Posts Tagged ‘technology budgets’

Monday’s Musings: Understand The Four Organizational Personas Of Disruptive Tech Adoption

Pace of Innovation Exceeds Ability To Consume

Rapid innovation, flexible deployment options, and easy consumption models create favorable conditions for the proliferation of disruptive technology.  In fact, convergence in the five pillars of enterprise disruption (i.e. social, mobile, cloud, big data, and unified communications), has led to new innovations and opportunities to apply disruptive technologies to new business models.  New business models abound at the intersection of cloud and big data, social and mobile, social and unified communications, and cloud and mobile.

Unfortunately, most organizations are awash with discovering, evaluating, and consuming disruptive technologies.  Despite IT budgets going down from 3 to 5% year over year, technology spending is up 18 to 20%.  Why?  Amidst constrained budgets, resources, and time limits, executives are willing to invest in disruptive technology to improve business outcomes.  Consequently, successful adoption is the key challenge in consuming this torrent of innovation.  This rapid pace of change and inability to consume innovation detract organizations from the realization of business value.

Organizations Fall Into Four Personas Of  Disruptive Technology Adoption

A common truism in the industry is “Culture trumps technology”.  As organizations apply methodologies such as Constellation’s DEEPR Framework in improving adoption, leaders must first determine which of the four personas best fits their organization’s appetite for consuming and innovating with disruptive technologies.

The personas of disruptive technology adoption assess organizational culture in two key axes (see Figure 1).  The first is how incremental or transformational an organization looks at applying disruptive technology to business models.  The second assesses how proactive or reactive an organization is in carrying out new initiatives.  Based on these dimensions, the four personas include:

  1. Market leaders. Market leaders prefer to drive transformational innovation.  They look at technologies as enablers in disrupting business models.  They see competitive differentiation in delivering outcomes to customers. Market leaders accept failure as part of the innovation process.  They fail fast and move on.
  2. Fast followers. Fast followers prefer to react to the success of market leaders and their experiments.  When they sense success, they tend to jump in.  Fast followers do not like to fail and rapidly apply lessons learned from market leaders into their road maps.  Fast followers tend to deliver scale in the markets as a counter balance to arriving later in the market.
  3. Cautious adopters. Cautious adopters proactively deliver incremental innovation.  They tend to take a more measured approach and spend more time studying how they can improve an existing success than creating a transformational change.  Cautious adopters often come from regulated industries where security and safety are paramount objectives.
  4. Laggards. Laggards tend to procrastinate on applying innovations to their business models.  They prefer not be bothered by trends and will only react when the trends have moved beyond mainstream.  They see value in waiting as prices will drop over time as success rates increase over time.  Laggards enjoy waiting.

During the interviews and discussions with the 2012 Constellation SuperNova award participants, key questions emerged in the decision process on whether to adopt or pass on a disruptive technologies.  These questions aligned well with the four personas of disruptive technology adoption.

Figure 1.  Organizations Should Understand Which Persona Of Disruptive Tech Adoption Describes Them Best

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News Analysis: Spinnaker Expands JD Edwards Support With Versytec Acquisition

Versytec Acquisition Addresses Growing Demand For JD Edwards Support


Denver, Colorado based Spinnaker Management announced on March 6th, 2012 its acquisition of competitor Versytec.  For those who remember their third party maintenance (3PM) history, Versytec was among the first firms to announce third-party maintenance services within a year after PeopleSoft acquired JD Edwards in July 18, 2003.  Constellation estimates that Nashua, New Hampshire based Versytec had between 35 to 40 active 3PM customers.

Third-party maintenance describes support and maintenance offerings delivered by non-OEM providers. These vendors can provide a range of options from basic break/fix to bug fixes, performance optimization, tax and regulatory updates, and customization support. Keep in mind, 3PM does not provide access to upgrades and future versions of the OEM’s product. One big driver is the lower cost of delivery, as much as half the cost of the original vendor’s pricing.  Today most customers pay in maintenance and support the equivalent of a new license every 5 years without achieving the value.  For an average JD Edwards customer that upgrades every 15 years, that’s three times the cost of the original license cost.  In the latest Constellation research report, third party maintenance is one of many strategies to free up millions for customers to fund innovation.

