Oracle

Does Oracle’s Acquisition Mean More, More, More for NetSuite?

Something New or More of the Same? Yes

On December 7, 2016 Oracle completed its acquisition of NetSuite. While Oracle acquisitions are nothing new – the company has executed dozens and dozens of them over the years – this one is indeed a unique mix of new and “more of the same.” NetSuite is not the first Enterprise Resource Planning (ERP) player to be acquired by Oracle, but there are some “firsts:”

  • The first ERP acquired that was born in the cloud, bringing along that all-important cloud revenue (not to mention SaaS DNA)
  • The first time Oracle has openly and loudly declared the “products will go on forever”
  • The first time the acquired company will be run as a separate global business unit, preserving the brand identity and keeping the leadership largely in tact

Oracle and NetSuite have always had close ties. Larry Ellison invested early in the company and owned close to 40% of the stock prior to the acquisition. Zach Nelson, former CEO of NetSuite, has a very close relationship with Mr. Ellison. And the foundation on which NetSuite’s products are built takes advantage of the “Oracle stack.” That said, they were still rivals. In fact, prior to closing, both companies claimed they were the #1 Cloud ERP company. By combining the two, Oracle is now declaring victory in that battle.

But there are also a couple of “softer” firsts. Perhaps because of the Ellison-Nelson relationship, or perhaps because of NetSuite’s proven success in the market (or both), never before have we seen such respect from Oracle for the accomplishments of the target company or such a welcoming embrace. Mark Hurd, in addressing a group of influencers (including press, industry and financial analysts) lauded NetSuite for “serving a community we have not served well.” That statement alone is one for the record books: Oracle (the company which previously claimed to be the #1 Cloud ERP company) admitting it had not served a market well.

All combined, this bodes well for the NetSuite community.

What “More” Did NetSuite Gain?

When the announcement of Oracle’s intent to acquire NetSuite first hit the wire in July, it was quite clear what Oracle was looking for: more share of the cloud market. “Cloud” is where it’s at today. Mint Jutras has been following perceptions and preferences for SaaS versus on-premise software for years now. Between 2011 and 2013, the demand for traditional on-premise deployments went over a cliff. Since then, preference for SaaS (versus hosting) has continued to climb.

Figure 1 shows the progression of preference over the past several years. The question posed to survey respondents was this: If you were to select a solution today, which deployment options would you consider? Respondents are allowed to select all that apply.

Figure 1: Which Deployment Options Would You Consider?

Source: Mint Jutras Enterprise Solution Studies

*Option added in 2015

Combine these preferences with Mr. Ellison’s publicly stated goal of being the first company to reach $10 billion in cloud revenue and you have a pretty good idea of what Oracle was looking to achieve.

The benefit to NetSuite was perhaps not quite as clear. The company was already successful on its own. While it never seemed to record a profit under GAAP reporting, it did show positive cash flow and was profitable by non-GAAP measures. This was largely due to the way GAAP treats stock-based compensation and the fact that just about every employee owned a little piece of NetSuite. So NetSuite was able to invest in the development of its products and was already making steps to expand globally.

But that’s the key to unlocking the motivation… from the NetSuite point of view they couldn’t do either fast enough. As a public company, the leadership was often forced to focus on metrics other than those most conducive to growth. As a business unit of Oracle, the team can focus on what matters most to them, not Wall Street. And it is clear, what matters most is bringing more products to more markets faster.

Being part of the Oracle family means NetSuite gains access to Oracle resources in the form of:

  • Supporting products (think platform and infrastructure). This includes Oracle’s Platform as a Service (PaaS), Infrastructure as a Service (IaaS) and Data as a Service (DaaS).
  • More applications to sell (think complementary extensions like supply chain management, human capital management, enterprise performance management and configure-price-quote). NetSuite already had some of these and partnered for others, but this significantly adds product to the bags the sales representatives carry.
  • More people to develop NetSuite products. Oracle has pledged increased funding. It is not clear whether these will be new hires or people who already work for Oracle today on other products. It is likely to be some combination of both.
  • Global presence (think people and business infrastructure around the world) – instantly. NetSuite had started to expand, but only offered support in English and Japanese. Oracle not only has the additional language skills in support, but many more support locations. It also has far more data centers around the world to address the issues (both real and perceived) of where data must be stored when operating in the cloud. This of course, also puts additional feet on the street globally, not only to support, but also to sell.

Conclusion

We go back to the initial question posed: Does the Oracle acquisition of NetSuite represent something new or is it more of the same? The answer is yes. While Oracle is an old hand at acquisitions (so more of the same), this one does have some “firsts,” so there is indeed something new. Oracle has declared the NetSuite products will “live forever,” so this is an instance of “more of the same.” Yet while NetSuite has poured as many resources as it could afford into developing the products, Oracle has deeper pockets and can also bring its own resources to bear in terms of products, people and global reach. So NetSuite will enjoy “more of the same” …but “more” is a relative term. In this case, we believe “more” means “lots more.”

While there may have been some initial trepidation, particularly from NetSuite customers who specifically chose not to purchase a solution from Oracle, it would appear that Oracle is intent on allaying those fears. By operating the acquired company as a global business unit, it preserves the perceived value of NetSuite as a pioneering SaaS vendor. By committing to the continued development of the products while adding depth and weight to its offerings, it would appear product development will be accelerated. And NetSuite gains entrance to global markets instantly. From the outside looking in, Mint Jutras is actually surprised (and pleased) to say that it seems like a win-win.

PS: For those of you not familiar with NetSuite, here is a quick primer:

NetSuite is a leading provider of cloud-based business management software, delivered exclusively as software as a service (SaaS).

