This is the second part in a 3-part series entitled, “The Cloud and the End of Enterprise Software.” Please find part one, “SaaS Brings Agility to Those Who Think Portability,” here.
A New Era of Business Applications
As consumerization continues to transform Information Technology, organizations are beginning to leverage a novel breed of business applications that provide enhanced self-service capabilities and content-rich digital services to the business. For this transformation to be successful, these new applications must support performance requirements and user experiences that do not only meet Service Level Agreements, but also exceed Service Level Expectations.
The need for business applications has traditionally been serviced with very large and complex Enterprise Software whose purpose is to satisfy the needs of entire organizations rather than individual users or specific business functions. The premise of Enterprise Software is that it performs many of the functions necessary for businesses to operate, usually including accounting, sales automation, supply chain management, order processing, customer relationship management, HR, and reporting. The bloat of the software’s feature set has typically been used to measure its value to the enterprise—and to justify its hefty costs.
As we learned in IDC’s paper from our last installment in this 3-part series, there is no question SaaS is quickly replacing traditional Enterprise Software models, which require extraordinary organization commitment and vendor “lock-in” due to expensive infrastructure, yearly maintenance and support costs, and negotiated long-term licensing fees. Subscription-based payment models, “pay-as-you-use” licensing, data center cost reduction, and the elimination of hardware/OS refresh cycles provides a strong and compelling financial argument in favor of business applications delivered in a cloud-based model. However, financial arguments don’t tell the whole story.
Satisfaction is Not a Guarantee and It Isn’t Cheap
With the continued consumerization of IT, we are seeing an increasing trend of choosing Apps over Applications to perform business and personal functions. In Charles Var’s article on TrackVia entitled, “Apps vs. Applications: What’s the Difference & Does it Matter?” he defines Apps as “Software designed for a single purpose and [performing] a single function,” while Applications are defined as “Software designed to perform a variety of functions.” But how well are these applications performing these “variety of functions”?
End Users’ expectations of software solving their needs are becoming increasingly demanding. In this world of mobile technology with smartphones and tablets, users are more familiar with choice and are accustomed to having several apps that perform specialized functions and perform them well. If an app does not perform well, it is quickly and cheaply replaced. These are users who are living and breathing agility. They will not allow themselves to fall victim, or hostage, to apps which do not fulfill their needs. They work quickly and efficiently and expect the tools that they use to live up to their promise. At home, this is the definition of a savvy end user. At work, however, this can be construed as the behavior of an employee engaging in Shadow IT.
According to a Panorama Study, CIO satisfaction with their ERP was “relatively high—70 percent were satisfied, and 76 percent said they’d go with the same software again.” Meanwhile in Epicor’s 2013 Global Survey, we see the following results from end-users (business stakeholders) surveyed on ERP:
- 80% do not wish to continue to invest in their legacy on-premise ERP
- 48% would like easier access to information with their ERP
- 50% consider their ERP system to be “basic” or “adequate”
Yikes! Companies are making significant investments in software that half of their business users merely find “basic” and “adequate.” However, most importantly, the study indicates a considerable discrepancy between IT and the business stakeholders in terms of satisfaction with Enterprise Software.
When accounting for the sheer cost of these large system implementations, we need to consider more than just the cost of licensing. The total cost of ownership (TCO) of your typical ERP or Enterprise Software should consider many cost impacts, a handful of which may include:
3. Development Costs for Customization
4. Changes to Existing Processes
6. Software Licensing
9. On-Going Support
In Panorama’s 2013 ERP Report, we see ERP Implementation costs reported as $7.1 million in 2012. Project durations averaged 17.8 months, up from the previous year’s 16, and the percent of project duration overruns were 61%, up from 54% the previous year. The alarming statistic, however, is with the 60% of respondents reporting 50% or less benefit from the whole exercise.
Anecdotally, NTT DATA has consulted with many very large enterprises that have sunk significantly higher costs and time into their ERP implementations and achieved virtually no business benefit prior to bringing us in to help.
Industry leading ERPs are challenged with serving businesses across different sizes and industry sectors and therefore require a significant amount of time and effort during implementation to create complex workarounds and customizations, or re-engineering business processes. Even after this process is completed, a staggering 96% of CIOs have confessed that their ERP doesn't provide their organization with a competitive advantage, according to CIO Magazine.
