Once upon a time there was a vendor who was a dominant player in business applications.  It had a large installed base.  It had deep functionality.  It helped automate business functions and processes and through that provided significant value to customers.  Then, all of the sudden the market changed and the vendor eventually faded into obscurity.

With all of the chatter on blogs and twitter about the leadership change at SAP, I can forgive you if you thought I was describing SAP (or its future).  I was actually describing Dun and Bradstreet Software (DBS).  If you have been around the business applications world for a long time (I guess I qualify at this point), you will remember this vendor formed through the merger of McCormack and Dodge and MSA in the early 1990s.

What made the wheels fall off for DBS was the emergence of client/server computing.  It had two suites of Mainframe-based Financial and HR solutions (ERP was really just emerging around 1990) and were a large, dominant vendor in the U.S.  There were new players on the scene.  SAP was a European vendor that had had some success selling the ERP notion to global companies with a Mainframe-based product called R/2.  By 1992, it had developed a client/server solution called R/3.  Originally, R/3 had been meant to be a complementary product to R/2 (part of a two-tier ERP strategy), but customers, especially in the U.S., started to embrace it instead of R/2.  In addition, there was a U.S.-based vendor called PeopleSoft that developed a client/server HCM solution that by the mid 90s had started to gain significant traction at the high end of the U.S. market.

Why the history lesson?  History often repeats itself.  Upstart vendors upset the current market order.  It is not a new phenomenon (“The Innovator’s Dilemma” chronicles this well) – new technology and architectures emerge and new vendors emerge to solve the customer challenges with the previous generation of solutions.  SAP solved the quality (single database), velocity (real-time integration), and access to information problem better than previous modular solutions had done (and over a greater scope of functionality).  PeopleSoft solved the user experience and information access issues customers had with mainframe/mini-computer-based solutions.

DBS was not blind to what was going on.  It built its own client server solution – called SmartStream.  However, it took them a long time to respond (and there were other issues with the response).  They had what I call installed base inertia.  When you have a large installed base, it is hard to keep them happy because they value incremental change from their current vendor more than radical change.  It is easier for a newer, specialist vendor to drive the early adoption and help a market to “cross the chasm” in Geoffrey Moore parlance into mainstream growth.  However, when a leading vendor in a previous generation of solutions waits for this to happen, they have to time the market exquisitely with their own competitive offerings.  If done well, a leading vendor can lead the next wave of growth.  If timed poorly (or with the wrong solution), they can be left behind.

That brings us to present day.  In my opinion, the business applications market is coming to another crossroads.  There is new computing paradigm and delivery model that is gaining prominence – Cloud Computing and SaaS.  However, there are some who believe customers have invested so much in their current solutions that they would not consider replacing them.  In addition, the vendors have invested 20 years or more in building out the level of functionality required to support large, global enterprises and that experience cannot easily be replicated.  Both are true. 

However, I have been talking to many customers that already use SaaS add-on solutions and they are questioning why they should continue to pay high maintenance fees, to incur large upgrade costs, and to maintain large support staffs with their current ERP solution (total cost of ownership if you will).  They are questioning the ongoing value (if they are not taking on much of the new functionality and upgrading only every 4 to 6 years) and considering alternatives, specifically SaaS.  Today, it is not the right answer for all clients I speak with, but the market momentum, at least in HCM, is certainly in that direction.

So, where does that leave today’s market leaders?  Are they a victim of their own success?  Will installed base inertia cause them to miss the market window?  The jury is still out.  The good news for SAP and Oracle is that they have next generation solutions in the pipeline, Business ByDesign and Fusion Applications, respectively.  If delivered as promised, few vendors will have the breadth and depth of next generation solutions that they can bring to the table. 

However, what we do not know is whether or not they have the wherewithal to move a new business model required with these new solutions.  In addition, we do not know if they are willing to cannibalize their own installed bases – moving from higher margin (maintenance) customers to somewhat lower margin (SaaS) customers.  The reality is if that is what the market wants, it is better to cannibalize your own installed base than to have a competitor take that installed base away.

The challenge in a nutshell is: do you cling to the past or do you lead the market into the future?  DBS clung to its past too long and delivered too late (and with a solution that did not meet all of the market challenges).  Will Oracle and SAP cling too closely to the past and become the next legacy vendors (at least in business applications) or will they be able to adapt to the changing market and lead into the future?  It is one of the myriad of questions facing the new SAP leadership team  (see Thomas Otter’s take here).  What do you think? 

