Tom Gunn Comments on My “ERP Doomsday Scenario”

I first got acquainted with Tom Gunn by name only after the publication of his book, “Manufacturing for Competitive Advantage” in 1987. This was one of four books Tom wrote on manufacturing. At the time he was the national director of Arthur Young’s manufacturing consulting group. That company later became part of Ernst & Young. 

I met him when he was serving on the board of a supply chain company that had hired me to run marketing. Tom later became CEO of that firm. He then went on to serve as Process Information Officer at General Motors and to be the managing partner of the worldwide manufacturing practice at AT&T Solutions. He’s still active in this market through his Gunn Associates consulting practice. 

Needless to say, Tom has extensive experience in MRP II and ERP. Here’s his take on my update doomsday scenario:

 
Hi Bruce:
 
Re: Your Re-Visiting My 2006 "ERP Doomsday Scenario"
 
You nailed it, Bruce! A few thinking CIO's have figured it out. Here's the scenario in many large companies with respect to large ERP implementations (in addition to other large application software implementations):
 
1. The CIO's company is already one or more revision levels behind with respect to their ERP software
 
2. Their company's current users are using less than 15% to 20% of their current ERP package's functional capability
 
3. Their company has for years underinvested in ERP education and training efforts in order to reduce costs. Older trained and experienced ERP users are being laid off or are retiring. The company is hiring entry level people with little to no ERP or manufacturing/supply chain management backgrounds and throwing them into positions for which they are not prepared. At best, users know how to use the few screens that their department is responsible for. No one understands the big picture of how the company's business processes and total ERP system is supposed to work. Since few to no people really understand the status quo, no one knows enough to drive systemic improvements in the company's business processes and information systems.
 
4. ERP software vendors are continuing to raise their annual maintenance fees.
 
5. The accuracy of the underlying data used to drive the ERP system—bills of materials, routings, inventory levels, customer/supplier data—has degraded over time, rendering the ERP system's output value increasingly questionable.
 
6. As you pointed out, there is no downtime available for software upgrades, no additional IT and user staff to do the work, and no money for new education and training for IT staff and users on the new revision level's increased capabilities and operation.
 
Add it all up and why continue to pay software companies usurious maintenance costs? Instead, keep the maintenance money, hire a small specialized IT firm to help keep the current ERP system going, and use some of the saved money to focus on getting more out of the current system by increasing user education and training and improving the accuracy (and real-timeness) of the data that drives the ERP system.
 
The software applications world is heading toward a hybrid model of cloud computing and software-as-a-service that is bound to prevail in the marketplace as it offers superior value to customers. Once application software is standardized in a cloud service, look for this scenario to be married to application software vendor and industry-specific applications add-on products to develop similar to Apple's iPhone applications store offerings. Want a custom master production schedule add-on for your ABC vendor's ERP cloud software that drives your brick manufacturing company? Download it from ABC's approved apps library directly into your company's cloud-based ERP system.
 
Application software vendors should take a tip from the cell phone companies and focus on perfecting the core product, while making it possible for and encouraging customers and outside developers to develop industry-specific add-ons.
 
Keep up the great work, Bruce.
 
Best regards,
 
Tom

Revisiting My 2006 “ERP Doomsday Scenario”

Three years ago I published a piece entitled “ERP Doomsday Scenario: Death by SOA?” that questioned whether “rapid adoption of SOA will lead to the end of the ERP market as we know it.”

While I may have overstated the importance of web services and service-oriented architectures and the time horizon, I think I got some things right. Look at the first two sentences in the fourth paragraph:

“Between 2010 and 2012, these same (ERP) customers start to gripe that their legacy ERP systems have become bloated “understructures” that have become too expensive to maintain. CEOs threaten to withhold maintenance payments if fees aren’t sharply reduced.”

I thought of this earlier this week when I received several e-mails about an article in a European publication that said a large, well-known industrial company had notified its ERP vendor that it was not planning to renew its annual maintenance agreement. Various related stories had the customer tendering a RFP for a third-party replacement for maintenance.

