Developing an IT strategy for some organizations can be difficult because of the presence of a legacy system. Legacy systems that are old, out-of-date, and difficult to maintain are a huge obstacle to innovation. As a result, business leaders become increasingly frustrated by their inability to roll out new mobile apps, connect with customers, analyze business performance, or become a digital business.
In recent years, it has become popular to describe organizations with an out-of-date legacy system as being in “technical debt.” I would take this a step further. If an organization ignores the need to update the system for too long, it can lead to what I refer to as “technical bankruptcy.”
We can define technical bankruptcy as a situation where the organization cannot, or finds it exceedingly difficult to, pay off the technical debt. It does not mean that the organization is in financial bankruptcy but rather that its systems are broken or held together in a way that makes them extremely difficult to upgrade.
Significant Percentage of Organizations Are at Risk of Technical Bankruptcy
In work with our clients at Strativa over the past several years, we have gained new insights into challenges facing organizations that have out-of-date legacy systems. We recently took the opportunity to combine those insights with survey data from our sister IT research firm, Computer Economics, to produce a new report, Avoiding Technical Bankruptcy in Legacy Systems. (Click the link to download the report free from the Strativa website.)
Figure 3 from the full report shows the magnitude of the problem as it applies to ERP systems. A small but significant percentage (7%) of organization have not upgraded their ERP systems for 10 or more years. These are likely to already be in technical bankruptcy. But the 13% of organizations that have not upgraded their systems in the five-to-nine-year time frame are in the danger zone: Technical debt is building, and if the organization does not undertake a major upgrade, it risks falling into technical bankruptcy.
Signs of Technical Bankruptcy
What are typical signs that a legacy system has reached the stage of technical bankruptcy? We found five characteristics:
Extensive modifications, extensions, and interfaces.
Poor understanding of the system by users and IT alike
Direct involvement of IT personnel in business processes.
Legacy system atrophy as shadow IT emerges.
Upgrade or replacement hard to justify.
In the full report, we explore the symptoms of technical bankruptcy and the devastating effects that it has on the organization. We continue by quantifying the scope of the problem specifically for ERP systems, using our research on the typical age, frequency of upgrades, and extent of modification of these systems.
Most importantly, we conclude with recommendations on how to avoid technical bankruptcy and, for organizations that have reached this stage, strategies for getting out and staying out of technical bankruptcy going forward.
In many markets for enterprise software, the battle between cloud and on-premises (or hosted) systems is over. Salesforce, the market leader in CRM, will soon pass the $10 billion mark in annual revenue. Workday, with its cloud HCM offering and growing financial management applications, expects to hit the $2 billion mark in 2018. Traditional Tier I providers, SAP and Oracle, are certainly not out of the race. But the only way they have been able to compete is by building, or buying, their own cloud services for CRM and HCM. Cloud has won.
Why Is Manufacturing Cloud ERP Lagging Behind?
Nevertheless, there is no cloud ERP provider the size of Salesforce or Workday, and there is certainly no cloud ERP provider for the manufacturing industry with that scale. NetSuite was founded in 1998, around the same time as Salesforce. But it only reached the $741 million revenue mark in 2015, before being acquired by Oracle. Claiming more than 30,000 companies, organizations, and subsidiaries in more than 100 countries as customers, it is by far the largest cloud ERP provider. Although it has done very well with professional services firms, software companies, and other services-related businesses, manufacturing companies form only a small part of that number. Plex Systems has a pure cloud ERP system for manufacturers dating from 2000 and has been rapidly growing over the past four or five years. But its customer count is under 600. After NetSuite and Plex, the number falls significantly: Cloud-only systems such as SAP’s Business ByDesign, Rootstock, and Kenandy, each have even fewer manufacturing customers.
To understand how great the market opportunity is for cloud ERP in manufacturing, consider that, according to the U.S. Census, there were about 63,000 manufacturing firms in the United States in 2014 with 20 or more employees, as shown in Figure 1. Considering that the estimated customer counts by vendor in the preceding paragraph include customers outside of the U.S., it is safe to say that manufacturing cloud ERP probably has less than 2% market share in the U.S. The market opportunity going forward, therefore, is enormous.
Software Vendor Implementation Services Not Always Best Choice
In our software selection consulting, clients often seek our advice on implementation partners. In fact, our experience over several decades tells us that the choice of an implementation team is as important, sometimes more important, than the choice of a new system.
In choosing an implementation consulting group, clients often start out thinking that it’s best to choose the vendor’s own professional services group. They think that no one can know the software as well as the vendor’s own personnel. They think that when problems arise, the vendor’s consultants will be in a better position to deal with the software vendor. They also think that there will be less finger-pointing: the consultants blaming the vendor, or the vendor blaming the consultants.
