Sightings in SaaS

Archive for the ‘NetSuite and NetSuite Consulting’ Category

This came across the wire earlier today, pretty good news for NetSuite:

Nucleus polled NetSuite customers to gauge their success and satisfaction with their decision to entrust mission-critical business functionality to cloud computing. Ninety percent of the customers surveyed rated their satisfaction as four or five out of five — satisfied or very satisfied, and no company rated their satisfaction below three. When asked to elaborate on the reasons for their satisfaction, NetSuite’s ability to drive cost reduction was mentioned as a key driver. By offering tremendous scalability and breadth of functionality, with little to no IT expertise required to install and manage, NetSuite has earned long-term satisfaction and loyalty. “Because the application has been validated by users as an effective tool in cost reduction, deployment footprints at existing customers are more likely to increase rather than decrease,” wrote Nucleus in the report.

I’ve long said that running a system, or especially, many systems, has a huge hidden cost. Some might get away with it by putting the brother-in-law in IT, but believe me there is no way that the systems you maintain do not have a cost, I don’t care who runs them.  And there is also a cost to the systems that you do not run, mainly in the time and effort people expend manipulating data on spreadsheets.

6,600 customers, that’s pretty good, too!

Every once in a while I write a post that’s crazier than most. These normally happen late at night when my internal defenses have given way to a glass of wine. This post is along those lines. The basic question that I’ll try to answer is “Will the Cloud and SaaS save the current roster of Enterprise Software from the Dinosaur like extinction of its forebears?”

I’ll start by asking what  can you expect if you travel around the world looking for a tasty chicken dinner?

In Vietnam you can buy a live chicken, rest is up to you.
In China you can buy a chicken that’s been killed, you pluck and eviscerate and cook.
In Paris your chicken has been plucked, you eviscerate and cook.
In Des Moines the chicken has been plucked and eviscerated, you cook.
In New York the chicken arrives on your table plated, garnished and sauced

Now it may not seem like the world of software and the world of chickens have a lot in common, dear reader, but don’t give up yet. There is a point that I want to make here. A recent conversation with the Enterprise Irregulars around the difficulty of moving ERP systems forward with the business brought some interesting ideas to the fore. It all got started with an article by the now famous, in these parts, Thomas Wailgum in CIO about a study partly commissioned by CIO and Enterprise analyst IDC concerning this very question. Wailgum’s title says it all “ERP’s Paralysis Problem and the Repercussions for Businesses Everywhere.” The repercussions, as you might have guessed, are not good.

First,the premise, more exactly, is that ERP systems can prevent companies from seizing business opportunities because the systems are lumbering giants not given to flexibility, agility, growth and change. This leads us to conclude that the deeper the functionality of the ERP system the greater the difficulty of meeting business opportunity challenges. ERP in other words suffers from the New York Chicken problem: Once it’s served there is no turning back. You can’t change the recipe or cooking method at that point.

It’s an interesting thought. I am not sure that it is 100% on the mark, but having worked with Oracle ERP software for nine years I can attest from personal experience that there is more than a grain of truth here. Brain Sommer has a good post about some of the real sticking points in ERP systems that make changes and additions so difficult. This one stuck out:

5) Code block insanity – Just because your accounting modules can support a 30 segment code block doesn’t mean most companies should use this. Moreover, what views a company will want in its code block will change over time. Unfortunately, most financial software products (and all the feeder systems that supply accounting transactions to them) make changes to the code block akin to a complete re-install of the software. Nothing brings rigidity to ERP like the code block.

I’ll take the thought one step further – why do we have a code block, this huge accounting nightmare that attempts to pump all possible corporate knowledge about what the company sold and purchased into the general ledger from the subledgers where the transactions take place? When they began to create software for financial transactions they had only a general ledger, so to see as much data as they possibly could they tagged all the transactions in ht GL. Business software became accounting centric, and remains so even after real time relational systems came on board with multiple subledgers that can report out vast quantities of detailed information. Why do you have to update the GL with sales data when it exists in such fabulous detail in your CRM/Order Management system?

So what does a large enterprise do? They run Oracle, SAP, or something similar. Does the enterprise just forgoe new opportunities? I can’t imagine that , especially since the people who run large enterprises normally come out of sales and sales is where most of the new opportunities get their start. These folks are not going to be patient for long. Eventually the line of business, lob, will go ahead and start to do whatever they have to to tackle new business, even, in many cases, if that means writing custom software.