The Spinnaker-Versytec deal is important for a few reasons:

  • Many JD Edwards customers seek alternatives to Oracle’s pricey maintenance fees. Software ownership costs continue to escalate as vendors accelerate their efforts to capture support and maintenance revenues.  From inquiries, surveys, and conversations on the ground, many Oracle JD Edwards World and EnterpriseOne ERP customers seek options to buy-time as they consider whether they upgrade or migrate from their current version.  Why?  Most JD Edwards customers run stable environments and do not gain any value from the Oracle one-size fits all 22% support policy.  Most customers seek phone support and tax and regulatory updates.
  • The market needs more options and choices in the third party maintenance market. Many OEM vendors have gone to the extreme to eliminate third-party options for their customers.  This anti-competitive behavior takes away choice for the customer. A bulked up Spinnaker creates a viable organization that has the critical mass to compete with Oracle.   The combined entity provides third party support services to an estimated 100 160 JD Edwards customers across the globe.
  • Spinnaker Support offers a different approach to third party maintenance. Spinnaker couples its third party maintenance options with consulting services providing a one-stop shop for JD Edwards customers.  Spinnaker also differentiates in its download methodology of customer entitled IP from Oracle.  Spinnaker provides customers with a checklist of what to download prior to migration off Oracle support.

The Bottom Line: Users Must Advocate for Third-Party Maintenance Rights Across the Technology Stack

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Research Summary: Best Practices – Three Simple Software Maintenance Strategies That Can Save You Millions

Forward And Commentary

Software ownership costs continue to escalate as vendors accelerate their efforts to capture support and maintenance revenues. Some vendors have gone to the extreme to eliminate third-party options for their customers. This best practices report examines three strategies to free up unnecessary costs to fund innovation and new projects.

A. Introduction

On average, IT budgets are down from 1-5 percent year-over-year, yet software support and maintenance costs continue to escalate ahead of inflation. Hence, continued pressure on IT budgets and a growing need for innovation projects have top business and technology leaders reexamining their software support and maintenance contracts for cost efficiencies.

Based on experience from over 1500 software contract negotiations, Constellation suggests three approaches to reduce the cost of software support and maintenance. Key strategies include third-party maintenance, shelfware reductions and unbundling maintenance contracts as part of every organization’s tech optimization strategy. Successful implementation can lead to savings from 10-25 percent of the IT budget, freeing up cash to fund innovation initiatives.

B. Research FindingsWhy Every Organization Should Consider Third-Party Maintenance, Shelfware Reductions and Unbundling Maintenance Contracts

Most organizations suffocate from the high and hidden cost of support and maintenance. On average, Constellation’s surveys reveal global IT budgets trending down from 1-5 percent year-over-year since 2008. Consumerization of IT, rapidly changing business models, and aging infrastructure have exposed the high cost of software support and maintenance. Because most organizations allocate from 60-85 percent of their budget to keeping the lights on, very little of the budget is left to spend on new projects (see Figure 1).

Organizations can unlock millions by considering third-party maintenance (3PM), reducing shelfware, and keeping support and maintenance contracts unbundled. Each strategy on its own creates opportunities to drive cost savings. All three strategies combined, provide a roadmap for funding innovation.

  1. Third-party maintenance (3PM) delivers the most immediate cost savings and opportunity for innovation. Third-party maintenance describes support and maintenance offerings delivered by non-OEM providers. These vendors can provide a range of options from basic break/fix to bug fixes, performance optimization, tax and regulatory updates, and customization support. Keep in mind, 3PM does not provide access to upgrades and future versions of the OEM’s product. One big driver is the lower cost of delivery, as much as half the cost of the original vendor’s pricing.  The report shows a survey of 268 respondents and why organizations choose 3PM and who the key vendors are.
  2. Reduction of shelfware remains a key pillar in legacy optimization strategies.  Shelfware (i.e. purchased software, not deployed, but incurring annual maintenance fees) is one of the biggest drains on operational expenses for enterprises. The simple definition of shelfware is software you buy and don’t use. For example, an organization that buys 1000 licenses of Vendor X’s latest ERP software and uses 905 licenses, becomes the proud owner of 95 licenses not being utilized. That’s 95 licenses of shelfware because the user will pay support and maintenance on the license whether or not they use the software or not.  The report details 4 successful and proven approaches.
  3. Unbundling maintenance contracts prevents future vendor mischief. About a decade back, vendors would offer support and maintenance as two separate line items on their contracts. Support would run about 5-10 percent of the license fee and so would maintenance. Keep in mind, average support and maintenance fees were under 15 percent back then. Unfortunately, many users have expressed a growing and concerning trend with support and maintenance contracts. Vendors concerns about support and maintenance contract retentions have led to new initiatives to consolidate contracts. At first glance, this may appear to be proactive and beneficial to customers, but the report details three rationales vendors provide and three strategies how to avoid bundling.

