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DXC Technology: Relevant partner or the Sears of IT services?

A huge opportunity to provide large-scale business innovation with smart strategies and effective execution is tempered by strong competition, legacy perceptions, and a ticking clock to successfully demonstrate relevance and effectiveness.

Large scale technology services vendors would be committing commercial suicide by selling themselves merely as legacy IT plumbers, outsourced administrators and historical code and process supporters, despite that being a largely accurate description of the vast majority of their skill sets.

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A Sears internet order in store pick up location, down a corridor by the HR department.

Instead we currently live in a noisy blizzard of posturing around “digital transformation” as mature IT firms struggle for continued relevance and credibility in a rapidly evolving world.

Today Computer Sciences Corporation (CSC) is relaunching after merging with Hewlett Packard Enterprise (HPE) Enterprise Services spin off, as a new business entity with the brand name DXC Technology.

It’s entering a very competitive landscape of global service providers, all of which are struggling to remake themselves as relevant and credible to their prospects and customers in this very different new era.

Customer prospect realities

Meanwhile on the US client/prospect side, Sears is a struggling poster child for a legacy retail business that is rapidly fading from relevance.

Despite being the brand equivalent of Amazon 100 years ago, brilliantly leveraging the rail system and newly graded roads to transform retail with the Sears Roebuck mail order catalog, Sears has failed to successfully make the transition to an era of digital customers.

Sears is an extreme example of the sort of clients a new services partnerentity like DXC Technologies has to find effective business strategies and execute for.

Short of funds, desperately needing a coherent and joined up strategy to captivate and motivate their prospects and customers with, all while struggling with last century culture and IT infrastructure, Sears epitomizes, at an extreme level, the challenges countless firms are struggling with to find direction and remain relevant.

Buyer beware

Now that just about everyone on the supplier side is dressed up in futuristic digital outfits and parroting transformational marketing speak for the spring 2017 services marketing season, the key challenge on the buy side is finding out who has genuine competencies to help identify and drive effective modern business strategies, tactics and execution.

In some cases this is easy and can be a knock out blow: The buy side’s long tail of experiences and engagements with legacy vendors will have shaped perceptions of strengths and weaknesses. HPE and CSC, despite being a new business entity, carry the legacy of their past client successes and failures into their new DXC era.

DXC will need to have an extremely well defined, competitive, and compelling retail strategy to win against strong competition, whether the opportunity to excel is an emergency turn around like Sears or a white space, shiny new digital initiative for healthier prospects.

An evergreen Drucker maxim nails the fundamental problem:

“Because the purpose of business is to create a customer, the business enterprise has two -and only two- basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.”

I wish Drucker had put innovation before marketing in that foundational statement, but putting that aside the massive efforts by engineering services firms to pass themselves off/market themselves as business innovators via technologies is largely irrelevant to the buy side.

Marketing masking legacy realities

The challenge in many cases is that prospective services partners are essentially marketing their claimed ability to innovate around modern digital constructs rather than actually having much demonstrable experience or staffing to execute. The analogy is your plumber suddenly showing up dressed as an architect and asking whether you would like to co-design an extension for your house, a proposition you would probably be wise to decline.

Virtually any legacy services firm of any size now has innovation labs to entice customers to co-create with them, typically also featuring some superficial digital eye candy on display — robotic arms automatically opening and serving beers, green initiatives around solar power helping to save the planet, big data magic shows, etc. “Design thinking” is the lingua franca of these efforts to coach businesses and identify areas they need help with.

Anyone doing their homework on the client side knows that most of this digital innovation display is a thin veneer on a large, legacy IT services culture that knows little about this new world.

Today and moving ahead, the sharpest people at the top of the digital strategy pyramid are significantly encumbered by the sheer volume of marketing hand waving and noise making around endlessly regurgitated second and third hand “disruptive” and “transformative” ideas. I’ve personally seen many expensive failed “digital” initiatives in the last six months, several as a result of getting sucked into naive design thinking sessions followed by unrealistic execution strategies.

dunning Kruger effect

It’s all too easy to fall for overconfident suppliers who exhibit the Dunning Kruger effect, assuming their shallow knowledge around digital strategy will evolve and mature into positive results.

As a result of this, we are seeing a lot of the “parasite economy,” where prospective buyers pick brains during tire kicking sessions, a sort of magpie culture where information is collected and hoarded by management types who have either been given the digital hot potato to run with or see a career opportunity to lead the charge in some sort of digital initiative. These typically end in tears for all concerned.

