Andy on Enterprise Software

Whistling in the darkness

October 31, 2008

According to the Celts, today is the day of the year when the boundaries between the living and the dead dissolve. While the ghosts of the departed such as Lehman Brothers stalk the earth, the living put on masks in order to mimic or placate the evil spirits. I’m a little unclear as to what would be the most suitable mask to don to mimic a deceased investment bank (do Armani make masks?), but software vendors across the globe will be nervously hoping that the spirit of Lehman has been thoroughly placated by the kindly sprites of Hank Paulsen, Gordon Brown et al. Fear is stalking the enterprise software market on a scale not seen since the aftermath of the millenium party in 2001.

Ghouls and goblins in the form of financial controllers in large companies are, as we speak, preparing a witches brew of budget cuts sufficient to make the bravest software salesman quail. Companies look at each other nervously and sing around the campfires to keep the spirits up, saying that their particular type of software does such an important job that it won’t be affected, and indeed that in times of adversity, perhaps companies will actually spend more money on critical IT projects? After all, data quality/MDM/(insert sector) is more important than ever now right? Right?

If you believe that you probably also believe in fairies and that derivatives make our financial systems more stable. As sure as night follows day, in times of economic downturn the finance department bring out their trusty red pen and seek out advertising budgets,travel allowances, training and information technology projects to carve up. At present there is a delayed reaction, as IT projects lumber on like zombies, unaware of the carnage waiting ahead. Perhaps our particular sector or project will be unaffected? Perhaps, but few will escape unscathed.

There will shortly be a lot more tricks than treats out there on offer for the enterprise software salesman as he makes his calls this winter.

Happy halloween!

The economy and Wile E. Coyote

October 27, 2008

Like many of us, I am curious as to what extent the meltdown in the banks will affect the rest of the economy and, in particular, enterprise software spending. Random conversations over the last few weeks with vendors have been varied, with only those exposed heavily to financial services seemingly seeing a real decline in spend (one company had Lehman Brothers on its Q4 sales forecast). Certainly some sectors may barely be affected e.g. the public sector, or perhaps pharmaceuticals (people still get ill and will need to pay for their pills) and maybe law (imagine all the fun the lawyers will have as banking positions unwind and contracts cannot be fulfilled, never mind the shareholder class action suits). However there are only so many of these and I wonder whether we are in the situation that you get in cartoons, where Wile E Coyote or Bugs Bunny runs off a cliff and happily progresses forward until he actually looks down and notices there is no ground any more.

A troubling sign of this is in a sector a long way from the world of credit default swaps, that of trucks. Volvo is one of the largest suppliers of commercial lorries and trucks to continental Europe, and sold 41,970 trucks in the third quarter of 2007, when admittedly things were booming. They just announced their Q3 2008 results. How many trucks do you reckon that they sold? Less than 41,970 for sure, but what what sort of reduction might you expect? Maybe a 10% drop in sales, perhaps 20%, or even 30% if things had become really bad? Well, they actually sold 115 trucks in the last three months. That is not a typo. It is a 99.7% reduction in sales.

Now that is a scary number.

The Information Difference will shortly be conducting a survey of enterprise software buyers, looking specifically at their spending plans for master data management and data quality. I’ll keep you updated when we have some results (a few week’s time). If your company would like to sponsor this survey, you have four days left to do so (just contact me and I’ll send you details).

You did check that spreadsheet, right?

October 17, 2008

Just in case you ever wondered about whether data quality in spreadsheets was really a big deal, then this little story should change your mind. A lawyer on the Barclays buyout of Lehman Brothers defunct assets had drawn up an Excel spreadsheet detailing the particular trading contracts that Barclays was prepared to accept as part of the deal. The lawyer took out 179 particularly undesirable contracts, but rather than deleting the cells, marked them as “hidden” cells in Excel. This was all fine until a first year legal associate who was helping to put together the final paperwork converted the spreadsheet to a PDF file and, you guessed it, managed to include all the hidden cells as well as the items Barclays was supposed to be agreeing to buy. The deal has now gone through, and Barclays are frantically trying to reverse this mistake. I imagine that the Lehman’s administrators will be most sympathetic when the case gets to court.

The original article in “Above the Law” does not detail the financial consequences of this and, let’s face it, Lehman’s well-paid traders seem to have only a sketchy notion of the value and risk of their trading positions or they would not have gone bust in the first place. However I am guessing that the ones that Barclays intended to exclude were not exactly the most attractive, juiciest ones.

The lesson here is that you can have all the fanciest data quality tools and controls applied to your mainstream transaction processing systems, but data quality is something that needs to be applied to Excel as well, yet is widely ignored. When I was at Shell I was in an office opposite a team of bright young things that used to draw up sophisticated Excel models that did all kinds of things, such as deciding on the right levels to bid on contracts, and how much to invest in certain projects in order to make a decent return. Some of these spreadsheets were fiendishly complex. At least this group had various standards for Excel model development, and a well established spreadsheet audit process (with code reviews by other team members), but Excel formulae can be pretty opaque, and I am betting that the odd error slipped through. We are used to applying fairly elaborate testing and code reviews to C++ code, but how many tools are there for Excel testing, and how widely are they applied?

