Industry Analyst firm Gartner has issued a new advisory, namely that CIO’s and their IT teams must take action to address the fast-approaching reality of ‘legacy ERP’. According to Gartner’s latest prediction, by 2016: “heavily customized ERP (Enterprise Resource Planning) implementations will be routinely referred to as ‘legacy ERP. CIO’s and application leaders must take action to address the fast-approaching reality of ‘legacy ERP.’”
Pause for a moment and reflect on the above statements. The analyst firm that first introduced the applications IT market to the concepts and benefits of Enterprise Resource Planning systems along with the rating of capabilities among ERP vendors so many short years ago is now raising warning flags for technology end-users. A Gartner Vice President observes: ”The need for agility and responsiveness has led highly customized ERP implementations to an impasse, creating a subset of legacy ERP installations that must be dealt with constructively.” Similarly, analyst firm IDC has been strongly urging IT vendors to concentrate all future applications development on the so-termed “Third Platform” namely cloud, mobile and business intelligence enabled applications.
From our experience within the industry analyst world, that is the clearest acknowledgement by the traditional analyst firms that traditional ERP platforms and applications are struggling to keep pace with supporting required business change utilizing legacy behind-the-firewall applications. Keep in mind that these same analyst firms garner significant revenues from ERP vendor clients but must advise multitudes of end-users.
Most in the supply chain and B2B fulfillment community who have had any experience with information systems or transformation initiatives have long discovered the obstacles and pain levels associated to highly customized ERP systems. Customization becomes a significant obstacle to timely business process innovation not to mention the heartburn for streamlining information flows and decision-making. Legacy ERP was constructed with the design principle of inside-out control, but today’s businesses are faced with the challenge of outside-in information, planning and decision-making needs.
IT leaders who follow Gartner’s research may recall that a couple years ago, the analyst firm articulated three layers of systems innovation:
Systems of Record (presumed to be legacy ERP systems)
Systems of Innovation (presumed to be best-of-breed or cloud-based point solutionbs_
Systems of Engagement (presumed to be extensions social based systems in the concepts of Facebook, Linked-In, Twitter and others)
A new reality is occurring however, at a far more rapid pace. Business and supply chain functional teams are stepping-up to accept more time-phased accountability for delivering required business outcomes or dynamically responding to ever changing business process requirements. Accountability includes more responsibility in IT applications funding and selection. The CIO and his/her IT teams have similar strategic needs to accelerate the pace of business innovation but also reduce the legacy IT infrastructure costs.
As noted in Prediction Ten of our 2014 Predictions for Global Supply Chains, the fate of technology investments now rest in the hands of business and supply chain teams, with the counsel and assistance of IT. The days of multi-year, highly disruptive IT transformation has been subsumed by highly targeted business process initiatives directed at phasing-in continuous improvement capabilities toward a desired business end-goal.
Gartner, IDC and indeed ourselves in our advisories are acknowledging the reality of today’s IT landscape, namely that continuous innovation and faster time to business value dominate the C-level agenda. Leveraging the technologies of cloud and mobile computing, deeper business analytics and faster decision-making processes are increasingly looked upon as systems of innovation and engagement enablers.
Need more evidence.
SAP, a major player in ERP, announced to its investors that it has elected to forgo previous profitability goals for the next two years in order to accelerate development efforts to transform its business suite of applications to better leverage cloud platforms. Co-CEO Bill McDermott told investors: “we have bold ambitions in the cloud.” Bloomberg reports: “SAP is searching for a balance between expanding cloud-software offerings and safeguarding its mainstay license business.”
Similarly, Oracle has been aggressively investing in cloud offering through both acquisition and internal development as are many other ERP providers.
In today’s new normal of business, industry competitiveness is predicated on seizing market, product and services opportunities quicker and faster than competitors. The new realities of business imply a globally based supplier and trading partner ecosystem bringing increased dimensions of complexity, scope of control and risk. The IT applications landscape supporting end-to-end supply chain business process innovation will benefit from the rapidly changing applications development trends being enabled by today’s cloud, mobile and analytics technologies.
