Category Archives: IT

Innovator’s Dilemma at its Finest – SAP, Oracle, and the Cloud

I wrote previously about how disruptive technologies will save SAP. However, it’s worth understanding the large dilemma that SAP, and Oracle alike, are facing and why it’s important to understand how success is made with innovation. Let’s first start by stating the definition(s) of innovation as coined by Clay Christensen from the Innovator’s Dilemma.

Sustaining Innovations: What all sustaining technologies have in common is that they improve the performance of established products, along the dimensions of performance that mainstream customers in major markets have historically valued.

Disruptive Innovation: Disruptive technologies bring to a market a very different value proposition than had been available previously…Products based on disruptive technologies are typically cheaper, simpler, smaller, and, frequently, more convenient to use.

It’s clear – cloud computing has been disruptive to the enterprise space. As it’s popularity increases it will begin to “cross the chasm” and eventually become a clearly defined market. If you look at the early history of cloud computing (or actually really known as SaaS – Software as a Service) you’ll notice early adoption was quite low. No one understood why you would decide to use a CRM system hosted by someone else. Crazy right? It’s now starting to hit the bend in the hockey stick and is ripe for growth. In order to understand disruptive innovation, let’s look at first why this type of technology historically hasn’t been a sustaining innovation for Enterprise software houses:

  1. Both companies have not executed any real ability to create their own organic SaaS platform. SAP’s Business ByDesign has been around for about 5 years and hasn’t turned the corner yet.  I believe the reason for ByDesign’s failures were largely due to adding too many features too soon, and not really understanding how companies would use the technology. Yes, what I’m saying is that they tried too hard to create a product.
  2. SAP recently bought SuccessFactors for $3.4bn and Oracle has now bought both Taleo and RightNow.
  3. Cloud/SaaS solutions have done nothing to improve the performance of any existing technologies in the markets that SAP and Oracle have traditionally served, which is mainly large enterprise using on-premise software. In fact SaaS is about to eat their lunch.

Now let’s lay out why cloud is so disruptive:

  1. There is a different value proposition (hosted software, maintained by the vendor)
  2. It’s cheaper (straight forward subscription model), simpler (doesn’t require an army of consultants), and more convenient to use (have a web browser on your computer?)
  3. SAP is hurrying to use it’s RDS (Rapid Deployment Solutions) to combat and milk it’s existing on-premise software while it can
  4. SAP and Oracle make a staggering 90% profit margin on enterprise support. Even more interestingly, SAP is now trying to tell the market that they will be the first company to make the cloud profitable. I’m confused as to what core competency SAP possesses that will make that true. Throwing money at a problem doesn’t increase a profit margin.

Ultimately, I’m scared largely for SAP, and less scared for Oracle. Why? First, SAP is really damn good at selling on-premise software. This is one of the most important aspects of Clay Christensen’s theory on innovation. The firms that are most successful at sustaining innovation are also the least likely to succeed in disruptive innovation. Second, from my talks with sales/pre-sales/etc people at Oracle, their products largely operate in silos and tend to compete with each other. Yes, this already happens between Hyperion, JD Edwards, PeopleSoft, etc. So culturally they will embrace an internally competing technology much easier than SAP can.

On a somewhat related note, Mike Eacrett, VP of HANA Product Management in SAP Labs, talks about thinnovator’s dilemma for SAP HANA:

“We’re trying to manage disruption,” said Mike Eacrett, vice president of product management for SAP HANA at SAP Labs in Palo Alto, Calif. “It’s the innovator’s dilemma,” Eacrett said, “figuring out how to take advantage of new opportunities while managing change.”

I’m not so worried about the success of SAP HANA because the product was built largely out of a group within SAP (and from the Hasso Platner Institute) that has been known to be very autonomous from the rest of the business. This is exactly what Clay Christensen offers as a solution to the Innovator’s Dilemma – an autonomous group that acts solely without discretion of the overall firm. It could theoretically be seen as a sustained innovation in that is improves performance on an existing and established market (databases). The big question will be: if cloud consumes on-premise software, than where will HANA sit?

The truth is, SAP is in an identity crisis. It’s largely been seen as an organically growing giant. It’s now spent nearly $10bn+ over the last half decade on acquisitions and it simply cannot be the organic juggernaut it once was. This is largely due to the externally facing pressure from disruptive technologies. What’s worse is it still boasts it’s ability to innovate using its €1.7bn cost (2010) on R&D as justification. Again, the firms that are so certain about growing their portfolio of sustaining technologies in an existing market are largely in a worse position to support disruptive technology.

So what’s the solution? Simple. Well, simple for me to articulate, but not simple for SAP and Oracle to execute. As Christensen says:

“Survival depends on being able to disrupt yourself. Once you let others disrupt your business, you are heading down the path to death.”

