subscribe: Posts | Comments | Email

Contrasting Information Technology Vendor Transitions to Cloud Based Computing Needs

0 comments

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.

Bob Ferrari

© Copyright 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All Rights Reserved.


Supply Chain Matters Impressions of IDC Directions 2016 Conference

Comments Off on Supply Chain Matters Impressions of IDC Directions 2016 Conference

This Editor had the opportunity to attend Directions 2016, the annual conference of top-tier industry analyst firm IDC. The overall theme of this conference, which primarily caters to information technology applications, services and integration providers, was: Digital Transformation At-Scale, and the keynote sessions delivered some important messages regarding that theme.

Overall, IDC stressed that the growth of what the analyst firm terms as Third Platform technologies, namely Cloud, Mobile, Big Data, and Analytics Driven Decision-Making, if trending far higher than previously predicted. In fact, the revised prediction delivered to the audience was that by 2018, 100 percent of leading-edge technologies and services will be deployed on some form of these Third Platform technologies. IDC’s original projection cited the year 2020 for this milestone.

Further, according to IDC, the two technologies that are fueling the accelerated uptake are applications and services supported by Internet of Things (IoT) technologies, and by Cognitive and Artificial Intelligence deep learning technologies were lots of data are analyzed for more predictive or prescriptive decision-making needs. Regarding the latter Cognitive/AI dimension, IDC predicted upwards of 50X growth by 2018.

Another key message reinforced was that larger portions of IT investment budgets remain in the control of Line-of-Business (LOB) executives and supporting teams. Bob Parker, IDC Group Vice President flatly stated that Digital Transformation is a business strategy, not a technical adoption strategy. IDC views Digital Transformation increasingly as a Board level initiative that flows down to LOB units for timeline implementation. IT is now viewed as a LOB partner in Digital Transformation, performing the roles of facilitator of innovation and technology adoption as well as that of project management.

Three areas of mastery were described by Parker:

  • Mastery of Relationships which include Reach-Relevancy- Reciprocity conversations involving customer needs, relationships and support.
  • Mastery of Operations that include Scale-Scope-Speed of customer fulfillment and service needs
  • Mastery of Information that include the Syntax-Semantics-Socialization of information

IDC Senior Vice President Vernon Taylor referred IoT as the game changer for Digital Transformation, citing that IoT will be the accelerant that will fuel all other Third Platform technologies including Cognitive and AI technology needs. In terms of market, IDC now predicts that the total available IoT market segment will surpass $1.46 trillion by 2020. To no surprise, IDC views Manufacturing industry as a large opportunity segment with Discrete Manufacturing IoT applications growing at an 11 percent compounded annual growth rate (CAGR) through 2020, and Process Manufacturing at a predicted 9 percent CAGR. According to IDC, Retail Industry IoT applications are currently leading the way on adoption curves.

Regarding IoT initiatives, IDC believes that the proof-of-concept stage has passed. Instead, IDC now provides definitions of efforts in successive process maturity categories of Experimenter, Explorer, Connector, Strategist, and Disruptor.

A final observation we wanted to share with Supply Chain Matters readers are definitions of systems maturity and purpose. Recall that several years ago, analyst firm Gartner 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 solutions)

Systems of Engagement (presumed to be extensions social based systems in the concepts of Facebook, Linked-In, Twitter and others)

At this year’s Directions, IDC is now advising IT providers to focus on “Systems of Intelligence”, system that provide the organization faster, more-informed. And more context referenced decision-making capability that brings together physical sensor, structured transactional, unstructured social and all other forms of data and information that creates higher levels of analytics-based decision-making. As an example, IDC views a System of Intelligence as a system that integrates smart things that increase the value of the business decision. Regarding Essential Guidance related to IoT, IDC recommends building IoT applications that embrace Systems of Intelligence and actively plan for both vertically as well as horizontally driven approaches.

This Editor tends to like this evolving IDC connotation regarding a focus on intelligence and more predictive decision-making.  It adds a far more meaningful context to directional setting and required capability, one that we have been articulating in our market education commentaries.