Some quick facts about NetSuite at the time of the acquisition:

  • Founded in 1998
  • Publicly traded on NYSE: “N”
  • 5,350 employees
  • $741.1 million in annual revenues for FY 2015, ending 12/31/2015
  • Grown by 30%+ in each of the last 16 consecutive quarters, as of June 30, 2016
  • Used by 30,000+ organizations (includes subsidiaries and affiliates) in more than 100 countries
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Oracle and NetSuite: Separate Fact from Speculation

Since last week when Oracle announced it had entered into a definitive agreement to acquire NetSuite, I have been amazed at the volume of incorrect information and speculation and opinions thrown around as fact. Just this morning I read an article referencing the projected $9.3 billion transaction as the largest acquisition by Oracle since the Peoplesoft acquisition for $10.4 billion in 2014. Well… the author was only off by about a decade. Oracle announced the proposed merger in 2004 but the deal was not consummated until 2005. The article also stated that Oracle would run NetSuite as an independent company. That too is inaccurate. What Mark Hurd was quoted in the press release as saying was, “Oracle and NetSuite cloud applications are complementary, and will coexist in the marketplace forever. We intend to invest heavily in both products—engineering and distribution.” That is a far cry from saying the company would stay independent.

These are just a couple of examples. Many others are disclosing “the real reasons” for the acquisition as fact, when in fact these are just opinions and personal conclusions. I stayed silent because I never simply regurgitate a press release, and beyond the price of the offer and a few quotes by Oracle co-CEOs, NetSuite founder, CTO and chairman, Evan Goldberg and NetSuite CEO Zach Nelson, everything else is just speculation. NetSuite can’t talk about it and Oracle won’t. But with all the commentary, I feel compelled to remind my readers not to misinterpret opinions as fact.

I consider myself somewhat of a reluctant expert in M&A. During my 40+ year career I have survived 15 of them, sometimes as the acquirer, sometimes as the one acquired. Sometimes I was intimately involved in the details; other times I simply observed from the sidelines. Acquisitions often generate excitement, but also fear, uncertainty and doubt. Sometimes they go smoothly, but more often they are disruptive – to the companies involved, the individuals (employees) and even sometimes the market. In the end, they can be very unpredictable.

There are a few very common motivations for one company acquiring another:

  • Grab market share: Some companies would prefer to acquire new customers in blocks of hundreds or thousands, rather than closing them one by one. This can apply to grabbing more share of your existing market or entering a new one.
  • Fill a product and/or talent gap: It can be far easier to acquire functionality than to develop it yourself. This can make the company more competitive, provide cross-sell and up-sell opportunity, or both. But don’t assume there is any M&A pixie dust that will magically integrate products overnight.
  • Upgrade technology: Similar to filling a product gap, but at the foundational level. It is much easier to build a new product from scratch with newer technology (or acquire one) than to retrofit new technology into old products.
  • Eliminate a competitive threat: If you can’t beat ‘em, buy ‘em.

So… what do I think is the motivation behind this acquisition? I think it is mostly about cloud market share. Of course, this is my opinion, but Larry Ellison’s stated goal of being the first company to reach $10 billion in cloud revenue is a pretty good hint. A secondary factor may very well be the cloud DNA, so to speak, that would come with a company and solution born in the cloud.

And there is no doubt in my mind that is the direction most prospective buyers are pointed in as well. I have been asking the same hypothetical question in my enterprise solution studies for the past 10 years: If you were to select a solution today, which deployment options would you consider? While back in the 2006-2007 time period less than 10% would even consider SaaS ERP (back then I called ERP the last bastion of resistance to SaaS), those preferences have slowly shifted. Between 2011 and 2013 the percentage that would even consider a traditional on-premise deployment dropped off a cliff and today SaaS is the most widely preferred option (Figure 1). And while Oracle was late getting out of the SaaS gate, NetSuite was a pioneer.

Figure 1: Deployment Options That Would be Considered for ERP

SaaS Fig 1Source: Mint Jutras Enterprise Solution Studies

But I also believe the other 3 reasons contribute to the attractiveness of NetSuite to Oracle.

Oracle probably already has all the different pieces that NetSuite brings to the table (and more), but NetSuite brings them all together in a seamlessly integrated, end-to-end solution. When I ask my survey respondents to stack rank 10 different selection criteria for ERP, fit and functionality still takes the top spot, but is followed closely by completeness of solution. This is particularly important for small to midsize businesses that don’t have deep pockets or the IT staff to roll their own solution or even integrate different parts. While Oracle does play in the SMB space, NetSuite plays better, as evidenced by some competitive wins against Oracle (usually in the upper midmarket). And it is built on a solid architecture of advanced technology.

So there is a lot on the plus side of the equation for Oracle. What’s in it for NetSuite? If you can believe Zach Nelson’s enthusiasm (his quote: “NetSuite will benefit from Oracle’s global scale and reach to accelerate the availability of our cloud solutions in more industries and more countries. We are excited to join Oracle and accelerate our pace of innovation.”), NetSuite will be able to expand its solution footprint and its global reach faster. Only time will tell on both aspects and a lot depends on how and how well the acquisition is executed and the companies are integrated.

While it is true that NetSuite never achieved a GAAP profit, that was heavily influenced by stock-based compensation and it did not really suffer from cash flow problems. As a result, it also didn’t suffer from a lack of innovation. And there is more overlap between products than some enthusiasts would lead you to believe.

And what about global scale? NetSuite could benefit from Oracle’s global reach. But integrating sales efforts might prove tricky. So the jury is still out on that front as well.

And then there is customer sentiment. Anecdotally, you can find NetSuite customers that made a conscious decision to avoid doing business with Oracle. When the acquisition actually happens, will that cause NetSuite customers to jump ship rather than become Oracle customers? My guess is no. ERP is just too big an investment (of time and money) to make such an emotional decision. Will there be some attrition over time? Probably. But again, a lot depends on how the acquisition is managed and the net impact on support, prices and contracts. NetSuite has never been the cheapest date, so there is not likely to be any immediate sticker shock.

All told, I think there are a lot more questions than answers right now. In the meantime keep your ear to the ground, but be wary of those who think they already have all the answers.

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What are you running your business with? Is it ERP?

Perhaps you’ve heard me ask the question, “Is it ERP?” about various solutions on the market. Maybe you were thinking, “Does it matter?” The answer to that question is, “Yes and no.” “No,” in that ERP, like any software category, is just that. It’s a category, a label and you shouldn’t read too much into that. “Yes,” in that the category is often misused and maligned.