Now, developing custom software may not seem like such an odd pursuit to you and you would be correct – if it was the 1980s or earlier. But when so many large enterprises went to systems like SAP and Oracle they lost their development teams. That was the cost justification of the new ERPs. In the bad old days all large companies employed large teams of developers who built their custom business apps from the ground up on what came to be know derisively as legacy platforms, from IBM, Burroughs, etc. Coding custom software is like the chicken in Vietnam or China. Well, at least now you have more refined tools and platforms, so we will say it is more like China.

Well, apparently the wheel has turned again. Large Enterprises are again back to the custom software job enthusiastically and doing it with the aid of all the modern IT tools, platforms and business models – outsourcing, offshoring, onshoring, LAMP stack, Cloud, Free Open Source Software, you name it. They are coding software at a pretty good clip evidently, again in an effort to meet business opportunities.

Being on the cloud and developed in the SaaS, software as a service, model may help some of the newer entrants to the Enterprise software market avoid the New York chicken problem because the cloud can give a company greater access to partner software add-ons. But that is not a given. They must still walk a tightrope between offering a robust application that includes most basic needs while giving the Enterprise with more complex requirements a path to customize those requirements using the applications itself. Every NetSuite implementation, to be perfectly honest about it, requires a fair amount of explanation of what is not possible. You can run a lot of business processes in the system with no further customization and coding should be rare, but to have a system that truly represents your business today and your meets future opportunities, you will need to customize a quite a bit and code a little. It’s not an easy tightrope to walk obviously, and the balance struck is a subjective proposition.

However, I would also submit that every buyer contemplating the decision to move to one of these new enterprise systems should have a hard discussion about how much they want to customize and code, and how to do it in a way that prevents them from falling into the New York chicken problem themselves. For my part, I suggest that clients hold off on any customization except the most absolutely vital, and wait to add code completely, until you are live for six months. You will be surprised by how much your requirements will change once you know and understand the system.

The myth, not sure if it is still current, that SaaS prevented customization, has largely been itself eviscerated by Netsuite’s Business Operating System and Salesforce.com’s Force.com development platforms. These systems are not only open and customizable, they also encourage customers to make the applications meet business opportunity challenges.

Only time will tell if SaaS Enterprise vendors avoid the same fate as their older brothers like SAP and Oracle, but it is a good time to ask the question. Who would have thought 10 years ago that ERP would end up costing you money?

There, done. It had to be said and now it has been said. I no more liked saying it than you liked hearing it, but the truth will out, and now it’s done. Take a deep breath.

By not only having a financial software company write a new version of their software on the force.com platform but by then entering into a joint venture with said company to market the newly combined CRM and Financial software product, Salesforce.com validates what we have been writing and saying these five years: To wit, it does not make sense for Small and Medium Enterprises, SMEs, to try themselves to patch together various applications when there are integrated products already on the market. Integrated apps, as in a suite, are an enormously beneficial idea for any company but especially for the SME who does not have the time, manpower or cash to build bridges from one app to another.

In our long experience it is only the largest enterprises that have the necessary resources to pull off the interfaces between applications, and even then it is usually not done well. And to be perfectly frank, integrated suites are not perfect either; I make no argument to the contrary. However, when you are making the decisions for your SME you do not have the luxury of considering a best-of-breed-applications-stitched-together-and-maintained-by-professional-IT-staff approach to your business. It is simply not in the cards. Even if it were you will have a hard time explaining to yourself, and any one else who might be listening, why so many organizations across the world and across so many industries have abandoned the best of breed approach for their core applications and gone to an integrated suite (Oracle, SAP, etc.).

When we talk to SMEs who currently have several key applications from various vendors running core functions in their company they normally run them in complete silos, using spreadsheets to paper over the disconnects. They have either abandoned their interfaces (we still have not met a company that uses the SF to QB interface successfully) or never even bothered with them. That’s reality.

Salesforce has evidently seen the light themselves. I will hazard the following prediction: Over time SF will sell their standalone CRM to very large companies who have large, direct sales forces, and they will sell an integrated suite to the SMEs of the world. They really have no other choice. They are being surrounded in the SME market by a ton of CRM competitors who have matched their functionality. Add to this NetSuite and SAP’s redesigned Business by Design due out any year now and SF really needs to both differentiate its products from the Zohos of the world and confront the integrated suites as they take market share in a world newly interested in cloud computing.