These considerations have merit. But there are other factors to consider, factors that may make an implementation partner, or even an independent consulting firm, a better choice.
Since the turn of the century, there has been an ongoing ERP
consolidation trend, with Oracle, Infor, Epicor, and others buying up
smaller ERP providers. During this same period, newer ERP vendors have
risen up to challenge the incumbents. Nearly all of the new entrants are
cloud ERP systems.
One of the most interesting of these is Seattle-area-based Acumatica,
founded in 2008—just yesterday in “ERP years.” Like many other ERP
startups, it initially focused on services businesses but soon added
distribution and CRM functionality to its horizontal capabilities. Its
go-to-market strategy is 100% through value-added resellers (VARs), who
can add their own industry-specific software on top of Acumatica. Its
VAR strategy, in this respect, is similar to that of Microsoft Dynamics
and Sage. In fact, many of the new VARs in Acumatica’s channel program
have come from the Microsoft and Sage ecosystems.
partner and customer conference in January gave us an opportunity to
update our view of this emerging cloud ERP provider. We find that
Acumatica is interesting because of three characteristics that are
somewhat novel in the ERP world.
New Customer-Facing Systems Extend the Reach of Small, Midsize Businesses
Small businesses play a vital role in the economy and are often the
leading innovators in new products and services. According to the U.S.
Census Bureau, organizations with fewer than 500 workers account for
over 99% of businesses, and companies with fewer than 20 workers make up
But small business doesn’t always mean simple
business. Like larger companies, small and midsize businesses (SMBs)
need to reach new markets, develop new products, satisfy customers, and
control costs. The main difference is that SMBs need to do these things
with fewer resources.
In recent years, however, software vendors have announced new products to address
the challenges facing small businesses. This post outlines two of them.
Whether known as big data, data analytics, data mining, machine
learning, cognitive computing, or artificial intelligence (AI), data
science is a hot topic.
Human Capital Management (HCM) is turning out to be fertile ground for
providers to develop use cases for data science. The recent HR Technology Conference in Chicago provided an excellent opportunity for us to learn about the offerings of six such providers.
At the same time, there are other interesting problems for data science to solve in HCM beyond the initial use cases.
Big data analytics can be a highly technical subject, but as consumers we come face to face with it every day.
The personalized coupons we receive at checkout are generated by the grocer’s analysis of our purchase history. Likewise,
the targeted ads we see on the web are based on ad brokers’ use of big
data generated by our browsing history. Large health insurers use big
data to target us with advice on managing our health and lowering costs
of medication. And major political campaigns are getting good at using
big data to target us based on our demographics.
Based on our experience as consumers, it is evident that the “big guys” know how to use big data. But what about small to midsize companies?
The good news is that business analytics and even big data are becoming more readily available to smaller businesses. This is the result of three big enablers.
Salesforce.com Less Exciting, More Incredible, Amazing
Salesforce.com released its second quarter earnings this week, followed by its quarterly earnings call. To provide a deeper analysis of the state of Salesforce.com’s business, we are pleased to release our SFDC Superlative Index™ for the latest quarter.
Developed by the Enterprise System Spectator, the SFDC Superlative Index is a proprietary metric that quantifies the enthusiasm of Salesforce.com’s executives, by counting the number of superlatives used in their quarterly earnings calls and analyzing the changes in their use of these superlatives over time. Our proprietary list of 12 superlatives currently includes: exciting, incredible, huge, amazing, outstanding, terrific, awesome, phenomenal, fantastic, tremendous, extraordinary, and spectacular.
Dramatic Decline in Superlatives
Salesforce executives used tracked superlatives only 71 times in their conference call this quarter. This is a significant drop from the 97 tracked superlatives used in the previous quarter, which was the highest number over the prior five quarters.
After the call, Salesforce.com’s share price fell sharply in trading overnight and the next day. Many analysts attributed the decline in the share price to the firm’s revised forward guidance and the level of new bookings. But we attribute it mostly to Salesforce executives' declining enthusiasm, as shown in Figure 1.
Analyzing the individual superlatives that make up the Index provides deeper insights.