While the acronym itself (short for enterprise resource planning) can be somewhat misleading, I have always been very clear on my definition of ERP:

ERP is an integrated suite of modules that form the operational and transactional system of record of the business.

The rest of the world doesn’t see it quite this clearly. Of course my definition is intentionally quite broad, but it needs to be simply because the operational and transactional needs will vary quite significantly depending on the very nature of the business. You can’t run a service business like a manufacturing or distribution business. Retailers, government and non-profits all have their own unique requirements.

This situation is also clearly exasperated by the fact that the footprint of ERP has grown to the point where it is getting more and more difficult to determine where ERP ends and other applications begin. Functions like performance management, talent and human capital management, etc, that used to sit squarely outside of ERP, today might sit either inside or outside that boundary. While operational accounting has long been a core competency of ERP, more robust financial management can be an integral part of ERP, or a stand-alone solution. Likewise, the footprint of solutions that have traditionally been marketed as financial and accounting solutions have expanded as well. No wonder there is so much confusion out there.

As a result, I thought it would be a good idea this year to see what people actually think they are using to run their businesses. While I have been conducting an annual ERP survey since 2006, much of the data I collect is relevant to other solution providers as well, particularly those that focus primarily on finance and accounting, with perhaps some project management and/or human resource management included. So this year I changed the name of the study to the Mint Jutras Enterprise Solution Study and added a new question at the very beginning.

Question: Which of the following best describes the software you use to manage your business?

  • Primarily enterprise level finance and accounting solutions (might include project management and/or human capital management)
  • Integrated enterprise level finance and accounting solutions supplemented with other operational applications (e.g. inventory, warehouse management, etc.)
  • An integrated suite of modules that provides a full system of record of our business (often referred to as ERP)
  • Desktop solutions such as Quicken, QuickBooks, Peachtree, etc.
  • Mostly spreadsheets and/or some low-cost or free tools (Google apps, Zoho, etc.)
  • Don’t Know

While data collection is still underway, we have collected almost 300 responses thus far and the results are quite interesting.

Note that participants checking spreadsheets and “Don’t Know” were disqualified and therefore will not be represented in any results. While those running desktop solutions qualified, only 1 participant checked this option and therefore I will only include the first three listed above in our discussion here.

During the course of the survey, participants are asked to check off all the different accounting/ERP solutions they have implemented across their entire enterprises and then asked to select one of those and answer implementation and performance questions for that specific solution. While 84% of the participants selected a solution that is clearly marketed as ERP, only 33% of this segment selected the third option above, which is reflective of the Mint Jutras definition of ERP. So they have purchased an ERP solution, but by my definition, they aren’t running ERP.

The remaining 16% selected solutions that are generally marketed as finance and accounting solutions. And yet 21% of these participants described the solution they were running as an integrated suite that provides a complete system of record of their business (i.e. ERP). So it would appear the majority of those running full ERP solutions are not making the most of what they have. And at least one in five of those running solutions primarily marketed as accounting solutions seem to have all they need to run their businesses. The full breakdown of responses is summarized in Figure 1.

Figure 1: What runs your business?

Figure 1 Blog postSource: 2015 Mint Jutras Enterprise Solution Study

These (somewhat surprising) results caused me to dive a little deeper, looking for, if not an explanation, at least a pattern. This early sample represented a pretty diverse group with the largest representation from manufacturing (41%) and service related businesses (36%). Given ERP evolved from MRP (material requirements planning), one would expect a higher adoption rate and more mature ERP implementations in manufacturers. While very few manufacturers run the solutions marketed primarily as finance and accounting solutions, 41% indicated the software running the business was primarily a finance and accounting solution. Another 26% had integrated finance and accounting solutions supplemented with other operational solutions such as inventory and warehouse management, presumably purchased from another vendor or a partner of their ERP solution provider. Again, only 33% described their implementation as full ERP. So no, manufacturers are not ahead of the pack.

I also looked at individual solution providers where I had a sample of at least 20 responses for smaller vendors or 40+ for larger ones. What segments were most likely to be running an integrated suite that provides a full system of record? The answer: Those running solutions that specifically target small to mid-size businesses. Does this mean small and mid-size businesses were more likely to describe what they were running as ERP? Not necessarily. It depends a lot on the solution provider and the solution itself.

Sixty-eight percent (68%) of those running Aptean’s solutions and 67% of those running SAP Business One described what they were running as ERP, per the definition above. Those running Acumatica’s cloud-based solution were also more likely to do so at 55%. And yet those running any of the four Microsoft Dynamics ERP solutions (AX, NAV, GP, SL), all of which target small to midsize enterprises (SMEs), were less likely, with only 28% indicating they were running a full ERP. Instead, they were more likely to report running integrated enterprise level finance and accounting solutions supplemented with other operational applications. My guess is that the partners that sold them the Dynamics solution (note: all Dynamics solutions are sold exclusively through partners) provide these other operational applications. Yet clearly these add-on’s are not so fully embedded and seamlessly integrated that they appear to simply be part of the ERP solution.

This is in stark contrast to solutions sold by Intacct partners, where I have noted previously that it is nearly impossible to distinguish where Intacct ends and the partner solution begins. As a result, 23% of Intacct customers indicated they were running an integrated suite that provides a full system of record, even though Intacct doesn’t portray its solution as ERP. It is one of those financial and accounting solution providers.

Another factor at play here is the whole concept of 2-tier ERP implementations. A full 85% of our survey respondents operate in more than one location and 69% are multi-national enterprises. This lends itself to the scenario where each operating location (division, subsidiary, business unit, etc.) may be run as a business all on its own. In fact if these units are in different countries they are also separate legal entities, requiring their own P&Ls. So you might have one system running at corporate headquarters (HQ) and other systems running the divisions.

The requirements at corporate HQ are largely financial, particularly if all orders are placed and fulfilled at the divisional level. This contributes to a larger percentage of respondents only running financials.

