However, no sooner had I closed that tab of the browser, than up popped an email from Bruce Richardson of AMR taking about the future of ERP and SaaS.  This was quickly followed up by CIO magazine with the following post.

So, to extend an analogy in these articles:  if we are indeed the Prius of the ERP industry, then at least when traveling below 40kmh our exhaust fumes shouldn’t be too dangerous to inhale!

Happy Christmas everyone

I thought it would be fun, with my tongue firmly planted in my cheek,  to work through some “thought experiments”  about what the Cloud could mean for real businesses.

First off, I began to think a little about how, if given a green field situation, you would build the IT systems for a company of 1,000s of workers.  I think it would be fair to say that nearly everyone would agree (with a fewnotable exceptions ) that you build this IT system solely out of On-Demand applications and technology.  It certainly stretches my imagination to believe that someone would be rushing into a traditional, on premise, ERP implementation!

So what would the On-Demand collection of technologies look like?  Is there a Cloud Stack?  Is there a Cloud Operating System?  In the Open Source world we talk a lot about the LAMP stack (Linux, Apache, MySQL, PHP).  Before that we talked about Wintel.  So, it is not unreasonable to think that there is a collection of On-Demand entities that fit together to form the basis of a Cloud alternative to traditional on premise offerings — particularly for the needs of enterprise customers.

So, one attempt to define this Cloud Alternative is:

• Salesforce - For enterprise CRM and hosted application development
• Workday - For On Demand ERP
• Amazon - For utility computing and storage
• Google - For productivity applications

Now, I’m sure there would be many who would take issue with this particular grouping of companies — and clearly, there is a self serving element to it.  However, I do think that the concept has merit.  In particular, it points to 3 crucial elements of how the Cloud Computing world is shaping up.

1. The importance of applications as a force in how we think about the evolution of development paradigms.  For almost the entire history of the software business there has been a bright line dividing the development tools and platforms used to create applications from the applications themselves.  However, in the Cloud Computing world applications and tools are firmly married together.  Salesforce, for example, announced partnerships with Amazon and Facebook to help accelerate the morphing together of their respective tools.  Even the recent Cloud initiative from Microsoft ties their new Azure development platform closely to the Office suite.

   Increasingly, development can focus on the assembly and reassembly of existing Cloud functionality, rather than the creation of new application functionality (though of course that will continue too).  It is means that traditional development tools (or operating system platforms) aren’t really center stage anymore — Cloud applications are the new development language.

2. It highlights that we are now at a place where it is possible to run the entire IT system for a 1,000+ person company using Cloud Computing.  All the essential aspects of running a business that traditionally used on-premise software can now run on a SWAG stack.
3. All of these companies have, in different ways, upset the economics of IT.  The traditional IT business model of upfront investment followed by endless maintenance and upgrade fees (with a developer lock-in to a specific toolset and operating system) is being jettisoned.  Salesforce pioneered the transformation to a subscription model that fuels Cloud Computing’s disruption.  AndCloud Computing changes to IT are as much about new business models as they are about technologies :  Amazon is creating an open marketplace for 3rd parties, reinforcing its utility platform.  Google is not charging for the base versions of its productivity apps on the basis that the extra content and page-views drive value for 3rd party advertisers.

How are these changes taking hold in business?  I’ll take a real Workday customer as an example.  This customer is a company of more than 25,000 people and has been in business for more than 35 years.  It has the usual collection of IT systems that have grown up over that period.  These IT systems are a collection of packaged and custom built applications. The CIO is committed to moving to an On-Demand model, with as many major applications areas as possible — and the integrations between them — supported in the Cloud.  Why?  Cost-efficiency, the ability to scale up or down, the opportunity to leverage best-of-breed solutions and the opportunity to focus IT resources on projects that are strategic to the company.

And I expect eventually, thru SOA, this  company will have the opportunity to move or re-implement even their custom code in the Cloud.

In the end, SWAG is a little arbitrary.  In conversation with my colleagues and customers at Workday there are several other candidates that could be added in.  e2open has a very dynamic and innovative On-Demand approach to Supply Chain Management.  Xactly has a fantastic take on Sales Performance Management.  But I think you see the point here: there is a rapidly growing network of related On-Demand applications that all communicate with one another to provide an alternative, not just for green field start-ups but for well established enterprises.  Whether or not you totally agree with the list of companies above, there is no doubt that this SWAG has the potential to change both the technology and economics of enterprise IT.

–annrai

Strange as it may seem, I’m excited.  This is the ideal time for Software-as-a-Service.

I think all the questions about SaaS — is it ready for the enterprise, is it really more cost effective, can multi-tenancy enable enough ‘custom’ capabilities for big companies — are going to be answered more quickly and more broadly in this economic environment.