So bravo to Salesforce.com and the newly minted FinancialForce. It will be a presence in the market, I have no illusions about that. It also validates NetSuite’s long maintained position that an integrated suite is the key to running a better information system and finally a better enterprise.

It is being reported online that Oracle has started a significant RIF (reduction in force) process in their consulting division. ZDnet’s Irregular Enterprise  has a post about it today that brings up some good points. As a former Oracle consultant I wanted to weigh in as I think this is a worthwile subject to understand for folks thinking about on-premise software.

I went through several RIFs while employed with Oracle Consulting. The key thing to understand is that Consulting was told, in no uncertain terms, that it had to meet the same operating margins as software and maintenance, ~40%. Consulting charges $200 – $400 and hour for resources to work on implementation, yet it had a hard time meeting these margin goals.  That gives you some indication of how profitable on premise software and its annual maintenance fees are when a consulting division at these prices cannot keep pace!

Also, fewer and fewer are the organizations willing to spend top dollar for consulting help. In some cases you could hire two consultants for the price of one Oracle consultant and muddle through fine.  This makes it more and more difficult for Oracle to maintain the margins in consulting that it earns in software and support.  But customers have a point here. It’s not like the early days of ERP/CRM suites anymore. There are plenty of resources around now who understand these systems and who have done multiple implementations. Our NetSuite implementations for example average less than 100% of the price of first year licenses.

It’s important to understand, before heading into an on-premise software/implementation/support contract that the inmates have taken over the on-premise asylum and put the visitors, er customers, to work for them.

Salesforce.com on for example, and other SaaS firms, operate at much lower margins, under 10% in salesforce’s case and for NetSuite the operating margin is still negative.  Businesses of all types should expect good operating margins, but does it really make sense to have operating margins approach 40%?  This is a sign that the market is no longer competitive, that in fact a lot of on-premise software companies have locked in their customers and they can extract a pound of flesh as they wish. Not a good position to be in, if you are a customer.

How have they achieved lock in? Customers have spent so dearly to buy, implement and support the software over the years that all the players in the market know that to even suggest changing is waste of time. No one wants to have to bury the investment they have made in Oracle, SAP, Sage, Microsoft, etc.

Meanwhile small and medium enterprises are taking full advantage of less expensive software/implementation/support from a wide variety of SaaS vendors. It’s a real weakspot in the operations of many companies that they continue to escalate their commitments to on-premise software vendors that have done nothing but hustle them year after year.  Oracle’s operating profits may be great news to the buyers and sellers on the stock market, but eventually the customers have to take notice and ask “Why are contributing to our own mugging?”

Brian Sommer at Software and Services Safari has an excellent article today which I have summed up in the title. My takeaway is simply that as cloud based software services open integrations to other clouds and manage those integrations, they multiply the power of their individual clouds and create a computing environment that the on-premise companies cannot match.

With the multi-tenant capability of SaaS, the vendor manages the upgrade process. Therefore, the client base is always on the latest release. Integrations between SaaS applications are therefore easier. But more than that, as SaaS vendors themselves roll out the integrations, they also manage the integrations. Take the example of NetSuite and OpenAir, or NetSuite and SalesForce.com. These integrations are generated and managed by the vendor itself. Were these three vendors offering on-premise applications, creating and managing the integration of the apps would reside with each individual customer. 

Just think of it. Each customer hiring an employess or using an outside consultant to create the integration. But with SaaS applications, the integration must only be created once and then all customers, all running the same version of the SaaS, can use it. It’s a remarkably efficient way to perform integrations. And don’t even talk about maintenance. With home-grown integrations the authors were often employed full time to maintain the code. That is now off of the customer’s plate and back where it belongs – with the vendor. The customer is therefore the recipient of value based solely on the fact that are part of a larger network of SaaS applications. The vendors benefit from the same network effect. 

As SaaS applications move upstream in the marketplace I look forward to the amplification of this SaaS network value. Larger companies for example will require HR Talent Management applications, applicant tracking and benefit management. As these SaaS offerings are integrated with Accounting and Service Resource Planning SaaS, like OpenAir, they also will benefit from this network effect.

NetSuite’s strategy in purchasing but not swallowing OpenAir whole, as some have worried, is now more obvious: NetSuite is stronger with OpenAir as an integrated SaaS than they would be if they simply incorporated OpenAir’s functionality into their own and moved on with a bigger, but less networked, Suite.

