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.
Supply Chain Matters is very pleased to announce and welcome as our newest Named sponsor, LLamasoft Inc.
LLamasoft’s is a supply chain technology innovator focused on hard-core predictive and prescriptive analytics, and their software is used across the globe in every major industry to enable continuous supply chain design. This Editor and independent supply chain industry analyst has been following the stellar growth of this software provider since its founding, and LLamasoft’s market prominence remains impressive. In fact, in each of the last four years LLamasoft has been recognized on the Deloitte Fast 500 as the fastest-growing supply chain software company in North America.
After the initial release of its flagship product Supply Chain Guru in 2002, LLamasoft has substantially increased its market presence. It was the first company to offer supply chain simulation technology alongside numerous optimization approaches (network, multi-echelon inventory, production, capacity, product flow-path, cost-to-serve, etc.) to enable better analysis of time, variability, and risk. LLamasoft was also an early leader in the “green” supply chain movement by offering a fully integrated greenhouse gas emission modeling capability. In 2012 LLamasoft launched its transportation optimization tool, and numerous other product developments and innovations led to its 2014 launch of SupplyChainGuru.com, the first cloud-based supply chain design platform and DataGuru, a first of its kind data blending and connectivity application.
In 2015 LLamasoft announced the acquisition of the IBM LogicTools suite, as well as the Barloworld supply chain software division which included the CAST and Optimiza network design and planning products. In that same year the company received a $50 million capital investment from Goldman Sachs for accelerated development and growth initiatives.
Headquartered in Ann Arbor, Michigan, and with offices across the globe, LLamasoft remains an active leader and innovator in supply chain excellence and innovation, advancing technology focused on continuous improvement of enterprise supply chains involving a variety of well recognized enterprises. Today, over 50 percent of Fortune 100 member supply chains are designed with LLamasoft technology.
In conjunction with LLamasoft’s sponsorship, Supply Chain Matters will be featuring over the next 6 months an updated market education series of commentaries related to supply chain wide visibility. This is an area consistently cited by many supply chain leaders as a continued perplexing challenge. It is an area that includes the need for a unified source of supply chain planning and fulfillment information with data that is accurate, consistent and cleansed. It requires a data streaming effort that can be leveraged by supplemental applications that support data visualization, analytics and enhanced and more-timely decision-making.
In our forthcoming market education series Supply Chain Matters will address the foundational aspects and business process foundations of extended supply chain visibility. We will further address information technology considerations as well as critical success factors, change management and key learning derived from various industry initiatives in this area.
Join me in welcoming LLamasoft as our new sponsor of supply chain wide visibility thought leadership. For more information regarding this innovative technology provider, readers are encouraged to visit the LLamasoft web site.
Founder and Executive Editor
April brings about the kickoff of spring industry and technology focused conferences and briefing sessions for industry analysts including this independent supply chain industry analyst. Over the coming weeks I will be attending and sharing impressions a number of venues and events.
This week, I was invited to attend the Open Text 2016 Industry Analyst Event held in a Boston. Some of our readers that may not be directly familiar with Open Text which categories itself as an Enterprise Information Management (EIM) technology support provider. However, they may be supporting their supply chain messaging and transactional needs from this vendor’s technology network.
Readers who have been following our Supply Chain Matters commentaries focused on end-to-end supply chain network technology platforms may recall GXS. In a 2012 commentary, this Editor declared GXS as a hidden gem in B2B information services. This company’s heritage stemmed from the late sixties with its initial founding as General Electric Information Services (GEIS) providing computer time-sharing to general users, migrating to support value-added network (VAN) services such as EDI for both GE and external clients. By 1998, GEIS’s global electronic trading community exceeded 100,000 trading partners, and in 2002, the renamed GXS was spun out as an independent technology services provider purchased by venture capital firms Francisco Partners and Norwest Venture Partners.
In 2005, GXS was provided the opportunity to acquire the former IBM EDI and Business Exchange Services network. In 2010, GXS also acquired a company called Inovis, which we later highlighted for its innovative B2B collaborative process support potential.
By 2011, this B2B services provider had garnered over 40,000 network clients including 75 percent of Fortune 500 customers. At the time, GXS direct materials and associated services networks were reportedly processing over 12 billion transactions representing a highly significant dollar volume of electronic commerce. In 2013, its network was renamed the GXS Trading Grid. Yet in all this time, GXS struggled to deliver robust profitability growth.
In November of 2013, GXS was acquired by Open Text for an estimated $1.2 billion, roughly 2.4 times GXS Fiscal 2012 revenues. The stated goal of the acquisition was to combine OpenText’s Information Exchange capabilities with GXS’s portfolio of B2B managed and integration services.
Since that time, we have monitored ongoing progress from a B2B supply chain network lens.
In June of 2014, this author scribed his impressions from the Open Text Industry Analyst briefing event. In summary, I had walked away with many open questions regarding the broad scope the strategy, and specifically, more concentrated strategy and emphasis on further leveraging B2B supply chain and specific manufacturing and retail industry and emerging online commerce support.
I purposely stayed away from the 2015 briefing event, but elected to attend this year’s event to ascertain progress in B2B supply chain network focused areas.
Because of current time constraints, I will refrain from a detailed commentary as to specifics. I can however share that the strategy is finally showing promise, one that brings together the tenets of EIM in the dimensions of supply chain messaging, managed services, business process management and deeper network-focused analytics.
