In our prior Supply Chain Matters briefing, this author provided initial highlights and takeaways regarding important shifts in strategy that came out of this week’s SAP Sapphire customer conference. In this particular posting I want to briefly contrast recent enterprise software conference we have covered to highlight contrasting messages regarding customer needs.
As was noted regarding SAP 2016 Sapphire, the primary message delivered was Empathy for customer needs along with yet another commitment toward simplicity and openness to customer needs for faster and far more affordable technology deployment. SAP was forced into this posture because customer’s are making their voice heard and our demanding more attention to their particular needs and requirements for technology deployment.
At Oracle’s 2015 Open World customer conference held in October, Co-CEO Mark Hurd’s keynote address reflected solely on the current challenges and needs of today’s business leaders. Hurd noted the average CEO tenure is 4.5 years, and the overwhelming emphasis is performing quickly to survive. The pressures to take out costs, grown revenues and profitability is constant and that is translated across lines of business and supporting operations such as the supply chain. Further noted is that the average ERP application is 22 years old, namely pre-Internet, pre-Cloud, and pre-social applications. Businesses are frustrated in their ability to update such scope of technology because of the concern for business disruption and added costs, what Hurd described as “ERP Fatigue.” Because of that, the majority of IT budgets today are consumed by maintaining existing technology vs. investing in new technology. All of this is translated into by Hurd into Oracle’s ongoing ten year transition into becoming a predominant Cloud based applications, database and IT infrastructure provider dedicated to supporting the widest variety of customer technology adoption, deployment and ongoing support needs up to and including consuming IT needs in public utility type model. Founder and CTO Larry Ellison described the new era of utility computing as big as when PC’s arrived in the IT landscape, with more and more workloads destined to the Cloud. He also acknowledged that Oracle’s Fusion deployment took upwards of ten years because of the engineering efforts required, but at the same time, during this transition, all existing Oracle applications both legacy and acquired were supported by Oracle to assure a continuity of responsive support.
QAD which is focused on mid-market manufacturing and multi-tier ERP support needs conducted its Explore 2016 customer conference in May. Since 2012, QAD has been investing a hefty R&D budget directed at a major revamp of the firm’s ERP applications and technology deployment strategy which includes emphasis on enabling what this technology provider terms a more effective organization with more connected business processes. The emphasis articulated was listening to customer needs for providing more standardized solutions, a more flexible platform that included suite-wide analytics, along with product enhancements directed at augmenting program/project management, manufacturing automation and customer engagement needs. Another major emphasis requested by customers was in enhancing the user experience and in providing more flexible Cloud ERP and Cloud EDI deployment options. What impressed this analyst was the flexibility of options that QAD is providing its customers. Instead of a forced march approach compelling customers to move to the Cloud, QAD has fostered options to both maintain existing behind-the-firewall applications and deploy extensions of Cloud based applications within an overall cohesive systems architecture framework. The strategy extends through additional years with multiple on-ramps and deployment options.
And so it continues with many other new or existing behind the firewall and now Cloud based technology disruptors today, large or small. The emphasis is clearly focused on addressing customer needs and business requirements for faster, far less disruptive and more cost affordable technology enablement.
The days of a software customer conference focused on marketing buzz, the latest cool new technology or service are no longer being tolerated. Customers demand and insist on responsiveness to their needs, support and ever changing business need requirements. While IT remains influential, lines-of-business and senior operational executives are now the prime buyer influence and there are no legacy allegiances to enterprise software vendor lock-up. The focus is clearly what you can do for my business, when will you get it done and how will you save our business additional money and resources.
Most important of all, the notion of ongoing trust and business partnership has once again renewed itself, especially when it includes placing computing and decision-support needs in the Cloud.
The notion for never trusting what a software salesperson communicates or promises has transcended to seeking technology partners that completely understand the customer’s business needs and are willing to be a continuous responsive partner to those needs.
© Copyright 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved
Latest Enterprise Technology Vendor Financial Results Point to Differences in Cloud Based Adoption Momentum
It should be no secret that most enterprise information technology vendors have embraced cloud-based applications and technology as a dominant strategic direction. The reasons are obvious and compelling. They are the key to customer and long-term revenue and profitability growth. Recent quarterly financial performance reporting from key enterprise technology providers such as IBM, Microsoft, Oracle and SAP provide indications on business strategies gaining more customer attraction as well as market momentum.