Excitement Takes a Hit
SFDC executives appear to be losing excitement, using the word
"excited/exciting" only 14 times in the most recent earnings call, less
than half the number of times used in the previous quarter, as shown in
Nevertheless, CEO Marc Benioff reported that he was
“so excited and … everyone in Salesforce is so excited” about the
firm’s new artificial intelligence platform, Einstein.”
also enthusiastic about the firm’s recent acquisitions of Demandware and
Quip. “But it's been an incredible time for us to acquire some phenomenal
assets and I have never been more excited about Salesforce and our
product line and coming into Dreamforce, like I said is, just awesome.”
new deals failing to close before the end of the quarter seemed to take
a little off the edge of Benioff’s excitement. “So there [are] a lot of
exciting things coming for Dreamforce, and nobody likes to see softness in
any particular region…. Like I said, we really saw some great growth and
deal flow in the United States, but we did get a bit of softness at the
very end of the quarter,” he said.
For his part, any softness at
the end of the quarter didn’t seem to dampen the enthusiasm of COO
Keith Block, who was still excited to be part of Salesforce.com. “As you
know over three years ago Marc and I had many many conversations about
coming onto Salesforce which I was super excited about and I continue to
be super excited about being here.”
Nevertheless, Business Is Increasingly Incredible and Amazing
The decline in excitement, however, was partially offset by an increase in the use of the superlatives “incredible” and “amazing.” In fact, “incredible” took the top spot from “exciting” this quarter, with “amazing” jumping into the number two spot, as shown in Figure 2.
These two superlatives were especially pronounced in Benioff’s comments about recent acquisitions.
“And as you know, over the last few years we have acquired a number of AI companies. Incredible companies like RelateIQ, MetaMind, Implisit, PredictionIO, Tempo AI and more with amazing, amazing people and technology. We have been able to stitch all this together into this incredible AI platform and this focus on AI and on the critical aspects of AI as the next wave of our industry has resulted in a machine learning team of more than 175 data scientists who have built this amazing Einstein platform. And that’s really why I am so excited and why everyone in Salesforce is so excited.”
He continued, “It's been an incredible time for us to acquire some phenomenal assets; and I have never been more excited about Salesforce and our product line. And coming into Dreamforce, like I said is, just awesome.”
In response to an analyst question, even the normally-reserved CFO, Mark Hawkins, shared some of Benioff’s enthusiasm for recent acquisitions. “By the way, I just want to call out, we are super pleased to have Demandware,” he said. “It's just an exciting [acquisition], adding functionality and a unique asset, as Marc called out, that we are super happy to have.”
Of course, nothing generates enthusiasm like the firm’s annual user conference, Dreamforce. Benioff said:
We have never been better positioned for the future. You are going to see that at Dreamforce. It is going to be a rush of innovation. There has never been more new products and more capabilities released at Dreamforce, and you are never going to see a better place to see how all this amazing innovation and products comes together. This is our biggest customer event of the year. Coming very very soon, October 4 through 7. We have got more than 2300 customer speakers inspiring, motivating, empowering, educating our amazing community of customer trailblazers. We also have an amazing lineup of speakers including Melinda Gates, and General Motors' Mary Barra, Congressman John Lewis, and many many more.
Benioff also advised the financial analysts that they were "not going to want to miss" the band U2, which would be performing at Dreamforce, adding, "It's going to be an unforgettable event."
Rounding out the top five superlatives, SFDC executives went even further in describing developments during the quarter, using words such as huge (6 times) and phenomenal (3 times).
Traditional providers of ERP systems typically sought to expand their
functional footprint to include complementary applications outside of
core ERP. Now cloud ERP vendors are adopting a similar strategy,
bringing significant benefits to buyers.
For most companies, an ERP system is generally at the center of the business systems strategy. But a comprehensive applications portfolio includes much more than ERP.
Most companies, even small and midsize businesses, have a surprising
number of important systems outside of ERP.
By way of example, Figure 1 shows our proposed future applications landscape for a current
client of my consulting firm, Strativa. (Company-specific references are removed). Although just a midsize company, it has plants and distribution centers around
the world. As a result, the future applications portfolio will be quite
extensive. At the core, within the red circle are the core ERP
functions. Outside the circle are other enterprise system
s that must
interact with the core ERP system. Nearly all of these systems will be
new, or replacements of current systems.
Oracle took another step in its strategy of growth by acquisition by
announcing a bid for NetSuite, the leading player in the cloud ERP
marketplace in terms of number of customers. At $9.3 billion, the deal
is the second biggest in Oracle’s history, after PeopleSoft in 2005 for
The deal was long expected, for several reasons.
Oracle Chairman Larry Ellison was NetSuite’s original investor, and Evan
Goldberg, NetSuite’s founder came out of Oracle. CEO Zach Nelson was an
Oracle marketing executive. Oracle’s database is an integral part of
But apart from helping Oracle in its race
with Salesforce.com to get to $10 billion in cloud revenues, what are
the benefits of the deal to Oracle? How does it help NetSuite, and what
does it mean to the broader marketplace? Looking at the big picture,
there are certainly benefits, but there are also several concerns.
