The Long Tailpipe - Shai Agassi's Blog

Blog Interrupted

I start with an apology for taking so long between posts – and I have an excuse. See, we are raising money to start this new company called Better PLC. After years of fighting for budget allocations, I forgot how much fun it is to actually go convince investors that your idea has enough merit that they should put their money, and much more importantly - their trust in you.

It is somewhat funny that everyone I talk to has heard about this new company we are trying to create, but no one really knows what we do. In every meeting I discover new ways of achieving the ambitious goal we have set for ourselves, and people really get energized about the idea. It is one of those giant small ideas that I truly believe can make a big difference in this world.

I had a conversation yesterday about all these software entrepreneurs who are moving into clean-tech. My view is that we all see a giant market ready for disruption, bursting ripe from years of very little investment. Put that with a group of people who made enough money not to be enticed by easy money, but looking for a real mission in life and you get some really interesting artifacts happening. It is almost as if the entire silicon valley is going through a mid-life crisis – but instead of looking for a new fast car (we now have our official fast car – the Tesla), we are all looking for a calling. I saw it at TED this year; I see it everyday with so many great ideas.

The people I met over the last 75 days on any part of the world are just amazing in their passion, and drive for a better world. Some solve energy issues, others education, healthcare, food, water – all problems that can really touch life. I am at awe with some of the scientists that I met; all have much bigger goal than to start a small company, or bring a new product. I personally stopped just seeing the problems in the future; I see an ocean of opportunities. 

I get people coming at me from every corner asking how do they sign up for our mission, before they even know what it is we’re going to do. When we share the vision with them you can see in their eyes that they all find their calling. I missed that sense for such a long time, it is just refreshing to be back in it. It is not that SAP was bad for me - it was a great home, it is a great company. It is just so easy to get sucked in to the daily grind of large corporate politics, that makes you lose that sense of big mission, your purpose and your sense of direction for what’s right and what’s wrong.

In any case, I promise to share this weekend some of the things that popped up on my radar over the last few weeks. I gave a few presentations, on both enterprise software and clean tech – in particular a presentation in Israel last week – which I will bring into a series of blog posts. So stay tuned next week…

shai

WEF Middle East - concluding thoughts

I received an eye-opening comment via email to the series of blog entries about the Middle East WEF from one the most intelligent guys at Gartner, Jorge Lopez. Jorge and I go a long way back during my times at SAP in Enterprise Software and I had shamelessly stolen a few good ideas from him and evolved them to strategies. In this case though I will give him all credit for coming up with a few of the lines I will quote (wherever you see quotes here, attribute it to Jorge, even tough I am loosely paraphrasing.)

I’ll start with a James Burke quote about the differences amongst nations and people in one of his books –

“..the difference between the world of belief (Credo ut intelligam. I believe, therefore I understand) to the world of reason (Intelligo ut credam.  I understand, therefore I believe).  This fundamental mindset, and the freedom and institutions that it implies, are central to moving from a world of memory to a world of hope…”

“…In a sense “countries of memory” lack the institutions that can facilitate the social changes needed to capture the value of innovation, fundamentally requiring freedoms…”

We instinctively turn the world freedom in our minds to democracy, but Jorge is pointing out a much more fundamental freedom that seem to be missing in certain cultures and countries – the freedom to fail (forward).

“…Economies can ride waves created by natural or demographic resources, but to sustain performance over the long haul, you need to be able to handle large scale change and the social disruptions that accompany it…”

In a sense, competitiveness is moving up a level for countries in the same way it moved up for companies. It used to be that companies had physical assets as their main value – which is why most of the balance sheet reflects cash, inventory and the ability to convert supplies to inventory and cash. We realized in the last decade that the relationships a company holds are the new asset class, which is when the employee, customers and supplier contracts became assets, and the ability to connect and convert became the new skill the organization was valued for. Now we realize it is the processes that differentiate companies, and the ability to scale them, and change them in reaction to market disruptions are the new skills that make the process into an asset or a liability for the corporation.

