This is the first post in a series on strategies and tactics for negotiating your licensing agreements with software companies including SAP, Salesforce, and Workday.
I recently had a call from an unhappy SAP customer moaning about the high costs of SAP’s annual maintenance and questioning whether they are getting good value for the money. I’m afraid that this is not a one-off conversation but something that is popping up regularly these days. The factors leading to the dissatisfaction include:
The Cloud Foundry Foundation held its 2015 Summit recently in Santa Clara, attracting 1,500 application developers, operation experts, technical and business managers, service providers, and community contributors. After listening to the presentations and discussions, I believe that Cloud Foundry —one of the major platform-as-a-service (PaaS) offerings —is making a strategic shift from its traditional focus on application staging and execution to a new emphasis on micro-service composition. This is a key factor that will help companies gain the agility they need for both technology management and business transformation. Here’s what I learned:
Containers are critical for micro-service-based agility. Container based micro-services are getting momentum: IBM presented their latest Bluemix UI micro-services architecture; while SAP introduced their latest practice on Docker. Containers can encapsulate fine-grained business logic as micro-services for dynamic composition, which will greatly simplify development and deployment of applications, helping firms achieve continuous delivery to meet dynamic business requirements. This is why Forrester believes that the combination of containers and micro-services will prove irresistible for developers.
On February 9, SAP announced the launch of its next-generation enterprise process application, SAP Business Suite 4 SAP HANA (S/4HANA), in China. This is the third product launch event of SAP globally but it’s the first event during which the product is being launched with customer together.
From my discussions with Chinese customers during the event, I believe that SAP is on the right track to address their major concerns. However, enterprise architecture (EA) professionals in China should take a realistic approach when evaluating the feasibility of the architectural evolution of their enterprise process applications.
Chinese clients have suffered from complexity for a long time.As mentioned in my previous report, complexity is one of the key challenges that Chinese companies have faced in their drive to achieve business growth and product innovation, and product innovation must focus on simplicity to enhance customer experiences. This is particularly true when it comes to adopting mission-critical management software. It’s quite normal to hear complaints about the complex user interface, long implementation times, and the significant effort required to maintain and customize software; customization is much more popular and necessary in China than elsewhere due to the need for various types of localization.
Previously, when CIOs and enterprise architecture professionals talked about “business-to-business” (B2B) commerce in China, most people thought of third-party B2B marketplaces like Alibaba.com or HC360.com. Very few companies use professional B2B solutions internally, instead relying on a combination of order management systems, customer relationship management, and third-party B2B marketplaces to trade with their business partners.
This is going to change. We have observed a few trends in the Chinese market that will become major drivers for the adoption of enterprise B2B solutions. These trends were further validated during the SAP summit last week in Shenzhen.
The legacy application architecture on the market won’t address the challenges of the age of the customer. Most of the companies currently doing business in China’s B2B market are small and medium-size companies with low IT systems maturity — many of them still exchange business information by emailing Excel files. These firms must rely on third-party marketplaces for business collaboration.
HP was the first US company to create a joint venture subsidiary in China; three decades later, the vendor has become a major player in the country’s consumer and enterprise markets. Among enterprises, HP has strong brand awareness for its server products and services, traditional software solutions, and IT services, but rather less for holistic application life-cycle management (ALM), especially on the mobile side. I think it’s time for technology decision-makers and enterprise architects to seriously consider adopting mobile app delivery management solutions and to evaluate HP for that purpose. Here’s why:
HP’s portfolio now covers the entire mobile app life cycle.The products HP will bring to market as part of its latest strategy will eventually cover the entire mobile application life cycle from app design, development, and optimization to distribution and monitoring. For example, at the design stage, HP Anywhere — based on popular open source product Eclipse — allows developers to write once to multiple devices within its integrated development environment. And its service virtualization feature can help virtualize third-party cloud services and make them consumable across each layer of the system architecture, including web servers, application servers, and web services.
HP’s solution has rich optimization features suitable for Chinese enterprises. At the mobile app optimization stage, HP’s Mobile Center uses a comprehensive approach to functionality, interoperability, usability, performance, and security to consolidate and automate mobile testing. Mobile Center is integrated with LoadRunner, one of the most popular performance engineering tools in Chinese market.
I’ve recently been thinking a lot about application-specific workloads and architectures (Optimize Scalalable Workload-Specific Infrastructure for Customer Experiences), and it got me to thinking about the extremes of the server spectrum – the very small and the very large as they apply to x86 servers. The range, and the variation in intended workloads is pretty spectacular as we diverge from the mean, which for the enterprise means a 2-socket Xeon server, usually in 1U or 2U form factors.
At the bottom, we find really tiny embedded servers, some with very non-traditional packaging. My favorite is probably the technology from Arnouse digital technology, a small boutique that produces computers primarily for military and industrial ruggedized environments.