DXC’s opportunity

DXC has a major opportunity, as a fresh new entity, to remake itself to be a credible scale modern global partner with core legacy strengths, notably anchored on scale security.

Creating modern agile digital superstructure that interoperates with legacy infrastructure to solve multiple business problems and open up fresh digital opportunities for prospects such as Sears is the reality of a lot of the prospect work in a struggling retail sector.

Other business sectors are grappling with similar problems and already have IT expense and effectiveness fatigue. The clock is already ticking — will DXC earn a reputation as a relevant technology partner or be judged as the IT services equivalent of Sears?

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Originally posted on my ZDNet blog April 2017

Return of the business value suite spot

Digital platforms that are fit for today’s specific business purpose are essentially far more agile, open and flexible versions of the old proprietary enterprise suites.

IoT’s moment of truth — who can secure the data flows?

Innovative Internet of Things efforts need the maturity and experience of industrial internet service providers to secure data platforms and drive growth.

The Internet of Things (IoT) has now entered a period of showstopping and heartstopping security reality checks. While most people can see the promise and value of data feeds from and to physical things, there are justified anxieties about just how weak and easy to attack many IoT device networks are.

banksafechip

Where business verticals such as banking, financial services, and insurance are fighting hard to escape legacy technology platforms and evolve to be modern customer focused digital businesses, IoT has the opposite problem of often being too modern and cutting edge.

The exciting new ‘white space’ business opportunities rapidly becoming possible are all fraught with risks — data is the valuable currency of digital and therefore the target of hackers. Lack of consistent standards, exploitable attack points, and a new era of high stress security efforts make IoT services work very challenging.

The so-far largest Denial of Service (DoS) attack in history was recently launched via hacked IP connected closed circuit television cameras made by Hangzhou Xiongmai Technology. A botnet propagated Mirai malware to the cameras which then flooded the US east coast with fake traffic, until Domain Name Servers crashed under the strain. And we can likely expect more such attacks.

Right now arguably the ultimate solution to stopping these attacks is internet service providers (ISPs) moving to cut off connectivity from any IP address that is relaying DoS junk data from compromised IoT devices, which this excellent article discusses.

Hard to achieve, fraught with issues, and not optimal, the more practical solution is to build out robust, secure IoT networks so your brand doesn’t get hijacked into the dark side and be a named attacker.

Longer term, ‘system on chip’ security maturation from the hardware manufacturers will add layers of addressable security in sensors. ARM’s ‘trust zone’ security extensions are a good example of where we are right now from a silicon perspective.

At a strategic level, what really sorts out the scary, easy to penetrate lightweight backends from the secure environments is the quality of the secure end-to-end design and engineering. Secure, connected devices will be digital service provider tablestakes as they become the expected norm, along with the associated modern systems and expertise that enable value to entrepreneurs.

Conversely, using sketchy, exposed connected ‘things’ will be akin to placing your personal details on the public internet — too risky.

From a service provider perspective, the Internet of Things currently has two main dimensions, both of which are attributes of larger battles for digital dominance.

The December 2015 cyberattacks on Ukranian power utilities were rare in that actual damage was inflicted. But there’s ample evidence of widespread infiltration into organisations’ operational systems.

The first dimension is the Machine to Machine (M2M) industrial internet, which evolved from heavy equipment telemetrics (the measurement and transmission of data by wire, radio, or other means from remote sources to receiving stations for recording and analysis) and has matured and grown on a linear path alongside ‘traditional’ enterprise IT systems for the last fifteen years. Examples of this are ‘time to failure’ monitoring of all types of rotating mass heavy equipment, and data flows into and from ERP, and other enterprise software.

The other, newer dimension is the explosion of product innovation enabled by new sensor developments and big data, enabling data flows from ‘born digital’ devices from and to physical ‘things’ of all sizes to modern digital backbones. It is this newer dimension of our connected world which is causing recent giant societal waves.

Earlier this year AT&T’s AVP of IoT solutions Mobeen Khan briefed me on the pace of change from a telecom perspective. There were 28 million connected devices this spring and AT&T predicts 50 billion by 2020.

While new mobile smartphone plan sales are flat (everyone has one already), connected car accounts are one of the fastest growing areas of growth. AT&T has established multiple Foundry Innovation Centers around the world to help drive market growth and development, and many large enterprise services providers have recently created similar design thinking and ideation labs.