It seems as though the same applies for countries – we are moving away from natural resources as the key asset for a country – also known as the “oil curse”. Countries shift to the “relationship” asset class when they realize how to grow a knowledge based economy by improving the real natural asset – their young generation, causing them to attract more smart people into their country. Similarly, trade relationships become key assets, allowing goods to cross borders and each country to optimize for its value and competitiveness. “Countries serving its population” is becoming less and less a cliché, and more of an economic model. “Improve the people so that you can collect more in taxes down the road” – as an economic growth strategy – sounds capitalistic but who said capitalists pigs can’t produce great bacon?

When it gets to agility – in particular that of cultures – we get an interesting new base of competitiveness. Cultures that support circulation of talent will get the small base of people who have the entrepreneur gene in their body to take the immense risk required for new ventures. The swarm of innovation (some of which disrupts industries, others fail and disappear) pulls the overall country economy upwards from recessions and circulates knowledge from large established companies to smaller startups. On the flip side, countries supporting labor laws to “defend the workers” in effect stop the music on the talent musical chairs, causing people to glue themselves into a job early and long -for fear of not finding another one. The glues get stronger in down times, exactly the opposite effect than the one you get when “freedom to fail” is accepted in society.

When you observe the effects in the Silicon Valley, or in Israel for that matter, kids out of school look for the riskiest job proposition (hoping for the highest return, financial but more importantly - personal improvement). Those economies get the aggregate agility of forming many small independent businesses that cushion an economy in slow times – creating a similar effect in the human capital side of macro-economics that state banks do in free economies. When the market is down, more talent becomes available – in a sense making it “cheaper” to start a new company due to abundance of ideas and risk takers. Every great company in the history of the valley started in a technology down cycle.

Interestingly, countries can gain and lose that agility, again as Jorge points out

“…take a look at Japan which changed many times when needed to post world war II, but was paralyzed by the cultural requirement to “support the economy” by the will to write down bad loans on trusted friends and relatives- while the very large savings and loan scandal and downturn in the US was ruthlessly written down and allowed the US to move on in a shockingly short amount of time…”

So the questions that I leave with from these 36 hours of incredible hospitality in Jordan are:

• If the Middle East discovers that freedom is the key to competitiveness, and social agility becomes the true asset (post the current oil-boom), which countries will be willing to turn the key and open a door early to the new society, and which will stay behind in protective states?
• If countries have been defining themselves in the past in terms of conflict, would they be able to look at the market economics and social changes required and define themselves outside the zero-sum inertia?
• Can the Middle-East entrepreneurs Imagineer a new set of skills and rules that are not defined through the current conflicts and engineer a region that will provide solutions to problems instead of problems without solutions - or will the region let the conflict continue to define the issues?

WSJ Article

I debated real hard with myself (I can be really stubborn, even when arguing with myself), whether I should comment on the WSJ article this Friday. I know most of you can’t read the article, as it is a subscription service, so this post is only for those who can read it. The article, I hear, has given a lot of people back at SAP some hard feeling, as if I threw rocks at my own house after I left. So this post comes to correct the impressions that are running in the SAP halls.

• Phred is a great reporter. She worked really hard on this article and interviewed so many people in SAP for almost six months. My interviews were all conducted 4 months prior to my departure – the article was supposed to be a piece on how SAP got globalization right. To a certain degree, I ruined her piece when I decided to leave, and Phred had to re-edit to reflect that departure.

• The only comment in the article attributed to me that was given after my departure was the following quote

Mr. Agassi says his mission was "to bring the best talent we could find anywhere into SAP, regardless of location."

That comment was given as a response to a comment made by one of the employees in a German article saying “Shai tried to move as many jobs from Walldorf to Palo Alto as possible”.

• Globalization is hard, as cultures tend to become perfect separating lines in times of hardship. I believe SAP globalizes more than any of its peers and probably more than most global companies we know. I did not make SAP globalize, but I was a great supporter of the move to globalize and became a symbolic figure to demonstrate the true global nature of the company (as the article says, “a lightening rod”.) There are many great global executives at SAP today, and that shift is not one that can be easily turned back because of one person’s departure.