In a prior Supply Chain Matters commentary, The Value Proposition of Cloud Computing is Broader in Scope and in Business Implications, we observed that cloud-based platforms and applications provide businesses with added flexibilities in their technology and software requirement needs. Businesses remain under compelling pressures to respond to rapidly changing market needs and at the same time, continue to reduce costs. That includes the ongoing costs of IT, where studies continually reinforce that 50-75 percent of costs stem from maintaining existing IT infrastructure or business software applications. Rather than expending additional capital investments for IT hardware, infrastructure and applications support needs, cloud-based platforms provide a more attractive financial model that is more attuned to ongoing operational growth or adjustment needs. As noted, why settle for business process innovation that can cycle in intervals of 5 years or more, when an option of technology releases every 6 months are available? Cloud based technology implementation can also be less disruptive to ongoing business operations since adoption involves a singular, consistent cloud-based application and support model.
For enterprise and other technology providers, cloud-based offerings are becoming a very strategic growth aspect, affording such vendors a more recurring, subscription based revenue stream that can provide more predictable revenue and profitability stream.
The ongoing open question remains in strategy and ongoing execution.
In their latest quarterly financial reporting, both IBM and Microsoft reported setbacks in anticipated cloud based revenue growth. The latter was somewhat of a surprise, since Microsoft’s Cloud based growth trajectory had shown consistently positive growth. IBM on the other hand, by our lens, continues to have an ongoing execution problem in bringing Cloud based technology and applications to market on a more timely and compelling basis. IBM’s cloud-based strategy remains a work-in-progress while its legacy services businesses remain a drag on revenue and profitability growth.
A far more interesting contrast, one perhaps more of interest to our blog readers is that of Oracle and SAP.
The latest SAP financial performance release features the headline of first quarter non-IFRS Cloud subscriptions and support revenue growth of 33 percent at constant currencies on a year over year basis. The Walldorf Germany based technology provider reported what it termed as a solid 23 percent growth in new Cloud based bookings equating to roughly $165 million in new cloud-based revenue in the first quarter. Further declared was that the total of cloud subscriptions and support along with software support revenues (we interpret that to mean all software support) reached a 69 percent share of total revenues in Q1.
The financial report additionally cites SAP S/4HANA customer momentum in the quarter adding more than 500 customers of which 30 percent are described as new customers. By our lens, the wording smacks more of a marketing brief since there is still a lot of confusion relative to the overall composition and deployment needs of S4 HANA, particularly from an overall end-to-end supply chain support perspective.
Meanwhile, SAP’s bread and butter software license revenues fell 13 percent with the implication that the conversion to a predominant Cloud-based services business model remains somewhat of a challenge. An evidence point relates to sales and marketing expenses which have grown 5 percent year over year.
In mid-March, Oracle reported fiscal Q3 2016 results for the quarter ending in February and Supply Chain Matters featured key highlights and takeaways. The headline was that Cloud software as a service (SaaS) and platform as a service (PaaS) revenues were up 61 percent at constant currencies while total Cloud revenues were $735 million, up 44 percent in constant currencies.
Our calculation of the total of Cloud subscriptions and support added to total customer support revenues equate to 76 percent share of Oracle’s total revenues in the February ending quarter. That would imply that Oracle’s broader strategy of support for both IT infrastructure and various software applications may indeed be garnering increased momentum.
Once more, Oracle has placed more emphasis on the amount of customers that have gone live with various Cloud based infrastructure and applications. Oracle states that it had more than 250 customers go-live on Fusion SaaS HCM and Fusion ERP in Q3 alone. Oracle further declares nearly 2000 Fusion ERP customers thus far, ten times that of Workday. Equating that number to a prior Oracle industry analyst briefing declaring 1500 Oracle Cloud ERP customers at the end of fiscal Q2, implies another 500 customers on-board in the latest quarter.
Right now it’s difficult to equate that to equivalent SAP S/4 HANA total customers to-date since reporting by SAP is elusive. Oracle Fusion ERP does contain some basic supply chain business process support. As we have noted in prior commentaries, Oracle has developed, by our lens, one of the broadest cross-functional SCM public-cloud based applications currently available in the market.
Thus, our scanning the latest financial results of select enterprise technology vendors, our assessment is that Oracle’s broader Cloud product support strategy coupled with more integrated sales execution is indeed paying off in added market momentum.
Rest assured, this remains an ongoing competitive battle, and more evidence will need to come forward. However, from an overall Cloud based supply chain business process support perspective, we continue to believe that Oracle provides broader and clearer options for Cloud based benefits in addressing both IT cost reduction needs as well as flexibility in cloud-based applications deployment either in private or public Cloud based deployments.
