Appirio

Monday, October 30, 2006

Why Every CIO Should Have an On-Demand Strategy

As recently as the 1950s, U.S. companies routinely planned for a full power plant to provide electricity to new office buildings, believing that the whole notion of an “electricity grid” was not to be fully trusted for business purposes.

The notion of a corporation installing, operating and upgrading business applications will, in time, be regarded as equally archaic.

[Core vs. Context] Understanding Core vs. Context In Your Business

Businesses understand they must separate "core" and "context" activities. Core activities differentiate a business from its competition. Context activities consist of everything else needed for the business to operate. In Dealing with Darwin, Geoffrey Moore further divides activities by mission-critical versus non-mission-critical. Context activities may be mission-critical, but they do not help a business win in the market. For example, while manufacturing and supply chain management remain mission-critical activities for Apple, their ability to create innovative designs is core to their business success.

Businesses have long been comfortable outsourcing basic context functions; increasingly, they are also delegating context areas that are mission-critical. That’s why nearly every company outsources payroll to ADP or Ceridian, building management to facilities firms, and technical support to partners.

Soon, running servers and maintaining business applications will be seen in a similar light - as context functions that distract a business from focusing on its core.

As businesses accelerate their adoption of on-demand applications, they will realize greater IT flexibility. This, in turn, will lead organizations to leverage on-demand applications even for core areas, because of the substantial advantages of on-demand over on-premise in fostering innovation and differentiation.

Handling the Mission-Critical

Most companies, especially non-technology companies, can not match specialized vendors in their ability to operate data centers, hardware stacks, and server operating systems. The idea that they could is as far-fetched as the idea that a single building owner could produce electricity more efficiently than an energy company. Amazon, eBay, Yahoo, and Google operate far more reliable and scalable mission-critical server data centers than even the most sophisticated corporate environments. Each serves tens to hundreds of millions of users each day, in a true 24x7 environment. Google alone operate over 100,000 servers at a time. eBay handles over 10 billion API calls per year.

Yet today, companies continue to maintain their own software systems, mostly out of IT habit. We still regard it as natural that a cosmetics firm or a beverage company would have IT staffers who install and maintain SAP or Oracle Applications, troll message boards to stay informed about new patches, watch storage devices for error conditions, and run complex systems monitoring packages to keep their data centers humming. Turning over these "IT operations" functions to classic outsourcers like EDS doesn’t change the underlying dynamic that companies themselves, as customers of enterprise software vendors, willingly agree to host and maintain the actual software.

Because businesses still run mission critical systems to support context activities, the cost, complexity, and sheer attention required is quickly consuming the lion’s share of the IT budget. As a result, business owners are increasingly frustrated with IT’s inability to innovate. The longer a software system is in place, the more expensive it becomes to maintain. Years of customized fixes, workarounds, and undocumented dependencies with other systems accumulate until the systems become rigid, inflexible and dated. The total cost of upgrading systems is very often several times the original cost of the software.

Can On-Demand Work for the Core Areas of my Business?

In a 2003 Harvard Business Review, Nicholas Carr's article, Does IT Matter, stirred controversy by questioning IT’s ability to create sustainable competitive advantage. Immediately, large software vendors challenged the claim, citing their own studies.

On-demand applications address many of the issues Carr raised with IT. For areas the business regards as a commodity IT services, on-demand provides mass standardization (resulting from multitenancy) that inevitably lowers the cost of infrastructure and operations. But even in areas organizations see as providing core functions that deliver differentiation, on-demand applications provide an ability to customize that is unmatched by on-premise enterprise applications. From the beginning, on-demand vendors have been forced to provide robust facilities for adding functionality and embedding customer specific logic because they do not expect their customers (e.g. the cosmetics manufacturer) to regularly edit and manipulate source code.

On-premise vendors, by contrast, have fallen into the ugly habit of often "working around" their inflexibility by forcing customers to customize via direct manipulation of source code libraries, database schemas, and the like. This kind of customization is not only difficult enough to stifle all but the most motivated programmers, it leads to more brittle systems that become unmaintainable over time.