Heed the growing evidence that highly customized ERP systems are headed toward legacy status and systems of innovation, engagement and deeper supply-chain-wide intelligence and insights should be your organization’s priority.
© 2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog. All rights reserved.
Last week, enterprise software vendor Oracle reported slightly increased revenues and profits for its fiscal Q2 financial results, and the implication remains for much higher Wall Street expectations for the company.
Revenues for the November ended fiscal quarter climbed a mere 2 percent while net income declined by 1.1 percent.
All-important software license and cloud subscription revenues slightly declined by 0.4 percent, which now reflects nearly 8 quarters of less than 5 percent revenue growth. However, Oracle management indicated that bookings for cloud-based applications actually increased by 35 percent and that the cloud-based provider will continue to compete aggressively among rivals in this market segment. To support that claim, the company forecasted between a 2 percent and 12 percent revenue increase from new software sales and subscriptions in this current quarter, which overlaps with customer’s calendar year closing quarters.
Prior to the earnings announcement, two Wall Street research firms, Jeffries and RBC Capital, released bearish comments regarding Oracle, lowering full year revenue forecasts for the company. The firms question increased competition in the database segment as well as increased competition from cloud providers Salesforce.com and Workday.
Supply Chain Matters is of the viewpoint that competition in the entire enterprise software and cloud-based software segment will greatly intensify in 2014 as the larger vendor’s battle for all-important market-share dominance. They all need to convince investors of the long-term growth and profitability aspects of this business model, especially in the light of the billions spent on acquisitions of multiple smaller cloud-based providers. IBM, SAP and other enterprise vendors have not exactly impressed investors with blowout revenues and earnings.
Last week, Oracle additionally announced that it had acquired email marketing automation provider Responsys Inc. for $1.5 billion, at roughly a 38 percent premium over the then current listed stock price. There has been strong speculation that other vendors including SAP were also looking at the company. Oracle had previously acquired Eloqua, another cloud-based player in the marketing automation segment.
As a whole, the large enterprise software vendors need to step-up their game in integrating all of their cloud-based acquisition prizes into the most attractive value-proposition for customers. That may include aggressive pricing and discounting to gain market-share hold.
The debacle that has consumed the implementation and rollout of the U.S. government’s Affordable Care Act and its website, healthcare.gov is not directly associated with supply chain business processes but then again, we can certainly extract the learning when one considers large-scale ERP or online fulfillment systems implementations.
Perhaps our readers, especially our IT audience have been keeping-up with the saga of the information-technology development and service providers pointing the finger at one another as to the initial dismal response of the healthcare.gov web site. This author can certainly relate to this saga and our IT focused readers can relate all too well. Upon following the events, this author questions the original plan for cross-vendor program management as well as the overall system’s scalability and operational testing. However, what really caught our eye yesterday was a report from Bloomberg that indicates that the U.S. government has now drafted the external assistance of some tech heavyweights.
According to Bloomberg, the U.S. government has enlisted computer engineers and programmers from Google, Red Hat, Oracle and other information technology companies to assist in remediation efforts. It’s a literal, all hands on deck effort, and is being directed by a newly appointed overall project director. Reports indicate that overall project management has been realigned with UnitedHealthcare Group’s Quality Software Services unit now overseeing the entire operation.
Bloomberg cites names such as Michael Dickerson, a site reliability engineer on leave from Google who is working on improving the stability of the web site, Greg Gershman, innovation director at Moborno is assisting on improving agility of the development process. Even Larry Ellison of Oracle has offered his company’s technical and database engineering resources to aide in remediation efforts.
Here’s the learning, at least thus far.
When a major systems implementation is in trouble, stop hiding the reality. This is the era of social and the Internet, and news travels rather quickly, in spite of any efforts to spin-up a different story.