In days gone by these operating units might have been left to their own devices to find a solution to help them run their individual operations. Those days are long gone though. Today, 96% of our survey participants with multiple locations have established corporate standards and 64% of the time these are multi-tier standards, meaning a different ERP is used at the divisional level than at corporate. But even with a corporate financial solution in place, divisions still need some sort of finance and accounting in order to roll up to corporate. You can push the corporate financials down to the divisional level and then supplement them with other operational solutions. Or you can implement a full ERP at the divisional level and then integrate the divisional ERP with corporate financials.

This alone could be a very good reason why SAP Business One customers are more likely to be running a fully integrated suite. Of course if they are truly a small stand-alone business, they need a complete solution and probably don’t have the budget to be looking for disparate solutions that need to be integrated. Even if they are part of a large corporate enterprise, there is a pretty good chance corporate is running some version of SAP ERP. Because SAP Business One is pre-integrated with SAP ERP, the division has an integrated suite of modules providing a full system of record of the division’s business, that also happens to roll up to corporate financials.

With this as a likely scenario, you might think that the vast majority of SAP ERP customers are simply running integrated financials. They are not. Only 19% reported running primarily enterprise level finance and accounting, while 29% reported running integrated financials and other operational applications and a (relatively) impressive 52% reported running full ERP. Many assume SAP, being the 800-pound gorilla and therefore open to attack, is so complex and hard to implement that many never get beyond the basics of accounting. Yet in comparison to others, it is actually more likely to provide that full system of record.

This is not the case with Oracle, the other giant in the ERP industry. Almost half (46%) of Oracle users participating in the survey characterize their implementations as primarily accounting and only 28% describe them as ERP.

So while I would like to conclude that I found a distinct and recognizable pattern in all this data, the bottom line is that implementations vary quite significantly, particularly in comparing different solution providers. I am excited to have the beginnings of this new and extensive data set and look forward to sharing other insights as we move through the data collection and analysis phases.

Solution providers interested in collecting data from your own installed bases, feel free to contact me directly at cindy@mintjutras.com. There is still time but the window of opportunity will be closing soon!

 

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Oracle, NetSuite, And Deloitte Partner To Deliver Integrated HCM And ERP Cloud Services

Last week NetSuite, in conjunction with Oracle and Deloitte, announced a partnership to deliver integrated human capital management (HCM) and enterprise resource planning (ERP) cloud services for the mid-market. Each of the three companies will throw something into the pot: NetSuite brings ERP, Oracle contributes HCM and of course both will be delivered via the cloud as software as a service (SaaS).  Deloitte plans to work with the two companies to develop a practice with “highly skilled practitioners specializing in tools and implementation services to help customers adopt the soon to be integrated SaaS technologies faster and more seamlessly.” The “soon to be” qualifier implies a future deliverable, so Oracle and NetSuite will also have to work together on this integration.

The partnership between Oracle and NetSuite is not new, but until now was pretty much limited to the technology stack. However, as far back as June 26, 2001, Oracle announced its “small business suite”, which was in fact NetSuite. But applications from NetSuite and Oracle never came together in any kind of substantive way. After all, in some ways NetSuite’s solution competes against Oracle’s Business Suite, as well as the ERP solutions acquired along with JD Edwards.

But NetSuite never really built out HCM functionality, choosing instead to partner. In fact, it already has several HCM partners, but they tend to have different solutions for different parts of the world. One of the biggest challenges for HCM solutions has always been the different regulations around the world, both in terms of payroll and other compliance requirements. Laws in the United States are very different from those in Europe, and even from one country in Europe to the next – and on and on around the world. Most HCM solutions start out as country-specific and never make it into the big leagues to compete on an international basis. But Oracle’s HCM solution can.

There are also quite a few different sub-segments within HCM ranging from the traditional human resource information system (HRIS) to talent management (including recruiting) to benefits and compensation, etc. It is more common to find individual point solutions for each segment than to find a full, comprehensive suite covering all of them. Hence the market is quite fragmented. Oracle is one of the few solutions that has the breadth of functionality and also serves a global market. It not only acquired expertise early in the game from its acquisition of Peoplesoft, but also more recently acquired Taleo for talent management.

The Taleo product, which is also SaaS only (like NetSuite) fits right in. But because this is a “cloud only” solution, global HR will have to come from Oracle Fusion, not the Oracle Business Suite. Fusion is still a work in progress.

The nature of the relationship between NetSuite and Oracle could best be categorized as a “referral” agreement. Oracle doesn’t sell NetSuite products and NetSuite doesn’t sell Oracle products. However Oracle has a dedicated HCM team, which will engage with the NetSuite sales team to jointly sell into NetSuite customers. This makes sense because a NetSuite ERP customer is more likely to buy Oracle HCM. That’s not to say an existing Taleo customer might not be interested in NetSuite, but I am sure the Oracle sales team would prefer to sell them an Oracle ERP. An Oracle HR customer running Oracle Business Suite or JD Edwards is less likely to buy NetSuite. Even if they were willing to consider this, the Oracle sales team isn’t going to bring the NetSuite team in for a possible replacement.

While referral arrangements are quite easy to create, there is one inherent weakness. They are also easy to walk away from. As mentioned above, right now Oracle Fusion is a work in progress. When it is a complete ERP, will Oracle still be as interested in partnering with NetSuite? Probably. NetSuite has an installed based of over 14,000 customers, so it is quite a large field of opportunity.

But what about the role of Deloitte? According to Jim Moffatt, CEO of Deloitte Consulting LLP, “Mid-sized companies are looking for solutions that allow them to be nimble and respond quickly to market opportunities. This newly integrated solution will help these organizations deliver better service at a lower cost, ultimately giving them an edge in the war for talent and a true competitive edge.”