I could not help thinking during these sessions of a software joke told to me by Brian Sommer a long time ago.  It goes like this:

Think about the answer to two questions: “Can I see it?”  and “Does it exist”?

• If I can see it and it does exist, then it is Real.
• If I can see it, but it does not exist, then it is Virtual.
• If I cannot see it, but it does exist, then it is Transparent
• If cannot see it and it does not exist, then it is in the Next Release

So, let’s ask these questions again about Fusion Applications now.  Can I see it?  Last year, I answered “yes, sort of”.  Oracle did demo parts of the solution at OOW last year.  I have had the chance to see more since last year so I know there is more to it, but as I indicated in my earlier blog post, I have not seen the full HCM suite (or full suite of any Fusion Applications).  So, the answer is “yes, to some degree”.

Does it Exist?  Last year, I said:

That is probably the more interesting question… Certainly there are “edge” applications such as Social CRM that do exist… However, based on the information provided to date, it is difficult to know exactly how much of the Fusion Application Suite is built.

It is still difficult to know.  We know the planned scope at a broad brush, but the detailed feature/functions have still not been communicated.  Last year, I also said:

there was no firm commitment on delivery dates for the first release of the Suite or any indication of early customers that were implementing the Suite.

There is a firmer delivery date (sometime in 2010).  We also know that some customers have been testing the solution.  However, testing parts of the solution is not the same as implementing it.  As I said last year, early customers that implement and go live are the real litmus test for “does it exist”.  So, does the first release of the full suite of Fusion Applications exist?  Not yet.  Will it exist in 2010?  I think it will.  However, they need to start implementing early customers soon to make that a reality.  Hopefully, Oracle will provide more details soon about the detailed functionality that will be delivered in version 1.  Customers want and need this information to make informed decisions about their application strategy.

What do you think about Oracle Fusion Applications announcement?

Thomas and I also had some briefings with the product strategy folks for both EBS (Anand Subbaram) and PeopleSoft (Tracy Martin along with Paco Aubrejuan the new GM of the PeopleSoft BU). From a PeopleSoft perspective, I admit I was actually pleasantly surprised.  Even though 9.1 is a little later than expected, they plan to add quite a bit of functionality including cascading goals in Performance Management as well as a new Succession Management capability (delivered with core HR — so no additional licensing required).  In addition, Oracle is revamping compensation management in 9.1 (re-writing and adding to the existing capabilities and better integration to ePerformance), adding new Talent Management Dashboards to its Workforce Analytics product (the one based on OBIEE), and bringing out a new employee survey tool (tentatively called Workforce Connect) which leverages customer survey tools from the Siebel CRM solution.  Also, in terms of leveraging Siebel CRM, Oracle is creating what it termed “Fusion Edition” applications the first of which will be what is called Talent Pool Management (TPM).  Fusion Edition applications are edge applications meant to work with PeopleSoft, EBS, and Fusion.  The name is a bit of a misnomer as it is really focused on Candidate Relationship Management (marketing and communicating with passive candidates) not talent pool management as one would think of it in Succession Management.  The next Fusion Edition application expected is Talent Review (sometime in 2009).

Speaking of sometime, that is when PeopleSoft 9.1 is expected in 2009 (though indications were that it would not be the beginning or end of 2009 so expect it to be released over the course of Q2/Q3 for new customers).  However, some of the most interesting things going on were with PeopleTools.  PeopleTools 8.50 includes a number of noteworthy features, but the one with the most immediate impact is the new Ajax-based User Experience.  PeopleSoft 9.1 is built on PeopleTool 8.50, but it is backward compatible to previous application releases.  So, 8.9 and 9.0 customers that want to enhance the user experience can do just a PeopleTools upgrade to get the necessary capabilities.

For those EBS customers out there, things are a little more definitive.  Version 12.1 is coming in Q109.  It too will include new succession management functionality (as well as Profile Management based on the design from PeopleSoft 9.0).   There are a number of incremental enhancements across the rest of the product line from interview management in iRecruitment to setup enhancements and better market data integration in Compensation Workbench.

