Some Problems Don’t Change

[ed. this is the CEO presentation from the HarrisData User Conference of May 22-25].

Logistics: The Soldier’s Perspective

“Troops in action should never have to turn their backs on the enemy to fetch further supplies”

“Troops should not be encumbered with supplies beyond immediate needs”

Lt General Henry S. Aurand, mid-1930s.

As we approach the Memorial Day holiday, it is appropriate to begin the presentation by honoring those who gave so much of their lives for all of us. You may note that the General and I share a name, this is no accident as I am his grandson.

Lt General Aurand was a logistics instructor at the War College in the 1930s. The problem facing army logistics then – ensuring enough supply of ammunition, food, and fuel to front line troops – is similar to the problem facing enterprises today as we focus on just in time production and lean supply chains – and is similar to the problem facing IT departments today as we supply decision makers with the key business intelligence they need when they need it. During the 1930s the General looked for ways to improve the Army’s ability to supply troops in the field, and on maneuvers in Louisiana saw a team from IBM using punch cards to manage steel inventory. It was not until 1944 as Commanding General of the Normandy Base Section that he could order punch cards used to manage inventory – and successfully distribute supplies to the forces liberating Europe.

IBM 917

Many of you have toured HarrisData offices and will recognize our old friend the IBM 917. This one is programmed as a four quarter annual list of the order history file – it is conveniently labeled via plastic tape. Should a friendly sales tax auditor from Minnesota stop by for a visit, you would send a memo to the good people in lab coats to reprogram the IBM 917 to create a list of sales history for Minnesota. Results could take weeks. A business person’s only alternative would be to take scissors and paste to the full printed list.

Programer Productivity Tools

By the 1970s things improved for the people in the data centers. The productivity tools shown (above) include an IBM RPG Debugging Template, an IBM Flowcharting Template, and a Pansophic Systems report layout ruler with a magnifying strip in the center. When combined with a modern keypunch – one which printed characters along the top of the card as shown above – a programmer could more rapidly produce or enhance a computer program such as the IBM System/3 one-up label program (the card deck in the clip) which is among HarrisData’s oldest intellectual property. It is much faster to insert a card to select only order history records from Minnesota than to write a new program. I still use the magnifying strip and flowchart template on occasion.

    Online Processing – aka “Green Screens”
    Client Server – aka “Blue Screen of Death”
    The Web
    Just in Time Production and Lean Supply Chains

The newer revolutions in data processing are listed without pictures – you can still find these in production today. The original online processing of the 80s featured green screens for data entry and report selections, but a business person would still need a visit to data processing to handle ad hoc requests like sales history from Minnesota to hand the sales tax auditor. With PCs the 90s brought client server and the feared ”blue screen of death”. Here the business user could load the entire sales history into a spreadsheet, then sort and select Minnesota orders for the auditor. The 00s featured the web, allowing access to massive amounts of data without overloading the desktop machine. At each step the business user gained faster access to information, and better focus on the important information. On product of all these revolutions was the ability for business people to get key information fast enough to implement Just in Time production and lean supply chains – no more “Just in Case” inventory to cover for delays in delivering information.

Fastest adoption of new technology ever?

    Born: March 12, 2010 (1st Pre-Orders)
    Sold 1 Million in first 60 days
    Sold 2 Million in first 90 days
    Sold 3 Million in first 100 days
    More than 15 Million in first year
    Estimated more than 40 Million this year
    Imitation is the sincerest form of flattery…
    Now more than 25 other tablet brands

Now that we are in the 10s, the tablet computer has taken over for business people. The tablet as epitomized by the Apple iPad is being adopted at an incredible rate – 40 million of them within two years of the product introduction. Why has this technology grown so quickly? Two big reasons: first when you press the on button the iPad is ready for you. No more waiting for a reboot – turning the PC on in the morning, getting coffee, reading the Wall Street Journal, then wondering why you still have to wait before using the computer. Second is the lack of stuff needed to use the iPad, all you need is your finger. No mouse, no keyboard, no cables, you don’t even need training! Just point and go! The only drawback is that when I was younger my mom taught me not to point – pointing was impolite.