I agree that mid-size companies are primed and ready for low-cost solutions. HCM functions have historically been under-served by enterprise applications and therefore there is a great deal of pent-up demand, particularly in the mid-market. I’m just not sure mid-size companies are ready to pay the price of a consulting firm like Deloitte. I suspect many mid-size companies will prefer the “do it yourself” approach, whether they are capable or not. Those that recognize their own weaknesses might turn to consultants, but the mind-set of a mid-size company expects a consultant to get in quickly and out just as quickly. Consultants such as Deloitte tend to like long engagements. We’ll have to wait and see how many times they get invited to the party and how long they stay.

All told though, this seems like a smart move for NetSuite. Its footprint expands without a huge development effort. Processes and functions managed by HCM solutions are quite easily integrated into ERP since they are not too deeply embedded in transactional activity. That is, unless time and attendance transactions are collected through workforce management in HCM. Even in this case, the integration is quite clean and simple. The HCM solutions market has been heating up, and this means the NetSuite team, in conjunction with its Oracle counterpart can provide a more complete and competitive solution.

Oracle also benefits from that wide open market of NetSuite customers, which get a more complete, integrated solution. As to Deloitte… we’ll see.

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Oracle Business Accelerators: Accelerating the Process of Implementing ERP

Enterprise Resource Planning (ERP) takes careful planning and commitment. It also takes time and money to do it right. Implementations can be disruptive, with the time to the first “go live” milestone of ERP averaging 8.2 months. As a result, over the past several years, many solution providers have introduced many different ways to speed implementation. Yet while the majority go the route of templated, preconfigured solutions, Oracle Corporation has taken a different approach. Instead of preconfiguring a solution, it has built a set of next-generation implementation tools. Oracle Business Accelerators (OBAs) accelerate the process of implementing and manage the scope of the effort in order to deliver results to the business faster.

For all but the very smallest of companies, ERP and often other complementary enterprise applications have become necessary tools to enable them to compete on the global stage. While not all implementations are equally successful, doing it right can yield impressive results, including reductions in cost, and improvements in cycle times and delivery.

Mint Jutras defines World Class ERP implementations to be the top 15% in terms of results, progress against goals and current performance. World Class ERP implementations produce results such as:

  • 15% reduction in operating costs
  • 16% reduction in administrative cost
  • 21% improvement in orders shipped complete and on-time
  • 19% reduction in inventory costs
  • 18% reduction in obsolete inventory

The numbers above are the average results experienced since implementing ERP by those with World Class implementations. While we might like to say these benefits were as a result of ERP, we all know that these kinds of improvements are gained only through a combination of people, process and technology. And “process” is the focus of Oracle Business Accelerators – both the implementation process and also the business processes the enterprise applications are meant to model, automate and streamline.

While there are no guarantees your company will see these kinds of impressive results, even the average ERP implementation at least produces single digit percentage improvements like those listed above, any one of which might be enough to justify the effort and achieve a return on investment (ROI). The goal of the Oracle Business Accelerators is to get to these kinds of results as soon as possible.

You will usually find fast start or rapid deployment solutions associated with ERP, but Oracle OBAs cover a broader portfolio of product categories. Today Oracle has 640+ OBAs available in 47 countries in the following areas of coverage:

  • Oracle E-Business Suite (ERP)
  • Oracle’s JD Edwards Enterprise One (ERP)
  • Oracle’s Siebel Service and Siebel Marketing (CRM)
  • Oracle Business Intelligence Applications
  • Oracle Transportation Management
  • Oracle’s Demantra supply chain planning
  • Oracle’s Agile product lifecycle management (PLM) applications

In addition, Oracle’s partners offer Oracle Accelerate solutions for a diversity of segments such as aerospace and defense, high tech manufacturing, industrial manufacturing, automotive, professional services, engineering and construction, public sector (and many more). These industry- and country-specific solutions are available for most Oracle Applications including  E-Business Suite, JD Edwards Enterprise One, Peoplesoft, Oracle BI Applications, CRM On Demand, ATG, Enterprise Performance Management, Siebel, Oracle Transportation Management, Agile, and Demantra. And, of course, Oracle says that the best Oracle Accelerate solutions are based on Oracle Business Accelerators.

Indeed Oracle’s use of the word “Accelerate” and “Accelerator” can be a bit confusing because if you go to www.Oracle.com/accelerate you land on a page talking about Oracle’s approach to providing business solutions to midsize organizations, emphasizing its comprehensive set of applications (including four different ERP solutions), its proven experience based on serving thousands of applications customers globally, its tools and its expert delivery ecosystem (hundreds of partners). It claims “Oracle Accelerate is able to deliver the best software in the world rapidly and efficiently, with minimal business disruption.”

But it is the Oracle Business Accelerators that bring the real substance and make its approach different and there is really no reason why these can’t apply to large enterprises as well.

In order to really appreciate how these OBAs work you need to see them in action. But that is not currently a self-service activity. To protect the considerable intellectual property (IP) invested in the OBAs, access to the actual tool is available only with an Oracle employee or authorized partner guiding the way. This only makes sense because to see the tool in action, you need access to the live tool itself, not a make-believe demo version.

So how does this tool speed implementation? First and foremost it helps you manage the scope of the project. Often an ERP project starts with a blank slate and a blueprinting process that clearly identifies current and desired business processes. The risk is for scope creep in filling in that blank sheet. OBAs replace the blank slate with a template of building blocks that is flexible. Think of it as a pyramid of needs with the lowest common denominators or generic business processes (that might vary only by country) at the bottom. Industry specific processes including industry compliance requirements are layered next, followed by company-specific processes that provide competitive advantage. Through this scoping process, the OBA customer is provided with both constraints (what it can’t do) and defaults (for what it can do). The entire scoping process is transformed from a design exercise to one of confirmation.

Once the scope is defined, you move on to selecting and configuring the business flows. These are familiar business processes like budget to approval, invoice to payment, procure to pay and order to cash. The customer selects the processes to be supported and configures them using a questionnaire in a simple check box format.

All this configuring happens in the cloud. The configuration tool is hosted in an Oracle data center. Once complete, the results are used to create a specific instance for the customer that matches the configuration. The end result is a normal instance of the software application, no different than if it had been configured without the tools, except that it is completed more quickly. It is not a skinnied down version of the software. It is not a “standard” configuration and it is not limited by anything except the constraints of the software itself.