By comparison, on-demand vendors like Salesforce.com make customizations look easy. Customers experience an "aha moment" the first time they use drag-and-drop browser features to create custom tabs, objects, and relationships that model their own business - in just minutes. Salesforce.com provides richer, more innovative customization capabilities than any on-premise vendor - in part because they can't just throw source code at the customer.
On-Premise – Innovation Uphill

On-premise software vendors simply don't focus as much on easy customization or enabling innovation without modifying their code. Once a vendor builds up its install base and reaches a level of industry maturity, it finds itself burdened with supporting numerous versions of its own software. Permutations of hardware stacks, operating system levels, and its own software versions and patches quickly multiply beyond what any vendor could QA. The vendor is forced to weigh investments in innovation against the cost of maintaining code already deployed by its customers, and the nightmare of preserving viable upgrade paths for each environment permutation in its customer base. A software company’s “legacy codebase” becomes a millstone, causing every innovation to be vastly disruptive to their customers.

As a vendor loses the ability to innovate with its own products, its customers' ability to innovate also rapidly declines. The customer is forced to take a more active role in implementing innovative features into the packaged software - features the vendor should have been responsible for. Soon, customers are distracted from their own more advanced priorities as they pour resources into innovating on what should have been provided. Finally, because of the lack of easy customization capabilities most of this extra work involves low level code development.

On-Demand – Differentiation Within A Standard Codebase

On-demand software vendors like Salesforce.com enjoy a fundamental structural advantage. With just one codebase and one production stack to maintain, the costs of maintenance is more easily managed. Rather than solving issues dozens of times - once for each combination of version and technology stack - the collective intelligence of the engineers of Salesforce.com and third parties can be focused on true innovation. This has enabled Salesforce.com to develop such a flexible, interesting customization environment. Customers get the benefit of focusing on their own core, without worrying about making up for the shortcomings of the software itself.

Thursday, October 19, 2006

CRM User Experience, On-Demand, and the Value of Software

"If an Opportunity is Lost and No One Sees It..."

Software doesn't have to be user friendly to create value, but it sure helps. In a few specific instances, like supply chain software, you care more about its ability to route shipments optimally than a friendly user experience. But it’s a choice that shouldn't have to be made. A better user experience improves the likelihood that people in your business interact with a solution effectively enough to leverage its full capabilities.

The level of user adoption closely correlates with the realized value of the software (vertical axis). On one end of the spectrum, web 2.0 sites like eBay and YouTube derive almost all of their value from the size and activity of the user community. At the other end, integration and algorithm-based solutions (e.g. supply chain optimization) rely much less on user adoption to create value.

While their can be many ways to achieve user adoption (top down mandate, training, usefulness of the software), for solutions where user adoption drives value, it is the user experience (horizontal axis) that most impacts the rate at which users will embrace the solution.

Among business applications, CRM has the strongest correlation between value realized and increased user adoption. Intuitively since sales, service and support and partner relationships are predominantly people-driven processes, it only makes sense that CRM solutions add value only with strong user adoption.

When evaluating CRM solutions, CIOs should add the vendor’s own adoption of its solution to their evaluation criteria.

CIO - Tips of the Trade Ask your vendor’s sales representatives to demonstrate how they use their own CRM solution every day. Ask for a support engineer to demo their services capability and look for a partner manager to walk you through their partner capabilities.

Because software companies incur almost zero marginal production costs, the value of CRM in managing sales, services and partners is more important than for almost any other industry. Unlike with manufacturing or supply chain applications, software companies should heavily rely on CRM and be their own best references.

Chances are that if you compare the internal operations of Salesforce, Oracle and SAP by this criterion, the on-demand vendor – Salesforce – will come out on top. For Salesforce employees, it’s as easy as having them demonstrate a browser. Oracle employees may be confused unless they came from Siebel, in which case they may be able to show you Siebel – just one of the three sales components of Oracle. SAP employees may just cancel the meeting in order to avoid stumbling through such a painful experience.

