Supply Chain Matters has continually provided our readers insights relative to the increased momentum and ongoing impact that Cloud based computing has had across multi-industry settings. Such impacts are not only quickly changing ongoing software and IT hardware deployment strategies for line-of-business and cross-functional supply chain management teams, but the financial fortunes of existing high-profile enterprise and IT technology vendors themselves. Cloud computing equates to lower margins but more recurring subscription-based revenues for technology firms and thus the transition has to managed skillfully.
Over the past week, three high profile tech vendors, IBM, Microsoft and SAP have announced their latest financial performance results with contrasting pictures related to transitions.
In in case of IBM, financial headlines from the results from the most recent quarter now reflect 17 continuous quarters of revenue declines. Revenue for Q2 dropped 2.8 percent while earnings fell nearly $1 billion. As readers may be aware, IBM continues to manage an ongoing shift to build new strategic businesses, termed strategic imperatives to drive growth while the tech vendor’s traditional business segment continue to decline.. Strategic imperatives include Cloud computing, analytics, artificial intelligence, security and mobile.
There was some good news however for IBM in that Cloud services revenues reportedly increased by 30 percent in the latest quarter, amounting to $3.4 billion. An additional 11 acquisitions were closed in the quarter, many focused on analytics and AI based capabilities. Within the supply chain applications segment, previous acquisitions have faltered and some have now been sold-off.
IBM’s former notion of building and deploying Smarter Commerce capabilities appears to be languishing. With the latest financial results, equity analysts and investors seem to be growing weary as to whether or when IBM can fully transition to the new wave of computing and information technology needs and deliver total revenue increases. In essence, IBM may be in a process of re-sizing itself.
On the other hand, Microsoft’s latest quarterly performance provides a different picture regarding managing the transition from on-premise to Cloud based computing. While total revenues declined a reported 7.1 percent In the vendor’s most recent fiscal fourth quarter, the company posted $3.1 billion in net income. The largest gains originated from Azure Cloud computing services with quarterly revenue amounting to $6.7 billion, growing a significant 102 percent on a year-over-year basis. In essence, as The Wall Street Journal concluded, Microsoft’s Cloud segment is growing while the Windows desktop and phone unit ae declining.
Microsoft is further moving aggressively in strategic partnerships with other technology and industry firms. At its recent Sapphire customer conference, SAP announced a strategic partnership with joint plans to deliver broad support for the SAP HANA® platform deployed on Azure and General Electric recently announced that it will partner with Microsoft in uniting their Cloud computing and analytics technologies in a partnership that will bring GE’s Predix IoT platform for the Industrial Internet to businesses running on Azure.
Speaking of SAP, earlier this week the German based enterprise software provider reported what the company termed as record revenues and profits yet the quarterly numbers seem otherwise. Second quarter total revenues increased 5.3 percent on a year-to-year basis while operating profit increased 81 percent to €1269 million. The company’s earnings news release was quick to highlight strong growth in the Cloud segment, as subscription and support revenue grew a reported 30 percent to €720 million. Further noted was: “The total of cloud subscriptions & support revenue and software support revenue reached 63% of total revenue in the second quarter of 2016, up one percentage point.” We portend to by no means be perceived as a financial specialist blog, but it would seem by reading the financial detail that SAP has lumped traditional software licenses and support revenue into a sub-category of Cloud and software that is termed “Predictable Revenue.” Albeit we will leave further interpretation up to the financial experts.
In its earnings press release, SAP indicates that it is significantly outpacing its main competitor in cloud and software revenue. We interpret the unnamed to be that of Oracle, which in June reported both fiscal 4th quarter and full year financial results. In our commentary related to Oracle we noted that Cloud based revenue in the quarter was $859 million, up 51 percent on a year-over-year basis. Additionally, Oracle’s strategies addressing Cloud are from our lens, far broader and currently incorporate not only database, applications and SaaS offerings but platform-as-a-service (PaaS) and infrastructure-as-a-service (IaaS) services as well. They include additional IT infrastructure hosting choices, either private (behind the firewall) or public for businesses in addition to applications. We further reiterate our assessment that Oracle is currently the only enterprise technology provider offering a full suite of supply chain and manufacturing applications available on a public or private cloud platform.
