock holdings.


The Tech Twist to the Amazon-Whole Foods Acquisition

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Over the coming days Supply Chain Matters will feature both our own and invited guest commentaries regarding last week’s blockbuster announcement that Amazon intends to acquire the Whole Foods grocery chain for $13.7 billion.

In this posting, we update our readers on rather interesting added developments, to state the obvious. Whole Foods Austin The Tech Twist to the Amazon Whole Foods Acquisition

A report published by The Wall Street Journal, Get Off Amazon’s Cloud, (Paid subscription required) once again reinforces the extent of the cutthroat competition that Wal-Mart and other retailers now have with Amazon. The report indicates that Wal-Mart is instructing software and other technology suppliers to the global chain to refrain from utilizing Amazon Web Services (AWS) as the backbone Cloud platform. The report notes:

Wal-Mart , loath to give any business to Amazon, said it keeps most of its data on its own servers and uses services from emerging AWS competitors, such as Microsoft Corp’s Azure.”

That is certainly an unexpected boost for Microsoft as well as AWS competitors such as Oracle, Blue Cloud, IBM and others. Other technology providers catering to retailer software technology needs further confirmed specific retailer requests to prefer Cloud platforms other than Amazon’s.  We have similarly heard of such concerns shared by certain vendors in their retail customer interactions.

The concern is access to sensitive customer or other fulfillment or supply chain related data. That makes sense. However, AWS, along with other Cloud platform vendors must adhere to certain regional and global data security standards associated with certification standards. But that is not going to appease retailers who after last week’s announcement, are not going to trust anything related to Amazon supported services.

The obvious benefactors are software and Cloud applications providers catering to retail industry needs who elected to outsource Cloud infrastructure to providers other than AWS. That would include B2B Business Network and EDI messaging support providers as well as transportation and logistics Cloud-based providers. After today’s WSJ report, product marketing teams of Cloud infrastructure platform provider will likely re-double their efforts for targeting retail industry, including all its supporting elements.

Another Whole Foods Suitor?

While on the subject of Wal-Mart, JP Morgan indicated in an investment advisory that this retailer is likely the only other retail chain that can make a counter-bid to acquire Whole Foods, but there are likely other overriding factors such as clashing corporate cultures, Whole Foods customer whiplash and a potential bidding war with Amazon that would likely make such a move unlikely.

A posting published by Business Insider provides added details of the JP Morgan analysis. The sum total of the JP Morgan argument is why play defense when it’s better to stick to offense:

Given Walmart’s 20%+ share in grocery, why should the company spend $14B+ on what it’s already good at (selling food via brick-and-mortar) when the money instead could be used to expand and improve Jet.com and Walmart.com? Jet.com is Walmart’s urban/millennial alternative to Amazon Prime, and Walmart.com is in many ways the ‘forgotten man’s’ alternative to Prime.”

From our lens, that is a powerful argument and a likely indication that there will not be a counter bid.

Many of the post-announcement opinion commentaries speculate what Amazon will do to leverage a well-respected grocery retail chain.  From our lens, we advise readers to consider all the supply chain, customer fulfillment and customer intelligence capabilities of Amazon applied to a leveraged online and physical retail grocery presence. Picture a Whole Foods store augmented with an added, automated customer fulfillment storeroom complete with Kiva robots sorting and staging online orders for parking lot pick-up. Think of the possibilities of the virtual Amazon fulfillment button affixed in our kitchens that electronically transmits the grocery shopping list to an online order available for one-hour pickup.

The possibilities are endless and the threat is real.

Stay tuned for continuing commentary.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


SAP Announces Key Executive Leadership Changes

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Last week, SAP SE announced changes to its high-level Executive Board which from our lens, provides evidence of changing strategies, business focus and possible succession planning in the months to come. An important insight to the meaning of these moves is likely the title of the press release: “SAP Promotes Proven Leaders to Strengthen the Company.” (our bolding)

According to the announcement, two existing senior executives, Robert Enslin and Bernd Leukert now have expanded leadership portfolios and likely additional oversight over the integration of SAP’s Cloud-based technology strategies. In addition, the Supervisory Board of SAP has named two other executives to be new members of the Executive Board.

