Which Boat Do You Sail to Cross the Blue Ocean?

by Lora Cecere on August 6, 2012 · 2 comments

In a recent post, Time to Paint Outside the Lines , I advocated that we needed to expand our current concepts of supply chain management.  I challenged readers to rethink conventional processes and to think outside the lines; to redefine them using the new capabilities of mobile, social, cloud-based computing and more advanced analytics.  The post was about the “what.” In a discussion with a client, I was challenged to write about a third dimension. The client asked me to write about the delivery of the services or the “who.” Here I share my insights.

When we start to paint outside the lines, we begin to enter the world of blue oceans.  By definition, a blue ocean is a new market that is uncontested. For the deliverer of services, it is a vast opportunity. Full of hope and promise, the deliverer of services is bullish and aggressive on how they will cross the blue ocean. For the user of technology, it is a situation fraught with indecision, risk and uncertainty.

Blurring of Lines

The lines are blurring on packaged application delivery. (When I use the term ‘supply chain management,’ I am using the broad definition of defining cash, inventory, information and product flows from the customer’s customer to the supplier’s supplier.) My goal is to help clients build the end-to-end supply chain (E2E).

Mobility, advanced analytics, cloud-based computing, advanced predictive analytics, and the Internet of Things offers us the ability to deliver new and improved solutions. By definition, Software as a Service (SaaS) applications open the door to enable this innovation. It allows us new opportunities to deliver value in the areas of pervasive computing and analytics. The traditional software licensing model–always held back by the delivery of user-based enhancements–can now be untethered and cast free to deliver new applications through SaaS delivery. Market requirements are driving it. The processes need to be designed outside-in and there is a need for horizontal business processes to enable a level of agility that is not possible in today’s organization.

As I attend conference after conference, for me, it seems that everyone is talking the talk, but they have one foot in the first phase and one foot in the next phase trying to figure it all out.  While Silicon Valley is still in a love-fest with social applications,  I see companies slowly realizing that social for the sake of social is too limiting. It is about SO MUCH more than digital marketing.  Likewise, it is not mobile for the sake of mobile. It is about pervasive computing and real-time information.  There is also a growing recognition that it will not happen through the sticking of mobile and social data in the outdated models of CRM and SRM. These applications were defined too narrowly to sense and translate market signals into enterprise workflows. The delivery of services and products in these new more pervasive models requires the redefinition of enterprise applications. The traditional definitions of Enterprise Resource Planning (ERP) and Advanced Planning Systems (APS) are slowly becoming legacy.

After the first and second decades of digital marketing, companies are now starting to ask questions about digital business.  They want to know how to transform their very “transactionally-focused enterprise applications” into solutions that can sense and deliver a more agile response.  They want to turn to Oracle and SAP, but these very sales-driven solution organizations are well-tuned to deliver traditional solutions, not to help users cross these blue oceans. They would like to turn to the traditional supply chain planning vendors like JDA and INFOR, but they find that these organizations are busy trying to harmonize and rationalize many acquisitions and that they have lost many of their thought leaders. Deep within the IT groups of organizations, companies may reach out to the conventional analytical vendors like Teradata and SAS, but they quickly find that these organizations are used to selling servers and analytical tools and lack the deeper understanding of enterprise application processes.

The Phases

As we progress, I feel that there are three phases.  While we can argue about the names, please read past the labels to understand the broader discussion, and then let’s engage in a discussion.

  • Phase I. The Efficient Organization.  The first phase of enterprise applications is ending. It is where companies have invested and know best. The focus was on transactional efficiency.  In this phase, the organization was defined from the inside-out and the order-to-cash cycle was automated. (In most cases, it was very rigid. The focus was on control.) Decision support was layered on top of the transactional systems to improve decision making using order and shipment data. This era is ending. Leaders now realize that the dream of ERP II and building the end-to-end supply chain on the back of ERP and B2B connectivity was too limiting.
  • Phase II. Digital Business.  The redefinition of processes outside-in from market to market is the phase that we are entering. It will be enabled by cloud-based computing, business-process outsourcing, and pervasive computing.  New forms of predictive analytics will enable listening (e.g., sentiment analysis and text analysis) to understand the questions that we do not know to ask, and systems will be able to adapt through horizontal process orchestration. This movement to listen, test and learn and bidirectional horizontal process management is just beginning. It is the new blue ocean. It is the era of digital business.
  • Phase III. Systems of Commerce for E2E Value Networks.  As systems evolve, companies will come to realize that there needs to be a greater focus on value-based outcomes and inter-enterprise systems of record to better manage bifurcated trade. This phase will no longer be about industry-specific applications. Instead, it will enable the process flows of end-to-end value networks.  For example, in healthcare, the shift will move from efficient sickness (checking patients in and out of the hospital and lowering the admission rate) to sensing the body and focusing on health and wellness. Likewise, in transportation, the focus will shift from selling cars to safe transport using sensors to guide vehicles with improved safety and lower carbon footprints. We are already seeing this shift in Performance-based Logistics (PBL) in the department of defense.