Thus we have different impacts and transitions occurring among enterprise software and technology providers and organizations and businesses need to read between the lines to discern which of these players has the most solid longer-term strategies. That would include support needs of businesses and organizations to seamlessly transform their computing and applications to more affordable and less disruptive Cloud platform choices. In some cases, that has led to aggressive and sometimes expensive acquisition strategies to springboard innovation and availability timetables. The other force is obviously the needs of stockholders and stakeholders to preserve both short and longer-term margins and profits.
In the middle of all of these efforts often resides boasting and marketing hype as to which Cloud platforms and strategies are the best for customers.
The transition and the effects will continue and businesses need to continue to do their homework in market education and vendor intelligence.
© Copyright 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All Rights Reserved.
In providing our Supply Chain Matters readership with market landscape education regarding technology supporting B2B business networks process needs, we have provided prior visibility to Canadian based technology services provider OpenText.
Last week, this analyst and executive editor had the opportunity to attend OpenText Enterprise World 2016, this vendor’s annual customer conference and we walked away with rather positive impressions regarding direction and services.
OpenText has now assimilated technology centered on three focused strategic areas which CEO and CTO Mark Barrenechea addressed in the conference opening keynote:
OpenText Enterprise Information Management (EIM) which is just about everything related to document and content management. Many SAP ERP users may or may not be familiar with the brand, but much of the document content exchanged within SAP applications is powered by OpenText including new iterations of SAP HANA and SAP S4HANA applications. Likewise, the vendor supports EIM needs for other ERP systems as well.
OpenText Business Network which is a B2B business network platform that supports EDI messaging, supplier and customer onboarding, purchase-to-pay transactional support and other growing managed services. The gem of this network is the 2013 acquisition of the GXS Trading Grid network with its genesis as the prior General Electric Information Services. In June of 2012 this author declared that GXS was the hidden gem in B2B information transfer and software services and that prediction continues to manifest itself.
OpenText Analytics which is the new evolving area for this provider, one that promises to harness insights and business decision support related to both EIM and Business Network operational and business information flows. This capability has become a new strategic thrust for the company, one that by our view can present a more visible player to the analytics and enterprise technology market.
Regarding the latter, Barrenechea provided two major product announcements in conjunction with the conference. The first was Project Bandaroo, a technology to be focused on the changing nature of work. It was described as bringing together OpenText Core, the vendor’s core Cloud platform for everything related to EIM, with other elements of social communities, channels, bots and project management. An on-stage demo outlined a scenario of working group interactions and discussion forums centered on specific information needs. From our lens, the concept seems interesting but needs more specifics related to actual business challenges. Timetable communicated was the second-half of 2017.
The second announcement related to Project Magellan which is described as a next generation cognitive platform being designed to integrate voice, video, natural language processing and other content. It was outlined as an open systems based platform that would leverage both the Spark Apache platform along with the analytics capabilities of Actuate, OpenText’s most recent acquisition focused on advanced analytics. Barrenechea was not shy in making a direct head-to-head technology comparison with the IBM Watson Cognitive platform and that his company will compete directly as an alternative platform in the market. From this author’s lens, this was a far more newsworthy announcement and one to keep an eye on in the coming months, especially since such technology can be applied to the OpenText Business Network. This capability is also planned for introduction in the second-half of 2017.
Regarding the Business Network, much more strategy and information was shared with conference attendees, information that we garnered from an April industry analyst event. Product managers declared that upwards of $7.4 trillion in commerce, the equivalent of 10 percent of world GDP, along with connections to 65,000 partners are currently supported by this network. Support encompasses 37 data centers across 18 countries and 25 satellites.
In addition to electronic transactional messaging (EDI), support is provided in the process areas of purchase-to-pay (P2P), order and shipment visibility and other business process areas. Evolved capabilities in a series of managed services for specific industries and customers continues to expand with an increase of over 200 customers in this segment alone since the acquisition of GXS. The audience was reminded that OpenText Business Network is currently positioned by Gartner in the Leaders Quadrant for B2B Business Networks.
Our on-site executive briefings not only provided more background to new functionality and services that are enabled by the latest OpenText Suite 16 product release but future capabilities being planned in the all-important area of supply chain wide analytics. Of further interest is the introduction of what is termed as Supply Chain Activity Index, an analytical based aggregate view of the B2B network, with forms of Business Process Management (BPM) support for processes that span the supply and value chain network. These two areas should really peak interest, depending on eventual design and functionality.
There was additional validation that support for SAP Ariba’s efforts to move beyond indirect procurement and support more direct materials procurement processes such as electronic invoicing and messaging will stem from OpenText Managed Network Services.