Enslin, the head of Global Customer Operations, was designated to be president of the new Cloud Business Group which will oversee SAP Ariba, SAP Fieldglass, Concur, SAP SuccessFactors, SAP Hybris and the SAP SMB Solutions Group organizations.  That obviously implies singular leadership and accountability of all of SAP’s prior Cloud-based acquisitions in addition to the SMB business. Enslin has consistently been a rising executive star in the SAP sales organization and a long-time confidant of CEO Bill McDermott who also rose from the field leadership ranks. By our lens, the move most likely implies more consistent and focused go-to-market and selling strategies across the entire SAP Cloud portfolio as well as stepped-up efforts for strategic integration of technology components.

Leukert, a 23-year veteran of SAP and prior CTO and head of Products and Innovation now has an expanded leadership portfolio to accelerate “SAP’s platform and digital transformation strategy.” SAP describes Leukert’s responsibilities to include the entire technological foundation of all of SAP’s products as well as application development for lines of business. In addition, Leukert heads strategic innovation and new growth opportunities in areas such as Internet of Things (IoT), Industry 4.0, and SAP S/4HANA. He is also responsible for leading design and user experience for all SAP applications. Our readers might be interested to know that Leukert once had SAP supply chain development experience serving as vice president for installed base development in supply chain management, including in-memory database technologies in 2011. Since 2011, he has been responsible for development of SAP Business Suite and the SAP Business One application. In other words, he has been the go-to executive for addressing and coalescing technical development strategies during his tenure.

In conjunction with these latest technical leadership moves, SAP Cloud Platform executive Bjoern Goerke was appointed to be CTO for SAP, reporting to Leukert. According to the announcement, Goerke will be tasked with advancing the company’s technology strategy and serve as a key external spokesperson.

The fill the void created by Enslin’s singular leadership of the Cloud Business unit, SAP named two female senior executives, Adaire Fox-Martin, and Jennifer Morgan, to the Executive Board. From our lens, these are long overdue moves to balance out a traditionally male-dominated leadership body. However, the Executive Board’s prior track record with female co-leaders has not been all that stellar, and we trust that will change with these latest moves. Both executives are noted in co-presidency roles of Global Customer Operations, overseeing all SAP regions. Fox-Martin will oversee EMEA and Greater China while Morgan will oversee the Americas and Asia-Pacific-Japan regions.

Those that are familiar with SAP sales organizations probably know that it can at times, be a stressful and competitive environment, thus two female executives rising to the Executive Board is a good sign. Consider that McDermott originally cut his teeth in leading SAP’s North America and then Americas field groups.

An additional move was current EMEA President Franck Cohen appointed to the role of Chief Commercial Officer to lead SAP’s channel business

Steve Singh, president of Business Networks and Applications, who came to SAP with the Concur Technologies acquisition will leave SAP at the end of this month. Singh will reportedly return to his start-up roots outside of SAP.

These executive changes come just prior to SAP’s report of Q1 financial performance and of annual SAP Sapphire and ASUG customer conference held in May.

Similar to last year, SAP customers can likely anticipate another round of unifying messages centered on more cohesive technology adoption strategies, easier means to adopt SAP applications and technology, and perhaps a clearer articulation of business and technology strategy moving forward, especially concerning SAP S4/HANA.

The key for customers and supply chain technology teams is to key-in on these two specific executives with the broadest portfolios as to their stated goals and actions now and in the months to come.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Supply Chain Matters Attendance at Oracle Modern Supply Chain Experience Conference- Part Five Summary Impressions

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Supply Chain Matters has been attending the Oracle Modern Supply Chain Experience conference being held this week in San Jose California, drawing over 2800 attendees.  OracleSCME 2 Supply Chain Matters Attendance at Oracle Modern Supply Chain Experience Conference  Part Five Summary Impressions

In our Part One posting, we provided some highlights from the first’s day’s keynotes.

On our Part Two posting, we shared impressions of the Oracle S&OP Cloud application currently in-development.

Our Part Three posting provided highlights of the second day’s keynotes that were focused on future dimensions of transformation.

In Part Four, I shared impressions related to supply chain related transformation, and how this conference again reinforced the increased external forces of change impacting many industry supply chains.

In this final conference wrap-up commentary, we share, in no particular order, our takeaway impressions from the various sessions and conversations we were able to participate in this week.

Let’s begin with attendance, namely upwards of 2800 attendees at a supply chain management information technology focused conference. That ladies and gentlemen, is quite extraordinary and significant.  And yes, for those cynics out there, not all wore Oracle on their conference badge. Our sense from various conference Q&A and attendee indicators during sessions, many came to learn and better educate their organizations on Oracle’s evolving platform and applications strategies related to the broad umbrella of processes within supply chain management and to the implications of Cloud.

