I had a very interesting conversation with an SAP customer about why do they really want to go on to the SOA world. With doomsday blogs appearing, I learnt the customers are much more wiser now than a bunch of analysts put together in one room. While discussing the recent “SOA is dead” blog, I got a very insightful opinion toward the approach this customer, who incidentally got his organization on the bleeding edge of technology, had to tell me. For example, when it comes to the manufacturing sector, in this scary economic scenario, what customers are really interested is in lowering product and related costs, improvement in efficiencies and improved productivity, improvement of product and process quality and yield based on efforts with the investments in the base ERP remaining consistent to be treated as a more back-office implementation, the the front face driven by more user-friendly UIs. Its not about the investments around IT that is bothersome, but the way IT vendors, System Integrators and Consulting firms, either focus only on Business processes or “SAP Implementations” ignoring the Business/Enterprise Architecture.
The SI thought Pattern:
I found this piece of the conversation particularly interesting, though the statements were loaded with vitriol. Given the current squeeze in the economy, the Satyam and PWC fiasco, with many IT vendors in the “suspicion zone” because of their primary focus being aimed at hard selling the license and service revenues to the customers, they tend to go overboard in increasing the sales-pitch driven by the Onsite-Offshore models, squeezing of the Operating Margins to the last drop by putting in a couple of ace consultants in front of the customer and saddling the rest of the team with a bunch of rookies offshore/onsite to shore up the profitability of the project and focusing more on annuity businesses and their margins, instead of the core essence of the driving a scalable Enterprise Architecture across the board. This gives rise to a totally disparate application and architectural landscape, where the focus is completely off track from the process improvement areas. This is one kind of System Integrators. The other kind is the one which will hard-sell “Process-centric” and knowledge by placing SMEs from the concerned domains in a way who have no clue of the IT scenarios and landscapes. There is thus this yawning gap that comes in through with the need of the hour being the demand of Certified Enterprise Architects. The BPX Community or whatever you may want to call them. Most of these Organizations have their history rooted in the coding world, when one needed an army of consultants to make things happen and the system would come to life.
With the SAP Implementations becoming a whole lot easier, compared to the good old days of R/2 and R/3, the hard sell by the System Integrators and the Consulting firms is not needed at all as the Customer ecosystem is more than experienced, just short of a few good hands. It is in such “IT shops”, the Senior consultants have risen to a level of their incompetence by handling odd-jobs of fulfillment, training, recruitment and other such mundane tasks, devoid of any cerebral challenge, executing jobs that warrant the primary use of their motor skills. SAP Customers need to be wary of the speel handed out by the many of the “SAP Practice Directors”, “SAP Practice Heads”, and other fancy titles that prefix the term “Global” or “Regional” in front of their titles to sound less salesy and be taken a bit more seriously by the SAP Customers. Add to this the totally off-whack Top Management representatives trying to step in to close deals for the quarter by visiting all and sundry, with conversations around current hot topics, namely, US elections – the new Obama era, Satyam fiasco, the new best-seller picked up for in flight reading, and not to mention – the inclement weather, no matter which part of the world they are in.
The Vendor Thought Pattern:
The Software Vendor Account executives adding to their woes by living life quarter-on-quarter again, the Account rep would no doubt be out to dump as many software licenses or be trying to sell an upgrade or dumping the new Business Objects licenses for additional commissions, or a fancy xApp which may be doing not more than replacing an excel sheet or a small application. The thought process in such was to ensure increased “Dumped license revenue”, where once could probably be more efficient and cut costs with the existing approach than trying to cough-up from the shrinking IT-budgets to a glorified xApp. (I can safely agree with this, as Ive been party to a few)
What gets missed out in this vicious cycle is the core Business Solution (not a package implementation or an upgrade) – the missing piece of the larger Program gets misinterpreted as a “large transformational deal”, with everyone trying to create the steady stream of revenues for their very survival. Not wrong at all. But this is the time, when the Software Vendors, System Integrators and the Consulting forms need to help out their customers by focusing on innovative pricing models that are based on profitability of their programs and the impact they are able to make to the client’s Operating Margin, Productivity Top-line. Some instead become the System Integrator’s extended arm for selling unwanted pieces of software. Having said that, the right representatives from the customer end need to make the decisions in these pressing times.