In other words, SAP’s cloud computing division (led by Lars Dalgaard) has to aggressively compete against SAP’s own on-premise software. It has to act completely autonomously. Dalgaard is a visionary with some quirky and non-traditional management practices. Which is why I think he’s perfectly suited to lead the charge. But will SAP’s top Executives give in to the Street and become another software graveyard or take a short term hit for long term growth?

What do you think? I’m interested to hear others’ opinions on this.

EDIT: Changed some sentence structure in the second to last paragraph. Didn’t make sense before. EDIT2: Changed to ByDesign, not ByDemand. Good thing I don’t get paid to be a full time editor. 

Understanding Why People Buy Software

Note- When I say software, it’s understood I mean SaaS as well.

Awhile back someone sent me a link to a video clip of a Mad Men episode. It’s a scene in which Donny Draper is pitching the Kodak Carousel. If you notice in his pitch he rarely mentions what the product is or what it does, but rather tells a story about an experience he has. It’s easily one of the most powerful and possibly eery television scenes I’ve ever watched. Take a look for yourself:

http://www.youtube.com/watch?v=suRDUFpsHus (embedded disabled unfortunately)

“Well, technology is a glittering lure.”

I’ve worked in both the B2C and B2B market in software and this story resonates very well for me. Why? Because it’s interesting to understand why both Companies and Individuals chose to buy software and I think it comes down to one prime thing: individual user experience. Let’s break it down:

Consumer – It’s no secret that in today’s B2C software market that user experiences always win out. It’s the reason Facebook, Twitter, Apple, and Google are all winning. Their offerings mainly rank high in the following areas: How easy is the product to use? How easy is it to interact with friends? How much enjoyment do I receive from the product/service?

Businesses – There are generally two buyers of business software – CIOs and Line of Business heads. In the case of the CIO, enterprise software is largely completed by the shake of a hand. If you ask anyone experienced enough in enterprise software sales they will tell you that CIOs buy enterprise software because (1) they like the person selling it to them and (2) they don’t want to get fired. The offerings from business software vendors rank highly in the following areas: How easy is it to keep my job? How easy is it to find people to implement and support the software? How easy is it to pass blame to service provider? How much enjoyment did I get out of the sales process? You may have noticed I mentioned nothing about the user experience of the people who will actually use the software! This is important, because this is largely the reason many end users complain about enterprise software. This won’t change until the CIO reports to it’s end users and not to a CFO/CEO/Board. For Line of Business heads, it is slightly different, because they do have direct interaction with their end users. They software they tend to purchase is more user friendly, but still has a good personal experience for them. Their offerings mainly rank high in the following areas: How easy is it for my team to use the software? How easy it is for me implement the software? How easy was it to purchase the software? How easy is it to prove to my management that the software is working?

Zed Shaw says it better than me: (watch 17:53 on)

“You didn’t buy it, your boss did…How did they sell this crap? Steak and strippers baby!”

There’s lots of ways software vendors answer these questions. For example, their software has features such as scalability, premium support, longevity of vendor’s establishment, references, etc. I’ll get more into this in detail in an upcoming blog post about how start-ups work in the enterprise area.

 

Why do projects fail? People

People. That’s my answer and I’m not backing down. Your business processes? They suck with bad people. Your agile tools? They suck with bad people. Your super neat collaboration software? It sucks with bad people. Talent drives good projects and fosters innovation.

I’ve thought about breaking down the analysis of what failure really means and statistics about the number of failures (in particular in enterprise technology), but I don’t think it’s worth going into detail. The bottom line is, bad people create bad projects.

So I don’t care if you’ve outsourced your IT to Mexico City, Bangalore, Tokyo, or San Francisco. Or if you have 100 on-site consultants from Super Management Consulting Firm XYZ. If you hire bad people it won’t be successful.

If my assumption is true then one would assume that a company looking to bring consultants on would ask: How are your hiring practices? How effective are your people in communication skills? How often do you take your consultants off projects to meet with a mentor in the office? What’s your training program like?

This will change soon. Mark my words.

What’s happening to the next generation of the SAP ecosystem?

It seems obvious to me that the ecosystem of SAP is aging. I’d love to be told wrong, but I just don’t see much evidence of it. Where the heck are all of the young guns? Why is Silicon Valley kicking ass with talent straight out of school? There are CEO’s and CTO’s who are 23, just graduated, and solving real world business problems. Where are these guys in the SAP ecosystem?

Over at Bluefin, John Appleby was touting an incoming graduate application base of nearly 2000 graduates interested in getting into the SAP ecosystem. Despite this I get the impression that the highest skilled graduates are not trying to get into SAP’s ecosystem. (note – no discredit to Bluefin – 2000 applicants is unprecedented and surely they will find some top level talent in a pool that large) They’re still going to banking and now with the crazy valuations in Silicon Valley, they’re going to San Fran.