© 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
Disclosure: Oracle is a client of the Ferrari Consulting and Research Group, the parent of the Supply Chain Matters blog.
Enterprise software and technology provider Oracle reported fiscal Q3 financial results this week and the headline was increased growth in cloud based revenues and customer pipeline amidst continued currency headwinds.
Financial highlights of the quarter included:
- Total Revenues of $9.0 billion, down 3 percent in U.S. dollars and up 1 percent in constant currency.
- Operating income of $3.0 billion down $.4 billion or 11 percent from the year earlier period.
- Cloud plus On-Premise Software Revenues of $7.1 billion, down 1 percent in U.S. dollars and up 3 percent in constant currency.
- Cloud software as a service (SaaS) and platform as a service (PaaS) revenues of $583 million, up 57 percent in U.S. dollars and up 61 percent in constant currency.
- Cloud infrastructure as a service (IaaS) revenues of $152 million, down 2 percent in U.S. dollars and up 2 percent in constant currency.
- Total On-Premise Software Revenues of $6.3 billion down 4 percent in U.S. dollars and unchanged in constant currency.
- Total Hardware Revenues of $1.1 billion, down 13 percent in U.S. dollars and down 8 percent in constant currency.
Behind the numbers is a technology company transforming itself to take advantage of an ongoing generational shift of technology deployment, namely that of a broad based offering of Cloud based technology, IT infrastructure and applications support.
In a Supply Chain Matters published commentary in January, we observed that the overall value-proposition of Cloud based computing is much broader than actual software applications. So much so that Oracle remains convinced that wide-scale adoption of Cloud is an unstoppable force.
The vendor’s broad spectrum of Cloud based technology now spans everything from hosting an entire computing, networking and data management infrastructure to various enterprise suite applications that can either run on the Cloud or behind the firewall. The performance numbers highlighted in the latest quarterly results would seem to point to the building market momentum not only in deals but in pipeline interest. Oracle executives reported to equity analysts that bookings for SaaS/PaaS deals grew 77 percent in the quarter on top of the 129 percent increase reported in fiscal Q2.
In the earnings press release, Oracle Chairmen and CTO Larry Ellison declares that Oracle is now selling more enterprise SaaS and PaaS revenue deals than any other technology company including Salesforce.com. Such a statement needs to be independently verified by multiple analysts, it does however reflect increased attraction to these new paradigms of computing. In today’s more challenging business climate, broad Cloud based technology deployment options provide more business flexibility in capacity and scalability with operating and maintenance costs more aligned to technology usage on an annual basis. The potential is for the entire IT infrastructure to flex or adjust with growth patterns of the business
As noted in our other recent Oracle focused commentaries, the enterprise technology provider has also recently announced the availability of Oracle SCM Cloud, a rather broad-based product suite available on a public cloud-based platform. This Cloud based suite includes integrated functionality support that spans product lifecycle management, supply chain planning, procurement, customer fulfillment, transportation, warehousing as well as manufacturing management.
While it may well be too early to assess how this new suite is being viewed by prospects and customers, in the earnings briefing, Oracle executives indicated that the Oracle Cloud ERP application that includes basic supply chain management and procurement support recorded sales to 334 customers in Q3, 175 of which did not have Oracle on premise ERP systems before that purchased. An Oracle industry analyst briefing in December indicated 1500 Cloud ERP customers at the end of fiscal Q2, thus the overall number is approaching near the 2000 mark.
The close association of ERP to broader needs in PLM, supply chain management and manufacturing process support may be an indication that cross-selling opportunities may already be building. Oracle refers to this as the cross-pillar approach, where customers may start with Cloud HCM and ultimately move to broader support Cloud ERP and Cloud SCM deployments.
A final observation related to Oracle’s latest financial results reflects on sales execution. In prior briefings, Oracle has stressed that its sales teams have been trained to be more focused on targeting line-of-business and functional business challenges and technology needs. From our lens, that effort may be paying added dividends.
We plan to provide a reader update on Oracle ERP Cloud and SCM Cloud early deployment adoption before June.
Disclosure: Oracle is a client of the Ferrari Consulting and Research Group, the parent of the Supply Chain Matters® blog.
Last week this author attended Oracle’s Modern Supply Chain Experience conference held in San Jose California. This conference is hosted annually by Oracle, and provides a singular focus on broad supply chain related technology and business process topics. Attendance this year was impressive, upwards of 2000 attendees from multiple industry settings.