The key to all this activity is identifying who can orchestrate viable, secure enterprise services to route explosively growing amounts of data to the right places at the right times to run modern businesses, and this is where ‘as-a-service’ vendors are going to be duking it out to be the go-to global suppliers for their clients.

In my recent HfS Research ‘blueprint’ report on the IoT Services sector I analyzed many of the major ‘as a service’ providers, some of whom have competencies in both industrial internet activities and emergent innovative IoT activities. It’s currently a buyer’s market for companies looking to find the best talent, skill sets — and of course security competencies.

Designing and building out sophisticated digital platforms for IoT interactions, along with all the other desired commercial goals of leveraging modern big data flows to improve commercial performance and customer satisfaction requires large scale services partners who are committed to drive and support rapid business evolution.

As our editor Larry Dignan wrote here recently, while the old guard systems integrators have been snapping up cloud consulting and integration specialists, prospects and clients are wary of a fresh generation of the sort of problems that plagued past IT efforts, in a far more complex interconnected world.

This really is a new digital business era. Resting on past laurels and buying up boutique design and technology firms as hood ornaments for old line services businesses won’t cut it for any prospect or client paying attention to their modern strategic business needs.

In the crowded services market there is huge opportunity to be the preferred next generation business partners — or be perceived as a legacy provider of limited relevance for today’s needs.

 

Business concepts degraded to marketing buzzwords are causing strategic havoc

Digital has never been more experiential and immediate, yet it’s also never been harder to find ways to reach and influence people. Technology vendors warp and mutate business concepts to sell strategies, marketing tools and platforms to businesses, but divining what will be successful to reach a new customer and associated organizational models is a huge challenge

We all know smart phones, always-on connectivity and cloud technologies have fundamentally changed the way we behave in all areas of life. Sometimes it seems the only people who aren’t as aware of this as they could be are the people who run technology infrastructure inside companies.

The pace of change is only increasing, but with that comes some remarkable rhetoric, distortions and fear mongering from vested interests in the tech industry, and opportunistic sniping of existing business opportunities by full stack start ups.

Some of the charismatic characters who have emerged from the advertising and pr world to become self created experts in digital are being relied on to lead businesses through the technology jungle, yet are ‘cargo culters’ who have never worked in large companies or designed real world strategies.

Customer experience (‘CX’) is a massive marketing obsession this fall, particularly as the digital marketing world appears to be falling apart at the seams. The dot come era was always ‘about to come up with something more than banner ads’ on web pages before that financial bubble burst.

A useful blog post on Idlewords’ the advertising bubble’ points out similar fissures in the highly complex thickets of digital advertising firms we have today. Essentially there isn’t enough money to go around to justify the expense of capturing people’s attention to sell them things online and the digital ad industry bubble is bursting.
Paraphrasing the basic premise of the faustian bargain we strike to be told about things we might be interested in: “A customer pays money for a good or service….In essence, we pay a small consumption tax to fund advertising”.

However,

“There’s more money being made from advertising than consumers are putting in.
The balance comes out of the pockets of (advertising technologies) investors, who are all gambling that their pet company or technology will come out a winner. They provide a massive subsidy to the adtech sector.
But investors want to be on the other side of the equation. Instead of pouring money in, they want their money back, plus a handsome profit”.

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What value do I bring to your organization and what will it cost you?

What Do I do?

I help companies of all sizes with business strategy to enable a ‘joined up’ approach across multiple business function disciplines and workflows. Digital technologies tend to be used in business silos and can cause major political and scaling issues. I can help to streamline and simplify, and to design tactics and workflows that get the best use out of your existing IT infrastructure and new digital technology selections across multiple business areas.