The tablet makers have an answer for that as well – Android tablets have a nice voice interface. Just tell the tablet what you want to do, no more impolite pointing. Be sure to say please and thank you to keep mom happy.

And there is more! Microsoft is not known for tablets, but they do have the Xbox gaming system. At a recent press conference the demonstrated the Microsoft ERP system using the active gaming interface – although press reports said it was kind of boring. Imagine controlling your work by using American Sign Language – or combining work with exercise by using semaphore signs—month-end close aerobics for all!

The important thing in this slide is the Computers Arise! poster on the lectern. This poster was produced by Ted Nelson in 1976 – I have had a copy of this poster on the wall of my residence or office for the past 35 years. Once again a slide I share a name with, but Ted Nelson is not a relative – he is the creator of hypertext. If you look at the back side of the poster you will see my favorite software license term of all time: “Make no mistake, these packages are not ready yet.” [ed. the reverse side of the poster has this term, the OmniLicense from HarrisData does not have this term.] Thus Ted Nelson may also be considered the inventor of vapor-ware.

Ted Nelson offers a vision for the future of computing in this poster – it depicts a computer breaking chains and the words “Computers Arise!”. With the arrival of tablet computers, his vision of the future has arrived – no cables, no peripherals just you and your tablet. We all will work with computers in this world in new and different ways. For example I’ll use football referee signs along with voice and finger pointing: [ed. demonstration of imagined user interface.]

(points to record)
(throws virtual flag, folds arms in front of chest)
Delay of Payment. Penalty 5 percent. Re-Invoice.
(points to next record)

[end of demonstration]

Well, it may not look quite like that. Now I should answer your real question, what is HarrisData going to do with tablets?

Hide this slide unless Mousetrap Project is announced!

(throws virtual flag, rotates arms around each other in front of chest)
False start. Loss of Slide.

    • Committed to Product Growth
    – Modernization
    – Smooth Upgrades

• Committed to Choice

    – On premise or Cloud
    – Buy or Rent

• Committed to Quality
Aggressive Quality Initiative

The heck with this slide, lets talk about what HarrisData is doing. Last year when Apple announced the iPad we recognized that it meant big changes for the entire software industry. We also realized HarrisData is in a position to lead those changes. The whole way people interact with computers has changed – our software will change as well for both HarrisData and RTI customers.

The first thing we did was to set ground rules for how HarrisData will implement these changes. All R&D related to the new products will be made available to our current customers by the normal product fix and upgrade processes. All products will be the same no matter how they are delivered – the on-premesis, cloud, and hybrid products are the same code, they simply use different license forms. That means that as you move to HD5 or RTI 6.0, you will begin to receive enhanced tablet functionality as soon as it is available. While the tablet projects like “Mousetrap” are enormous, HarrisData can and will divide the projects into discrete deliverables that can be made available as they are completed. You will see several new features from the “Mousetrap” throughout this conference. The “Mousetrap” projects are on an expedited time-line, look for more information through HarrisData’s Lunch & Learn series as more components are completed.

Thank you, enjoy the conference.

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Cloud Reliability Stumbles

Some big names in the cloud world tripped up over the past few weeks, raising questions of how reliable cloud delivery of enterprise software actually is. How big a deal were these outages?

First to stumble was Amazon.com’s cloud services for business. Problems at a Virginia data center put several of Amazon’s cloud customers offline with problems companies reported including “being unable to access data, service interruptions and sites being shut down.” Is this a black eye for Amazon? Maybe not. Amazon offers several levels of service including backup and remote recovery.

But another issue, Mr. Eastwood said, will be a re-examination of the contracts that cover cloud services — how much to pay for backup and recovery services, including paying extra for data centers in different locations. That is because the companies that were apparently hit hardest by the Amazon interruption were start-ups that, analysts said, are focused on moving fast in pursuit of growth, and less apt to pay for extensive backup and recovery services.

Clearly Amazon passes Data Center Management 101 even if some of their customers did not.

