Integrated Best of Breed

Big fish gobbling up the smaller ones has been a natural way of life. Recent times have seen many startup and small-medium technology companies being acquired by their larger brethren as the biggies try to fill voids in their enterprise solution offering or expand their footprint in corporate IT. Innovative ideas and niche solutions have found it easier to expand their market aligning with the big companies while in many cases it was also about survival or the investors cashing out too.

Meeting up with few large enterprise and conglomerate CIOs the discussion veered towards how they are staying ahead of the pressures to continuously adapt to changing paradigms and ensure that the IT architecture stays agile and in sync with business. Everyone had gone down the path of implementing the monolithic ERP, CRM, SCM, … solutions more than a decade back. With (in)organic and global growth the footprint continued to expand moving from single instance to multiple and then back to consolidated deployment.

Depending on the evolution of solutions and enterprise need many CIOs took a call to implement the complete suite of functionality from one vendor; then there were few who decided that they will not compromise on business requirements and find the best fit for what their business needs. Integration as required was addressed using Enterprise Application Integration (EAI) tools which had evolved to allow coexistence of legacy and new systems. The resultant technology diversity did pose challenges for IT which was deemed acceptable.

Staying with one solution provider did have advantages of better integration over the other though not by a huge margin as most large vendors had acquired other companies to fill in gaps in their offerings. Some of the best of breed now became offerings from the same large vendor with support prices almost always going north busting budgets and taking away fiscal benefit which the smaller vendors had offered. CIOs had little choice but to fight tooth and nail to get marginal benefit eventually accepting the new terms.

M&A in the IT solutions industry keeps changing the landscape. While the acquirer in most cases buys to add missing functionality or to get ahead of competitors, there have also been a few to kill a smaller or dominant player in a specific segment. There have been many such acquisitions over the last decade where the solution became irrelevant and by the time it revived itself, the market had changed. This is very evident in customer management and supply chain solutions in which earlier leaders failed to regain their market leading positions.

With new technology and disruptive paradigms driven by consumerization and services on demand being touted as nemesis of conventional IT organizations, solution providers are joining the bandwagon in an attempt to brick-wall their customers. We can offer you the option of cloud, stay with us; list prices are only for small customers, we will give you good ROI on either stack. CIO buying from startups soon discovers that the solution is now with a vendor who they may have rejected in their larger evaluation.

With integration becoming easier over the years across “commercial off the shelf” and cloud solutions, the new wave belongs to point solutions for specific tasks and functions. Almost all of them provide ready connectors to legacy ERP solutions thus eliminating the earlier pain of integration. Today CIOs can exercise a choice along with business to find the best fit for which there are alternatives as compared to the past. And the discussions between best of breed and integrated is no longer relevant.

Predictions about the demise of the larger solutions have been around for a while now; I do not believe that they are going away in a hurry, rather many have adapted to the new situation quite well. The momentum from new and micro solutions will keep everyone on their toes. Acquisitions will continue to change the landscape and the CIO will have to continuously adapt. Business will want agility and legacy will remain entrenched. The future will be uncertain, that is certain. All in a days’ job for the CIO !

Software for free ?

In the good old days IT organizations developed software; the development initially began with an army of developers working for the EDP/MIS/IT organizations and they did deliver customized solutions for each business unit or function though not always in the time that business wanted these solutions. But back then we did have the luxury of time. As momentum grew, it gave birth to software development and maintenance companies who will do it better, faster, cheaper.

Disruption arrived in the form of packaged Commercial-Off-The-Shelf (COTS) solutions with three letter acronyms (TLA) that took everyone by storm. ERP, CRM, SCM, BPM, ECM, the TLA multiplied creating frenzy amongst companies. Fed up with delays and the slow pace, most embraced the new wave; the investment was justified for speed and standardization. IT transformed itself to adapt to the new paradigm while consultants laughed all the way to the bank.

All software have list prices and ironically no one buys at that price; everyone depending on their leverage and volume negotiated discounts. These varied from the low 10% to in a few cases high 70-80% for global and large deals; more so in cost sensitive markets which could not digest Dollar or Euro pricing. And then the slowdown at the turn of the century and another one not too long ago coupled with a market that was drying up for new licence deals created interesting scenarios.

I have been hearing some interesting news from my CIO friends; it would appear that many solution providers are demonstrating desperation to sell to meet monthly, quarterly and annual targets. The discounts are getting bigger and especially so when any of the calendar milestones are close. CIOs know this and leverage this to their advantage. A vendor signed up an existing customer for an add-on solution at 98% discount just to ensure that a competing product does not make inroads.

In current times it is evident that every buy decision goes through higher rigor and diligence than it did in the good old days. Evaluation cycles are longer and purchase decisions deferred to align with vendor financial calendars. Even vendors play the game fully knowing that the CIO and/or the buying team will close the deal once they believe that the discount level is apt. I am not sure anymore if prices at current levels are artificial to give the mental satisfaction to the customer of getting a great deal.

A friendly CIO talked in hushed tones of a solution he got free ! No licence fee, no implementation cost, only support charges payable after go-live ! This was not a small solution provider, but a leader in the segment in which they operated. I probed further to find why would someone want to do that ? The only insight that I could gather was about creating new market segments and a case study. The project worked well and the CIO was a hero in his company albeit it created challenges for him for future purchases of any solution.

New delivery and service models coupled with cloud based delivery have created new operating principles for everyone. Pay as you use, scale up or down based on load and number of users, dynamic pricing linked to revenue or business benefit, are some examples. How do these impact purchases ? Does it take away the charade of negotiations ? Does this start leading to standard pricing ? So far, I think not, but the future may be different.

Consumers today are willing to pay whatever the marketplace asks as a price; the same individuals in a corporate setting expect a different reality. Maybe it is to do with micro-payments versus large cash outflows. Maybe it is to do with task specific applications on the mobile to general purpose solutions that require large implementation efforts. I think if enterprise application vendors started breaking down their apps in a way similar to consumer apps, the sum of parts would be larger than the whole.

But then we will not need large monolithic applications to run our business and that is something worth thinking about, and most applications would have free versions !