• SAP globalizes because talent in our industry is distributed around the entire world, and the company is committed to get the best talent it can find into the company. The software industry has been blessed with what feels like an infinite supply of engineers coming mostly from China and India but also from places like Israel and Bulgaria. This industry is lucky that it can acelerated growth and innovation – I can only hope other industries get this influx of talent as well. At the same time, that influx of amazing talent changes dramatically the social contract for many employees in the “home countries” of global companies. That change is documented in many articles and books – one of the best is “The world is flat” by Tom Friedman.

I do not believe in throwing rocks back at a place you helped build – and SAP was my home for the last 6 years. I still hold it dear, and am a big fan from outside, wishing the company only the best. I know that departing executives always cause friction despite their desire to leave a positive imprint even on the way out, still I do believe that the conclusion in the article’s sidebar will hold true and SAP will grapple with tensions and persevere.

E3G - Layers reloaded

Boy, some amazing comments in the talkbacks to E3G. I am just overwhelmed with some of the ideas, and I am trying to fit them somehow into the framework in a way that enhances the picture before I move on to the next part of my E3G thesis. I realized as I was explaining the blog entry to some of you that I was really describing a polarization of each layer - from a "one size fits all" model of E2G into a "fit for need" hybrid model in E3G. In a sense we moved from this graph

To this graph

on every component layer.

Let me illustrate better by looking at the data layer - Instead of putting all the data in a single relational store in house (too expensive for exceptions and too slow for google-like fast access to large collections) we will be seeing a shift to remote storage for exceptions and shared data a-la S3, and fast access locally to in-memory data warehouse which is still cheaper than relational (when you account all dba human operational cost). SImilarly, when you look at every layer you see the same polarization:

• Cloud computing in conunction with high availability local appliances
• As I just explained, cheap remote stores next to in-memory high performance dedicated stores
• Open XML business event networks routing into an internal highly-optimized (as in XML bypass) bus for object routing and handling in the network itself
• Desktop with smart browing client next to smart mobile device with personal awareness and intelligent routing

Now, one of the smartest comments started building the next axis of the framework which is the experiences we see across these components. I just want to quote some of the text from that talkback before I post the full view on the second axis (mostly because I have not formulated it all yet - I am busy on the alt.energy side of the hoouse these days...). Here goes, from Armando -

"...I was picturing your layers on a slide with four blocks, one on top the other, Store, Compute, Messaging, Presentation. There is one block that to me is just crying out to be drawn vertically alongside: People..."

and

"Gen3 moves even more power and control into the hands of end users. Distributed computing is enabled and complete business objects live on the network. Tools like Visual Composer evolve and live up to their full potential allowing the creation of ad-hoc applications without compromising the core platform integrity. The user interface is split completely from the underlying rules and data. Beside new user interfaces I can also imagine the development of specialized enterprise bots that interact autonomously (or semi-autonomously) with the system."

Read the rest of his comment - it's worth the time. I think this is probably an aggregation of the view I have about the second axis. My view currently breaks the second axis of the framework across multiple different experiences as the users end up tackling a much more complex world (in the physical world with high volume of events and less time to process), the systems are getting more proactive, with more complexity in IT and but with a lot more power and resources availabale.

• In that sense the users are going from Data Entry to Exception handling and co-authoring
• Systems are going from Aggregation to harmonization and more importantly Automation
• As structure is added into information, its ability to route intelligently increases by orders of magnitude, hence the value-add of data moves away from the store and into "right-time routing"
• forcing developers to go from transactional programming to Event centric resolution

As you can see, this is not as formulated as the previous axis, but you triggered some great questions - so keep shouting.