I had the opportunity to participate in two different panel discussions. One was the role of sustainability in the modern supply chain. Our panel was moderated by Rich Kroes, Director, and Sustainability Strategy at Oracle and included two other panelists besides myself: Jon Chorley, Chief Sustainability Officer and Group Vice President, SCM Product Strategy at Oracle and James Ayoub, a student at Penn State University.
To its credit, Oracle sponsored the attendance of nearly 80 students from various supply chain management programs both in the local area and across the country. These students were afforded the opportunity to attend general sessions, a dedicated set of student focused session tracks as well as participate in a panel discussion, including our sustainability panel. Our sincere thanks and shout-out to Oracle for their generous outreach and support, was of the first that this author has witnessed from a specific technology company.
Our sustainability panel touched upon various topics regarding how sustainability is manifesting itself across industry supply chains.
On Supply Chain Matters, we have highlighted industry supply chain efforts dating back to at least our founding in 2008. While some initiatives have stemmed from regulatory directives and requirements such as REACH across chemical focused supply chains, RoHS within high tech, or Conflict Materials, others have been spawned from aggressive and committed corporate sustainability goal setting. Many global corporations have declared carbon reduction and sustainability goals mapped to specific timelines and much of the facilitation or enablement of such goals originates specifically within supply chains because product value-chains are responsible for a considerable portion of carbon and greenhouse gas emissions. Consider the carbon emissions footprint of transportation and logistics, manufacturing or agricultural production for example.
Many Consumer Products and Food producers such as Procter & Gamble, Nestle and Unilever and others are recognized for their wide reaching efforts for incorporating sustainability in business strategy. Beverage companies such as Coca Cola, PepsiCo and SAB recognize that large consumption of water is a critical component of a sustainability strategy. They have each appointed senior managers responsible for water conservation and sustainability initiatives that insure supplies of water are continuous.
High profile manufacturers in the high tech and consumer electronics sector such as Apple, Dell, Hewlett Packard and others have always been on the forefront of sustainability initiatives. Across various other industries, innovators have been openly active and committed to sustainability efforts because it drives benefits.
Consumers and customers have in-turn, continued to actively support brands that demonstrate a commitment to sustainability and preserving our planet. James Ayoub was very articulate in expressing how consumers of his millennial generation care about their environment and factor buying and loyalty decisions based on the reputation of the brand in active sustainability efforts. James further shared highlights of internship efforts in supporting corporate initiatives in this area as well as how Penn State’s supply chain management programs and academic instructors weave sustainability into the curriculum.
Jon Chorley noted the dual role of Oracle in the area of sustainability, first as a corporate citizen and in providing technology that supports the management and tracking of such efforts. Having inherited a high tech manufacturing supply chain from the past acquisition of Sun Microsystems, Oracle inherited a high tech manufacturing value-chain with many opportunities for continued efforts in sustainability. As Chorley exclaimed to the audience, it makes good business sense to have sustainability weaved into business strategy in four impactful dimensions:
- Innovation- both product and process focused and in supply and value-chains that become self-sustainable
- Enhancing the Brand– Consumers and customers making their buying decisions not only on product form and function but on the brand’s commitment to sustainability and combating climate change.
- Strategy and Stockholder Value– Sustainability efforts insure strategic continuity of supply of commodities, raw materials and natural resources. They insure that a firm has plans and strategies that can support long-term competitiveness and industry leadership.
- Cost– in carbon and missions reductions that save our planet and in the monetary costs of materials, processes, product packaging and movement of goods.
I also had the opportunity to share with our audience my perceptions of the potential industry supply chain impacts from the recent Paris climate agreement. In December, 195 nations became parties to the Paris Climate Agreement (COP21) that commits to holding the increase in global average temperature below 2 degrees Centigrade (3.6 degrees F) above pre-industrial levels and to pursue efforts to limit temperature increase to no more than 1.5 Celsius above pre-industrial levels.
Whereas the prior Doha Agreement among 37 nations, the new Paris Agreement addresses climate change challenges after 2020. The Paris Agreement further represents the first time that such a large portion of the global countries have explicitly declared that the existence of climate change and heighted greenhouse emissions provides global risk.
From the accounts that I have read, the implication of this Agreement reflect clear messages that much of the globe’s remaining reserves of coal, oil and gas must stay in the ground. Reduction of deforestation must become global-wide priority.
The implications of such goals are yet to be fully understood by industry and supply chain audiences. One European based research firm declared that supply chain mitigation initiatives will be the Number 2 most effective strategy for achieving COP21 commitments.