From a customer perspective, SaaS eliminates the huge costs associated with implementation, upgrades and maintenance; it moves the risks and costs of IT from the user of the application to the provider; the economies of scale associated with a centrally managed application are not just not available with on-premise applications.  And when you consider that most ERP implementations have multiple instances, integrations and add-ons the costs and complexity only multiply.

Based on our experiences and customer data, we estimate cost savings of as much as 50% or more that SaaS can bring compared to traditional on-premise enterprise applications.

From a vendor perspective, the economics of SaaS mean we can invest much more in real R&D — meaning innovation — rather than maintaining a plethora of versions and patches.

But it is more than that.  Take Workday Update 6.0 which we are announcing today:

Firstly, we are pleased to announce that the Workday Update 5.0 no longer exists (except in our archive).  There is not a single customer using it, which means that Workday is not spending one cent of R&D on an older version.  This efficiency of “shared” ownership is something that everyone of our customers benefits from:  No traditional maintenance is needed to keep old things alive.

Secondly, this update is full of new features, top of which are Pay for Performance and Worker Spend Management.  Let’s take the example of Pay for Performance:  Here is a new feature that enables our customers  to tie performance reviews, team performance and company performance to individual compensation.  This is an amazing tool to help our customers better manage their business through the simple expedient of being better able to reward the people who really make a difference.

What did it cost our customers to take advantage of this new feature?  Nothing - not a cent!  It is included in their subscription.  Workday moves them from Update 5 to 6 and they simply choose whether or not to turn it on — mouse clicks.  From there, the only ‘cost’ is deciding how they’ll use it internally.  Did they have to roll out a new version of the software to their various geographic facilities?  Implement it?  Buy new servers?  Of course not!  Does it work for all their global employees at the same instant in time?  Of course.  Can they configure it the way they want to today, or next week, or next month?  Absolutely.  Will it require custom code?  Never.

Software, like all other services that we need to drive our businesses, such as power and communications, is best delivered thru a shared ownership model.  Private ownership of complex software is no longer a mainstream, business viable option.  Think about it in the current economic conditions…a new software license, new servers, a consulting project, etc. vs…  mouse clicks.

I think the current economic environment is going to bring the debate about TCO of on-premise vs. SaaS software into clear focus.

And thats exciting.

–annrai

Benefits administration is a headache for HR people, balancing the needs of the employee for great coverage with the needs of the organization to maintain a reasonable cost profile. To make things simpler, organizations often integrate the benefits provider’s online capabilities with their HRMS, eliminating some of the pain associated with keeping employee records accurate.

The tradeoff in the on-premise world is an IT cost — owning and managing the integration. Not only is there IT cost involved initially, any addition or change to that benefits provider requires a new integration. The result: massive upfront planning, an expensive integration and a lot of IT inertia when it comes to making business changes later.

What we can do is take that integration burden and move it up into the cloud. Workday Benefits Network is a good example. It provides a set of pre-built, hosted integrations to well known Healthcare and Financial Benefit providers.Benoit Lheureux of Gartner would call these “Packed Integrating Processes (PIPs) — a form of prebuilt integration.”

This means a couple of very valuable things for the customer.

1. Workday takes care of electronically updating the Benefit Provider whenever an employee makes a change to their Benefit Plan or chooses another Benefit Provider.
2. We can offload the integration itself by managing and maintaining it at our datacenter. In fact, it is simple enough that the customer can select from pre-integrated benefits providers in an online list. Point and click integration.

But how is this different from what can be achieved with an On-premise solution?

1. A customer (or some consulting group) can certainly build a set of integrations to specific benefit providers. But in the on-premise world, that means it is your problem. Upgrades are an IT project and when something breaks, its yours to fix.
2. It would nice to easily shop around for new Benefit Providers. Well, in the Cloud Computing world where those integration are delivered as a service, this is an easy thing to do — the IT cost of change is eliminated. In the On-premise world where you need to get someone to built those for you, it is a difficult and expensive task.
3. We publish well defined public APIs to this Benefits Network, so that in theory, any Benefit Provider can plug into this network. This means that new and smaller Benefit Providers, can potentially gain access to new customers. It also means that if there is a particular Benefit Provider that we in Workday don’t support then they can plug in themselves. This is clearly something that is just plain impossible with an on-premise solution.
4. Finally, it is not hard to imagine as both Workday and the Benefits network evolve, that in the not too distant future there will millions of employees under Workday management and hundreds of Benefits Providers plugged in. Instead of our customers having to build and rebuild the same integrations over and over, we can focus on new innovations. Imagine:
   • Analytics within the company looking at benefits usage patterns to help review what offerings are most used and most important for employees.
   • Analytics (with appropriate opt-ins) for benefits trends within industries

In the Cloud computing world, a whole new set of possibilities emerge.