Shai

Enterprise 3rd Generation

With everyone talking about Web 2.0, I was looking at what is the next generation for the Enterprise space, and how far are we from there. My view is that we are on the verge of the third generation of Enterprise software – the first being mainframes, second was three tier client Server and the third one still not here. A lot of people considered the web versions of 3-tier C/S as the next generation or Software as a Service as 3rd Gen, I view those more as 2.5 Gen. The generations have a lot in similarity to the wireless industry in that you can get a lot of the promise of 3rd gen with 2.5 gen, but to do it right the underling infrastructure needs to shift to the new architectures.

I will try to take this week to discuss my views of this next generation of enterprise software. As a general framework I looked at the following four layers in the stack: Store, Compute, Messaging, Presentation; yet I am happy to hear from you guys about any layer I have missed of great importance. More importantly than the layers (which I have talked about many times in the past) I am interested in the experience resulting from the right mix of those components

With that in mind, Gen 1 was about storage on tape, computing on mainframe, communicating proprietary internal networks, consumed through green screens. We all learned how to optimize because all resources were scarce and problems we were solving were bigger than the compute platform was really capable to deal with comfortably. In Gen 2 we moved to the dominance of Hard disks abstracted through a relational data store; The computer platform got distributed and abstracted by an open operating system, TCP/IP network stack and messaging queues on top, Finally a GUI which over time got the Windows interface into the user’s muscle memory.

What is coming in the 3rd generation? Well, my first approximation shows that we are moving away from single model for each layer, and into a combination of remote and local solutions for each of the layers. In a sense we are getting more domain specific and optimizing for usage instead of for unified architecture.  My current thinking revolves around the following:

• Storage moves to some combination of Network Storage (think S3) in combination with in-memory stores
• Compute will be disrupted on the server by cloud computing (which is an evolution to higher level of distributed than C/S) together with local grids as represented by appliances.
• Networks will move from packets to events – in a sense sending business objects around, with the network aware of the content and able to route them using local enterprise bus that understand the relationships between roles and resources using rules.
• Finally on the client side we will see smarter browsing – able to scale up the experience and fit the experience to the user and the content. At the same time, mobile clients with higher fidelity of experience but lower level of resources (screen and keyboard) will overtake the role of the desktop as the dominant platforms for user interaction.

A much more interesting question in my mind is what meaningful new experiences do you get from these innovations when they come together. What is E3G going to solve that the previous generations could not address. I am going to start digging into that question over the next few blogs.

In the mean time, if you think that I missed something fundamental up to here in these layers – shout!

Putting it all together – expanding the box

Every one of the dimensions mentioned before are tightly intertwined, as you must have understood by now. Platforming the suite through SOA evolution provides the way for the key processes to evolve more rapidly, and for additional functionality to be built more rapidly as composites. Simplification of deployment will cause massive adoption, providing a better platform for developers. the more functionality we get in the form of simple to adopt solutions – will cause more companies to go back to acquiring and deploying innovative processes for growth.

If flat world was the big wave of the last 5 years – shifting costs of operation away from high cost and into low cost – then the next wave of innovation will come in the form of automation. In a sense, what I’m saying is that some thing is actually cheaper than off-shore low cost operations – no-shoring. You can see it in many industries, when you want to beat cheap labor you automate production, and the same is bound to happen in the IT industry. I do not predict an end to the off-shoring movement, quite the contrary, it is here to stay and will continue to grow strong. There will be a synthesis between the two movements as certain tasks will get automated, or enabled through smarter tools and improved packaged solutions. As we move up the downward escalator (as Geoff Moore describes in Dealing with Darwin) the old non-valued parts of enterprise software landscape context will be designed out, and new parts will enable faster operation and innovation.

That’s where the eco system comes into play – what the open platform enables is the next generation of edge-processes. By simplifying consumption and freeing innovation budgets the eco system will flourish again with new products that can be deployed much faster across the enterprise. The core solution platform with the strongest catalog of Eco-system solution always wins. Ask Microsoft if you don’t believe me, that’s how they wrote the Windows story. To a certain degree, if SAP holds the source of axis for the box, the Eco-system players are the ones holding the outer vertex of the box, and pulling on it outwards – expanding the volume and value of the eco-system.