For now, even though the configuration process is cloud-based, these tools are for on-premise implementations only. While OBAs would seem to be a great approach to cloud based solutions delivered in a Software as a Service (SaaS) deployment model, that would require OBAs specific to Oracle’s new Fusion applications and Oracle isn’t quite ready to talk about those “futures.”   When it is, I suspect Fusion customers and prospects would be “all ears.”

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How are you paying for ERP? Here’s how others are.

Back in May I posted some commentary and a warning not to confuse how you buy ERP with how you deploy it. There is much written today about deployment options in general and cloud computing in particular. Although how you pay for ERP is different from the way it is deployed, the two are definitely intertwined because you will either be paying for software or you will be paying for a service or both. This service is not to be confused with the consulting and implementation services you may contract for. This is either software as a service (SaaS) or hosting services, which may also be combined with Application Managed Services (AMS), where the company hosting the software also manages the applications and perhaps even the business processes the software is used to model (e.g. Accounts Payable or Accounts Receivable). But how are companies generally paying for ERP these days?

Just to recap:

Enterprise application software is typically not bought and sold; it is instead licensed for use. It may be licensed to be used by a company, on a particular computer or by other criteria such as number of users. This is similar to consumer software. Buying it once doesn’t mean you can duplicate it and share it with all your friends, or even sometimes use it on all your own computers. For enterprise application software how you pay for that license and the term of the license can vary tremendously.

A software license can be perpetual. Early findings from our Mint Jutras 2011 ERP survey indicate that 76% of responding companies have perpetual licenses. That means you pay for it once and can use the enterprise application forever. Maybe. This used to be the case, but more and more often today a perpetual license agreement might have a stipulation that you have the right to use that software only for as long as you continue to pay maintenance to the software vendor that provides the product. In fact, if you are buying ERP today, expect this requirement to pay a recurring maintenance fee in order to continue to use the software. In our survey 62% of those with perpetual licenses have this requirement.

A maintenance agreement, which is a recurring cost, typically provides both technical support and certain innovations. Some of those innovations will be included in your maintenance fee and others may still need to be purchased. Maintenance is typically priced as a percentage of the software license and the going rate at list price today is around 22% for ERP. While anecdotal evidence tells us that most companies actually pay less than this (closer to 16%-18%) this is largely due to specially negotiated rates and older rates that have not necessarily escalated at the same pace of increased list prices. But if you are purchasing a new ERP solution, expect this to be the starting point for negotiation.

But perpetual licenses are not the only type offered. Instead your license might be for a specific period of time.  This is generally referred to as a “term” license. At the end of the term, you must either renew the license or discontinue use of the software. In fact the application might have the equivalent of a kill switch in it that will disable it and prevent you from continuing to use it at the end of the term.  This type of license is less common and in fact only 7% of our survey respondents indicated this was how they paid for their ERP. Effectively managing this type of license requires some license management code to be embedded in the solution and this was not always done, particularly in older legacy software. If it was not, and you don’t renew, you are in breach of contract and you might find some software auditors on your doorstep.

Subscription-based pricing is another alternative, particularly for those who are looking to expense their investment as an operating expense rather than a capital expense. About 15% of survey respondents pay by subscription. You might pay a nominal startup fee, but you avoid the big front-loaded expense of a software license. Unless this is coupled with a SaaS deployment, this does not necessarily address the up-front cost or the on-going expense of the hardware. Only 28% of the subscriptions paid by our survey respondents were SaaS-based.  Running in a hosted environment where the supporting hardware costs are embedded in the subscription fees may indeed address these capital costs and allow you to account for payment completely as an operating expense.

The findings noted come from the 2011 Mint Jutras ERP Solution study. Look for more data to be shared in the upcoming weeks. If you are in any way involved in the selection, management, maintenance or use of ERP in your company, please participate in our survey. By doing so, you will receive the full executive summary and also have access for inquiry to Mint Jutras for a 6 month period. Your contact info is entirely optional but we will need your email address to deliver your report and an access code for inquiry. Mint Jutras makes it a policy to never share contact info under any circumstances.

To participate click here: 2011 Mint Jutras ERP Solution Study Survey.

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Infor ION at the Center of Providing Immediate Value to Lawson and Infor Customers

On July 5, 2011 the acquisition of Lawson Software by GGC Software Holdings, Inc. (an affiliate of Golden Gate Capital) and Infor was completed. The next day Infor wasted no time in announcing integration plans for the company and some of the combined company’s products. Neither Infor nor its new CEO, Charles Phillips, is a stranger to acquisitions. Infor itself has executed over 31 acquisitions in its relatively short history. Mr Phillips’ prior stint at Oracle, known in the industry for fast and efficient integration of acquired businesses, has prepared him well for his first acquisition since taking the helm at Infor. These veterans of the world of mergers and acquisitions (M&A) know that it is important to immediately send a strong message to all customers that the future of the products they use is secure and that the merger actually brings them value.

MERGING THE COMPANIES

In a nutshell, Infor has combined Lawson with SoftBrands, Inc., an affiliate company which was acquired back in 2009. This affiliation enables Lawson/SoftBrands and Infor to share and integrate technology and partner on product offerings. Look for joint cross-selling, marketing and distribution arrangements in the near future. This represents a bit of a divergence from past acquisition strategies. Until it acquired Softbrands, Infor had generally executed mergers where the staff was fully integrated and the acquired company’s brand was subsumed by the Infor brand. The last acquisition approaching this size was the acquisition of SSA Global in 2006 and you would be hard pressed to find any reference today to the SSA brand and only insiders might know that certain Infor employees used to be SSA employees. The value in combining Lawson with Softbrands is not entirely clear to me; Infor tells me it was simply a structural move to consolidate affiliates. But preserving the Lawson brand does make sense, at least for now. It sounds much like the approach SAP took (quite successfully) with both Business Objects and Sybase. While Lawson does not have quite the brand equity of either Business Objects or Sybase, it has particular significance to the Lawson installed base. And the Lawson installed base should be a prime sales target for Infor. When (and if) Lawson and Infor deliver on the promise of a fast pace of development and delivery of deeper industry-specific features for key industries (manufacturing, healthcare, distribution, public sector and hospitality), the importance of the distinction between the two brands will fade. While Infor and Lawson’s product portfolio both compete with and complement each other, come to find out, the two companies share a significant base of common customers. Infor maintains that 9% of Lawson’s active customers also use Infor products, and 48% of Lawson’s top revenue customers use at least one Infor application. Although Infor does not specify the threshold for “top revenue,” one would think this is a large enough segment of customers to present cross-sell opportunities.