Next to stumble was Microsoft’s Business Productivity Online Services. Problems included periodic e-mail outages lasting several days. Apparently Microsoft did not provide backup and remote recovery, as users needed alternate e-mail accounts elsewhere (perhaps on premises Outlook) to survive the interruptions.

Yes, Microsoft’s outage last week was annoying and potentially costly to paying customers. If you’re a current or prospective customer of Microsoft’s Business Productivity Online Services (BPOS), you’ll want to look carefully at how the company handled last week’s outages and what their response says about the long-term reliability of BPOS.

Definite shiner on Microsoft’s cloud credibility, and the level of customer service provided does not inspire confidence.

Third, Google crashed and burned during a maintenance upgrade. This is especially alarming as simple cost effective upgrades are a key selling point of cloud based enterprise software featuring multi-tenant architectures. Some Google customers did not take advantage of a system option to manually backup data to another computer (an on premises PC or Mac). Many customers have not seen their lost data restored even after 6 days.

A Blogger Service Disruption update contains four updates from the last 24 hours, starting with this one:
We have rolled back the maintenance release from last night and as a result, posts and comments from all users made after 7:37 am PDT on May 11, 2011 have been removed. Again, we apologize that this happened and our engineers are working hard to return Blogger to normal and restore your posts and comments.
That’s nearly 48 hours of downtime, and counting. Overnight updates promise “We’re making progress” and “We expect everything to be back to normal soon.”

Google definitely fails Data Center Management 101 and gets a black eye. Unbelievably the Google customer support during the outage was not only poor, but hostile to customers.

Given these events, one would expect unaffected cloud vendors to issue press releases reassuring their own customers that in the case of a data center problem (local crash, maintenance / upgrade fail, network outage, etc.) the vendor cloud structure features server failover protection, remote hot site availability, full backup, upgrade failover protection, and so on. Aside from Amazon as noted above, the silence is deafening.
Instead we are treated to the hype machine shifting to a higher gear.

But the point I raise in my headline is a wider one. It’s about the capacity of cloud application vendors to constantly extend functionality — for all their customers at once — at a much faster rate than the on-premise vendors, who will always struggle to keep up.

[ed. that all at once thing sure worked for Google.] This conveniently ignores the lesson we should be learning – faster is only better if it is safer. Far too many cloud vendors are ”start-ups focused on moving fast in pursuit of growth, and less apt to pay for extensive backup and recovery services.” Enterprises should beware.

At the end of the day what an enterprise needs is an ERP or CRM solution that solves the business problems, is backed by a vendor that supports the business (not the software), manages data center risks including remote failover and full backup, and is affordable. Such systems are provided by customer focused software vendors for whatever deployment option (on premises, cloud, or a hybrid) makes the most sense for your enterprise .

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Bureaucracy Blamed for Bad Decisions

As Einstein famously stated, “Insanity: doing the same thing over and over again and expecting different results.”

According to a Wall Street Journal article this morning (Don Clark and; Shara Tibken, “Cisco to Reduce Its Bureaucracy”) Cisco CEO John Chambers has proven he is not insane. Several explanations of Cisco’s recent performance problems have been discussed. This blog has highlighted cannibalization of high margin staples by low margin products and the lack of accountability in decision making (the cause of the cannibalization?). It is appropriate to highlight Chambers’ solution. Per the WSJ Cisco will:

dispense with most of a network of internal councils and associated boards that have been criticized for adding layers of bureaucracy and wasting managers’ time.

Analysts applaud the move.

The question that should be asked is whether the problem was the existence of the collaborative councils, or the absence of executive decision making? To the extent that Cisco’s problems derived from a lack of executive accountability, deferring to collaborative councils for 70% of decisions, Chambers may be overreacting by eliminating the councils entirely. Collaborative processes provide a more complete fact set for executives to consider, we use a collaborative approach extensively at HarrisData for just this purpose. What was missing at Cisco was the accountability for the decisions taken – collaborative decisions diffuse accountability. While accountability at Cisco will be restored by this move, can the executives make good decisions without the comprehensive fact sets collaboration provides? Chambers may have thrown out the baby with the bath water.