I also went to Gretchen Alarcon’s presentation on Oracle’s HCM vision.  She did a good job laying out the trends (thanks for the plug) and how Oracle is looking at opportunities around workforce planning and modeling and predictive analytics.  It was a pretty good size crowd and it was a little surprising to see no one was really doing anything with predictive analytics.  There is tremendous potential business value in the right applications of planning and analytics.  What do you think?  Will the hype around social software and HCM overshadow the emergence of workforce planning and analytics? 

• Complete. Open. Integrated — This is the main theme for the conference which I saw repeated in a number of presentations.  Here is my take on what Oracle intends it to mean:
  • Complete — Oracle is very focused on industry solutions.  That is, providing a comprehensive footprint for specific target industries.  It used the Communications industry as an example and cited its footprint in 2004 and how it has done a number of acquisitions which it has integrated together since then to fill out its solution map (the solution map is not an original Oracle concept, but it has been put to good use)
  • Open — Oracle has been pretty consistent in its support for a variety of standards and allowing customers to “plug and play” where possible.  It has created an abstraction layer in Oracle Fusion Middleware (OFM) that includes common business objects, web services, and reference process models that customers can use out of the box or adapt with the tools as necessary.
  • Integrated — This is where Oracle’s Application Integration Architecture (AIA) comes into play.  Oracle has taken industry standards along with a modern integration architecture (leveraging process model-driven integration with an enterprise service bus and standard integration definitions).  Oracle had a number of customers touting the benefits they thought they would achieve, but almost all were still in the process of implementing (this is not a new topic, it was hot for Oracle at the last OpenWorld).
• Delays
  • We knew this from pre-briefing prior to OpenWorld, but it pretty much is official now (and has been suspected for far longer).   There will be no suite of Oracle Fusion Applications delivered in 2008.  We published this (Gartner subscription required) in 2007 based on an interview with John Wookey about Fusion Applications.  Oracle had indicated at that time the first release of the suite would be in 2008.  Then, we published this (Gartner subscription required) when we started to have concerns about whether or not Oracle would deliver Fusion Applications in 2008 when John Wookey left Oracle.  The first phase will be edge applications, like the Social CRM applications, which have been delivered in 2008.
  • PeopleSoft Enterprise 9.1 will not be delivered in 2008.  I do not know if Oracle committed publicly to this date, but they had been indicating privately that 9.1 would be delivered in 2008, not 2009.  HCM is the first pillar to be delivered in 9.1 and given the scope of the release (including new applications such as Succession Management and a rewritten Compensation Management), it is understandable that it would take some time.  However, release 9.0 became generally available in December 2006 (see Oracle’s Lifetime Support Policy for more details).  So, it is going to be well over two years before the next release.  In a market where new releases from Talent Management application vendors come out as frequently as monthly, that is a very long time.  More to come on version 9.1 in a later post.
• Social Software Strategy — I am not going to discuss this too much now as I am still trying to understand Oracle’s strategy here.  Suffice to say that there are a number of products out there including Oracle Collaboration Suite (been around for a long time), Beehive (announced today and prominently placed in the opening keynote), WebCenter (the UI for Fusion Applications that includes some elements of social software), and PeopleSoft Enterprise Portal (that also now has some elements of collaboration included with it).  As soon as I get to the bottom of it with some clarity, I will post again.
• Upgrades — As I was communicating with my colleagues and attending sessions, it became clear that sessions which discussed Applications Unlimited (Oracle EBS, PeopleSoft, JDE, etc.) product vision/roadmaps and upgrades were among the most popular.  I think that supports what we have been seeing in our inquiries in terms of the primary concern for customers:  is this the right time to upgrade and if so, to which release should I upgrade?  There are some sessions on Wednesday around Fusion applications.  I would imagine they will be popular for similar reasons.

In closing, Thomas and I had a good chat with Charles D’Souza from Emirates Bank (HQ in Dubai).  It has implemented implemented core HRMS, self-service, learning management, performance management, some compensation management and succession management (which some of its own extensions to Oracle) on E-Business Suite R12.  It is also about to embark on an implementation of iRecruitment as well.  If you are an EBS customer looking for an understanding of what is possible (to support upgrade planning) in Talent Management on R12, this is a good customer reference.  