How far is this vision from reality? well, you can easily measure. Check to see how many suite cores are actively deployed at accounts (last I counted they are adding thousands of ERP installations every year). Check to see how much of the system is covered through enterprise services and how many NetWeaver installs are going live (about 500 a month, right now), and check how simple it is to get a full suite up and running (my goal was to do it in under 7 days). Finally, check how many eco-system solutions are made available by partners of SAP, and how many of them had a valuable exit, selling to SAP or even going public.

The combination of SOA, SaaS (whether on premise or off premise), new hardware (cloud architecture) and interdependent eco-system of innovation is the foundation of next generation of enterprise, or as I called it Enterprise 3G (E3G). Hasso discussed some of the characteristics in his keynote that opened sapphire Atlanta, If you read through the last five posts (sorry for going long on you – but you always know you’re going to get that long when you come to my keynotes) – you can get the blueprint for how I see SAP and the industry going forward. I hope I end up correct. I hope SAP still wins at the end – for the sake of our customers.

Shai

Dimension 3 – Simplicity

The last and probably toughest part of our efforts at SAP was to simplify the consumption of SAP’s software by the customers. Simplification can be viewed as the attempt I mentioned in past entries to eliminate “IT tax” imposed on the whole industry by, well… by the industry. Every industry goes through stages where every rule is up for re-evaluation – these are the transition stages, such as the time where the industry went from big-iron to distributed Unix boxes. After those periods of great change, we tend to fall into a period where inertia drives continuous innovation with more and more extensions along an established architecture and business models. This is the classic innovation model detailed so well by Clay Christianson in his innovation series.

The last wave locked into a model where the application comes to the customer as “almost-done”, with various vendors allowing the customer (usually through a system integrator) to continue and modify the solution to fit their needs. No matter how many times we tried in the past to convince the customer that the offering is “complete” or “out-of-the-box” there is just too much inertia in using all means to fit the solution to the customer processes and not the other way around. I find an industry that spends a high multiplier of cost for implementation and operation to the original cost of the license as an industry that is ready for a disruption – in the classic Christensen model.

The effort this industry needs is a strong analysis of where the money goes to (in the true Total Cost of Ownership) and a concentrated attempt to design the costs out by changing the product, go to market, and eco system so that they just cannot accept the cost any more. Doing so successfully would not only make the customers happier – it would release many funds currently captured in the operational cost structure back into capital investment in the form of innovation.

Take as an example the BI accelerator (BIA) that SAP shipped almost a year ago now. BIA was one of the smartest software innovations that were created at SAP in the last decade – an algorithm that allows a system to store data warehouse in columns instead of rows – leveraging the low columnar variance to compress the data and distribute it across many CPUs. The result was a multi-billion record data warehouse machine that can retrieve any query in sub seconds. Amazing innovation. The team came to me with the software, and won an innovation competition inside SAP (in a wonderful battle of the geeks during our Developer kick-off). To install the software, you needed to be an expert in so many different domains – from hardware optimization to Software setup and analytics. I asked the team to finish the product – “get me a box that can be setup in one day with one on/off button”. Without aiming for that kind of solution we could not have scaled the deployment. The team delivered and BIA actually got the 100x performance boost promised and then some.

The interesting result, we did not understand up-front, was the elimination of the complex human element required to operate a data warehouse. You see, the highest cost in data warehousing is not the disk or cpu, rather you need to figure out how to eliminate the need to constantly “lift the database” by optimizing aggregates and improving query response times. By storing the data in memory you eliminate the ability to speed data access (Well, you also eliminate the need by getting to sub-second response). The result you should see when BIA takes hold will be a shift of that cost structure away from base technical maintenance into smart analytic applications (that and less database usage - which is an added bonus).