I spent some of my weekend playing with NetSuite’s 2009 R 2 and found a couple of things that relate to current clients trying to solve difficult problems.

First, in a nutshell, is the problem of selling software into a large organization. For example, think about CAD software. Each engineer needs a seat, but engineering might be spread around a large company, spread across the globe in some cases. So company XYZ is already a client, but you are still actively selling to other divisions and engineering teams. How to manage all of that data, all of those people.

The new Lead Converison process is the answer. Bring in the new leads of Company XYZ as individuals and work the lead as you normally would, with the addition of the new data fields on the Qualifications tab. As the sales person makes progress in qualifying the lead, they collect the data and at some point decide that the lead is ready to take the next step into the sales process. There is a new button on the lead form to Convert the lead, and this brings up a form which allows the sales person at this point to create a new opportunity, change the lead to a prospect, create a sales task, assign the lead to a sales territory and, finally, merge this lead with the parent company – while keeping a history of both separately.  It’s very smooth and well thought out, and again a great solution when you are selling into multiple divisions of the same parent.

To get there, you’ll have to make a few small admin changes, like enabling the lead conversion process and also setting up a general preference to treat all leads as Individuals. If you are currently using NetSuite there are some good points to consider in the online help for how to make the changeover. Not difficult but you should consider them carefully before pulling the trigger. 

Also, you will have to abandon the current workflow that you may be using in NetSuite, where a lead changes to a prospect when an opportunity open. However you will not sacrifice any functionality in the changeover, as the new Lead Conversion process, detailed above, helps you to manage this workflow and much else as well. 

This is really a godsend for companies who sell into multiple divisions of a parent company and need to maintain relationships with dozens if not hundreds of contacts at a single company. Using the new lead conversion process will save them many hours of input but also help them to collect better data from their online forms and marketing campaigns.

Recently one of our NetSuite clients called with a big problem. They are continuing operations in the UK, but the US operations are being put on hold as they wait out this ugly recession. The US ops run on NetSuite and they needed to trim costs as much as possible while keeping a financial history of the business, which 2 years ago was brisk with a bright future.

NetSuite offers of lower cost version for small companies, NetSuite Limited License Edition, but the limits are normally 5 – 10 users and my client wanted only one user. Does not seem like a big deal, and it wasn’t. NetSuite issued a renewal and the client now has the least expensive option until the market turns around and they can return to active operations.

I really did not think twice about the whole thing until I read the following today:

SAP (like Oracle) has so far refused steadfastly to accept partial maintenance cancellations. While this is (from the vendor’s point of view) quite understandable, it can lead to very unpleasant situations that are not without legal issues.

Case in point: a recent insolvency in Germany. A mid-sized company filed for insolvency and failed to revive the troubled enterprise. There are still orders that must be served but in a few months the lights will be out.

Most of the 350 users of their SAP system are gone. Only about 50 are left and, of course, the HR-system is required to pay the residual staff. Closer to year end, a few legal updates will have to be fitted to the SAP-HR-installation.

The administrator, in an attempt to make sure that staff can be paid, asked SAP to accept a partial maintenance cancellation for 300 seats – very appropriate especially in light of the upcoming increase for standard support.

SAP refused to accept the partial cancellation. Either you cancel in full or you pay in full.

Ouch – that’s being damned miserable to a company that is experiencing possible end of life issues.

I know for certain that when our client moves back to full operations in the US they will have some loyalty to NetSuite, who cut them some slack when they really needed it. Why do companies not expect the same from the big on-premise vendors? I can’t say for certain what the psychology is that keeps so many taking it from these vendors for so long. But at some point there will be alternatives and I cannot imagine that some companies don’t finally say enough is enough.

Like one of those old TV police shows where the preferred method of killing your enemy was to cut the brake cable on their car, I awoke yesterday to a snapped Emergency brake cable on my vehicle. Could not therefore release the emergency brake and had to have the car towed over to my mechanic at Nightingales to put in a new cable.  I was thinking maybe one of the blog’s readers had done the dirty deed, but comments have not been particularly abrasive lately, so I think I’ll chalk it up to operator misuse, or something.

At any rate, after going through the process of having it fixed by Ray and the boys for a mere $74 I caught up with an interesting article by Vinnie Mirchandani about using a local repair shop, like Nightingales, compared to a Dealership. It’s an interesting article, more so because Vinnie uses the Dealership/Corner Auto Repair comparison  as a proxy for software support from the Vendor vs a 3rd party. I think the analogy makes sense, especially in terms of the interests of various parties.