In conjunction with this week’s Analyst event, Open Text formally announced OpenText Release 16, what the vendor describes as the most comprehensive, integrated digital information platform. OpenText Release 16 consists of two separate offerings, Open Text Suite 16 and Open Text Cloud 16, combined within a single platform that manages and analyzes the entire flow of information. In addition, OpenText Release 16 can be deployed on-premises, in the cloud or in hybrid cloud environments.
We learned that with Cloud 16, the GXS Trading Grid is renamed the Release 16 Business Network, and moves beyond information exchange will include support in process areas related to:
- Procure-to-pay information and transactional management
- Logistics track and trace
- Trading partner digitization and analytics
- Electronic invoicing and Ecommerce needs
- Supply chain analytics
Of further interest is planned introduction of what is termed as Supply Chain Activity Index, an analytical based aggregate view of the B2B network, and 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.
As for now, this analyst is modifying his prior impressions. Open Text may indeed be on the road towards addressing the various complex and fast-changing requirements for supporting today’s globally extended B2B business process networks. It is far more than messaging and EDI support.
Open Text may well have capabilities of interest from the perspective of a B2B network as a Digital Platform that exchanges various forms of mission critical transactional or regulatory information. While this development remains somewhat a continued work-in-progress, Open Text Suite 16 provides some promising opportunities for certain industry sectors, especially business networks supporting regulated business process requirements or those struggling with expanding needs to support unique content for various online customer fulfillment channels.
This analyst will provide added details at a later date along with continued assessment commentaries related to Open Text Suite 16 and its B2B supply chain business network development and product release efforts. In the meantime, if readers have specific questions, send us an email or call.
© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.
This Editor was recently alerted to a blog posting penned by Anders Remneback appearing on The Innovators Solution blog hosted by supply chain planning software provider ToolsGroup. We are bringing this to the attention of our Supply Chain Matters readers because of its timeliness to the increasing complexity involved in planning an Omni-channel focused supply chain.
This posting, What’s wrong with ABC inventory classification?, explains why traditional ABC inventory planning process methodology, which is anchored in an operational or logistics planning perspective lacks a connection to customer fulfillment or sales and marketing needs. In this context, the author helps the reader to differentiate what is often termed to be “inventory management” vs. “inventory optimization.”
Inventory optimization techniques allow the flexibility in the use of what is termed “service classes” which in essence are customer fulfillment service needs. Inventory optimization techniques in essence, calculate “stock-to- service” curves, optimizing individual service and safety stock levels to an SKU location. As noted by the author:
“The inventory optimization software automatically calculates a service level for every SKU-Location that aggregates to the total service level target for the overall service class, achieving “service level optimization“.”
This argument is especially pertinent to producers of consumer focused goods which are increasingly being planned for Omni-channel fulfillment. As we have pointed out to readers, online Omni-channel needs are driving a new wave of SKU (item level) proliferation explosion because of the needs of various fulfillment channels. Trying to plan such landscapes with traditional ABC inventory management techniques is sub-optimal and inefficient in terms of overall inventory management. This is especially pertinent for retailers attempting to fulfill customer needs from a centralized inventory management approach, one that balances inventory needs for both traditional brick-and-mortar retail as well as online channel needs.
Once more, with today’s increasing advancements and cost efficiencies in in-memory and database streaming technologies, multi-echelon inventory optimization technology can be far more affordable from certain software vendors and is increasingly being integrated into supply chain planning application suites.
A final observation to share is the following. Many supply chain organizations that adopted supply chain planning software in the past opted to deploy heuristics vs. full optimization techniques. At the time, the reasons were perhaps justified in terms of supply chain profile, overall size of planning data to be managed along with technology skills adaptability at the time. Many organizations felt that heuristics based planning techniques would be more supportive of more response based planning processes, those which adopt a continuous net-change planning approach.
This author is of the view that such practices should be re-examined, especially in the light of multi-echelon inventory optimization vs. generalized inventory management and replenishment. The new world of Omni-channel fulfillment brings its own set of customer fulfillment service goal attainment, overall inventory investment and gross margin goals for any line-of-business. Generalized planning without the use of targeted optimization coupled with more predictive analytics simply will not suffice in Omni-channel fulfillment.
The pace of advancement related to additive manufacturing and 3D printing techniques has been literally amazing. Today, printing technology provider Stratasys announced what it describes as a new historical milestone and game changer in 3D printing.
The company announced the introduction of the Stratasys J750,a multi-color, multi-material series of 3D printing technology. According to the announcement, this printer allows product designers to choose from more than 360,000 different color shades plus multiple material properties ranging from rigid, flexible and opaque or transparent. Printed product prototypes can now include a vast array of color combinations, materials and material properties in the same part.
The provider claims that the new technology can streamline the overall time that new products are initially designed, prototyped and brought to market. New technology includes features that minimize material changeovers by utilization of larger material capacity and by keeping most-used resins loaded and ready for printing. A streamlined workflow is also incorporated. According to the company, simulated production of plastics can be 3D printed in half the time of the company’s prior printers.
Initial industry applications are related to consumer focused product supply chains. As noted in the photo of the press release, the notions of a custom made consumer product printed in multiple colors or materials is at-hand.
From our Supply Chain Matters lens, the implication of this announcement is that the pace of technology development in 3D printing techniques continues beyond initial limitations with continuing implications for more accelerated time-to-market and new product introduction cycles.