Our other impressions from this event include:
OpenText is indeed well on the road towards addressing the complex and fast-changing requirements for supporting globally-extended B2B networks beyond electronic messaging and EDI. Unfolding support in specific managed services and analytics areas are very promising as is the unfolding strategy of leveraging analytical capabilities to support network-wide decision-making.
An open question acknowledged by senior management is whether OpenText remains an infrastructure and Cloud services provider or moves more boldly into applications. This will be an area we keep an eye to in the coming months since there are pros and cons to either.
We are of the impression that OpenText senior management now understands the stand-alone nature and business value of OpenText Business Network in terms of an independent marketing persona of that of EIM that includes need for brand recognition within broader supply chain management functional audiences. Anticipate more concentrated efforts and visibility in this area.
Having the opportunity to attend many vendor conferences in any given year, this author can quickly extract a sense of overall management culture. Having now had direct 1:1 interaction with a number of OpenText senior executives at multiple events, we are impressed with their openness, sensitivity to customer and market needs and desire to make good on commitments. That was supported by some select customer interviews conducted. Once more, the company continues to reach out and hire and retain additional experienced talent. As an example, we were impressed with the technical savvy and communication skills of Actuate executives brought forward from that most recent acquisition.
As always, this analyst will provide continued assessment commentaries related to both Open Text and the broader B2B supply chain business network technology landscape. In the meantime, if readers have specific questions, send us an email or call.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
There has been quite a significant announcement related to Internet of Things (IoT) and Industrial Internet technologies, one that line of business, product management and manufacturing focused teams should pay close attention to.
General Electric announced that it will partner with Microsoft in uniting their Cloud computing and analytics technologies in a partnership that will bring GE’s Predix platform for the Industrial Internet to businesses running on Microsoft Azure. The parties indicate in the joint announcement that the combination of Predix with Azure will bridge GE’s industrial equipment and digital expertise in industry and manufacturing, and Microsoft’s forte in information technology. From the lens of this analyst, there are far more implications related to the all-important selection of a technology platform to power IoT initiatives.
This latest announcement bears significance because of selection of Microsoft itself. It is no secret that Microsoft technology has over the years become a dominant integrating technology within and across factory floors. Therefore, from my lens, the potential is the ability to link not only physical objects to business and supply chain business processes but further to connect the shop floor and manufacturing applications with operating assets as well. GE engineers and executives do due diligence very well and they are increasingly acted like an information technology provider with deep domain expertise in industrial equipment and expensive physical assets.
SAP focused readers may recall that at the recent SAP Sapphire conference, Microsoft and SAP also announced a strategic alliance to leverage Azure in the future development of more desktop and mobile applications as well as to provide extensibility of SAP applications to desktop, mobile, Cloud and analytics needs.
We believe that readers should view both of these alliance announcements as a strategy by Microsoft via its Azure platform to become a far more pertinent player as an IoT information and analytics platform. It further opens IoT efforts for the scope of mid-market equipment manufacturers where Microsoft technology is dominant.
In prior Supply Chain Matters commentaries we have called attention to GE as a manufacturer that is both a dominant player and first mover in IoT, but also a significant influencer as to which technology players will ultimately be key IoT participants. By recently opening up its Predix platform in its Digital Alliance program, GE is striving for Predix to become the Industrial Internet platform of choice. In our most recent blog related to GE Predix, I have stated:
“Make no mistake, the expanded (GE) Digital Alliance program is a wide swath initiative to build extensive influence and critical technology and development mass in the IoT marketspace.”
This week’s GE-Microsoft announcement adds far more credence to this intent. It is sure to invoke other responses from competing enterprise information, business applications and infrastructure technology providers. The announcement is indeed a big deal and this partnership merits lots of visibility and scrutiny over the coming months.
We will do our part to keep readers informed and in helping to connect events and implications. While the IoT focused industry remains in the early stages of more widespread IoT deployments, current actions center on how major enterprise, supply chain, industrial equipment and platform vendors converge on approach, since the current strategy is one of fostering platform and technology dominance.
This is great theatre one that will keep technology analysts busy and engaged in advisory modes. Insure that you acquire multiple opinions and viewpoints to determine how to position your organization or line of business perspectives related to planned IoT initiatives. Give us a call or send us an email if you require further assistance.