I combine past experience in marketing, interaction design, senior technology management, collaboration strategies and digital transformation initiatives and have worked on many initiatives both as a senior internal employee and as a consultant.
This is a fast moving space and your contexts and business goals define specific approach, but the typical end goal is to improve business performance and solve bottlenecks and pain points from a local to a global level.
I also get involved in cleaning up past initiative failures and relaunching initiatives to salvage investments and in evaluating the effectiveness of participants and the quality of their work.
How do I do it?
Defined by your perceived strategic needs and boundaries my team will typically work with you on specific business problems and initiatives. Typically I/we start with discovery to identify and validate where business challenges lie. This can be informed from a board level down to departmental feedback depending on contexts.
Strategy meetings and whiteboarding innovation sessions coalesce into roadmap materials to be validated by appropriate participants. Execution tactics, from technology and integration selections to workflow roll outs and customer facing initiatives are defined and costed.
Typically board and CFO level decision making are heavily involved in final validation and green lighting larger/broader projects, while smaller projects are approved at the appropriate levels.
What will it cost?
Considerably less than the big five accounting firm’s consulting arms (whose proposed strategic thinking I have also been brought in to validate). Cost is defined by scope and time and I am happy to quote on projects as long as we have realistic boundaries in place.
What will the results be?
The goal is to get a rock solid business strategy in place on multiple levels before you spend large sums on execution. ‘Ready, Fire, Aim’ is very common in this poorly understood space, typically as a result of seduction by technology vendors.
Who are you?
What I’m not is not just another digital ‘future of work’ blowhard with hidden vendor agendas!
I’ve always been a client side, technology agnostic advisor, consultant and thought leader/blogger (ZDNet, CIO.com & conferences) helping to find ways for clients to gain benefit from more effective working practices and putting appropriate technologies in place to achieve goals
I bring a unique set of skills, experience, knowledge & connections to help you identify effective ways your organization can gain clarity around digital strategic intents. There are very few people on the planet with my skill set and knowledge who can help you make sense of it all.
You can find my career details on LinkedIn, Most of my work comes through word of mouth and reputation.

The growing digital divide and the strategic inertia that can kill

Summary: The challenge for giant swathes of the tech industry is that bad smell from past plumbing failures — and fear of the unknown.

The iPad is five years old this week and Apple just had the most successful business quarter of any company, ever. Asymco analyst Horace Deidu has deduced that in 2014 iOS app developers earned more than Hollywood did from box office in the US. He also makes a claim that the Apple app economy sustains more jobs than the movie biz (627,000 iOS jobs in the US vs. 374,000 in Hollywood) is easier to enter, has wider reach and is also growing more rapidly.

Meanwhile, in the face of the staggering transformation of society brought about by mobile devices and connectivity (on which you can now consume Hollywood products, instead of buying a ticket at the brick-and-mortar box office), the enterprise grade technologies and organizational models that are the underpinnings of this new world are still mostly firmly rooted in the last century.

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The challenge that layers of legacy technologies and their associated human handlers impose on companies can be the boat anchor that is holding companies back from succeeding in this new world, a scenario that has played out many times in the past. The various annual lists of successful companies change out a lot more frequently than most think — look where Apple was in 2005 — and a prime reason for corporate demise is outdated processes and therefore products bound by brittle old infrastructure and associated work paradigms.

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The end of ‘social’: Is the digital enterprise leaving you behind?

 

Summary: We’re leaving the era of standalone social networks and moving to a far more interconnected world. The digital enterprise approach combines vestigial point solutions and legacy applications into cohesive next generation systems of engagement.

Social technologies are like the wiring in a device – your toaster, car or head phones won’t work without this connective plumbing. But “standalone social” as a point solution is as meaningless as buying wire for your toaster – it’s already designed around it. 

Your world is now dominated by increasingly sophisticated smart devices that are always with you, whether you are working or on your own time.

Intelligent personal assistants are becoming ubiquitous on mobile devices of all stripes – the battle between Google Now and Apple’s Siri and the rest of the pack are at an important maturity point, to some degree already superseding search with in-the-moment contextual information based on your existing preferences.

The management concepts that have evolved as a result of social media transforming global communications are now resulting in meaningful changes in the enterprise.

This algorithm-driven new world is a given for those who have grown up always living with smart devices, most of whom now live in a post Facebook and Twitter world of text messages and shared images, Snap Chat and other “instant” and ephemeral communication.

The increasingly stodgy world of Facebook’s content heavy and calendared recording of life events approach is reminiscent of AOL’s last days as the internet outgrew that old social interactions silo. Twitter has arguably collapsed under its own weight, failing to scale and missing filtering mechanisms to eliminate duplication and to help users surface important information. Most critically for the old social silo generation: They are now awash with click bait, marketing pitches and agendas.

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Mastering Change

I’m trying to understand why, over the years, there is constant repetitive ‘discovery’ of the same collaboration techniques and opportunities over and over again, which then all too often fail to stick in organizations. What follows are then generations of ‘what went wrong’ discussions.