While it’s unclear what will actually happen in this specific case, I have talked to several Fortune 500 companies who are questioning whether they should freeze their existing systems at their current release level and turn to a third party for maintenance and support. When you ask them whether they would miss the innovation coming from updates and upgrades, they tell you that they don’t have any available downtime windows in which to test and install the new software. To them, all of that innovation is going for naught. As a result, the cost of maintenance exceeds the value.

This represents a serious threat to vendors who have grown increasingly reliant on maintenance streams. While we question whether there are enough third-party specialists to support more than a handful of customers, it will cause predators to circle. One large manufacturer told me that he’s under a lot of pressure to replace his ERP vendor’s on-premise HR applications with one of the new HCM-as-a-service offerings. He doesn’t know whether he will be able to successfully fend off those eager for change.

Are we close to an ERP Doomsday Scenario? What do you think? 

Talking with Dave Carroll, Creator/Victim of “United Breaks Guitars”

The September 14th edition of First Thing Monday talks about the logical linkage between various social networking tools and your customer-facing operations. I used the example of the “United Breaks Guitars” video on YouTube as a how-to guide to ineffective customer service.

Shortly after the piece came out, I received an e-mail from Stan Goodrich, PR manager for SYSPRO. Since I had neglected to point out the brand of the damaged guitar, he told me that it was a Taylor. Given that Taylor just went live with SYSPRO’s ERP software, he knew that the guitar company had hosted Dave Carroll at its California factory. 

A short time later I received an e-mail from Chalise Zolezzi, PR manager, with Taylor Guitars. She asked me if I wanted to talk directly with Dave. Later that afternoon my cell phone rang and there he was. Here’s his side of the story:

The incident actually occurred on March 31, 2008. When he took his guitar in to get it fixed, most places told him it couldn’t be repaired. He found one person willing to repair it for $1,200 (CDN), but it meant that he would be without the instrument for a couple of months. While the video makes it look like the guitar neck was broken, the damage actually occurred at the base of the guitar.

Last November, Dave began a series of futile e-mail exchanges with a customer service rep who told him they would do nothing to compensate him. He finally asked for $1,200 in flight vouchers and would consider the matter closed. The customer service rep said no. He asked her to reconsider. He also vowed to write three songs and produce three videos with a goal of getting 1 million hits on YouTube in one year. United held firm. So did Dave. He wrote the first song in January, the second in February, and made the first video in June. The second was done in August. 

Working with friends and volunteers, Dave created the video for $150 (CDN). He posted it on Monday, July 6,  2009. By Friday, it had been viewed by over one million people. As I write this, it’s been seen by over 5.5 million people. More than 65,000 people have watched it since I wrote about it. According to Dave, the 4:36 video is “big in India, Australia, the UK, and Germany.”

His song has become an anthem for those who feel they have been victimized by uncaring corporations. Dave said he has received “hundreds of direct pleas to take on telephone companies and banks.” He even cited one woman who wants him to write a song about a small Comfort Inn in British Columbia where she said she was bitten by bedbugs.

United did come around to offering compensation only after the first video came out. The airline offered $1,200 in vouchers and $1,200 in cash. He asked them to donate the money to someone that needs it. In response, United gave $3,000 to the Thelonious Monk Institute in Dave’s name. As for an apology, that only came last week during a meeting with three United vice presidents.

The video has proved to be a costly embarrassment to United. Dave cited a BBC article that estimates that it has cost the airline $180M in lost business. He also talked about another article that had noted that United’s stock price had dropped 10% since the videos have come out.

The story has had a happy ending for Dave, though. Yes, Taylor executives did host him on a plant tour and told him to pick out a couple of guitars. For the curious, he chose a Taylor 810 (to replace the repaired 710) and a new Taylor T3. He has also seen a pick up in corporate gigs and speaking engagements. Next week he is going to Washington, D.C. to talk with legislators about passenger rights.

As for his YouTube career, his second United video is up on the site. He hasn’t started work on the final one in the United trilogy. He told me that he’s asked United to show him that they have made changes to the company’s customer service policies.