© Copyright 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
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
SAP’s 2016 Sapphire Customer Conference- Important Shifts in Strategy and a Clear Response to Voice of Customers
May represents the height of the spring conference season and these past two weeks have featured many, including SAP’s annual Sapphire and ASUG customer conference held in Orlando. Due to scheduling and other client commitments, this author did not travel to Orlando but did have the opportunity to view most of this year’s Sapphire keynotes.
As a supply chain and B2B industry analyst, as well as a former SAP supply chain management marketing director, I have attended and participated in many Sapphire events over the years. Each year brings a new set of messaging and often different personas related to SAP and its efforts to support customers as well as sell more technology and applications. In this posting I am going to share my first impressions from what I heard this year which I believe represent important shifts in strategy and a reflection that SAP customers are now the focal point for driving changes in ongoing technology strategies and not the other way around. The open question is whether such a shift will have a lasting presence.
The opening keynote address from SAP CEO Bill McDermott provided its usual surprises. The CEO openly admitted that he ditched his original keynote content 15 days before Sapphire. The reason cited was some pointed feedback received from customer CIO’s as well as from SAP Board members. Instead, the message was one of acknowledgement that SAP was not listening and responding to customer feedback. McDermott therefore declared that empathy would be the number one message delivered at Sapphire, “Empathy” for customer needs in technology adoption and to clearer roadmaps for the adoption of SAP’s newest business suite, SAP S4/HANA and other Cloud based applications and technologies. In fact, this and later keynotes provided some admission that SAP might have rushed SAP S4/HANA to market without deeper consideration on the overall impacts to customers from a number of dimensions. That is uncharacteristic of the SAP of ten years ago. In our Supply Chain Matters commentary in February of 2015, we reflected on the stated risks and implications of S4/HANA.
This analyst has experienced a similar frustration in that depending on who you talk to at SAP, you tend to often receive a different interpretation of an application’s support capabilities and roadmap. Finding the right person with specific knowledge remains a challenge and indeed, SAP employees are just as confused as customers- at least that act that way. An overall focus on revenue and profitability attainment has outdistanced sensitivity to the voice of customers.
Even more dramatic from my lens, McDermott flatly stated that he takes the issue of accountability personally and urged customers to email him directly if they were “not feeling the love from SAP.” A subsequent panel consisting of SAP line-of-business executives featured actions each executive is taking to assist customers in technology transformation, but this observer found such statements unconvincing and more related to marketing speak. McDermott declared that every major SAP engagement will have an executive sponsor accountable for customer results. Further declared was that SAP’s partners need to get on the bus as well, declaring that SAP requires that such partners will be required to adhere to a newly outlined value assurance pledge.
The takeaway is obviously a reflection that SAP and its partner ecosystem executives should now expect to be measured or rewarded on market responsiveness and meeting broader and more specific needs of customers. It is accountability time at SAP and that includes a delicate shifting from what SAP has desired in business outcomes to what it should have been, what SAP customers require and demand in their business process support needs and in supporting required outcomes in IT cost, adoption and flexibility.
In his 2015 book, SAP Nation-A Runaway Software Economy, Vinnie Mirchandani masterfully addressed his belief in what SAP needed to address to make its customers successful in their business and technology deployment goals. Included were specific observations on why other Cloud-based technology competitors have been able to gain attraction among the existing SAP customer base because of the building business pressures and frustrations over elongated development timelines, burdensome software and ongoing support costs. The consequence was described as a ring fence of applications that more and more, are surrounding SAP applications and that definitely includes technology supporting various procurement, manufacturing, supply chain and product management business process needs. As the adoption of Cloud computing continues to increase, the book opined that SAP runs the risk of becoming even more distant in understanding its customer business needs.
We again cite this reference because that is indeed what came to mind in listening to this year’s Sapphire keynotes. SAP customers are themselves making SAP change.
In a recent deal architect blog commentary, Vinnie has since opined: “… I am becoming more convinced the turnaround will not come from SAP or its partners, but from actions SAP’s customers take over the next few years.”
From my lens, what transpired this week at Sapphire was indeed the voice and influence of SAP’s customers in demanding that their business needs must be accommodated and that SAP will need to step-up its overall responsiveness to such needs. That is by far the most important takeaway of the 2016 Sapphire event.
Supply Chain Matters will feature some additional insights regarding the messaging and implications of this year’s Sapphire in subsequent postings.
© Copyright 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.