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When Do Anecdotes become a Trend?

It is dangerous to extrapolate a trend from isolated reports, especially in a volatile environment such as the current world economy. It may be just as dangerous to ignore anecdotes concerning a change in a major trend. Fortunately, Auric Goldfinger provides a rule for just this problem:

“Once is happenstance. Twice is coincidence. The third time it’s enemy action.”

It was happenstance that a post last September cited William J. Holstein pegging a new trend of high tech manufacturing returning to the US:

“China is no longer cheap, and long supply chains are too slow”

It was coincidence that this morning the Wall Street Journal featured an article (John Bussey, “Will Costs Drive Firms Home”) suggesting a new trend of manufacturing returning to the US from low cost venues overseas:

A combination of forces – rapidly rising labor rates abroad, loftier materials and shipping costs, deep-discount tax incentives from U.S. states – are changing some of the calculations by which companies decide to move production abroad, or even keep what’s there now.

Is it enemy action that David Foster blogged citing the fall in value of the dollar and inflation in China as having:

the same effect of making U.S. manufacturing generally more competitive.

Foster then highlights concerns about government policies in the US which would counteract any trend towards a manufacturing resurgence here.

Finally a companion WSJ piece (Timothy Aeppel, “Candle Maker Feels Burned”) explores the travails of one firm moving production from China to Baltimore. The reason for the move according to owner Mei Xu is “to do well in this market, you need to be able to produce and ship the next day.” What Xu ran into was a mass of conflicting and overlapping regulations which delayed and increased the costs of opening the new plant. Her conclusions:

I think our government needs to ask itself, “Are we ready for business to come back from Asia?”

and

She thinks there ought to be a “concierge service” for small businesses seeking to move jobs to the U.S.

So it would appear conditions a right for a new trend of manufacturing relocating to the US – a trend which will be reduced by regulation and government apathy. The real question is whether governments in the US will take Xu up on her challenge to create a concierge service for job creation. At least one government has, Governor Walker of Wisconsin reorganized the state’s Department of Commerce to be a one stop shop for jobs creation. Maybe more will follow.

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Increasing Compliance Audits Irritate Customers

Software companies have increased the rate of license compliance audits to demonstrate their dedication to your organization’s well being. They also help you reduce costs by identifying unused seats and shelfware and adjusting maintenance bills downward.

Please excuse my sarcasm, but actions speak louder than words. Ray Wang highlights a dramatic increase in compliance audits over the past two years as major software vendors attempt to juice revenues in a slow economy. Apparently companies receiving audits were in compliance in the high 80s percentage wise – and notably missing from the report is any mention of reduced seat counts / maintenance fees resulting from the audits. These vendors are looking out for themselves, not for their customers’ interests:

After speaking with 13 major software vendors, most admitted that software audit served two purposes. The first – keep customers in compliance. The second – shaking the bushes for new deals during the recession.

It is just this kind of predatory behavior which gives the software industry a bad reputation among our customers. HarrisData offers our Software Customer Bill of Rights as a guide to improved relations between software vendors and customers. We follow through with our Omni License to put our customers concerns in writing. Once again we invite all software vendors to adopt the Software Customer Bill of Rights as their own and improve the experience of software customers everywhere.

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Collaboration vs Leadership in Decision Making

In last month’s post about vendor margins and cannibalization of older high margin products by newer low margin products, Cisco was highlighted as a firm with a high level of innovation whose profit margins disappointed investors. Carl at Chicago Boyz offers a critique of the management structures used by Cisco that gets at the root cause of their problems. It appears that Cisco CEO Chambers reorganized management to operate as committees and utilize collaborative decision making processes – ultimately 70% of Cisco’s decisions were collaborative.

The core idea of the business enterprise and entrepreneur-ship is all about leadership, accountability and personal responsibility. Businesses aren’t non profit organizations, they aren’t schools, and they aren’t after-school specials. They are serious efforts, with salaries and families and cities on the line, and people need to be given roles and held to the results that they committed to. These aren’t concepts that can be maintained through revolving committees where no one is responsible. Trying isn’t good enough.

