Thursday, October 6, 2011

On-Premise ERP Vendors and the Case of the Boiling Pot

Next month marks the 20th anniversary of Robert Reich’s appearance as the keynote speaker at AMR Research’s annual fall executive conference. You may recall that shortly after his speech,  he became the U.S. Secretary of Labor under President Clinton. We like to think that appearing on the AMR stage helped propel people to prominence, but that might be a stretch.
As I recall, he opened with a story about a frog. If you dropped the amphibian into a pot of boiling water, it would leap out ASAP.  If you started the same experiment with a more moderate temperature that you gradually increased to the boiling point, you would have a different outcome. Poached frog, anyone?
His point was that we are quick to react to dramatic events, but fail to respond to more gradual change.
The idea of on-premise ERP vendors as frogs occurred to me around 4:30 this morning. For some reason I was thinking about a recent conversation I had with a former AMR colleague.  When I asked him what he was doing these days, he said he was working on replacing a legacy J.D. Edwards implementation running on IBM System i with NetSuite. 

When he said that, I wondered how the J.D. Edwards team had responded to the loss.
Here are three scenarios.  Which one do you think is most likely?

1.       The sales team had no idea they were being displaced.
2.       When they heard, they pleaded with the customer to keep paying maintenance until the switch over was completed, thus avoiding a total loss of revenue.
3.       They alerted parent company Oracle that there might be an opportunity for Fusion-in-the-cloud.

I suspect many of you picked one of the first two options.
On the flip side, any bets on whether NetSuite CEO Zach Nelson has already begun working on a whole JDE/System i replacement strategy?   How soon  will it go up on his website alongside comparisons with QuickBooks, Microsoft’s Great Plains, and SAP?

With 10,000 customers, NetSuite remains the early leader.  It has picked up some new competitors, though.   Sandy Kurtzig, creator of the best-selling MANMAN MRP II package used the recent Dreamscape event to launch Kenandy.  Think of this as the cloud-and-social version of MANMAN.  She stood on stage alongside Kleiner Perkins’ Ray Lane with both wearing buttons with a bar through the ERP acronym, a nod to salesforce.com’s famous “No Software” logo.   By the way, Kleiner led a $10.5M first round investment.  Salesforce.com is also an investor.

She was later followed on stage by Infor’s Charles Phillips.  Ironcially, his company’s product portfolio includes the original MANMAN software. Think Ms. Kurtzig will be targeting some of Infor’s legacy base?
Rootstock’s Pat Garrehy and team also used Dreamforce to announce their plans to offer ERP software to salesforce customers.  They currently offer manufacturing apps for NetSuite, too.  The company is  taking a slightly different approach than Kenandy by including salesforce CRM and FinancialForce as part of the suite. Mr. Garrehy also has significant ERP experience having run Relevant Business Systems for 20 years before selling it to Consona in 2006.  Like Kenandy, they are eager to target the lucrative, legacy on-prem  base which easily exceeds 100,000 customers.

This is not to say that the on prem vendors don’t have cloud products available.  They do.  But, they also face significant organizational hurdles.  If your sales model is based on reaching specific revenue targets, how do you get reps to switch from large, one-time perpetual license deals to a subscription model?  What incentive does a sales manager or sales EVP have to transition to recurring revenues?  After all, you have to keep feeding the quarterly revenue beast.
What do you think?

If you read this and said “baloney, my company is too big for cloud ERP,” look around at some of the purchase decisions being made by your peers in neighboring business units. You may be surprised that their cool new business intelligence apps that you admired are running in the new MicroStrategy Cloud. 
My point is that the new innovation around social and mobile is taking place in the cloud.  While cloud adoption started at the edge with sales force automation and HR, it’s moving towards the center with ERP and business intelligence.

Two decades ago Mr. Reich warned an audience about the risks of ignoring change.  It merits repeating today.  While the water doesn’t seem too hot right now, it’s better to have a seat at the table than to be the meal.

As always, I welcome your feedback and advice.  Please add your voice to the conversation.
Bruce

3 comments:

  1. Yes this does have a deja vu all over again feeling to it. 20 years ago it was moving from mainframe to client server and MS Windows. I for one could never understand why someone would want to have a Windows device when having 3 dumb terminals on my desk gave me all the access that I could ever want to the enterprise system.

    Of course there are going to be those that dump their old systems in favor of this newfangled technology and embrace it whole heartily. For the majority of users it will be a gradual migration. Pieces and parts of what is considered ERP will move over to the cloud due to the driving force of the need for mobile access.

    As usual I think you are right on target - the cloud is here and is only going to get bigger in the enterprise market.

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  2. There's little doubt you're right on the money, Bruce.

    It'll be interesting to watch the mighty fall behind in this race, as up and coming companies turn to the cloud, not as much for the elegance of the ongoing evolution of their solutions, as much as they do so for the cost and flexibility at first, and then the intuitive comfort zone these Gen X and Y decision makers will have with cloud-based social tools and the self-informing streams of trust-based intelligence they'll provide.

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