Tuesday, June 24, 2008

FT.com / Technology / Digital Business - How should organisations react to social networking tools? Embrace them, ban them, or …?

FT.com / Technology / Digital Business - How should organisations react to social networking tools? Embrace them, ban them, or …?

How should organisations react to social networking tools? Embrace them, ban them, or …?
By Dick Eve, Change Portfolio Director, for Atkins Group

Published: June 23 2008 14:02 | Last updated: June 23 2008 14:02

A truck driver approaches a bridge that has a weight limit of 5,000kg. He and his truck weigh 4,950kg so he would be able to cross it were it not for his 100kg cargo; a flock of pigeons loose in the back of the truck. He has the bright idea of banging on the side of the truck to scare all the birds into taking flight and then he quickly drives across the bridge. Does it work?

After long debate in the New Scientist one reader said: “The practical engineer’s answer is yes, of course the driver could cross! The surplus weight of 50kg translates to a 1 per cent excess over the bridge’s specified load maximum. An additional impulse force due to the truck bumping over a small stone in the road would be much greater than this 1 per cent, and any civil engineer who designs a structure of any sort with a safety margin anywhere near as small as 1 per cent deserves all the professional liability lawsuits he or she gets.”

Why do I raise this? Because it describes nicely two things about engineers: they are practical and they are (or have to be) risk averse. We are the UK’s largest engineering consultancy, and are involved in some of the world’s most high profile building, infrastructure and transport projects. The culture engendered by this – by taking on board every possible eventuality to ensure the products of our endeavours stand the test of time – inevitably puts safety and risk aversion at the heart of what we do.

What has that got to do with social networking? Well, the adoption (or not) of any software technology is more about the culture of the business than the technology itself. You cannot introduce new technology alone and expect it to be successfully adopted in any business, especially one that is resistant to change and risks.

As an example, Microsoft’s Communicator can be installed on everyone’s computer but without education and a business change programme this generates many mixed views, ranging from “I don’t know anything about it” through, “I already get too much e-mail – I am not using that too!” to users like myself who really embrace it. So I use this for communication with a small community of like-minded individuals but not the whole network. This is strengthening strong ties within my network. The next question is how far should that network extend, should I be allowed to communicate with customers or partners or should communication be restricted to internal users only?

So why would a business restrict this powerful tool to being an internal capability when more and more business is done with one or many partners?

It is probably the uncertainty of the outcome. Could it have a negative effect on the business either through someone spending all day chatting with their personal partner rather than their business partner? Maybe the risk of litigation when someone commits something to their business partner they shouldn’t. Written documents are much more formal: they are reviewed, rewritten and are clear records of events; conversations are transient and normally decisions are confirmed in writing. Social networking today sits in between. There is no real audit. What about records management? Decisions could be made with no record.

Of course, Communicator is just the tip of the iceberg. If we consider a wider range of social networking software (SNS) such as Facebook or MySpace, where I can publish a wide variety of information about my background, interests, skills and activities, there is an opportunity for even more abuse. Innocent or otherwise, the lack of regulation regarding such content could have legal ramifications. So maybe the risk outweighs the benefits.

But there seems to be evidence that weak ties and bridges between networks are increasingly important for innovation and knowledge sharing. A social networking approach can really help to develop these weak ties which will bridge the strong networks and spawn new innovations and approaches.

Our business works largely on the strong networks built over years. If you need advice or a resource you can call on a contact you worked with several years ago and be confident they will share their experience to your advantage. But are we missing a trick here? We will always get the same answers – can we use the weak ties and maybe get some new ideas and innovations, maybe SNS is a quick way to involve the new upcoming stars and help them shape the business.

And last but not least, doesn’t the next generation expect to use these tools in work as well as at home? There will come a day when new stars will not join dinosaurs who don’t offer these techniques.

So, when the business is ready and the culture is right, businesses will have to embrace social networking. Yes, of course we need to be prudent and put in the checks and balances for protection. Social Networking Solutions are now available that have been hybridised for business use which should take some of the pain away but when we do embrace it, let’s not get paranoid; too much restriction will stifle the advantages it can deliver.
Copyright The Financial Times Limited 2008

Friday, June 13, 2008

Can NetSuite Surge While SAP Decelerates?

NetSuite executives stopped by our offices a few days ago to brief us on the new NetSuite for Manufacturers product. This release adds new functionality for product assembly, inventory management, bill of materials, and work orders. While not going deep into manufacturing operations or planning, it is a logical extension to the platform offered for wholesalers and distributors that also do some final assembly or kitting.

During our briefing, NetSuite executives made it clear that they were going to be more aggressive in the positioning against SAP Business ByDesign, a competing software-as-a-service (SaaS) product that also features applications for manufacturing, finance, and customer management. Earlier this year, SAP said it would "reduce its accelerated investments around SAP Business ByDesign in 2008." While SAP is still selling the product, it has tempered its plans to sell to 10,000 new customers annually. This won't happen until 2010 or so.

If you looked at the NetSuite press release, there was little subtlety: The headline read: "NetSuite Enters SAP's Core Market," a reference to the fact that most of SAP's 47,800 ERP customers are manufacturers. In the first paragraph, there were references to NetSuite's plans "to exploit the prolonged delay" of the competitor's products. The theme also carried over to the company's website: "NetSuite Takes on SAP with Manufacturing Solutions."