The 1993 American comedy film “Groundhog Day” about a TV weatherman covering the annual Groundhog Day event who finds himself in a time loop, repeating the same day again and again epitomizes how many feel in the business. There’s a strong sense of deja vu even amongst people who are on the edges of problem solving to get people to share intelligence and work together.

Yahoo’s attempt to rally their troops for their Hail Mary save-the-company pass by bringing them all back on premise has triggered the latest tsunami of thoughts, with seemingly endless recountings of individuals work experiences in the past, what has worked for them and what hasn’t.

A fundamental is that getting people to work together collectively is a very different proposition to anecdotes about  personal experiences, and the more available technologies shift and evolve, the more the core issues stick out like a sore thumb.

A frequent issue inside companies is the part time ‘not my main job’ focus on collaboration and social computing products – all too often an individual or small team is tasked to explore options as an (often small) portion of their job. They are wary of biting off more than they can handle – especially when they encounter the vast terrain and fiefdoms they are expected to solve problems for. Social software vendor hype looks increasingly attractive as more urgent ‘day job’ tasks pile up, so they arrange a pilot project and engage in a tire kicking exercise.

The result is the predictable ‘ready, fire, aim’ syndrome.

Inadequate planning, interaction and communication with the people expected to live a new more collaborate life was suspect, and there is now an underused piece of expensive software to to be explained at budget time.

You’ve probably had the ‘Groundhog Day’ experience by now as the technology waves have matured.

I’ve worked on strategy projects with very short engagement periods which have been extremely challenging to pull off – a far better approach is an iterative, cumulative process that evolves over time and becomes part of the culture of a company. The superficial understanding of collaboration benefits and possibilities is often because it’s ‘soft’ – there are few metrics in place to measure and compare to begin with, and time is not invested to create them.

Back in 2009 McKinsey put out a paper by Scott Keller and Carolyn Aiken titled ‘The Inconvenient Truth about Change Management – Why it isn’t working and what to do about it’, which like the film ‘Groundhog Day’ is a bit of an evergreen.

When we talk about collaboration strategy we are typically primarily talking about change management to achieve well defined goals – the collaborative tools must be  fit for those purposes. It seems elementary but the reality today is that too many companies waste a lot of money on rushing software into service without thinking through supporting enduring use models. The McKinsey paper generalizes about what successful change management looks like and scratches the surface of how to get to success – I’m bringing it up here because these are the sort of building blocks needed to accelerate collective business performance …not simply buying the latest software versions…

Clash of the titans

January 2013: The future direction of technology needs rests more and more with clients and their ad agencies of record. A showdown is looming between the giant hi tech and and advertising industries…

‘The next big thing is already here’ Samsung spot by 72 and sunny

The tectonic shifts in the way companies do business are rooted in technology and connectivity, but the actual technology is rarely part of new innovation. This may seem counter intuitive, but the reality is that most technologies are designed to serve subsets of companies – accounting, marketing or HR being obvious examples.

 

‘The suite always wins’ has been the mantra of MISO vendors (msft, ibm, sap, oracle) for decades, with ERP (enterprise resource planning) forming the backbone of large companies since the late seventies, typically augmented by complimentary components that feed into other parts of the business. Historically human resources tech has been like widget supply chain until recently  – keeping tabs on the human components of the firm, making sure there are the right number and that they are performing to produce the work pieces they are installed for.

We’re leaving an era where the old guard MISO technology vendors, with a combined worth of a trillion US dollars, are fighting to retain their recurring ‘maintenance model’ revenue suite models, which fund next generation research and development in the face of increasingly modular, agile and powerful digital transformation options enabled by cloud, software as a service month by month seat licenses and of course mobile.

ERP transformed global commerce last century, and the next generation of this complex and costly but invaluable technology, goes MISO’s logic, are real time, in-memory analytical tools that will immediately tell you what your customer and prospects are thinking, their propensities, buying patterns, thoughts about relevant contextual topics. and connect to supply chain and social channels for end to end transactions, to lapse into jargon speak.

What’s wrong with this picture is that ERP was and is all about automation, weaving finance/accounting, manufacturing, sales and service customer relationship management into a river of transactional data that participants worked on at various points, like people putting together cars on Henry Ford’s production lines under one roof. The cost of doing business factors in maintenance of the production line, tools, humans (now robots) and raw materials.