We often hear that Salesforce.com is an amazing company. But how amazing is it? The Enterprise System Spectator is proud to announce today a new metric that will be incredibly important for investors, customers, and fans of Salesforce.com everywhere: the SFDC Superlative Index™.
Through the SFDC Superlative Index, we can now quantify the awesomeness of SFDC. We do this by counting the number of superlatives used by SFDC executives in their quarterly earnings calls and analyzing the changes in the use of these superlatives over time.
Our proprietary list of superlatives currently includes the following: exciting, incredible, huge, amazing, outstanding, terrific, awesome, phenomenal, fantastic, tremendous, extraordinary, and spectacular.
Superlatives per Quarter Reaches High Water Mark
These are fantastic days for SFDC, terrific days indeed. As shown in Figure 1, SFDC executives used tracked-superlatives 97 times in the firm's most recent quarter, the greatest number in the past five quarters.
Analyzing superlatives that make up the SFDC Superlative Index provides deeper insights.
Excitement is Rising
SFDC executives are truly excited about the most recent quarter. As shown in Figure 2, we find that "excited/exciting" has now returned as the top superlative in the first quarter, after a sharp decline in the fourth quarter of FY 2016.
CEO Marc Benioff reported that he as "really excited to be here, really excited for the first quarter" and he was "really excited" about raising the company's full year revenue guidance. "This kind of accelerated revenue growth [is] something that we’re very, very excited about," he later added.
Benioff's excitement also extended to up-coming events, such as World Tour New
York, which he said is already sold out. "So we’ll be excited to see you there," he added. He also said that he was "really excited to visit with all the Salesforce customers and developers who are coming Trailhead DX."
But Benioff saved his greatest excitement for the upcoming Dreamforce conference in October.
"I know the bands that are playing. I know what’s going on and I’m [not] going
to give you too much of that yet," he said. "I can just tell you it’s going to be
the biggest and most exciting Dreamforce ever."
COO, Keith Block, also shared Benioff's enthusiasm, especially about the firm's moves in Europe. "Obviously we’ve made investments with data centers in Europe which we’re
very, very excited about, our customers are obviously excited about
that," he said.
Business is Beyond Exciting
As shown in Figure 2, SFDC executives went even further in describing developments during the quarter, using words such as incredible (23 times), huge (16), amazing (8), and outstanding (5) to round out the top five superlatives.
Early in the call, Benioff described the first quarter as the best that the firm has ever seen, "There is [sic] some incredible numbers you’re going to see including the cash flow number," he said. "We’re well positioned for another great year. This is amazing."
Block confirmed Benioff's enthusiasm. "I mean, this is an incredible company with incredible people and an
incredible set of products and customers," he said.
Not only is SFDC incredible, SFDC customers are also incredible. For example, Benioff said, "Uber, one of the world’s great innovative companies, another expansion in
the quarter, they’re an incredible innovator with off-the-chart growth." Regarding a new deal with Amazon in the quarter, Block said, "We love Amazon, we’ve got a great relationship with Amazon, they are a
huge user of Salesforce and that certainly has been a huge part [of] this
quarter as well."
In describing the firm's Sales Cloud, Benioff let loose with a string of incredibles:
"I mean we know that there is not just a cloud, there is not just a
incredible cloud vision for Sales Cloud, not just incredible, social
vision. You all know it has been built on this incredible engagement
platform built on our Chatter core and then extended into Salesforce1. Of course it has incredible mobility, the best of any enterprise
application in the world with more mobile users gone up than any other
application that I’m aware of."
One of Deming’s 14 points for management was, “Drive out fear, so that everyone may work effectively for the company.” By this he meant that employees should not be afraid to point out problems, provide feedback, or make mistakes in an effort to improve. Business leaders should engage employees positively in continuous improvement.
But when it comes to business leaders themselves, fear can be a powerful motivator. And, nowhere is a healthy fear more needed than in ERP implementation.
It is difficult to think of a major project that is riskier for an organization than an ERP implementation. It ranks right up there with a major strategic merger or acquisition in terms of potential to disrupt the business. This is because an ERP implementation touches nearly every function of the business, nearly every business process, and nearly every employee. Although ERP systems involve computers, they are not IT projects: they are business change initiatives. Do it wrong, and you may find yourself as a case study on the front page of the Wall Street Journal.