I have shared in previous keynotes projects such as Muse for simplification of UI, but there should be more such efforts eliminating costs out of installation, configuration, testing, general operation, etc. SAP announced some products aimed at similar simplification during Sapphire – such as the Duet appliance, or even Duet itself. I believe the next massive industry disruption is coming, in the form of massive TCO reduction. Most of that reduction will be in the packaging and system integration around the product – and some of it will be engineered into the product itself. SAP is in the best position to drive that change – you see, SAP doesn’t have a problem of trying to figure out how to connect lots of pieces together to make a solution happen. Instead of that SAP can work from a single blueprint and affect the change horizontally across the entire suite, and for all industries.

The Missing Sapphire Presentation

The one Sapphire keynote you will never get to see...will be my 2007 Sapphire keynote.

Next week is Sapphire, the first one in years that I do not attend (I have been going to every one of them since 1999 – even when I couldn’t get good seats in the concert). There was a presentation I was about to share with all of you about our strategy, but it is pretty understood that once you are not accountable for the strategy’s execution you should not decide on the strategy either. In any case, I thought this one presentation should see the light of day – especially in light of some comments made over the last few weeks about the strategic direction for SAP in the post-shai era. My intent this year is to share with you all the 3 axis (plus the x-factor) of thinking we have applied to SAP over the last few years, and since the information in this presentation is not a secret, I figured you can enjoy getting a written version without the big lights, and larger than life screen behind me.

First of all let me comment on some comments I have been hearing recently – most of all about the new “back to basics” approach SAP should take. It is important, in my humble opinion, that SAP does not go back to anything – the path forward that the company had taken over the last 4 years was the right path, and if SAP needs anything at all it is acceleration not an about face. At the macro level the decisions taken, such opening up to web services standards and the great support for Java in NetWeaver (as Dennis described in remarks this week) were essential for the continuous success of the company. Imagine today an enterprise software company fighting at account level to justify why “Java is bad and SOA is a fad” and you can understand that the position would have been ridiculed across the industry. The fact that Oracle had followed every step of our path including the recent announcement of Project X (come on, at least pick another letter when you build an xApps-like strategy) in the place of Project Fusion shows that the technology strategy was the right one, and shaped the entire market. But, since I keep getting many talkbacks from you all, I will leave you for the final verdict.

So what were those three axis of innovation?
- The first and most fundamental one is the functionality axis – the one which SAP was built around for the better part of its first 30 years. SAP programmers define themselves by the transactional modules they have built over the years, and they continue to evolve and drive those modules from the key genome of transactional process understanding so unique to SAP.
- The second axis introduced a few years ago around the formation of NetWeaver is that of openness or platform. We had to make two key decisions around the platform-ing of the mySAP suite – one around the technology infrastructure (in particular should we buy from someone or should we build our own), and the other (much tougher) one – should we document our engines through Web-Services in ways that will enable smaller ISVs build solutions that target our core Suite accounts
- The last one, a fairly new effort that started a couple of years ago, revolved around the simplification of SAP. That whole effort revolved around simplifying the consumption of our solutions in ways that would eliminate waste, or as I called it “SAP Tax”. The thought process was fairly simple – find places where people had to perform tasks that did not provide direct business value and eliminate them through better design or better packaging of the products.
- The x-factor was the eco-system effort that we drove in earnest since 2004. The thought process was one rooted in the conviction that if we get a great collection of enterprise applications around SAP that can bring value to the customer, plug to the platform, complete the processes that were in the long tail of processes for each enterprise, without adding complexity we will get a true win-win-win relationship and all boats will rise with the rising tide. We saw that happening at a much faster speed than we originally hoped.

In the next few days I will dig deeper into each segment of these axis, as you go through your real sapphire, you can read here your “virtual presentation” – hopefully they will match. The team at SAP has been doing a great job, and will continue down that path. I can tell you that the work that the entire product teams had embarked on will continue and the path is the right one. We were getting the products like CRM to not only cover more functionality – but more importantly I also saw them getting simpler to deploy improved usability and opening up through a multitude of web services. That story cannot be turned around, nor will it be – SAP is marching forward to success.

shai

ps. This is the one year which the entertainment was my first choice...and I don't get the tickets anymore. if you get to go, get me the autographed disc.