 PRODUCT INTEGRATION PLANS ANNOUNCED

But for many of the Lawson (and possibly some Infor) customers, this is just background noise. What they really want to hear is what the new affiliation will mean to them in terms of the products they run. That means both continued support and development plans. Anticipating this question, the Infor and Lawson product development teams have already begun integrating applications using Infor ION. ION is a suite of interoperability and management services designed to facilitate and manage data regardless of whether the data is stored on premise or in the cloud and regardless of which application (or software vendor) “owns” it. This has always included both Infor and non-Infor applications, which certainly makes bringing Lawson software into the mix. Current plans targeted for release later this year follow.

LAWSON S3 AND INFOR FMS SUNSYSTEMS ENTERPRISE

This first integration project targets organizations that have now or plan to implement a two-tier financial management strategy. Lawson S3 would sit at corporate headquarters and larger divisions, while Infor FMS SunSystems Enterprise could be used at smaller operations, potentially distributed globally. This configuration would support multiple countries, languages and currencies. A hidden benefit is that it would also allow each distributed operation to upgrade separately, often a forgotten consideration.

LAWSON S3 AND INFOR EAM

This is an interesting approach since Lawson also offers an Enterprise Asset Management (EAM) solution. Yet the Lawson EAM solution is much more firmly anchored in the manufacturing and distribution sectors, which is where M3 and not S3 plays. The City of Greensboro, N.C. is an example of a public sector customer that Infor and Lawson have in common. Indeed, prior anticipatory announcements called out Lawson’s expertise in the healthcare industry, a sector in which Infor has not really penetrated. The thought appears to be to enhance Lawson S3 with Infor’s EAM and bring the integrated solution to large hospitals, in addition to government and other public sectors.

LAWSON HUMAN CAPITAL MANAGEMENT AND INFOR WORKFORCE MANAGEMENT

While Lawson has made a bigger name for itself (than Infor) in terms of Human Capital Management (HCM), Infor’s strength is more along the lines of direct work force management. This integration could add Time & Attendance as a complement, for example to Lawson’s Nurse Scheduling application.

UNDERLYING TECHNOLOGY

So all this makes sense from a feature/functionality standpoint. But what about the underlying architecture? It is quite clear that the integration projects and future technology development will be based on Infor ION. But while Infor has been developing Infor ION and some follow-on products like Infor Workspace (which Infor calls a new “consumer grade user interface designed to revolutionize the experience of doing business using enterprise applications”) Lawson has not been standing still. In fact Lawson just released Lawson Mashup Designer, which shares a lot of similar features and functions with Infor Workspace. First available for M3, Mashup Designer was recently released for S3 (MAy 2011). So the question will be, will the (integrated) S3 product line be enhanced with Mashup Designer or Infor Workspace? Lawson Mashup Designer is based on Lawson Smart Office (LSO), which was released back in March 2008. LSO was meant to be an intuitive, personalized user interface that allows users to directly access Lawson and Microsoft applications and update data pervasively and instantly across the applications. Mashup Designer builds upon LSO and extends beyond the realm of Microsoft. LSO is the foundation for Mashup Designer. And finally, underlying both M3 and S3 is Lawson System Foundation, a middleware layer insulating the Lawson applications from the underlying operating systems and databases. Because ION can be used to connect both Infor and non-Infor solutions, it would appear than LSF does not need to be replaced immediately, but it also doesn’t make a lot of sense for the combined company to maintain two different teams and parallel development efforts to continue to develop both ION and LSF or Lawson Mashup Designer and Infor Workspace. So there are some open questions for Lawson customers that have invested in LSF, LSO and Mashup Designer.

 KEY TAKEAWAYS

From all appearances it would appear that Infor and Lawson combined are on track to deliver value rapidly to customers, albeit some will see direct benefits sooner than others. What’s in it for Infor and Lawson? • Scale. The larger the company the more resources for innovation and development • Happy customers. And happy customers mean cross-sell and upsell opportunities What’s in it for their customers? • Scale. The customers benefit as well from more development resources and more innovation. • Security. While Infor has been a private company and not subject to the scrutiny of Wall Street per se, Lawson has always kept a close eye on profits. Even during the worst of the recession, when revenues dipped, Lawson CEO Harry Debes kept operating margins on the rise. So Infor is not inheriting a financial mess – far from it. • More solution. The immediate integration efforts will extend options from expanded solutions, although it appears that the S3 installed base will benefit more quickly and will be more differentiated from other Infor products. M3 will become one of several ERP solutions for manufacturers, but heavily targets some industries where Infor touches only lightly. M3 could benefit from the cross-fertilization of manufacturing talent throughout Infor.

Time will tell just what this means for the brands, but by the time that is decided, it probably won’t matter that much.