Cloud Computing isn’t just about changing the technology so that costs and risks of ownership get transferred from the buyer to the provider. In the above example, points 1 and 2 speak clearly to how those costs and risks move from the customer to the vendor but are diminished through aggregation. Cost savings are good, especially in the current economic climate, but they are not transformative. What is transformative about Cloud computing is that it introduces new business model opportunities. Points 3 and 4 above outline how, with the right technology, a whole new business model around Benefit provision can emerge.

– annrai

1. While it never lived up to the pre-bubble hype, hosting has become a real business.  Loads of companies are outsourcing some or all of their datacenters.  Even on-demand players look to datacenter specialists to take care of things like power, Internet connectivity and physical security.  It has also driven new standards and efficiencies as we shift from servers and switches being the products to uptime and bandwidth.
2. For PaaS, there is a lot of historic precedent for the perspective that owning the most popular development platform is a strategic goal in and of itself.  (For those of you old enough to remember it is worth recalling the Steve Ballmer “develper, developer rant“).  You can argue whether Cloud Computing itself is the new platform, or just the infrastructure for PaaS providers.
3. In the world of domain specific applications, connectivity has become table stakes.  (Salesforce talks to facebook talks to LinkedIn talks to Workday).  Not only it is imperative for these applications to expose APIs and to provide excellent tools for people to manipulate them, the connectivity between applications and services is rapidly moving to point-and-click.  Integrations that used to take a busload of consultants are now delivered more like a google mashup (albeit with enterprise-class security and availability).

It’s About Business

Each of these models and approaches is fundamentally dependent on the existence of the Cloud. I firmly believe that the most important part of Cloud Computing is around the new business models it engenders.  In the same way that Google and others have broken the mold in terms of business models for the Internet, I think that Cloud Computing is going to fundamentally change the rules in the Enterprise Application space — and i think we’re only beginning to understand the changes that are possible.  However, it stands to reason (at least to me), that when you tear down the walls that surround Enterprise Applications and you start making them interoperable and massively extensible, then new and unplanned things are going to happen.

And the encore…

Here at Workday, we are working on some very specific problems we want to solve with Cloud Computing, focused on what our customers need to run their businesses.  Right now, we are making it easy for key third parties such as Healthcare providers and Payroll providers to plug into our applications.  This enables us to create specific business value for our customers — our HR systems just work with their existing payroll and benefits providers.  No big integrations, no patches, no upgrades.  The connection is part of the service.

Over time, our strategy is to expose more and more of our application functionality as Web Services, and we are only just beginning to imagine what a true Cloud-based Enterprise Application can mean in terms of the new business model opportunities it will create.  What’s potentially most exciting, is that as we connect to more applications and expose more of our functionality, the community contributing ideas will expand well beyond our current ecosystem.  That may be the most important new business model of all.

– Annrai

– Peter Drucker

To steal a thought from Mr. Drucker, it seems to me that “So much of what we call ERP consists in making it difficult for people to work”.

Now, some of you out there may say that enterprise software solves complex problems and therefore it must be hard to use in order to accomplish its mission. But as Robert X. Cringely noted in a recent post, big enterprise software companies regularly made their software harder to use than it needs to be.

The core of the issue, to my mind, is the problem the application is designed to solve. The term “Enterprise Resource Planning” (ERP) grew out of the earlier “Manufacturing Resource Planning” (MRP II) and the even earlier (and confusingly abbreviated) Material Requirements Planning (MRP). All these systems were designed to automate the issues encountered in the manufacturing industry. At their heart, these systems are focused on managing the materials, plant, capital and inventory required to deliver products to market. ERP is great for manufacturing companies. But manufacturing companies only employ about 10% of the US workforce. The main type of employment for US workers (as well as for workers around the globe) is in the services sector.

In the last few posts I wrote mainly about the technology that underpins Workday and how that makes us different. Changing tack, it is worthwhile talking a bit about the philosophy that underpins the Workday application suite. Again, we have taken a radically different approach to the ERP vendors. In fact, our take about the business applications that will replace ERP are all centered on one simple thing: people.

The philosophy behind Workday is all around managing the people and the knowledge capital that is at the heart of the services economy.

Naturally, the first part of Workday that we built out was around Human Capital Management. But now as we start to add financial and business management capabilities, they are driven from the point of view of the person rather than the materials or the plant. Our procurement is all about making it easy to provision and manage things like laptops and cell phones and Salesforce.com accounts to people – the tools they need to get work done.