Our panel concluded with thoughts that under COP21, industry supply chain involvement in sustainability has little choice but to move into a mandatory stage. Think of all the ships, railways, trucks and equipment that make-up the global movement of goods. Think about current manufacturing, assembly and farming processes primarily powered by fossil fuels and you begin to get a sense of the seriousness of this next stage. Businesses and their associated supply chains must take on a more implicit responsibility to act in ways never before, in with innovation of a large scale.
Thus, vision and leadership among both public and private sectors is now a must and critical for alignment of efforts in joint investment, in policy, in rewards and in penalties. Because supply chains are intrinsically global in scope, there will be requirements for far broader collaboration within and across industries, suppliers and service provider communities to overcome these new challenges.
I very much enjoyed discussing such an important topic with my fellow panelists and I thank Oracle for the opportunity as well as the commitment to the topic of sustainability.
© 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
What is the business value proposition for adopting a Cloud computing strategy? In this Supply Chain Matters commentary, we wanted to dwell somewhat on the implications of a full Cloud suite in supporting broad supply chain business process needs.
This author just completed nearly two days of briefings and conference presentations related to Oracle’s Cloud based technology offerings. The first day included a full day of industry analyst briefings that updated us to the latest product strategies and customer interest levels generated by end-to-end Cloud suite offerings. The second day included attending Oracle’s Cloud Computing roadshow that has been touring across the U.S. and other countries.
As previously highlighted in our nuggets from Oracle Open World 2015, this enterprise technology vendor is convinced that wide-scale adoption of Cloud is an unstoppable force. So much so, that Oracle has released a broad spectrum of Cloud based technology that spans everything from hosting an entire computing, networking and data management infrastructure to various enterprise suite applications that can either run on the Cloud or behind the firewall. This includes the Oracle SCM Cloud suite that supports end-to end supply chain business processes that span planning, procurement, product lifecycle management, order fulfillment, transportation and warehousing. A Cloud based manufacturing management suite focused on discrete manufacturing process support has been added this month.
One specific area brought forward in the analyst briefings was the compelling pressures that today’s businesses are struggling with. Oracle CEO Mark Hurd is a masterful communicator of such pressures. More demanding customers, new industry disruptors and relentless pressures to reduce costs and increase productivity abound. I’m fairly sure that readers can relate to the environment described.
According to Oracle, thus far, many of the early adopters of the provider’s Cloud based technology offerings are indeed would-be industry disruptors or up and coming businesses. Rather than adopt an overhead structure that includes owned data centers and IT infrastructure along with supply chain, procurement or product management applications developed years ago, before today’s globally extended supply chains, they instead appear eager to adopt a different pay-and-adopt- as-you-go structure that offers flexibility to needs.
Think about that!
An industry disruptor with lower overhead, infinite flexibility to add technology when needed, and not burdened by supply chain applications that are too disruptive and far too expensive to upgrade. Instead, supply chain functional and line-of-business teams have turn to opportunistic strategies to augment problem business processes, more often adopting a singular Cloud based application. The problem with this strategy is that while it addresses specific one-time process needs, it risks another Cloud-based island of information needing future information integration when other processes and/or applications change.
Another compelling business trend is that all corporate functions are under enormous pressures to reduce costs. That includes IT where studies consistently reinforce that 50-75 percent of costs stem from maintaining existing IT infrastructure or business software applications. Thus at every annual budget cycle, IT executives must present cost avoidance alternatives. In large businesses, IT is often classified as a corporate-wide service that evokes a tax burden on various lines-of-business and functions such as supply chain operations. Throw in frustrations relative to on premise business applications that were designed prior to today’s changed business and supply chain frameworks and the pressure to change is somewhat more compelling.
For emerging businesses, a Cloud based adoption strategy that can avoid being locked into a cost intensive IT infrastructure or acquiring software that will receive little daily use makes more practical sense. The analogy is why buy an automobile and pay for daily operation and maintenance when you can rent by the hour or day.
The takeaway for supply chain and line-of-business teams is to not dismiss Cloud based technology adoption as just more technology vendor hype. That may be short-sighted; Cloud is rather a response to growing industry frustrations related to today’s IT technology cost and service challenges.
Another takeaway is to view a Cloud based technology strategy from the perspective of a broader focus on an engineered suite of pre-integrated software applications that are continually updated to reflect changing business needs. Why settle for business application innovation every 1-2 years when every 6 months is an option, and with lower capital and overhead costs.
It is a compelling argument and one that from this author’s lens, will permanently change the technology landscape sooner rather than later.
Copyright 2016. The Supply Chain Matters® blog and The Ferrari Consulting and Research Group. All rights reserved.