Slightly bigger than a credit card, their BioDigital server is a rugged embedded server with up to 8 GB of RAM and 128 GB SSD and a very low power footprint. Based on an Atom-class CPU, thus is clearly not the choice for most workloads, but it is an exemplar of what happens when the workload is in a hostile environment and the computer maybe needs to be part of a man-carried or vehicle-mounted portable tactical or field system. While its creators are testing the waters for acceptance as a compute cluster with up to 4000 of them mounted in a standard rack, it’s likely that these will remain a niche product for applications requiring the intersection of small size, extreme ruggedness and complete x86 compatibility, which includes a wide range of applications from military to portable desktop modules.
Chief information officers (CIOs) are dedicating more of their budgets to what we call “systems of engagement” (technologies that help win, serve, and retain customers) rather than “systems of record” (back-office technologies). According to research here at Forrester, new business investment in the former will be eight times that of the latter in 2014. All of which means CIOs are re-examining their back-office legacy spend to see what savings can be made to fund new front-office innovations.
But releasing back-office spend is not easy. For many companies, most of the ‘easy’ savings have already been achieved - so squeezing even more savings has become a tougher game. For example, you can only try to re-negotiate legacy support costs a few times before the vendors say ‘enough is enough’. While such comments may have discouraged negotiators in past, the advent of third party software support in the last five years has, for Oracle and SAP users at least, kicked the cost savings door back open and given fresh impetus to procurement people seeking to reduce software support costs.
I am sure that many of you have read some of my previous comments on the emergence of the third party software support market over the past number of years. Companies like Rimini Street, Spinnaker Support and Alui have saved some Oracle and SAP clients a lot of money. For companies who have moved to third party support, or who have simply used the threat of moving to third party support in order to drive the vendor’s costs lower, the savings they are enjoying have freed up cash to spend on new innovations and front-office client engaging stuff.
Last year, when attending my tenth Congress in a row, I wrote that MWC 2013 would be more global and more disruptive than ever before. I believe the same will be true this year, with 2014 bringing a very important milestone in the shift to mobile: an install base of more than 2 billion smartphones globally. Mobile is transforming every industry by offering global reach and the ability to offer contextual services. That’s why we'll see many more marketers, agencies, business executives, and strategists attend the traditional telecom show.
Gone are the days when MWC was about operators' supremacy. As my colleague Dan Bieler summed it up in this blog post, telcos are increasingly being backed into a corner. I still remember this quote from Arun Sarin, the former CEO of Vodafone, in the Financial Times in November 2007: “Just the simple fact we have the customer and billing relationship is a hugely powerful thing that nobody can take away from us.” Really? Well, in the meantime, Apple and Google have created two powerful mobile platforms that have disrupted entire industries and enabled new entrants to connect directly to customers.
From a marketing and strategy perspective, I'd categorize the likely announcements in three main areas:
1) The Asian Device Spec Fashion Week: Getting Lost In Device Translation
Many of you will be in the midst of a negotiation with SAP at the moment, because SAP does about 40% of its license deals in the October to December quarter. It’s a sourcing cliché that software companies give their best discounts at their fiscal year end, but just because you are making a purchase in month 12 doesn’t mean that you are getting a good deal. I see a lot of SAP proposals and contracts, and I’m often surprised by the gulf between the actual deal on the table and what I would consider to be an acceptable proposal – one that sets the relationship up for mutual success, balancing price, flexibility and risk.
Buying software from powerful providers such as SAP is very different from buying hardware, services and non-IT categories. Unfortunately, many sourcing professionals seem to think that they’ll look weak if they engage expert help to coach them during a negotiation, but it isn’t a question of haggling skills, it’s a question of deep, current market knowledge. Unless you have that, you risk:
At a recent SAP customer event on Business Transformation, Alexander Budzier from the Said Business School at the University of Oxford presented findings on IT project outcomes and their correlations with various project factors. When determining project success rates, the researchers considered business benefits, adherence to budget, and on-time delivery.
Interesting findings from this research include:
Project success does not correlate (or very minimally correlates) with size or length of project, or with public versus private sector.
Focusing on one goal too much can have a negative effect on other metrics. Consider the extreme example of the Olympics, which had a 100% on-time result (over 10 Games analyzed) but the highest cost overruns, at an average of 207%!
Agile deployments (versus big bang) had greater success in some metrics, particularly schedule adherence, but not all.
The single biggest factor in determining project adherence to budget and timelines was benefits management. (In this research fewer than half of the projects they studied had actually tracked benefits.) Those who focused on measuring benefits significantly reduced BOTH project cost and schedule risk. Project cost overruns averages decreased from 36% to 6% when focusing on business benefits; schedule overruns decreased from 119% to 51%.
So, what can we take away from this? Project leaders should:
Focus on benefits – throughout the project lifecycle. Benchmarking can help leaders to identify what benefits / metrics to track.
Recognize warning signs / risks early -- and address them before they result in disaster. These risks include unknowns in design, organizational resistance, and shifting project requirements.