What is ERP

I received a couple of followup questions on the topic of ERP as well as a question regarding whether Best of breed is about to make a comeback, in particular inside the core ERP domain. so instead of getting deeper in talkback land, I figured to post another one on the topic and clarify. I was also told that my posts are too long to read, so I will try to go shorter.

There is no doubt that ERP, which was a key differentiator for companies 10 years ago has become more context for some of the companies today, and for those who had bad implementations, even worse a costly commoditized set of processes (and if they picked a non-SAP product, a costly legacy set of processes). For the companies that know how to use ERP as a strategic asset there is no doubt that a great SAP implementation is a core component of their differentiation. If you ask Niall O'Connor at Apple as a CIO of one of the fastest growing consumer focused brands in the world what was the secret sauce behind their success - and no doubt he will point out the speed of their execution on iTunes, their scaling of supply chains for iPod, and the volume they run through their retail business as great proof points to the amazing role ERP plays at Apple (right behind the genius that Steve Jobs brings to the product design/strategy table). By the way, Apple's implementation of SAP is one of the most inspiring uses of technology in the enterprise. I hope one day to get Niall's permission to share with you some of the stories behind the scense at Apple.

Without a strong core ERP you cannot scale a company and you lose scale even on successful strategy. That is core - that matters. What is context, is a stale implementation that does not allow you to change corporate processes with any agility. What is interesting to ask in that case is what effect does best of breed have on that agility - hence on the value of these application assets. Well, the more applications you have designed separately, the less you can afford any change and the more you invest in the gaps between them. As a matter of fact, I believe Oracle's customers should hear the famous British Tube warning (that is their subway not their TV...) "mind...the gap!!!". If you have not been to the London underground, you will not get the story, but if you have been you know that the tube was badly designed so that there is a gap in some stations between the train and the platform, and yet instead of solving it, there is a big voice that just reminds you not to fall.

Does it mean that you should yank out every thing you have and install one vendor's software and nothing else. Probably not, you should evaluate carefully what makes sense to yank out, and what makes sense to interface, and phase out over time. The close to the core processes the harder it is to live with best of bread. But on the edges, I definitely see things on the boundary line of ERP that will get interesting offers from many vendors. Enterprise SOA was the way SAP designed a way to integrate these offerings by design, not as an afterthought. Vendors that will take advantage of that set of interfaces will not only help the customer spend less on technical plumbing, but more importantly make sure that the systems evolve over time in conjunction with the core engines.

The issue with best of bread is that like most products we buy in life, we can only sense the cost of acquisition, not the full life cycle cost. You pay for best of breed by moving away from buying software and into building systems. I believe that long term the market will always move away from building one off and into buying en-masse. It is just the direction that water and costs flow - downwards. the main issue we have to focus on is simplicity - and that is the gene that I was working on the most at SAP - simplifying our world and our customer's world.

Shai

ps. I was told today that someone cheered regarding my departure...I heard that is becoming a more popular sport these days in some parts of Europe. I promised that I will take myself lightly so I decided to link over to that post, but I read it first to see if he had a base in reality to anything he said, but since he must have lived in some distorted reality field, I figured you don't really need to read it...

Does ERP Matter?

I received a very interesting question by email today from Ephraim Schwartz, editor-at-large at InfoWorld – “Does ERP matter?”

The arguments he was quoting were swaying more towards the “Matters – but much less” corner, and my SAP instincts made me jump up and down and say “Matters – more than ever”, but why? Interestingly, both my and his answers used the same reasoning as root cause for the answer – SOA infrastructure will change the landscape so that ERP matters more/less (pick your opinion here).

So, I stayed up Friday night (I didn’t have to wake up early Friday for a board call any more…) and decided to write this answer as my next blog entry, and send it to Ephraim as a public answer. You can read his column here to see what became of that answer in the broader context of his views, but read all the way through to see my view.