We have a similar situation at SightLines. When a prospect interviews us about NetSuite implementation they often ask why should we use SightLines instead of the vendor’s own professional services group. Our answer is straight out of the corner auto repair playbook: We only answer to you, the client, and your needs, not corporate’s; and since we are a small consultancy, not employees of a large company, your reference means a lot to us – it’s how we build our business.

Having been an Oracle Consultant for Oracle earlier in my career, I can relate to the interest in having the software vendor handle the implementation. Oracle used to ask prospects “Who knows our software better than us, Oracle?” Well, actually, a lot of smaller consultancies knew Oracle as well or better than Oracle’s own consultants because they had been at it longer.  Oracle tended to hire and train the newbies while the small solid consultancies brought in experienced users and trained them in consulting.

If you are looking for experience and for a consultant who will look out for your interests more than the software vendor’s folks then look at an independent consulting firm. They often have well trained, experienced people who not only want to complete the project on time and budget, but also want to delight the client and perhaps pick up a reference along the way.

Lyrics by the infamous Robert Johnson, screaming guitar by the legendary Eric Clapton Cream Play Crossroads. Why the blues reference? This is what SAP users do when their software version is iced and they are forced to upgrade, at the cost of several hundred thousand dollars, to the latest release or pay increased maintenance costs, as will happen to thousands of them currently running SAP R3 v4.6 and 4.7.

NetSuite’s recent initiative is therefore aptly named Crossroads, not that they had Eric Clapton in mind. What NetSuite is thinking is that as many large companies with dozens if not hundreds of divisions, many of which may be running SAP at a huge cost, many others which have still not migrated to SAP, face the decision to upgrade or pay greater maintenance taxes over the next few months, they have an opportunity to look at other alternatives in the marketplace. No, NetSuite will not replace SAP at the Corporate office, but large companies can deploy NetSuite successfully at the division or business unit level, at greatly reduced costs. And using one of NetSuite’s integration partners, we have used Boomi successfully to integrate applications with NetSuite, the division can roll their results up to corporate without a problem.

I have seen this exact scenario play out in an Oracle ERP implementation earlier in my career. The client was a Fortune 100 employment services organization that was opening offices across the globe. But there is no way to roll out Oracle to such small business units. So they found a smaller software package and implemented it at several of these offices. Unfortunately at this time there were not the internet based services available to them and results from each office had to be sent via ftp to corporate and manually consolidated.

Today the situation is both the same and better. The same business requirements exists for far flung business units but with NetSuite they could all operated under a single account using NetSuite’s SaaS OneWorld, with multi-subsidiary, multi-language and multi-currency functionality. Using one of the integration partners the NetSuite OneWorld results can be electronically consolidated with Corporate results. What an enormous improvement. If the parent company has actually forced the divisions to run SAP, or try to run SAP or Oracle, then the advantage is even greater: Jettison the resource intensive package and roll out NetSuite for literally pennies on the dollar for what is costs you to run and maintain SAP or Oracle.

The press has covered the announcement pretty well here,  and here and our friend Vinnie Mirchandani has also jumped in. Whatever the take by the press, NetSuite is absolutely correct in doing everything they can to highlight the awesome efficiencies they can offer in the business unit/division space.

Was just notified that AMR Research is hosting a Webinar on SaaS ERP with AMR Research Chief Research Officer Bruce Richardson, Commco President and CEO Franklin Christopher – they are a NetSuite customer – and NetSuite CEO Zach Nelson. Should be an interesting hour. You can register here.

I have attended several of these in the past and I always find it interesting to hear how a particular company uses NetSuite for their business. Every company is different and NetSuite has the flexibility to accomodate a great deal of complexity. So if you are thinking that the cloud might be the right place for you, then this might be the right webinar to attend.

The most important question facing the company considering an ERP system, whether it is a replacement or a first time purchase, is ‘Does this system fit my business?’ It is a daunting question to answer, and most companies realize over time that the better question is ‘Is this system flexible enough to meet my business needs, not just today but in the future as well?’ It is impossible to meet all of a company’s needs out of the box, so flexibility is key. I’m sure that in this webinar you will hear a lot about flexibility. I hope you find it an hour well spent.