Into this world came the (now ancient) Web 2.0 read/write web, mobile, open source collaborative code and large scale human interaction digital networking. Simplistically the MISO giants are betting their farms on being able to parse all the data this brave new world creates, and feed the ERP beast of their clients with it to enhance production.

Today the half billion spending world of global advertising is colliding with the trillion dollar MISO cash cow, and there is going to be significant fall out.

Looking at the way firms do business from a different angle, western society brands are large defined by highly sophisticated collaboration with AOR (Agencies of Record) – advertising agencies that play a fundamental role in motivating the consumption of well researched products by prospects and customers. This relationship is growing far more important in our fragile economy: global firms like Apple, Burberry and Nike demonstrate the immense power of brand positioning and perceptions, while the revolution in BTL (below the line) and particularly TTL (through the line) enabled by digital possibilities is slowly transforming the advertising industry. TTL is what most interested marketing people understand the concept of the social enterprise/business to be – greater agility from greater connectivity and context but on a platform, not a software suite.

The old guard MISO heavy iron has co existed with the fast paced world of marketing strategy and tactics to provide the correct numbers of projected widgets that can be sold for decades. Today the half billion spending world of global advertising is colliding with the trillion dollar MISO cash cow, and there is going to be significant fall out.

TV still dominates the delivery of eyeballs to advertising agencies and their brand name clients, but our digital connections are increasingly important: advertising titan Google’s profitability demonstrates this reality. We’re leaving the tech world’s social hype era – and as Larry Dignan, Dennis Howlett along with Brian Profitt over on ReadWrite among others have written, technology companies modeling an entire social enterprise/business haven’t worked well.

Valley VC’s have been licking their chops over a ‘Multi-Hundred-Billion-Dollar Destruction Of Wealth’ for the last twelve months as the MISO old guard yield to a newer generation of SaaS saving money for clients, with the VC backed startups pocketing next generation profits, as this piece last fall on Seeking Alpha by ‘modernist’  ‘Enterprise Titanic Approaching Iceberg: SAP‘ luridly proposes.

Software companies can help their customers identify paths to innovation – usually with much peppy behavior – but it is historically Ad Agencies which have helped firms find their mojo, and then hit the right tone with their customers. The automation of CRM (customer relationship management) typically means phone trees, long waits with terrible music and script reading, lowest cost employees somewhere on the planet who don’t have answers to your questions. That’s a tech human process interface at its worse – contrast that miserable experience with advertising at it’s best: AdAge agency of the year 72 and Sunny (who are based in Amsterdam and LA) brilliantly undermining Apple’s mobile fan boy audience with TV spots and digital follow through for Samsung.

Finding the right tone and messaging is more and more important in our fast moving times – digital documents and filing cabinets, creaky enterprise user interfaces and unhappy legacy enterprise vendor relationship financial memories are common place in the tech world, and they just don’t cut it in comparison to an Ad agency hitting sales out of the park. Now those ad agencies are getting into the technology business to create the tools they need, and work with vendors on their terms or make their own. Publicis owned Razorfish, also an AdAge top ten firm, create a lot of software these days…

There has been much clueless posturing around the word ‘social’ over the last three years, starting with the catch all ‘social media’ followed by various vertical definitions with Social slapped on as a prefix. Tech has a dubious history around ‘the next big thing’ – remember when SOA (Service Oriented Architecture, not Sons of Anarchy!) was the future and you had the get on the bandwagon quick? There are a whole set of other issues around big marketing and advertising company shortcomings, but from where I’m sitting (and somewhat colored by a previous career as a brand advertising creative) it is marketing innovation and agility that is eating the world, to paraphrase Andreesen, and the software industry is going to be increasingly downstream from that.

 

Maintenance is the battleground, innovation the prize

January 2013: Rimini Street’s 3rd-Party Software Maintenance & Support model could be the catalyst that completely changes the face of future enterprise software

In essence the internal world in large enterprises is split between accountants and their colleagues with process oriented tasks, and the ‘line of business’ folks who are tasked with making something new happen. The former group are typically the long term users of enterprise software, while the latter often experiment with – and utilize if effective – the latest and greatest cloud/mobile Software-as-a-Service tools in order to gain competitive edge.

SAP, as noted by Larry Dignan earlier, are raising their maintenance fees a percentage point this summer for those customers not on alternative agreements. Last week I spoke with Rimini Street, who provide alternative maintenance services for less money for SAP & Oracle customers, and that conversation took on greater significance today.