Bob Ferrari

 


Some Quantification of the Potential Impact of the Tianjin Port Warehouse Explosions

Comments Off on Some Quantification of the Potential Impact of the Tianjin Port Warehouse Explosions

There has been much reporting within social and business media regarding the potential industry supply chain disruptive effects of the recent massive warehouse explosions that affected the facilities adjacent to the Port of Tianjin.

It is rather important and crucial that industry supply chain and sales and operations team obtain meaningful and insightful information regarding what is happening on the ground as well as the potential short or long-term supply chain impacts, if any.

We at Supply Chain Matters are disappointed to observe that certain technology and service providers are attempting to utilize this tragic incident as a backdrop to product marketing outreach campaigns. Neither should technology providers suddenly become news outlets.

Not good ideas by our lens.

Supply chain technology providers should instead continue to educate on the benefits of the technology they provide and allow industry supply chain teams to receive clear, unfiltered and unbiased insights and information from informed and educated sources.

One of the better Tianjin perspectives Supply Chain Matters has reviewed to-date ia a published white paper: The Aftermath of the Tianjin Explosions: A Global Supply Chain Impact Analysis, authored by supply chain risk management provider Resilinc.

While this 24 page white paper does include some product marketing, along with requiring registration, the bulk of the report provides meaningful and insightful information related to potential immediate, near-term, medium and longer term supply chain impacts.

The paper concludes that the less apparent ripple effects of the warehouse explosions will be felt weeks, months and even years to come.

The paper provides meaningful background information regarding this vital logistics and manufacturing hub, which services industry needs of automotive, commercial aerospace, high-tech, petrochemical and general industrial manufacturing supply chains, among others. It further outlines important mapping of industrial manufacturing and supplier concentrations within close proximity of the explosions, based on a mapping of over 30 sites in a 2-10 mile radius of the blast.  Four large industrial zone districts are adjacent to the port, with the port serving as what is described as the largest free trade zone in northern China, and the second largest Vehicle Processing Center for importing and exporting of automobiles.

On the topic of near-term ripple effects, the Resilinc analysis predicts that extensive delays can be expected for most companies and sites moving products through Chinese ports as government agencies deal with the after-effects of a regulatory environment needing extra attention.

There are predictions that Tianjin port operations will only begin to resume normal operations by approximately mid-September, and that any containers now at the port will be inaccessible for the next two months, even if they are intact. Resilinc indicates that for any suppliers located within 2-15 miles of the explosions, companies may presume 12-16 weeks of delays.

Long-term impacts outlined related to the ripple effects of increased regulatory actions impacting certain industry sectors including the location and storage of goods near large population centers.

Regarding potential long-term impacts, the paper cites Chinese media as indicating the economic cost of Tianjin crisis could be as high as $8 billion.

If your organization is dependent on operations, logistics partners, suppliers or service providers in the Tianjin area, we recommend you review this report which can be accessed at the following Resilinc web link. (Some personal registration information required)

Bob Ferrari


The Marketing and Selling of Cloud-Based Technology

Comments Off on The Marketing and Selling of Cloud-Based Technology

In our previous Supply Chain Matters commentary, we called attention to the significant winds of change that are blowing across the high tech and consumer electronics industry. Much of this has to do with more rapid cycles of advanced technology including the advent of cloud-based software applications and IT infrastructure.

This author recently read a published Bloomberg Businessweek article that reported on the significant implications in selling cloud-based technology.  The article triggered me to share my observation and thoughts as to what is occurring in efforts related to the marketing and selling of supply chain, manufacturing, PLM and B2B business network support technology.

The Bloomberg article observes that classic sales techniques of setting high expectations for software, investing in numerous conferences and associated demo booths at industry conferences have become passé. Noted is that most technology buyers do their research online to ascertain the strengths and shortfalls of a particular application and/or vendor.  This author founded Supply Chain Matters for that specific purpose, and there are now other well recognized independent and unbiased sources providing online technology perspectives.  The days of traditional industry analyst firms, holding hostage with technology ratings and advisories is fast waning.

Bloomberg further notes: “The personality profile of the technology salesperson has shifted from aggressive and persistent to technical and smart.”

We could not agree more.