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The Case for ERP Consolidation

Today I was reading Bruce Richardson’s View From the Inside. Bruce was one of the longest tenured analysts with AMR Research (and its Chief Research Officer) before AMR was acquired by Gartner at the end of 2009/beginning of 2010. Bruce and I really moved in opposite directions. While I spent 30 years working for software companies before joining the analyst ranks, at the time of the AMR acquisition by Gartner, Bruce moved to Infor and is now on the software side. So we’ve both seen the view from both sides now.
The subject of Bruce’s “View” today was “A Tour of the Distribution ERP Market with Infor’s Andy Berry.” It talked about roadmaps and growth of sales to this market. But what specifically caught my eye was the announcement that Infor would be consolidating its multiple distribution products down to two and eventually to one offering. This is definitely a new approach for Infor. Throughout its history of over 35 acquisitions, Infor has avoided the consolidation or rationalization of products, sometimes in sharp contrast to companies it acquired.
The one merger in particular that comes to mind is Infor’s acquisition of SSA Global (August 2006), which itself had been a product of serial acquisitions and had defined a path of rationalization. Having just left SSA myself about 6 months prior to the acquisition, I was intimately familiar with its consolidation strategy. With somewhere around 10 different product lines at the time, SSA’s plan had been to consolidate down to two ERP solutions (LX and LN) and one financial management product, which ultimately would provide the basis of the financial modules in the two ERP solutions. But the company wasn’t too far down the path of execution when the merger happened, and the consolidation message, quite frankly, had not been very well received by its customer base. So abandoning that strategy seemed like a no-brainer at the time.
Add to this a couple other similar situations in the ERP market. Oracle had acquired Peoplesoft and JD Edwards, and also had its own business suite. But its announcement of its Fusion product as a single consolidated product line also met with resistance from its installed base. This was also about the time of Microsoft’s Project Green, which was meant to rationalize the four acquired ERP products (AX, NAV, GP, SL) down to one. Same reaction. Boos from the crowd.
So the case seemed to be pretty solid against rationalization unless you wanted to seriously tick off your customers. And maintenance revenue streams are way too important to an ERP solution provider to risk. So why was one ERP that also grew by acquisition – Epicor – successful in doing exactly the opposite?
On October 21, 2008, Epicor Software Corporation announced Epicor 9, the culmination of an eight year effort to converge its nine different product lines. And along the way, it didn’t seem to alienate its customer base. In fact over the years I have spoken with numerous Epicor customers that perceived a reimplementation as an opportunity, rather than a hardship. What was the difference?
Of course there are a myriad of differences, but I think the one that really mattered was that Epicor made the new destination different enough to really matter. Many installed base customers faced with a reimplementation perceive it as a “rip and replace” only to spend lots of time and effort to get back to exactly where they started.  Epicor took a staged approach to delivering on its goal of convergence and did not lose sight of its promise to protect investments along the way. But it also knew that it had to bite the bullet and do a complete re-write of its underlying base architecture. So first it built its Internet Component Environment (ICE) 2.0, a second-generation Service-Oriented Architecture (SOA) and Web 2.0 technologies. Then over the course of several years it converged from nine to four and then to one. Customers weren’t re-implementing on the promise of something new and different in the future. It was already there and they knew if they just tried to re-create their existing environment they would be cementing in place any restrictions they currently faced.
Oracle Fusion and Microsoft Green promised new architectures but they weren’t “there” yet. SSA had no new architecture to promise.
Infor always had the vision, but for several years got side-tracked through attempts to architect its own middleware. Infor has now decided to stick to what it does best – enterprise applications. By 2013 the two “destination” distribution products will share the same functional code base. Infor is already working on building identical user interfaces based on its new Infor Workspace and it is also working on integration with Infor ION, which it describes as “a new generation of business middleware that is lighter weight, less technically demanding to implement, and built on open standards.” I believe Infor ION will be a key factor if Infor is now successful in implementing a rationalization strategy here on the distribution side … and perhaps among its different ERP solutions for manufacturing? For its multiple financial management solutions? There are lots of opportunities for consolidation here and lots of work to be done. But then remember the 400 new developers Infor intends to hire?
And also don’t forget the two major acquisition announcements that emerged recently – that Infor intends to acquire Lawson and that APAX Partners intends to merge Epicor with Activant (ERP  for distribution). Fortunately Lawson Mashup Designer and Infor Workspace have a lot in common, at least conceptually. This could help. And time will tell if Epicor 9 becomes Epicor 10.
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Green and environmental reporting gets attention from ERP vendors

I read today (http://tinyurl.com/4schf9f)  that Oracle has acquired the IP for environmental reporting software created by Ndevr, a software firm based in Melbourne Australia. The software adds greenhouse gas and environmental reporting capabilities to Oracle’s E-Business Suite and JD Edwards Enterprise One. Ndevr has been a JD Edwards/Oracle certified partner for over 10 years.
This announcement comes just days after IFS announced the results of its Green Supply Chain survey (http://tinyurl.com/4oh92rh). IFS revealed in the announcement that almost 77% of manufacturers participating in the survey said they are currently required by their customers to report on their environmental impact and that of their products or require their vendors to do so. IFS went on to say, “…respondents indicated that their IT infrastructure, including enterprise resources planning (ERP) software, was not keeping up with their changing green supply chain needs, with 87 percent reporting that this data was handled at least in part through hard copy. Only five percent rated their ERP software as ‘excellent’ in its handling of green supply chain data while 54 percent rated their ERP solution as ‘poor’ or ‘not at all helpful’ in this regard. “
IFS addresses this apparent disconnect through IFS Eco-footprint Management which enables environmental impact to be traced along the entire value chain, from raw-material procurement and production to distribution and even through to the use of products post-shipment.
In addition, SAP has been particularly vocal about these issues and has been promoting its efforts in striving to be both an exemplar and an enabler. In fact Peter Graf, appointed as SAP’s Chief Sustainability Officer (CSO),  leads both the corporate sustainability strategy as well as product development in the area of sustainability, thereby lending cohesiveness to both efforts. SAP BusinessObjects Sustainability Performance Management, SAP EH&S Management and SAP Carbon Impact are all part of the SAP offering to address these issues.
Infor has a series of “green software solutions” including Infor Green EAM, Infor Green ERP, Infor Green, PLM, Infor Green PM and Infor Green SCM. You can also read how see how Bentley University and Mohawk Fine Papers are using Infor EAM to reduce their energy consumption and about Infor’s Green solutions at http://www.infor.com/enterprise-software/sus-hub/ .
These are just 4 examples of how the major ERP vendors are jumping on the sustainability band wagon for environmental protection.
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