In the meantime, the popular video is also available on iTunes. Dave has recorded nine CDs with brother Don with their band “Sons of Maxwell” – Maxwell is their father’s name, and last year recorded a solo CD. I suspect that you may get to meet him and hear him play at an upcoming user conference.

Design Your Own Tragic Quadrant

In the current issue of First Thing Monday I offered my own version of a 2-by-2 matrix with time to value and relative complexity for the x and y axes. Instead of picking winners I wanted to point out factors that would likely doom software vendors. 

Here’s your chance to design your own Tragic Quadrant. What are the X and Y factors that would likely land a vendor in the box on the dreaded lower left?

Readers’ Comments on “Too Late for the Sky”

Last week’s piece on the challenges facing ERP vendors who may not have moved fast enough to support cloud/SaaS apps drew the most e-mail so far this year.

Peter Fingar was the first to comment. Peter recently teamed with Andy Mulholland and Jon Pyke on "Enterprise Cloud Computing: A Strategy Guide for Business and Technology Leaders." He has also written or co-authored several must-read books on technology, including "Dot Cloud: The 21st Century Business Platform Built on Cloud Computing," "Extreme Competition: Innovation and the Great 21st Century Business Reformation," "IT Doesn't Matter, Business Processes Do," "Business Process Management: The Third Wave," "The Real-Time Enterprise: Powering Profits with Process Automation," "The Death of 'e' and the Birth of the Real New Economy," "In Search of BPM Excellence; Enterprise E-Commerce," "The Blueprint for Business Objects," and "Next Generation Computing: Distributed Objects for Business." 

“Bruce, are you slacking... you totally didn't include the VPC (Amazon's big announcement) in this fray. Haven’t you been reading Dot Cloud. I'm now almost done with Enterprise Cloud Computing w/ Jon Pyke of WfMc (Workflow Management Coalition) and Andy Mulholland, CTO, Capgemini.”

Naomi Lee Bloom, managing partner of consulting firm Bloom & Wallace was quick to follow: 

“Bruce,

I hope this finds you well and prospering. 

I've been thinking a great deal about true SaaS versus licensed/on-premise in the HRM software market, and I'm about convinced that almost no one should be going down the licensed/on-premise route with a new implementation, beginning in 2010, with SAP HCM (could do NorthgateArinso to get this same foundation in a SaaS version if you must have the SAP foundation to fit a broader corporate IT strategy) or Oracle PeopleSoft HCM (there is no SaaS version available, although there are some single tenant, highly templated BPO offerings). 

I believe that, by 2010, Oracle EBS HCM 12.1 will appear in a SaaS offering, if not from Oracle then from another source, but that's down the road a bit, and I hate to bet on futures. 

I just can't see starting a multi-year implementation in 2010 of software that's about to be overtaken by Fusion Apps HCM (in the case of Oracle EBS or PeopleSoft HCM, for neither of which, IMHO, will there be much functional innovation after 12.1 and 9.1) and whatever next generation results from the forced death march development effort that I presume SAP will launch if Fusion Apps looks like a winner once it emerges. 

For large, multi-national to global companies, there just aren't many good SaaS options for core HRMS replacements, and the talent management SaaS vendors, although they are trying to build toward becoming the system of record, have a LONG way to go to catch up on the basics of regulated and record-keeping HRM. 

Workday is coming along very well, and there will be a few more options in a few years, but it's a little thin on the ground for the highest end of the market as we make this eighth (could be ninth depending on how we address the various client-server architectures) generational change in software architectures since I wrote my first line of code.

Am I being too aggressive in guiding end-users to reconsider licensed/on-premise and very dated ERP/HRMSs? Your thoughts would be appreciated. 

Naomi"

My Checklist on the Economics of Cloud Apps

Over the last year or so I have participated in a several webcasts where my role has been to offer advice on how to select your next business system. If you read last week’s First Thing Monday, you will detect my belief that more and more applications should move to the cloud/SaaS because of the economics.

Here’s a slightly modified checklist from the most recent webcast. Feel free to add/delete or rant/rave.