So, the Workday goal is not just to reinvent the technology behind ERP but to reinvent what ERP means. By putting the focus on people rather than things, we hope to help cure some of the problems that Peter Drucker was referring to. We hope to make it easy (or easier) to manage people.

–Annrai

]]> http://workday.com/blogs/blog/2008/07/28/putting-the-focus-on-people/feed/ http://workday.com/blogs/blog/2008/07/03/if-you-want-to-make-enemies-try-to-change-something-woodrow-wilson/ http://workday.com/blogs/blog/2008/07/03/if-you-want-to-make-enemies-try-to-change-something-woodrow-wilson/#comments Thu, 03 Jul 2008 23:21:47 +0000 andrew.mccarthy http://workday.com/blogs/?p=4

“If you want to make enemies, try to change something.”

– Woodrow Wilson

So as the resident ERP outsider, I have been fascinated to dig into the whole topic of “change” in the ERP world.

First off, let me introduce the blog — welcome to A², the Workday blog co-written by Aneel Bhusri (who does know a thing or two about the applications world) and myself, Annrai O’Toole. I have spent the last 20 years of my professional career exclusively involved in middleware and distributed computing. We’re hoping to use this blog to share a few thoughts (and maybe provoke a few) on the state of the applications industry. We hope these are entertaining and useful. So without further ado, let’s dig in …

We can’t solve problems by using the same kind of thinking we used when we created them.

This quote from Albert Einstein seems an appropriate phrase to get going on. Here at Workday, we are undertaking the substantial task of remaking the ERP world. This may sound audacious, but it seems a fair reflection of what’s going inside the company. Clearly, we are providing an On-Demand solution, which has the large and obvious benefit that our customers don’t have to install our software on their premises. However, if all we end up doing is re-inventing the same old ERP applications with the same old relational database architecture then we’re not really addressing the problem. We don’t simply want to “multi-tenant” an old ERP application. Just doing that we’d just be using old thinking to solve new problems.

So, what are some of these new problems?

1. No application is an island: The last wave of ERP has proven that. There is just no way any single company can provide all the application functionality you want in one package — no matter how many companies they acquire.
2. Change is constant: ERP applications need to be better able to respond to that change. Ask any customer of a traditional ERP application and they will attest to the fact that changing them is damn hard. Too damn hard.

For the purpose of this article, I’m just going to take on issue number 1.

Application Networks

Here at Workday we are putting integration technologies in the heart of our application. Want to know exactly what we mean by that? We’ll let’s look at a recent announcement from a brand new customer, Flextronics. There are many reasons why Flextronics chose Workday, probably top of them is that they believed that a partnership with with us would not only be good business but a lot of fun too. However, in the 3rd paragraph of the above article David Smoley talks about one of specific reasons they chose Workday: he tells us it was because of “Integrations”. One of the things that we build with our Integrations is a “Network” of connections to third party applications. In this specific case, it is a set of integrations that we built (and maintain) to healthcare benefit providers such as Blue Cross Blue Shield or United Healthcare.

But step back a second and think about what is going on here. One of the key features for Flextronics is not a feature that we built ourselves — it’s a feature we integrate with. But the great thing from the customer point of view is that they can’t tell the difference. A feature is a feature, whether it exists in “our Cloud” or in someone else’s “Cloud”. When we first joined Workday from Cape Clear, the vision was to blur the line between what’s an “Integration” and what’s an “Application”. This quote from a great customer is testament to how successful we’ve been in making that a reality.

But we’ve only started. One of the profound things that happens when you put integration into the heart of the application architecture is that you start to see things from a very “outside-in” perspective. The traditional ERP worldview is that everything is siloed. HR apps live in one silo, financial apps live in other silo and the integrations are in yet another silo. At Workday, we see all these things as part of a cohesive whole: applications and integrations share the same world; they are the yin and yang of a new application architecture. David Smoley’s remark above tells me that what customers want is not an application island, rather they want an application network. We are now at the point where the underlying technology in Web Services has matured enough where this is a reality. Today in Workday we are delivering over 20 pre-built integrations to 3rd parties in our application network. We believe that this will be closer to 100 within 12 months.

Another key feature we want to offer our customers is a whole new way of integrating between their existing on-premise applications and all the information that lives in the application network. By solving this problem in a new way we can make a massive contribution towards solving the second of the big problems we list above: how to enable constant change, even change on-demand!

However, for that piece of wisdom from the non-ERP guy, you’re going to have to wait for the next installment. Hopefully, this piece was useful and gets you thinking that there is more to On Demand ERP than simply being “multi-tenanted”. To really change ERP, we need to think in a very different way. If you have comments on this, then please join the conversation….

–Annrai