While committees can be help bring many perspectives to a decision maker, business success relies on accountability and personal responsibility of decision makers.

This is equally true for ERP selection and implementation projects. Where ERP project committees can canvas the entire enterprise for business requirements, only an accountable leader who is responsible for business results can make the tradeoff decisions between functionality of competing vendors or the desirability of a range of system modification requests during implementation. A committee without such a leader will end up with an ERP project that is over budget and delivered late if ever, often missing out on the key business benefits that justified the ERP investment.

HarrisData’s Quick Start Guide helps our customers understand how to balance collaboration and decision making to ensure the ERP project is on time and under budget while delivering the benefits their businesses need.

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Its Good to be Public

The ERP vendor acquisition season heated up today with Apax Partners acquisition of ERP vendors Epicor and Activant, to merged into a new privately held Epicore. For the Epicore shareholder the offer yeilds an 18.9% premium over the past 30 day average price, and a 34% premium over the average for the year. Compare these numbers to the 19% premium over 90 day average price offered Lawson shareholders by Infor, then consider that SAP and Oracle may need to counter these moves. Where does this put the remaining publicly held ERP vendors? Would their shareholders want this kind of premium?

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The Slippery Slope of Software Services (Part 1)

Don’t let your project budget get blasted by services

Whether you are selecting new software, or implementing an application upgrade, your success depends heavily on whether you implement the software on time and on budget. You may be tempted to rely on your vendor’s experience to perform certain implementation tasks for you – hoping to save time and money. However, when you start using vendor services to accomplish tasks you either should do yourself or shouldn’t do at all, you start down a slippery slope of service expenses that will ruin your project budget and timeframe. Two examples illustrate this point:

  • Data conversion should NOT be left to the vendor

    It’s easy to fall into the trap that your vendor should convert all of the data from your existing system into your new system. After all, who knows the new system better than the vendor? However, consider that you need to know how the new system works for your organization as well as the vendor does (or it won’t work!). Further, you already know how your current system works – or, more importantly, how your organization uses it.

    If you pay your vendor to perform the data conversion, you will spend a lot of time teaching your vendor’s consultants how you use your current system (and what the data means), and more time teaching them how you intend to use their system (and what you expect the data to mean). Then they’ll do the easy part and map the data from one file to another – a process you can frequently get accomplished with a smart user and a spreadsheet – and charge premium rates for programming talent. The next time you see a proposal including data conversion services, ask yourself what you’re really getting, and whether it’s worth the money.

  • The software should NOT be customized to meet every user demand

    Customizing your applications to meet every user demand is the surest way to ensure your project misses deadlines and goes over budget. All user demands are not equal, and demands for new or modified functionality must be carefully vetted by your management before any consulting work begins. Vendors are usually happy to offer additional consulting services to address each and every user demand, destroying your project budgets and timelines. Cost overruns from this problem can run into millions of dollars.

    Instead, each demand should be assessed for what value it delivers the organization and what consulting costs will be incurred (both initially and in the future). Well-run projects will review all user change requests through the project team to quantify value, costs, and any alternatives (your vendor should be able to help you determine what alternatives there are). The project team will then submit the requests with the highest return-on-investment to a senior executive or steering committee for review and approval. Only with careful management of user requests can you stay away from the slippery service slope and make certain your implementation project stays on target.

Vendors eager to make money on services will propose ‘comprehensive’ data conversion projects and ‘effective’ change control procedures that do nothing but take the control of project – and your project budget – out of your hands, and offer little quantifiable value in return. The savvy software buyer will pay attention to these issues both before and after they buy a software application.

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ERP Software Vendor Metrics – What Matters?

With acquisitions in the air again, how do you tell if an ERP vendor is performing well? For example Lawson is performing well by many accounts, but received an unsolicited takeover bid anyway. Some suggest the cost of shifting to the cloud puts Lawson’s business model in peril – they only have the resources to either serve their on premises customers or develop a cloud alternative. Without a cloud alternative Lawson has no future, in spite of Lawson’s profit and revenue performance. Is this the best way to analyze an ERP vendor?