Hopes and Fears
I recently co-led a half-day workshop for a large client in the manufacturing industry that is about to embark on a wholesale replacement of their aging ERP system. The participants were 18 of the firm’s business leaders. We covered the history and role of ERP, reasons for failure, lessons learned from successful implementations, typical processes most in need of improvement, and the roles and responsibilities of business users in the implementation.
At the end of the workshop, we conducted a short exercise that I call, “Hopes and Fears.” We invited the participants to list the things that they hoped would result from the implementation. They responded with a variety of benefits, such as improved efficiency, lower inventory, better planning, and a more modern user experience.
We then asked them to list the one thing they were most worried about, the thing they most feared as they looked forward to the implementation. Here the mood turned more serious as they expressed their fears, such as that they might not get enough training, that inventory might actually increase during the transition, that employees might not speak up when things weren’t going well, and that customer delivery schedules might be disrupted.
But the one thing that worried this group the most was that they wouldn’t have the resources to get the implementation finished while still taking care of their regular duties. Would they have the bandwidth? We had told them that they had to put their best people on this project, but could they afford to do that? Where would they get additional personnel? The top executive in the room spoke up and assured the group that the company was ready to spend the money to make those resources available.
At this point, I told them that I had accomplished my unspoken objective. My goal in conducting this workshop was to put some fear into them, as business leaders. Nothing concerns me more than when I see a company begin an ERP implementation thinking that it is no big deal, that they can delegate the project to the IT department, or to the system integrator. Or, thinking that they can treat an ERP implementation as just another project, like installing a new production line, or implementing a new safety program.
Address Fears in Contingency Planning
Healthy fear can be a strong motivator in ERP implementation. At the same time, fear should not lead to paralysis, leading an organization to not move forward with new systems.The right response is to address each of those fears in the project plan, in the form of contingency planning.
Are you afraid you won’t have sufficient resources? Allocate budget to hire additional resources to back-fill the regular responsibilities of project team members.
Are you concerned that business users won’t adopt the new system? Develop and implement a change management plan as part of the implementation.
Are you worried that customer delivery might be disrupted? Allocate extra time in the acceptance testing phase to ensure that doesn’t happen.
You can never completely eliminate risk in an ERP implementation. But with careful planning, allocation of resources, and management commitment you can greatly mitigate those risks.
Everyone agrees that business process improvement is a key success factor in enterprise system implementation. But, which comes first? Should organizations redesign their business processes before selecting and implementing new systems? Or should they first select a new software vendor and then redesign their processes to match how the new system does things?
This question comes up repeatedly in our vendor evaluation and software selection consulting services. Clients read about failed ERP or CRM projects, for example. They hear the warnings of executives from such companies, telling them to spend more time up front understanding their business processes. They hear about companies that go live but don’t achieve the desired benefits. They vow to do better. They don’t just want to implement a new system. They want to implement best business practices.
These are good reactions. When it comes to enterprise systems, anything that heightens the fear of failure is a good thing. The more business leaders are focused on business processes, the better.
But, how should business leaders deal with their business processes when implementing a new system?
Should they improve their processes before implementing the new system, so that the new system is not automating broken processes?
Or, should they choose the new system first, so that they can redesign their business processes using the best business practices that are embodied in the new system?
The answer is a little bit of both: the two should be done in parallel. In fact, doing all of one before the other—whether process first, or system first—will result in failure.
Oracle v. Rimini Street Lawsuit Verdict: Good for Third-Party Maintenance
Earlier this month, the jury in Las Vegas reached its verdict in the
Oracle v. Rimini Street lawsuit, a closely-watched case involving
third-party maintenance (3PM) in the enterprise software industry.
Although the jury awarded Oracle approximately $50 million in damages, the
amount was far below what Oracle expected. Moreover, the jury found that Rimini Street’s copyright infringement was “innocent,” not “willful,”
that Oracle suffered no lost profits as a result, and that neither
Rimini Street nor its CEO, Seth Ravin, engaged in any tortious business
Assuming the jury’s verdict stands up against potential
appeals, the case sets an important precedent for how 3PM providers
should operate to ensure they are not violating the intellectual
property rights of software owners. We expect customer use of
third-party maintenance will increase as a result of this verdict.
Send tips, rumors, gossip, and feedback to Frank Scavo, at
I'm interested in hearing about best practices, lessons learned, horror stories, and case studies of success or failure.
Selecting a new enterprise system can be a difficult decision.
My consulting firm, Strativa, offers assistance that is independent and unbiased.
For information on how we can help your organization make and carry out these decisions, write to me.
My IT research firm, Computer Economics provides metrics for IT management, such as IT spending and staffing benchmarks, technology adoption and investment trends, IT management best practices, IT salaries, outsourcing statistics, and more.