Hat tip to Stephen for pointing out the article.

SOA and how to run a conference

October 15, 2008

I am currently at the SAP Teched conference in Berlin. I will write in a separate publication about the forthcoming version 7.1 of SAP MDM, but have a couple of quite separate observations to mention here. The first is a confirmation of what i have long believed:that going towards an SOA world is going to be very hard work. One customer here, Volkswagen Financial Services, described an ambitious project where they have taken a part of their business, which deals with fleet car hire, and moved wholesale to an SOA-based infrastructure. This project has been live a few months and is already showing some genuine benefits compared to the rather manually intensive system they had before, in terms of faster processing time for certain common business processes (which used to involve agents dealing with multiple applications) and in terms of improved data quality. However it is interesting that no formal cost/benefit analysis appears to have been done. Moreover this project, which involved 100 IT staff and 50 business people, took over five years to complete. I do not think this is much to do with the technology, but rather the sheer complexity of taking a cross functional view, involving different business lines agreeing on common terminology and data definitions, agreeing on the way in which the many new web services behave. There has also been a lot of change management needed to effectively get the front-line business users to accept the new system, which automates many tasks that they used to have direct control of.

I suspect that few companies have been quite so aggressive in their move to SOA as VW. A more typical conversation was with a gentleman at a German utility and resources company, who have been looking actively into SOA since 2006. They are only just putting their toe in the water now, putting in a very limited project with just a handful of web services, across a single process, in just one small subsidiary of their organisation. Even this limited pilot has not been entirely without its issues. One problem which has reared its head is how much more difficult it is to do debugging across a web services application which touches a whole series of different applications in its wake. If something goes wrong, then they have found it is a lot more fiddly to trace where exactly the fault lies, given the cross-application nature of the project. Again, this is a project driven by the IT department as an exercise in proving technology, rather than one with a quantified business case. I do not pretend that a few random conversations at a conference is a remotely scientific sample, but it seems clear that SOA is far from mainstream in many companies thus far, and that there are new issues to address compared to traditional applications. Not least of these is the need to sort out common master data definitions across the multiple applications affected.

On a separate note, those who read my blog regularly will know that a bugbear of mine is conferences that do not run on time or are disorganised – yes ETRE, that means you. By contrast, this conference is a testament to stereotypical Teutonic efficiency. Sessions start on time to the minute, and finish on time, to the minute. There are plenty of staff around to guide people around the large congress centre, and the pre-conference administration was exemplary. When I arrived I was handed not just a conference schedule, but a suggested set of lectures and meetings that were likely to be of interest specifically to me based on my MDM interests. If only all conferences could be run by Germans.

On Frogs and Software Pricing

October 6, 2008

I am curious as to the level of take-up of the software as a service (SAAS) model, at least in respect to data management. Of course salesforce.com was the pioneer here, prompting a flood of interest in this approach. Many vendors offer their software in this way as an alternative to the usual “perpetual license” model, yet in many cases it seems to have had limited take-up. The latest vendor to offer their software in this way is Kalido, who are doing so via systems integrator BI partners. There is a lot of sense in SAAS from an end user perspective. A host (if you will excuse the pun) of problems with enterprise software are caused by inconsistencies between the recommended operating environment for a piece of software and what is actually lurking out there in the end user environment. Problems can be caused by esoteric combinations of DBMS, app server, operating system and who knows what, which are very difficult for vendors to replicate, no matter how much trouble they go to in creating test environments. Hosted solutions largely avoid any such issues. Moreover companies can try out software for a limited price per month rather than having to commit up front to a full license, which means that they can pay as they go and pay only for what they use.

For vendors the issue is double edged. By making it easy to try their software they may get customers that would otherwise not have chosen them as they were unwilling to commit to an up-front license cost. However pitching the price is not easy. If your software used to sell at USD 300k + 20% annual maintenance, then if you price the software at USD 5k per month you are seeing the maintenance (USD 60k a year) without the software license fee. Yet if you pitch the monthly fee too high you will scare the customers off and be back into a lengthy sales cycle. Ideally there is some way of pricing that draws customers in further as they use the software more e.g. as they add more users or load more data, gradually increasing the monthly fee. This was actually one of the clever things in the salesforce.com model – it seems really cheap at the beginning, but as you add more and more users you end up with a pretty hefty monthly bill, and can end up wondering how that would have compared to a traditional licence model. But by then you are already committed.

This is ideal from the vendor viewpoint. It is what I will term the “frog in the saucepan pricing model”. The legend goes (and I don’t fancy verifying its veracity) that if you toss a frog into a pan of boiling water it will jump out, but if you put it into a pan of cold water and slowly raise the temperature it does not notice and ends up being cooked. A pricing model that lures the end users in and gradually creeps up without anyone getting upset is certainly what a vendor should aim for. Not all software may be amenable to such gradated pricing, but it seems to me that this is the key if vendors are to avoid SAAS being the “maintenance but no license” model.