Smart to provoke Goliath?

While I was surprised by the boldness of the headline, press release, and website, I think this is a smart bit of positioning if NetSuite's marketing people can get the press to bite. Essentially, NetSuite wants to turn the broader SaaS application space into a two-horse race. If it is successful, any article on SAP Business ByDesign should also include an update on or quote from NetSuite. Marc Benioff did this brilliantly when he turned any CRM coverage into a Siebel versus salesforce.com debate.

I’ll bet at least one of my colleagues and several of our competitors will dismiss NetSuite's move as a gimmick. That argument is too simplistic.

Look at some of the company's recent moves. In early June, NetSuite made its first acquisition with the purchase of OpenAir for $26M in cash. OpenAir develops SaaS software for professional services automation and project portfolio management for project and time-based firms such as professional services, consulting, legal, accounting, and government contracting. OpenAir's 300 customers bring NetSuite's professional services base over the 1,000 customer mark.

OpenAir adds another entry point to new customers

This acquisition gives NetSuite a broader footprint as well as a new entry point. Like the SAP Business ByDesign team, NetSuite customers always start with a single pain point: financials, CRM, or e-commerce. Using the classic land-and-expand strategy, NetSuite will add more seats and modules in the next 12 months as customers come to see the benefits from having a single integrated system and set of dashboards as opposed to operating a spider's web of piece parts.

In April, the company launched NetSuite OneWorld, which allows customers to consolidate all global financial and customer data on a single platform. This includes support for all things multi, such as multicurrency financial consolidation, quotas, and forecasts; multilanguage; multicountry; and multibrand websites.

Ecosystem expands to 60 third-party applications and 21 industries/micro-verticals

In February, NetSuite introduced NS-BOS (NetSuite-Business Operating System), its unique entry into the platform-as-a-service market. In just four months, more than 1,000 software companies have inquired about building software on top of the NetSuite platform or creating their own micro-vertical systems based on NetSuite. To date, there are 60 third-party applications, including 4 unveiled as part of the NetSuite for Manufacturers launch.

More impressive has been the company's success in attracting third parties interested in using NetSuite's whole product line to create their own industry-specific systems. So far, developers have begun offering software across 15 sectors, including agriculture equipment dealerships, commercial floor cleaning, deep seaport marinas, government contractors, insurance, and pharmaceutical distribution.

For its part, NetSuite is targeting six core verticals that it plans to tackle on its own. These include software firms, wholesalers and distributors, services companies, IT value-added resellers (VARs), media and publishing entities, and e-commerce providers. This is a different approach from SAP which has vowed to stick with a vanilla solution - no customization, no vertical versions - at least for the near term.

Next target: HCM? SAP integration?

On the competitive front, Plexus Systems has successfully sold SaaS into hardcore discrete manufacturing sites for awhile, particularly in automotive, A&D, and other industrial firms. Lately, its success in these environments has pulled it into adjacent manufacturing environments such as food and beverage and medical device. While other vendors are fine-tuning their SaaS models, Plexus Systems has truly capitalized on SaaS ERP, leading with manufacturing execution and quality management modules and then extending that footprint into more traditional ERP functionality, including financials and HR. For its part, I'm not sure NetSuite will go much deeper than light manufacturing.

As for SAP, if you look at the SAP Business ByDesign product map, there are eight wedges in the diagram: financials, compliance, supplier relationship management, project management, supply chain management, executive management, CRM, and human capital management (HCM). Looking at the SAP wheel, NetSuite's moves would eliminate the need for most, if not all, of supply chain management and supplier management. That leaves HCM as the one major obvious gap between NetSuite and SAP. That’s the next likely acquisition or partner area.

While SAP has made it clear that it does not intend to sell SAP Business ByDesign back into its high-end base, that might make an interesting market for NetSuite. Can it position its products as a replacement for some of the aging MRP II, ERP, and/or CRM applications at smaller plants, distribution sites, or sales offices? While it would likely result in expensive and often futile sales cycles, it is intriguing nonetheless. Companies like Cast Iron Systems already provide integration appliances that link SaaS vendors like salesforce.com to SAP backbones.

Will NetSuite get to 10,000 SaaS customers before SAP?

Right now, NetSuite has about 6,000 customers, compared to just over 150 for SAP Business ByDesign. On the other hand, it is far smaller than its rival. The company expects 2008 revenue to be in the range of $156M to $159M. This compares to analyst estimates of $18.81B for SAP (source: my.yahoo).

NetSuite should get to 10,000 SaaS customers first. Given that it added 430 new customers in 4Q07 and another 400 in 1Q08, it could take two or more years to get there. SAP has opened a window, but it's unclear how long NetSuite will benefit from the breeze.

What do you think? Are manufacturers ready for SaaS, or should NetSuite focus exclusively on service industries? Is the comparison to SAP a smart marketing tactic or just a gimmick? Will NetSuite make it to 10,000 customers, or will Oracle acquire it before Zach Nelson gets his company there?

As always, I welcome your feedback and ideas. You can comment on my blog—firsthingmonday.net—or contact me at brichardson@amrresearch.com.