Several fundamental measures exist for any software company, including ERP vendors: initial license fee growth rate, maintenance renewal rate, services growth rate, and the percentage mix of license fees, maintenance and services.

Initial license fees are easy to track and predict the future of the other revenue streams, without a license there is no maintenance or services. The emphasis on cloud delivery of ERP reflects analyst belief that future growth will favor cloud over on premises delivery of ERP software. Thus a typical analyst would devalue an ERP vendor for a lack of emphasis on cloud, and factor in declining initial license fees in their projection of vendor performance.

The maintenance renewal rate is the most important indicator of ERP vendor performance because maintenance is the biggest revenue category for a software vendor. The maintenance renewal rate reflects how well the vendor is performing at the key task of continuing to deliver new value to its existing customers. Too little value, renewal rates decrease. Major shifts in technology can have big impacts on renewal rates. For example the shift to Windows based client server architectures led to much lower renewal rates of ERP vendors which could not deliver on the new technology. This led to two consequences: a relative unknown got to the new technology first and dominated market share in ERP (SAP); many strong ERP vendors could not make the transition and ended up acquired by industry consolidators. A rule of thumb in software is that a renewal rate of 85% is healthy – initial license fees and maintenance price increases can easily replace 15% of maintenance revenue and still provide for overall growth. An ERP vendor whose maintenance renewal drops to 60% is in very big trouble very quickly (this is what happened to most of the ERP firms acquired in the 90s as the client server trend took its toll). After two years the customer base is only one third the size of the original (60% * 60% leaves 36%), total revenues are falling through the floor and required layoffs eliminate the ability to invest in future products. Thus a typical analyst would devalue an ERP firm’s maintenance revenues as at risk from the lack of direction to the new cloud technology.

Services revenues have a different impact, and here I differ from the analysts. While the typical analysts sees post sale services as a vibrant and desirable revenue stream in the face of changing technology, I see a big services revenue stream as a drag against initial license fees and maintenance renewals. A high services percentage of total revenues tells the ERP customer two things: implementation will be very expensive, and upgrades will be prohibitively expensive. This holds true for both on premises and cloud delivery of ERP systems. Thus a focus on services revenues will make an ERP vendor less competitive in initial sales (implementation estimates often dwarf on premises license fees, let alone cloud rental rates) compared to ERP vendors who successfully reduce the need for services. The focus on system upgrades as a services revenue opportunity will cause fewer customers to upgrade, meaning fewer customers will receive continuing value from the vendor – thus reducing maintenance renewal rates. Thus unlike a typical analyst, I would devalue an ERP firm’s services revenues as destructive to the core revenue streams of license fees and maintenance renewals.

How the to measure services? As an overall benchmark services revenue should be less than 10% of an ERP firm’s revenue base. The effectiveness of the services delivered (and thus key predictor of maintenance renewals) is measured by the percentage of active customers on the current release / refresh of the software. Less than 60% of customers on the current refresh within one year of release suggests upgrade barriers are too high – and too few customers are benefiting from the ERP vendor’s R and D output. (One ERP vendor benefit of the cloud is the vendor controls upgrades, and can drive the associated services revenues whether or not the customer benefits).

How do ERP vendors rate on these metrics? While posting renewal rates is more common, few vendors release any of these key metrics. HarrisData looks pretty good by this view, naturally.

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Infor Gets Aggressive

In a move that doesn’t surprise anyone, Infor launched a takeover bid for Lawson Software. Infor CEO Charles Phillips found his first target, and with the offer at a 19% premium to the trailing 90 day Lawson stock price (and below Lawson’s current stock price) more negotiating is likely.

The average premium for completed software acquisitions in the past three years is 30.3 percent, Bloomberg data on deals over $1 billion show.

Lawson CEO Debes has been through this dance before (with JD Edwards acquisition by PeopleSoft then Oracle). Other potential Infor targets like Epicor or Microsoft Dynamics may be forced to counter this move.

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