Users are confused. They want to know, “Which horse do they ride to cross the blue ocean?” Simply speaking, the Best-of-Breed Service Provider will be the best bet. Here are my predictions:

  • Consultants Will Stumble. As the gravy train of ERP implementations winds down, more and more consultants are attempting to build software. This includes traditional consulting partners like Accenture, IBM, Infosys and Wipro. I do not believe that they will be successful.  The client model for consulting is just too strong. While they fundamentally understand the client relationship for the delivery of services, they lack the understanding of product marketing and product development. Of the four, IBM will do the best. They have a long history of building software, but they have struggled to market and capitalize on the software’s potential.  While they will continue to have success in the areas of analytics and data mining, and retail, they will struggle in penetrating the deeper areas of enterprise applications. I believe that each will have some initial success selling SaaS solutions, but will wake up within the year and align their skills to contribute to the market in a greater ecosystem play (e.g., putting SAP solutions into cloud-based delivery systems). I think that they would be better served to combine business-process outsourcing with global centers of excellence targeting large business problems like the Race for Africa for consumer products or the Redefinition of the Cold Chain for biologic products.
  • Best-of -Breed Vendors Will Prevail. For me, the most exciting news is coming from the Best-of-Breed Providers. I am bullish about the opportunities for E2Open, Enterra Solutions, Llamasoft, Kinaxis, ModelN, Predictix, Red Prairie, Signal Demand, Steelwedge, Terra Technology, and SmartOps to bring industry-specific solutions with greater depth to the market. They will push the envelope on the delivery of industry-specific SaaS solutions. They will do it faster with support from their clients. I also believe that vendors like Arkema, Aspen Tech, John Galt, and Logility will continue to gain mind-share with mid-market companies with industry-specific solutions. These solutions are becoming mainstream, helping to fill the gaps that the extended ERP solutions cannot fill due to cost and depth of solutions.
  • Oracle and SAP Will Follow.  While Oracle and SAP will talk “blue ocean talk,” internally they will struggle to “walk the walk.” Neither has been successful at driving partnerships and each is handicapped by a very strong sales-centered (as opposed to market-driven) model. I predict that consulting companies like Converge, Neoris, and Infosys will align with SAP to deliver on many of the blue ocean opportunities that are available through the SAP acquisition of Sybase in either the area of mobility or HANA into emerging markets. I think that they will be more nimble in their realignment than Accenture, IBM or WIPRO. With market success, Oracle will follow. Salesforce.com will be relegated to improving sales efficiency and Microsoft, despite having promising software, will continue to struggle in penetrating the enterprise software market.
  • Conglomerates Will Circle the Drain. The JDA and Infor models will continue to consolidate, and the solutions will progress, but slowly. They will continue to be a good fit for software evolution of existing implementations, but they will not be the horse to ride across the blue ocean.
  • Analytic Companies Will be Best Supporting Actors. GreenPlum, SAS, Teradata and IBM will continue to help with analytic applications, but they will bring up the rear.  None of the analytic vendors really understand how to sell and market supply chain applications to line of business leaders.
  • Business Process Outsourcing Will Grow. The use of analytics and the evolution of business process outsourcing for multi-tier processing will continue to grow.  The work that CapGemini or Genpact is doing on retail deductions or Accenture on consumer insights will continue to grow.

My Take

So, as we set our sails for new places, and plan to navigate blue oceans, be sure that you are working with partners that can help you get there. Long term, it will take a village.  Short term, it will be hoisted on the back of best-of-breed providers.  Sailing in the waters of enterprise applications for supply chain management is always choppy, but it is time to look ahead.

I look forward to your thoughts. Anchors aweigh!

 

 

 

 

{ 2 comments… read them below or add one }

LongTimeSCMer August 7, 2012 at 9:52 am

Lora,

Great roadmap for supply chain applications. Long rant follows :-) . I’m less optimistic about the ability of best-of-breed companies you have listed in helping companies crossing the blue oceans. It is a shame really, the large companies have no incentive to do any real innovation and feel no threat from the BoB companies. I’m looking at your list of the BoBs. Almost all of them are 10 years or more in business. Some of them are over 15 years in operation right now. Yet, most of them are tiny ($20-70Million range) compared to the big boys. Most seem to be consulting heavy operations with heavy customization of technology per client. This puts some fundamental limitations on how big they can get, how much R&D they can set aside and do some real cutting edge work technology wise.

So, it has been a failure of business strategy at most of these companies. The senior management needs a good business strategy, otherwise the BoB companies will be the ones circling the drain. The modus operandi seems to be hire some developers build some product, run through senior management rolodex of contacts in a particular industry and hire consultants to do some custom work. They neither have the scale or experiences of (say) Accenture in services or Oracle/SAP in technology. Stuck in a no man’s land. I would like to hear your thoughts on how these business can cross the chasm into becoming $500 Million+ businesses.

Look at Workday in the HR space, in less than 7 years they have managed to grow the business to $300Million+. There are many companies in enterprise software who have a much better ramp up and strategy Let’s not even talk of companies in the consumer internet area. The point is, I compare them to e2open which had their IPO a few days back. e2open has been in operation for 12 years, $65Million in revenue and making a loss. How will these companies attract good people? I just don’t think they can, and will slowly die out when talented people just get tired and move on. Maybe the whole SCM space is finished?? As a long timer in this space who lived through some of the go-go days of the ’90s, this is definitely a bitter truth to swallow.

Reply

Lora Cecere Lora Cecere August 18, 2012 at 9:25 am

Granted it has been a tough road, and I agree with many of your views; but I think that the convergence of new capabilities with Software as a Service, new forms of predictive analytics and visualization are driving a tipping point. And, I believe that the best of breed vendors will drive it.

One of the tragedies of the past decade was how greed drove the evolution of software off course. There was so much money made by salesman and founders that they lost their way. I firmly believe that the SaaS model helps software companies and manufacturers better align for value.

Anyway, thanks for sharing. Lets keep up the dialogue. Anyone else want to share their views?

Reply

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