Next, bring in the real experts, those that have demonstrated proven skills in large-scale systems development and implementation, and bring them in when the obvious is concluded- the system has a major problem. If you’re the President of the United States, and your signature program is in trouble, you have the opportunity to call on the best tech minds, engineers and developers to assist, and that seems to now be happening.
By our view, healthcare.gov will get fixed, the question is when, at what cost, and at what political fallout. This is somewhat akin to a large-scale ERP implementation or online commerce systems implementation, only far more visible.
Recently, ERP technology providers have rushed to take advantage of today’s buyer preferences for adoption of more cloud-based applications that can surgically be inserted to support specific business processes. They effect of that strategy has come home to roost for the major players.
This week, SAP AG reported a 23 percent increase in third-quarter profits but the winds of currency and buyer preferences impacted the growth of software license revenues. Total revenues climbed a mere 2 percent to slightly over €4 billion, compared with a 14 percent growth rate a year earlier. According to business media reports, revenues for the company’s core software licensing businesses actually decreased by 5 percent overall, including 13 percent in the Americas and 9 percent in the Asia regions. License sales in the EMEA region increased by 8 percent. Cloud subscription revenues more than doubled in the quarter to €191 million and claims to have 33 million cloud subscribers. Looking toward its final quarter, SAP executives forecasted an overall 10 percent excluding currency fluctuations. That would imply an aggressive sales effort in the very important upcoming final fiscal quarter.
In mid-September, rival Oracle also reported a mere 2 percent increase its fiscal first quarter revenues, continuing its trend of two challenging quarters of revenue growth. Oracle does not breakout its revenues for cloud based application and indicated that revenue from the combination of new application software licenses and cloud subscriptions grew 5 percent in the quarter. First quarter profits rose to approximately $2.2 billion, compared with just over $2 billion a year earlier. Looking forward to the remainder of the fiscal year, Oracle indicated that combined software application and cloud subscription revenues growth would range from a negative 4 percent to a gain of 6 percent in constant currency, a rather wide range.
ERP vendors have a special challenge, they have to convince customers that their current cloud computing offerings have a more compelling value proposition that those of existing best-of-breed cloud-based vendors. Recent cloud-focused acquisitions have had a slower record of integration with existing applications with elongated timetables, and that probably accounts for why buyers are shopping the field.
The other more subtle challenges is that ERP vendors have built a legacy of staffing and overhead directed at supporting traditional direct sales of applications while cloud-based sales are more developed by longer-term relationship selling.
Supply Chain Matters is wrapping up our attendance at this year’s Oracle OpenWorld , not necessarily our overall impressions. We will provide our summary impressions posting early next week after assimilating all of the information we have gathered.
Readers can view our previous event postings by clicking below:
As we prepare for a flight back to the office, we will share a few additional impressions garnered over these past days.
- In his keynote, President Mark Hurd boasted that Oracle continues to invest $5 billion in product development and research. That is a significant sum for an enterprise software and technology company, especially in the current era of financial engineering of corporate balance sheets. In the case of Oracle, the company affirms that this development removes the burden of customers to engineer their solution needs. Many of the blizzard of products announcements made at this year’s conference were most likely a result of that investment. The question is do customers really care? After listening in on a large panel of select Oracle customers, it appears clear that customers do care and now demand that technology vendors do the heavy lifting for integration and seamlessness of implementation. That should be a message to other technology vendors as well.
- Continuing on that theme, we continue to be impressed at how mature technology and software customers have become. While vendors can continue with glossy PowerPoints announcing the next big solution for business processes, customers are now inclined toward show me the evidence and let me talk with those who have implemented the solution. That is good news for all, tech and industry alike.
- Make no mistake that Oracle’s strategy is focused on being the big tech disruptor. What was announced this week will motivate further tech industry developments, although Oracle refuses to publically declare pricing of these new products. There were some potentially profound database and underlying infrastructure product announcements made at this year’s OpenWorld, which should manifest themselves in supply chain, B2B, procurement, online fulfillment and predictive analytics capabilities in the weeks and months to come. That will be goodness.