Its not that Oracle and SAP don't want to provide a user experience as easy as Salesforce's, its that structurally they can't. The challenges of innovating without breaking upgrades, incentives focused on license sales over user adoption, and maintenance revenue expected to deliver 80%+ profitability create a viscous misalignment between their goals and the customers'.

A Better Way

On-demand solutions like Salesforce.com have a business model and technology that aligns well with customers’ goals. Their success correlates directly with their customer’s adoption of the solution. In addition, multi-tenant systems allow these vendors to deliver innovation quickly to their entire customer base. Every Salesforce customer is, in effect, running on the latest release, and each customer’s customizations “survive” upgrades without any effort on their part.

The power of Salesforce.com extends beyond the ability to deliver innovations. They also function as a software platform, allowing third parties to extend functionality and increase user adoption.

Tailoring interfaces for users through interfaces like widgets is one approach to increasing adoption

Appirio’s Yahoo! Widgets for Salesforce.com illustrate this point. These free tools, written by Appirio as an independent partner, extend the user experience of Salesforce.com. For example, the “Opportunity Knocks” widget serves the needs of a very specific user segment – sales executives. The widget runs on the desktop much like a stock ticker. It frees the user from continually opening and refreshing a browser window just to get a real time view of activity related to changing sales opportunities. In the few seconds between emails, conference calls and meetings, a sales manager can keep abreast of important sales activity.

Also, because Salesforce is a on-demand service with an open web services API, the widget works immediately for every Salesforce customer licensed to user the API.

Conclusion

50% of software functionality paid for by businesses sits as shelfware -Butler Group Report

ROI projections from vendors simply assume or ignore user adoption. Yet, without users embracing the solution’s capabilities, the business will struggle to achieve the important goals targeted by the original business plans. Shelfware and underutilized software will consistently fail to reduce your cost of sales, improve your inventory turns or achieve any other business objective. To use Salesforce.com’s famous phrase, to the answer to “No Shelfware” may well be “No Software.”

Monday, October 09, 2006

Welcome to the CIO's Guide to On-Demand

"The smart enterprise software companies know their model is broken. They understand that comparing the ability to innovate or the business model with On-Demand companies will lead to their ruin. Their only hope is in spreading fear, uncertainty and doubt. What about security, control, integration, etc..? The problem with that strategy is that in software and life hopes, dreams and a better future always trumps the near term uncertainty associated with a new paradigm"

-Senior Executive at one of the largest (on premise) software companies in the world

In this inaugural blog entry for Appirio, we'd like to lay out our philosophy as a company and the focus of this blog. As a company, we are focused on accelerating the adoption of On-Demand solutions in medium and large enterprises. This means that we will deliver services customized to the needs of an individual customer and products that serve broader market segments. In addition, through this blog and other channels we hope to shed light on the direction of the industry in a way that identifies and mitigates risk with the vast potential of On-Demand.

The topics we cover, and the perspective we bring, will focus on the medium and large enterprise. We have sold, created, and delivered enterprise software and services to thousands of these companies. After many years of experiencing the constant uphill battle of on-premise software in their environment, we believe that the maturation of On-Demand represents one of the most significant events in the history of software based business solutions.

In this blog, we will take the perspective of a mid and large enterprise on analyzing how to accelerate On-Demand adoption and incorporate the rapid change that is occurring in the market. On-Demand solutions have increased the rate of innovation in the market, we’re hear to help you navigate this sea change in software.

Key topics we will be covering include:

• "If an Opportunity is Lost and No One Sees It..." - User Experience and Adoption of On-Demand
• "Too Much Hype, Not Enough Reality" - Integration and On-Demand
• "Let's All Get Along" - IT and Business Governance
• "The Goals and Dreams of Your Vendor" - Differences in how on premise and on demand companies view customers
• "The Platypus and the Platform" - Fundamental shifts in the architecture of technology in the enterprise
• "The Change Constant" - Innovation, Software and Business Impact

For every topic, we'll prove a real world, on premise counter example that provides a baseline through which to understand how much brighter the On-Demand future can be. Of course, we'll change the names to protect the innocent. After all, if you go back far enough, in our industry, we were all once on premise software people...