Key Factors to consider:
Let us consider the manufacturing sector as an example as discussed earlier. Original Equipment Manufacturing units would always have a lower margin of operations compared to Component manufactures. With both being in single digits, the expectation would be to ensure that the costs for any IT implementations be kept low and the expertise be brought in from outside for initiatives that would help the SAP Customer shore up margins and focus on productivity, at low costs. With cost being one factor of concern, the bang for the buck or the value for money becomes important. To get the right System Integrator on board, the outlook of the “Business Partner” is much more important, second only to their financial stability. The immediate concern to drive the Enterprise Architecture hinges on the following key factors.
From a business standpoint, the need of the hour for all Business parters becomes:
1. How can the IT initiative improve productivity across all phases of the product life cycle? Can they be quantified and measured?
2. How can the Business Architecture being defined help drive productivity enhancement in a quantifiable manner?
3. How can these initiatives help us explore emerging and new markets, make us more resilient to demand, than be forced to a supply-based model?
4. How can the IT initiatives being proposed and undertaken have a direct impact on the Net Operating Margin and Top-line of the company?
5. If there is an indirect impact, then how can the same be measured in terms of Net present Values, measured on a Non-discounted cash-flow basis, provide a quantifiable ROI YOY?
6. Can these initiatives help bring down material, manufacturing or labor costs across the supply chain?
7. How does the overall improvement across the value-chain gets noted?
8. How can wastage and cycle-times be reduced while improving yields? How can the compliance with Governance be driven through?
9. How can process reusability be introduced to improve productivity to drive a commonality of processes across the board?
10. How can the time-to-market be enhanced and provide end-users with an insight into the value-chain at every step of the process?
From an IT standpoint, some of the key considerations are as follows:
1. How can the initiative drive a linearity of architecture across the board?
2.How does it fit in terms of driving an enterprise-wide services matamodel to reduce Integration costs?
3. How can the architecture scale towards service orientation and Cloud Computing?
4. How does the proposed architecture drive the Integration seamlessly to create artifacts for reusability across the board?
5. How does the performance, maturity, robustness and reliability of the proposed architecture rate with the Best-in-class approach in the industry?
6. Does the solution warrant the enhanced usage of a packaged application to a level greater than 70%?
7. How does the upgrade strategy work? Does it necessitate a re-implementation? (Example, old VC models)
8. Is the proposed solution inter operable with other key vendors (who will continue to exist?) Increase in number of users expected?
9. Does the proposed Architecture present a model for reuse? Can the same be used as strategy for a large long-term program?
10. Does the solution have too many points of failures? How much does it leverage a backend implementation of ERP, CRM, SCM, BI, HCM and PLM?
All the while, said and done, every CTO/CIO Organization would be doing this due diligence in many ways, established and standard or ad-hoc and nebulous. Key
facts that makes one think while adopting applications and processes in the Web 2.0 world is as follows:
1. Do we need to invest in the Hardware, Software, Applications and Consulting costs for the business process? Can the same be done in a hosted model?
2. If it can be done in a hosted environment, can the data be trusted with an external agency? Can the pricing be like a “Utility bill”?
3. Given a shifting user population (as in a CRM application), can the same be scaled up and down and be paid per usage?
4. Can the exploration be termed toward Cloud Computing with fewer On-premise applications that are important, yet, non-core processes?
5. Can the platform being created today for the processes being considered, be externally hosted and rolled-out with Cloud-Computing?
6. Have SaaS, Application as a Service, Platform as a service been explored as a cost-effective model for this option?
7. Can the Application vendor be pushed toward a hosted model? (BYD was before its time, again, with SAP’s Outsourced models to SIs messing it up further)
It is important and essential to have your core processes at the back-end, on-premise being there with the Client. Typical landscapes show the tilt of heterogeneous landscapes, which will continue to remain and be a reality. With SAP ECC, SCM, CRM, HCM and PLM, more or less being relegated to back-office applications, like mainframes, the Client-server technology is making a steady come-back in a new form. The front-end applications can be spun off as Web 2.0 tools (why should applications have a UI at all?), Cloud Applications, hosted applications, bought-off UIs from an Apps exchange, the onus on Software Vendors become increasingly more. Add to this the Geo-political instabilities, the scams, the careful spend of ever-shrinking IT budgets will only be channelized in newer ways. With this pressure adding up onto the Software vendors, they would be forced to move toward Open source, Web 2.0, Cloud-based applications, easier installs, easy configurations, easy maintenance, more the Microsoft way to the world. The days of large multi-million dollars is soon to
be over. And should be so. Rightly. The need for Enterprise Architecture gains more prominence, beyond SAP.