In my 16 plus years of observing and participating in the dynamics of positioning and selling information technology, I have witnessed many types of traditional sales personalities.  The profile often tended toward high energy, ego, social and aggressive. Traits included meeting and exceeding quota goals in spite of any barriers, garnering all forms of sales perks and selling the customer as much as possible. That sometimes called for last-minute super deals offered over the weekend at quarter-end. Those traits and requirements are definitely changing, perhaps for the better. Yet, some technology providers continue to hold to prior methods, constantly churning sales teams to seek the most aggressive performers.

More importantly, the selling of technology that will support mission critical business process needs reflected in many supply chain focused opportunities requires a consultative marketing and sales approach. It requires marketing and sales teams to fully understand both supply chain and B2B focused business process challenges, industry-specific nuances along with an awareness and full understanding of required line-of-business outcomes.  The prime buying audience of today’s cloud technology is functional and business teams, while IT teams provide architectural advice, counsel and input.

Consultative sales cycles related to cloud-based software can extend through many weeks and months, helping customers to gain initial proof-of-concept and early benefits, and later extending those benefits with broader scope deployments.  It is not a focus for seeking the 7 figure deal by end-of-quarter, but rather balancing customer sales cycles with required inbound revenue needs. Sales cycles are supported by industry and prospect education, continuous web-based content and ongoing interactions.

Building a trusted relationship with customer teams is thus essential. No longer can one just walk away to seek other opportunities. In essence, the marketing and sales model associated with cloud technology is akin to your neighborhood auto mechanic.  He or she knows all about the vehicle, continuously stays current with the latest technology, is willing to go the extra mile to help customers and strives to be always available in time of most need.

What about your perspective?  Do you feel cloud-based technology providers are adopting these new methods of interaction and support?

Bob Ferrari


Gartner Reports Robust Growth in 2014 Worldwide Supply Chain Management and Procurement Software Revenues

Comments Off on Gartner Reports Robust Growth in 2014 Worldwide Supply Chain Management and Procurement Software Revenues

In conjunction with its Supply Chain Executive Conference held this week, industry analyst firm Gartner reaffirmed a rather robust year of nearly 11 percent growth for supply chain and procurement software during 2014. Gartner estimated total revenues for SCM and procurement software to be $9.9 billion last year, outpacing other software market segments. The 2014 sizing of $9.9 billion reflects a nearly $1 billion increase from the Gartner $8.9 billion number reported for 2013 performance. The current 10.8 percent growth rate compares to the 7.3 percent growth reported for 2013. The fact that the pace increased by 3.5 percentage points is by our Supply Chain Matters lens, a reflection of a stepped-up emphasis in supply chain business and procurement process support needs.

Gartner again confirmed the overall fragmentation of this market segment which has continued by this author’s perspective, for the past 15 years. The top 10 vendors currently account for 55 percent of total market share, while the remaining 57 vendors tracked by Gartner account for the remaining share of the overall market. Gartner further reports that the average growth rate for remaining 57 vendors averaged nearly 10 percent, which is again, a very healthy growth performance.

As in the past, SAP and Oracle are again reported as the overall leaders of this market segment, followed by JDA Software (current Supply Chain Matters sponsor), Manhattan Associates and Epicor rounding out the top five revenue listing. We caution our readers to not be totally enamored by the SCM and procurement revenue numbers reported by both SAP and oracle since they are often internal estimates that are generated by each of these ERP providers vying for number one bragging rights. Neither reports such breakouts in their official financial reports to the investment community.

Double digit growth for this particular software segment is not at all unusual and reflects the continued importance that industry firms place on investing in supply chain capabilities. The most recent peak was in 2011 with a 12.2 percent growth rate. In its announcement, Gartner stated that: “The SCM and procurement software market experienced solid growth through sustained application demand, as supply chain remains a key source of competitive advantage in driving business growth objectives, such as improved customer satisfaction, greater business agility and operational improvements.” That statement seems understated.

From our discussions, client interactions and travels, we believe that the overwhelming complexity that is now impacting multiple manufacturing, retail and service focused industry supply chains has prompted needs for added technology support.

Bob Ferrari

Disclosure: JDA Software is one of other sponsors of the Supply Chain Matters blog.


« Previous Entries