Perhaps the most unfortunate outcome of it all is that the resulting user experience, for lack of a better word, stinks. Khoi Vinh colorfully relates this notion better than just about anyone in his 2007 article on enterprise software:
“Enterprise software, it can hardly be debated, is pretty bad stuff. If you work at a big company and you’ve ever had to do something that should be simple, like file an expense report, make changes to your salary withholdings — or, heck, if you’ve ever tried to apply for a job at a big company — then you’ve probably encountered these confounding user experiences. And you probably cursed out loud.”
The complexity involved in using these systems tends to breed a need for a select few power users who can overcome some or many of the limitations and inflexibility of these systems. These employees become vital to an organization. If you have an issue with your slightly unconventional expense, talk to Amy, our PeopleSoft guru. If you need to figure out how to force back order processing when invoices have not yet been made available, talk to Bob, your SAP guy. Meanwhile, John and his team are writing code to automate these workarounds in the future because the $10 million you’ve already invested in the software just wasn’t enough.
One Size Does Not Fit All
When making software procurement decisions, it is very tempting to see what “everyone else is doing” and assume that is the answer. However, not all companies are alike and, as we’ve discussed, trying to retrofit an existing piece of Enterprise Software does not always result in success or cost efficiency. Thinking functionally about exactly what is required will allow your organization to employ light-weight tools to solve your functional needs and give you the flexibility to replace these tools as necessary.
Sometimes, the right decision may involve building your own. It is important to choose the right strategy to solve your company’s needs and not feel pressured to limit yourself on what’s commercially available.
When electric car manufacturing leader, Tesla, was looking to implement their new ERP to deliver cars faster and efficiently while providing better customer service, they made the decision to build their own. Their CIO, Jay Vijayan argues, “It can take more than a year and millions of dollars to roll out SAP software because of all the integration required,” and he instead went to market with their own homegrown system, customized to their specific needs, in only 4 months!
Facebook had a similar need for a customized solution with their salespeople interacting with advertisers. They decided to spend over a year writing their software on their Platform as a Service (PaaS), replacing Salesforce. However, they still use Salesforce as a component. “Instead of Salesforce.com being the core, it’s now one element of the system.” Tools are effective when they are used to solve a need. Use a hammer when you have a nail, but there’s more to building the house—sometimes more than what you have in your top-of-the-line Occidental Pro Leather Tool Belt.
By electing to employ a collection of specially purposed business apps, both bought and built, the complexity is in the integration, while in the traditional arena of ERPs and Enterprise Software, the complexity falls within the application itself. Solving these problems of complexity in terms of a single application suite ties your solutions, customizations, and workarounds to a specific tool and philosophy, which can lead to vendor lock-in, or major training and adoption implications should you ever choose to switch. However, when solving the complexity of integration, you are able to remain agile and look at your application landscape as a series of Lego blocks. As the market leads to better innovation and tools serving a particular business function, replace that Lego piece and connect it into your integration solution.
For many organizations, this does not mean an overnight overhaul of their enterprise software. As many companies even today are still held to integrating and using software built on mainframes from 20 to 30 years ago, the cost and effort of moving to modern technology practices can be a challenging journey.
The Inevitable Conclusion
As such, monolithic, bloated, expensive Enterprise Software has served its purpose as a reflection of the organizations it supported, in an era that has come to an end. We are in the dawn of the digital era in the enterprise, where we are seeing a tremendous shift of focus to agility, disruptive thinking, competitive differentiation, and consumerization. Businesses are forcing IT to think in terms of Apps, not Applications. Business Apps are here, and they are helping businesses transform in the ways that are fundamentally enabled by cloud services.
In the next and final installment in this series, “Cloud Fuels Evolutionary Software Trends in the Digital Enterprise,” we will explore how emerging technologies will result in software assisting in strategic decision making to broaden businesses beyond simply solving operational needs and performing specific business functions.
-CJ Kadakia, Director, Cloud Advisory Services – Senior Applications Strategist
Post Date: 4/29/2015