While we once were critical of Oracle regarding our perception of a slow, somewhat glacial development pace involving Oracle SCM Cloud, this week’s event demonstrated much more momentum that is underway, including the new Cloud S&OP application highlighted in our Part Two commentary. Attendees were informed that over 1300 customers are now on various transition paths involved with Oracle SCM Cloud, which is a doubling of last year’s number. Attendees further witnessed a real-time manifestation of the development release dynamic in one of the on-stage keynotes.  Oracle CEO Safra Katz was featured in a fireside chat format, and among her many remarks to the audience, she indicated that one of the company’s key strategic goals was to implement Oracle SCM Cloud within the company’s hardware manufacturing operations by the end of this calendar year. To that end, she indicated her view that development has to deliver at faster pace. That should have resonated with IT and systems implementation attendees. When joined onstage by Cindy Reese, Senior Vice President of Worldwide Operations, both acknowledged a little sweating and concern to make the December implementation milestone, but that in the end, it will get done. We highlight this since we felt attendees should have perceived that even Oracle internal operations teams are not immune to new technology implementation and change management dynamics. Reese indicated to the audience that her teams needed the Cloud based technology because they could not execute required supply chain process changes needing to get done with the existing Oracle E-Business Suite capabilities. “The architecture is so much simpler than EBS and the built-in analytics of Cloud is a huge benefit for our supply planners.  It’s a game changer.”

Supply Chain Matters will keep a keen eye on Oracle’s own implementation and hopefully have some added updates for readers.

We sat in on an Oracle Procurement solution roadmap update session and learned that Oracle will begin to partner with E2open in extending procurement process needs across a B2B network. In fact, there was another session at the conference to educate attendees on the initial phases. This is noteworthy and bears watching.

We planned our agenda to attend as many customer focused sessions as we could. Besides the theme of increased external business change that we shared in Part Four, we noted further common themes reflecting that upgrading of existing behind-the-firewall applications has indeed been determined to be too disruptive for many supply chain organizations. That has led to the motivation of customers to begin to either pilot elements of SCM Cloud, begin efforts to develop strategies for phasing into Cloud, or gather more education and feedback from Oracle customers and partners on best strategies to take advantage of what Cloud can provide over the coming months. This is different than last year’s conference in that customers appear to be more engaged in various levels of active interest. Obviously, this implies a critical phase for Oracle in assuring that pilot customers have what they need to insure successful current and future phases of SCM Cloud.

One of the albeit, indirect benefits of Oracle’s full embodiment of Cloud is the development work being performed in improving the user level productivity and interfaces of existing licensed Oracle E-Business Suite, Oracle Procurement, and Oracle Advanced Supply Chain Planning (ASCP) applications.  Most all the roadmap sessions we attended regarding these application suites made mention of improved user interfaces and user productivity enhancements. They occurred because a lot of the functionality had to be moved to Cloud instances as well, which implied needs to improve both. Such efforts were further high on the priority lists of Oracle customer advisory teams, and hopefully, will yield a win-win for both camps.

This author was impressed with Oracle’s ongoing efforts to provide deeper analytics and more predictive decision making support features in many of the Cloud based applications. This is bound to pay dividends for customers.

Before closing this Modern Supply Chain Conference impressions commentary, we would be remiss in not complimenting Oracle’s SCM conference planning team in once again, granting the opportunity for more than 120 university students majoring in supply chain management to attend and participate in a Future Supply Chain Leaders tract of sessions. This year, an invitation was also extended to select students from Design Tech High School, a free public charter high school, authorized by the San Mateo Union High School District, that includes co-sponsorship from Oracle and eventual physical presence on the Oracle headquarters campus. We declared last year that this was a great way to garner interest levels in careers in supply chain management and we again urge other tech providers to consider such efforts.

Oracle CEO Safra Katz also chaired a Woman in Supply Chain Management luncheon, and we heard some great feedback regarding the value of that event.

Conference organizers should further be complimented in taking to heart attendee feedback from previous year’s events. They asked for more customer focused educational sessions and more opportunities for peer networking and exchange. Again, from our observations, that seem to be accomplished. We were also a bit tired of previous endless sessions of a solution marketing context. This year’s sessions were more advisory and educational.

We leave the conference with upwards of 20 pages of notes, and we will continue to feature more Oracle focused blog commentaries on a monthly cadence.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


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