- The trash talking between Oracle and SAP on who has the best database and information analysis platform once again broke out after just a day of OpenWorld. What we are clearly hearing from customers, particular business and functional in role is they do not give a damn who’s platform is better. They have business challenges to solve most very day and where technology can overcome that challenge in speed, cost , agility and cost of ownership, than that is where they will invest.
- We continue to applaud Oracle’s efforts to offer influencers full access to customers, either in panels or customer sessions. Not all software vendors are that open.
- Our most favorite session this year concerned Oracle allowing 11 of the brightest computer user interface professionals this author has ever witnessed to demonstrate some of the most mind-blowing yet elegant concepts in presenting large volumes of information on mobile devices. It was awesome and exciting to view what is coming in technology.
Finally, we extend our sincere thanks to the Oracle internal and external corporate communications teams, especially Karen Hartquist for going the extra mile to make our visit to OracleWorld productive and meaningful. They were all dedicated and helpful.
For this particular commentary we focus on Oracle’s family of supply chain management applications.
Somewhat similar to SAP, Oracle umbrellas the leadership of its supply chain development umbrella to include a wide swath of related support applications. That includes supply chain planning, warehouse and transportation execution, supplier collaboration, procurement, product lifecycle management (PLM) and business intelligence. The addition of the procurement side is rather new, transferring from the financial applications and PeopleSoft side, and perhaps a strong indication of deeper support for direct materials and broad-based supplier network procurement business process needs. Having such a wide swath reinforces the need for technology support to span the complete value-chain requirements from product introduction to product retirement, and from order to cash.
As noted in our previous commentary, for this author, this will be my eight OpenWorld conference and thus I provide a historic context. As the industry analyst for AMR Research in 2000-2001, I introduced the market and clients to the initial capabilities of Oracle’s then supply chain planning suite. A lot has transpired since then.
Value Chain Planning (VCP) within the Oracle E-Business Suite is now much more mainstream in customer adoption. One of the most strategically important acquisitions for the VCP team was that of Demantra, which has now garnered lots of customer acclaim in demand sensing, S&OP process and other product demand facing business process support needs. Adding more reinforcement, I had the opportunity to sit-in on a customer panel of four VCP customers at this event and walked away with the impression that this suite of applications is now being deployed in far broader vertical industry settings, such as oil and gas equipment and complex discrete, and delivering discernible value. The same can be stated for the warehouse management and transportation side, and the previous strategic acquisition of G-Log. The addition of the new Release 12.2 of Oracle E-Business Suite with its Online Patching features to support high availability application needs will certainly add more capability for VCP and broader supply chain focused customers.
Moving forward, Oracle’s supply chain umbrella will likely take two dimensions, the above noted suite of behind-the-firewall application support capabilities and the new generation of Fusion Supply Chain Management cloud-based applications. Our commentary from last year’s OpenWorld noted a rather thin and fuzzy timetable related to Fusion Supply Chain Management. A year later, some progress has been made in Distributed Order Orchestration and Order Promising, along with some compelling features within Fusion Master Data Management. The future timetable now includes new features manufacturing execution, lifecycle PLM and other areas. The missing link to the previous fuzzy timetable we believe was the need for further Oracle-wide developments in engineering the cloud-based infrastructure and middleware components including in-memory row and columnar database processing and a switchable cloud database as well as other developments. Now that the infrastructure side of Oracle is reaching the pinnacle of its efforts, the applications side must now crank-up its efforts and demonstrate to customers how cloud-based applications can be more appealing.
By our view, Oracle has all of the elements to enable both a supply chain control tower form of capabilities along with deep predictive analytics applied to supply chain resource planning needs. However, cranking the applications development side of Oracle has its own set of challenges. We’ll see what the future holds.