It is always good to get the customer viewpoint, I have a number of customer sessions on the agenda for tomorrow and Wednesday.  If you are an Oracle Applications customer, what do you think the highlights were for Day 1?

• More than 400 customers have either upgraded or are in the process upgrading to version 9.0 of PeopleSoft HCM according to Oracle
• Version 9.1 of PeopleSoft HCM is expected in Q4 of 2008. The major theme for the release is improving the talent management capabilities (no big surprise). Beyond talent management, other enhancements include support for multiple encumbrances in public sector, local payroll support in additional countries, and expanded use of the approval/delegation engine
• Version 12 of Oracle E-Business Suite HCM has one live customer
• Oracle demonstrated the Fusion Compensation Workbench as an example of the changes that they were making for Fusion. Oracle showed the use of PeopleSoft-like Tree functionality within a data grid to allow expanding and contracting of items within the grid for example

Gartner is working on an Event note for the whole conference (to which I am contributing).  There will be more details as well as well as more analysis in that research note.  I will post a link (subscription required) when it is published.  I did not get a chance to see too many user presentations at the conference, but I did get a chance to speak with a number of customers.  Regardless of which product line, the message was pretty much the same.  Talent management was on the top of the agenda for 2008 investments.

“It’s very different than SAP’s strategy which is to go after small companies; small companies with their new Business ByDesign, formerly known as A1S product. Now, we see the problem in that because we’ve looked at going down market. We’ve looked very closely at it, and we think it’s very hard to make money because there is no synergy. To go down market you need a new product and new product development teams. You spend a lot of money developing a whole new product for the low end. But you also need an all new sales force because we don’t call on those customers. We don’t call on small businesses, and it’s very expensive to call on small businesses. It’s very expensive to do ERP implementations in small businesses. The cost of sales is high. The cost of implementation is high. There are virtually no synergies in sales, marketing, and product development and support.

So while we think it’s an interesting market — the small market — because it’s large, we just haven’t figured out a way to make a substantial profit in that market. We think it’s hard to make money. Our strategy: add more value, go upstream, sell industry-specific software to our existing customers, and we’ll watch and see how SAP does going after small companies. Especially with in Software as a Service which we think is very interesting, but so far no one has figured out how to make any money at it.”

Does this sound like that he is “saying no to SaaS”?  What do you think? 

We have not seen too many HCM vendors jump on the Ecosystem bandwagon yet, but if some of the early vendors have success, it may spur more movement to align with a specific ecosystem providers.  Keep track of which vendors have become ecosystem partners as you make decisions about new HR technology.  In addition, dig under the covers to find out if the vendor has just a marketing relationship with the ecosystem provider or if they have really created deep product integration (including standardizing on the ecosystem vendor technology platform/architecture).  Not all partners make the same level of commitment to a particular ecosystem.

More next week from the SAP Industry Analyst Summit …

I thought the panel discussion on HCM Intelligence/Workforce Analytics was very interesting.  Jason Averbrook from Knowledge Infusion and Lexy Martin from CedarCrestone were also on the panel moderated by Row Henson.  It was very much of a surprise to see how many in the audience were HR professionals who had a background in statistics.  It was a much higher number than I would have suspected.  I still get the feeling that many companies think that Workforce Analytics is about implementing technology to create neat dashboards of HR efficiency metrics.  Hopefully, the tide is changing.  A couple of people talked to me after the panel discussion about how much they appreciated the "real world" point of view we provided.  One of the things we discussed is that you can start with smaller, well-defined workforce analytic projects to show the value for additional larger infrastructure investments (like a HCM data warehouse/data mart).

I have also started to see more interest in Workday (both at the HR Technology Conference and from Gartner clients).  The big launch is scheduled in the very near future.  I have a had a chance to a do a little bit deeper dive into the product, technology, and vision.  Given the interest, I expect to do a First Take.

• Talent Management Applications (including inquiries on Recruitment, Performance Management, and Talent Management Applications Suites)
• Workforce Management Applications (Time and Attendance, and Expense Management)
• HRMS
• Specific Vendors (SAP, Oracle, Kronos)

Talent Management application inquiries were the leader this week with the rest split evenly among the other themes.

In terms of the breakout of inquiries, we had the following:

• End User Inquiries– 71%
• Vendor Inquiries– 5%
• Vendor Briefings — 19%
• Investor — 5%