For the long term dependents on Oracle and SAP’s business management software and databases running their internal operations, maintenance fees have been a major irritant: SAP attempted a price hike to 22% in 2008 but backed down after customer outcry. Simplistically, maintenance is the ongoing tuning and refinement of the utility-like products that keep the IT plumbing working and the lights on, the patch Tuesday coding and a primary source of funding for research and development.

For the bean counters and process focused this is all a cost of doing business, but for those attempting to innovate there is more and more frustration that IT is soaking up vast amounts of cash to pay off what they see as relatively generic utility like equipment, instead of focusing those funds on breaking molds and thinking differently.

 Alexia Tsotsis interviewed Marc Andreesen for a Tech Crunch article (now that she no long finds enterprise software so boring she cries about it in coffee shops), during which Andreesen came out with this zinger

…The joke about SAP has always been it’s making 50s German manufacturing methodology, implemented in 1960s software technology, delivered to 1970-style manufacturing organizations.

In the last eighteen months there have been plenty of VC events where they wax eloquent about the coming collapse of the olde enterprise world and lick their chops over the coming feast they will enjoy with their nimble, new wave hipster firms that make the enterprise fun ‘n’ easy again. Keynote stage suits have given way to skinny jeaned jokers poking fun at the old wave, who have anxiously spent billions buying up new companies to look hip and happening. (Microsoft arguably spent a billion on six months of positive PR buying Yammer, and previously SAP bought cloud HR firm Successfactors and put their mercurial ceo Lars Dalgaard in charge of cloud).

The schizophrenic culture of many large firms, with fault lines between the bean counter/process people and the innovation/marketing axis can put immense pressure on IT decision making. The first generation of social networking is collapsing under its own weight as failures around filtering and distrust of the digital inn keepers motives take their toll – what happens next may or may not be funded by maintenance contract revenue within large companies. Microsoft spend an incredible $9.6 billion on R&D in 2011 alone according to this article by Matt Smith at PCworld, yet the new version of Office shows little signs of anything new, as Peter Bright at Ars Techica noted.
(‘
Office 2013 is an incremental update when Microsoft needed a revolution‘)

The big four MISO (MSFT, IBM,SAP, ORCL) players are in a very delicate position: they have to maintain their lucrative legacy recurring revenue cash cows while being seen to keep up with the times with modern offerings. This is where Rimini Street’s Third-Party Software Maintenance & Support is so problematic. Talking with SVP David Rowe last week about their recently released quarterly numbers for 2012 and fourth quarter it is apparent their business is accelerating. Cut and paste of their claims:

  • Largest new sales quarter in Company history with 40 new client transactions closed in Q4
  • $26.6. million in total Q4 invoicing, a growth of 61-percent over a year ago quarter
  • $558.5 million in sales bookings backlog, an increase of nearly 42 percent y-o-y
  • $43+ million in annual revenues for fiscal 2012, an increase of more than 30 percent y-o-y
  • Expanded global capabilities and workforce in Europe, India and Brazil

Although a rounding error compared to SAP’s, their numbers going forward are looking strong, and their pitch is compelling…MISO are no longer adding incremental value, they’re just adding modules to their elderly core offerings…Enterprise support models are 20+ years old with little innovation needed on utility style products, so why not use savings on this via Rimini Street to fund innovation around the edges…

It’s a pretty compelling argument, and certainly one I’m interested in because it’s a contextual source of funding for development of modern collaborative practices which seeks to problem solve and join the warring elements within enterprises.

The high noon court date between Oracle and Rimini Street (Oracle claim theft of their IP and an illegal business model) will occur at some point later this year and will likely be a pivotal moment in software history if Rimini Street win, because that will see last century process based enterprise software ring fenced and far less profitable.

Larry Ellison says the suite always wins, with Oracle converting best-of-breed outliers into features of Oracle’s business management software and database conglomerations. If the suite is no longer viable financially as the cornerstone of vast enterprise software vendors, it will free up and accelerate the pace of change for business software dramatically and we may see far more innovation from all players, which would be great for end users and overworked IT staff.

Whether any of the current players, new or old, would survive this upheaval is open for debate…

* update: Mike Prosceno of SAP was in touch to say about maintenance “we deliver much more, e.g. continuous flow of innovation through Enhancement Packs, and in case of Enterprise Support Proactively, e2e solution operations etc. We are well beyond the place you describe (as are most of our customers.) “

 

~ image from Shorpy