My personal opinion:

1. SAP is not sexy. ABAP is not sexy.
I just read this article (the article itself is kind of terrible): Tech Leaders Don’t Win By Saying They’ll Crush Somebody. The author mentions the following tech companies “Apple, Oracle, Microsoft, AOL, HP, Palm” as “Tech Leaders”. Yet, no mention of SAP? This is not new. Before the crazy marketing buzz that is HANA, when was the last time you read a tech blog talking about the technological excitement around SAP? The problem here isn’t SAP, but rather that enterprise business software is not sexy. It also doesn’t help that if you read the wikipedia article on ABAP one of the first thing it mentions is: The syntax is somewhat similar to COBOL.

2. Big data is sexy. Ruby on Rails is sexy.
Today, big data is about petabytes of data, not terabytes. In 2008 Facebook had 2-3 TB of photo data uploaded every day. I too lazy to research what it is now, but I think you can speculate. I’ve worked with multiple TB in-memory systems in SAP – they’re fun, challenging, and usually raise some eyebrows when you tell someone about them. However, they are peanuts compared to the servers and data Amazon and Google are working with. Where exactly is the data explosion in the enterprise? The younger generation likes these challenges and they like frameworks (like RoR) that easy to use and well documented – tools that make talented individuals deadly.

3. No openness
Do you know why it’s possible for someone like Zuckerberg to start a multi-billion dollar business or for Mark Bao to start up multiple companies by the age of 18? It’s because they could go learn something new very rapidly and implement it very rapidly with very low costs. SAP – not a chance in hell. And what’s worse is that even areas like mobility where this should be possible today, SAP is now asking for licences for doing the trial of SAP Unwired Platform. Yes, the trial. It’s well documented and well known that collaborative communities lead to innovation. I wish SAP was more open to this. Sorry, but SDN doesn’t cut it for me. SAP certifications and trainings are great, but as it stands right now nothing beats hands-on experience. I think the fact that a majority of the SAP mentors are not certified is anecdotal evidence alone.

The Potential Issue
So who are filling these jobs and why is this important? It’s obvious there is a continued trend to ship everything overseas. This means nearsourcing has less importance, less emphasis and will drive everything in SAP to become commoditized. This will lead to less innovation and less support for real technological innovation. Who the heck is going to implement HANA? India? Good luck with that one. SAP – you need partners and you need their help. I know it sounds radical, but why not deliver HANA to partners under a “AS-IS” warranty and let me us go wild implementing it on Mac-Mini’s, Amazon servers, or whatever? Let us build it, break it, hate it, destroy it. You thank us later when we can give valuable feedback. Face it, SAP technology is not vastly superior in a technical sense, nor does it have to be. It’s purpose to help business to be better at what they do – and it does. It has a robust ecosystem, with robust controls and a great customer base. But please if you want the ecosystem to support disruptive innovation be more open and you’ll get the forward looking talent needed to support. Otherwise companies will continue to ship it overseas and the aging population of techies in the SAP ecosystem will become managers. Then who’s left? The SAP ecosystem needs techies and the techies are hiding under a little rock called the university.

Why Jive Will Win in the Enterprise

Social is all of the rage now with the kids. So when does it become all of the rage for the enterprise? Well, the time is now. I recently (although the article is dated) read a very good article over at Gigaom: Jive Software Wants to Be Facebook for the Enterprise. This started over our company’s recent interest to explore what Jive really is and why it’s making huge waves in the enterprise tech scene. So why do I think Jive will win the race for enterprise social networking? Let’s first address the issues for why a company would adopt such a practice in the first place.

It’s clear that in today’s age, collaboration with external is the key to better productivity. Why? It’s simple.

  1. We have thousands of things documented in our company (and mainly in Microsoft solutions).
  2. There is no clear communication path both internally and externally about comments, opinions, feedback, etc. to documented information that is company related.
  3. We live in an age of Wikinomics and now value that a company is better off by being more open and collaborative with it’s ecosystem.

There is now ROI numbers behind these assumptions (…and what exec doesn’t love ROI?): Jive Caes Studies.

So why will Jive win in the enterprise? Easy. Let’s remember what enterprises love when selecting a software vendor:

  1. Proven Technology – Web application development (and the SaaS model) is becoming more and more a proven way to deliver enterprise class applications. Also, its written in Java, which has always been enterprise friendly.
  2. Proven Management – Check out their impressive list of people on their board and management team: Jive Management Team
  3. Impressive Customer Base – SAP, Nike, Toshiba, Yum, etc etc. the list goes on. Here comes the ‘IBM effect’. (i.e. “You can’t get fired for using IBM”)
  4. Steaks and Strippers – Jive is ramping up it’s sales and PR machine rapidly. Just remember to tip your waitress.

There’s a ton of players in this space. As far as I can tell there is also Yammer and Chatter in the real mix, but I see Jive really coming up big in the next few years. Only question now is, where do I invest?