I was always a believer that SOA will not lead to small Lego blocks that will be aggregated on the fly by the consumer as some opinion leaders discussed in the past. Core processes require a certain semantic consistency that is certified by a vendor and compliant with authorities. You do not want your General Ledger going out of whack, just because you connected a web service the wrong way to a process that was assembled from multi-vendor pieces. Think of the set of core processes and the master data they require as the part of the brain that takes care of the involuntary actions of our body – like breathing and digesting – you do it, but you don’t think about it, and you definitely don’t want anything messing around with that part of the brain.

On the other hand, around that set of core processes we see a very large collection of edge processes that can be considered either ERP+ (such as employee performance management), or the other parts of a business suite (like advanced supply chain forecasting and optimization.) Some of these will be delivered as service oriented engines, with loose coupling to the core ERP, others will be composites that will be built and supplied on top of ERP and some other engine, sometimes these are shared engines while other times they are dedicated engines for that composite. In a sense these edge processes are the parts of the brain we educate after we are born. Some are more essential to the business – like CRM (try to get money without providing good service these days and see how essential CRM is), others are more optional but become essential over time (my favorite is emissions management – every company should implement it now and reduce emissions!)

So, is ERP essential or are the edge applications more important? Given your ERP will become service enabled or service oriented, will it be more or less valuable? My view is that with the service enablement, as we have performed through the introduction of Enterprise SOA at SAP, ERP in combination with a middleware platform like NetWeaver becomes the next Enterprise platform. In a sense, this combo “ERP Platform” (called Applistructure or BPP by the analysts) becomes the enterprise equivalent to Windows for the back end processes. Using that same metaphor the question translates to “Does Windows Matter?” and the answer is fairly simple – Windows became the invisible power behind the scenes, enabling a portfolio of applications, all standardizing on the same set of APIs. In that scenario an ERP platform not only matters, it becomes essential to the business.

So the question remains, why would customers go through this kind of implementation? Aren’t they tired of always getting to the next wave, and what is the return? The last waves of mass adoption happened as result of the need to get better transparency, compliance and global scale. If you did not have a resource planning application, you just didn’t know where your assets were and could not convert them from intangible assets to tangible assets (if you don’t know what you are manufacturing you cannot optimize your inventory or your manufacturing plan for the most profitable products). Compliance means that you have to have similar processes and controls across your entire company or else it is really hard to sign a sarb-ox statement that states you do things in a certain way. Finally, if you do not carry those processes to every geography around the world it is almost impossible to scale, especially in a rapidly flattening world.

I claim that the coming wave of implementations will be driven by the need for consolidation, networked value chains and increased speed of process change. Companies had gotten much bigger as result of organic growth and acquisitions. They have multiple instances of ERP applications, with a higher degree of variation amongst those instances. The cost of maintaining these separate instances escalates rapidly over time, and the urge to consolidate (take the hit on short term) becomes higher than the desire to stay on what you have (and take the smaller hit on productivity and maintenance every budget period). The desire of the CEO to have a faster changing company, regardless whether you are reacting or disrupting an industry, clashes today with the CIOs ability to respond to such change, unless they go to a well separated “ERP Platform”. The rapidly connecting world of complex supply chains requires well agreed and externalized APIs that carry data and process outside the boundaries of a single enterprise or a single industry. As such, an ERP platform becomes an essential part of the corporate strategy, not even the corporate IT strategy. It is essential to the corporate process and innovation strategy.

What we still need is a significant investment by the vendors (I love this new-found ability to say “the vendors”…) to simplify the implementation and operation of this ERP platform. The target should be a sub 100 days implementation (in the case of mid-market companies sub month) and more importantly – the ability to continuously modify the edge processes every 100 days. The core should not be touched, or if it is reconfigured (notice – not re-coded!) the implementation should recommend a battery of self tests that will re-certify the implementation as “still valid and working well” without manual labor or long down time.

Around that ERP Platform, many other products from the vendor and the partners can be loosely plugged and the overall system can stay compliant – as long as all products are adhering to a single eco-system set of rules. That is the vision of Enterprise SOA, and SAP is a few years ahead of the industry on the delivery of such vision.

ERP platforms matters more than ever.

shai