Figure 1. Visualizing the High Costs of Support And Maintenance

(Right-click to see full image)

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Research Report: Constellation’s Research Outlook For 2011

Organizations Seek Measurable Results In Disruptive Tech, Next Gen Business, And Legacy Optimization Projects For 2011

Credits: Hugh MacLeod

Enterprise leaders seek pragmatic, creative, and disruptive solutions that achieve both profitability and market differentiation.  Cutting through the hype and buzz of the latest consumer tech innovations and disruptive technologies, Constellation Research expects business value to reemerge as the common operating principle that resonates among leading marketing, technology, operations, human resource, and finance executives.  As a result, Constellation expects organizations to face three main challenges: (see Figure 1.):

  • Navigating disruptive technologies. Innovative leaders must quickly assess which disruptive technologies show promise for their organizations.  The link back to business strategy will drive what to adopt, when to adopt, why to adopt, and how to adopt.  Expect leading organizations to reinvest in research budgets and internal processes that inform, disseminate, and prepare their organizations for an increasing pace in technology adoption.
  • Designing next generation business models. Disruptive technologies on their own will not provide the market leading advantages required for success. Leaders must identify where these technologies can create differentiation through new business models, grow new profit pools via new experiences, and deliver market efficiencies that save money and time.  Organizations will also have to learn how to fail fast, and move on to the next set of emerging ideas.
  • Funding innovation through legacy optimization. Leaders can expect budgets to remain from flat to incremental growth in 2011. As a result, much of the disruptive technology and next generation business models must be funded through optimizing existing investments. Leaders not only must reduce the cost of existing investments, but also, leverage existing infrastructure to achieve the greatest amount of business value.

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Research Report: The Upcoming Battle For The Largest Share Of The Tech Budget (Part 2) – Cloud Computing

Welcome to a part 2 of a multi-part series on The Software Insider Tech Ecosystem Model.  Part 2 describes how the cloud fits into the model.  Subsequent posts will apply the model to these leading vendors:

      The aggregation of these posts will result into a research report available for reprint rights.

      Cloud Computing Represents The “New” Delivery Model For Internet Based IT Services

      Technology veterans often observe that new mega trends emerge every decade.  The market has evolved from mainframes (1970′s); to mini computers (1980′s); to client server (1990′s); to internet based (2000′s); and now to cloud computing (2010′s).  Many of the cloud computing trends do take users back to the mainframe days of time sharing (i.e. multi-tenancy) and service bureaus (i.e cloud based BPO). What’s changed since 1970?  Quite plenty — users gain better usability, connectivity improves with the internet, storage continue to plummet, and performance increases in processing capability.

      Cloud delivery models share a stack approach similar to traditional delivery.  At the core, both deployment options share four types of properties (see Figure 1):

      1. Consumption – how users consume the apps and business processes
      2. Creation – what’s required to build apps and business processes
      3. Orchestration – how parts are integrated or pulled from an app server
      4. Infrastructure – where the core guts such as servers, storage, and networks reside

      As the über category, Cloud Computing manifests in the four distinct layers of:

      • Business Services and Software-as-a-Service (SaaS) – The traditional apps layer in the cloud includes software as a service apps, business services, and business processes on the server side.
      • Development-as-a-Service (DaaS) – Development tools take shape in the cloud as shared community tools, web based dev tools, and mashup based services.
      • Platform-as-a-Service (PaaS) – Middleware manifests in the cloud with app platforms, database, integration, and process orchestration.
      • Infrastructure-as-a-Service (IaaS) – The physical world goes virtual with servers, networks, storage, and systems management in the cloud.

      Figure 1. Traditional Delivery Compared To Cloud Delivery


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      Research Report: The Upcoming Battle For The Largest Share Of The Tech Budget (Part 1) – Overview

      Welcome to a multi-part series on The Software Insider Tech Ecosystem Model.  Subsequent posts will apply the model to these leading vendors:

      • Overview
      • Cloud Computing
      • Cisco
      • Dell
      • HP
      • IBM
      • Microsoft
      • Oracle
      • Salesforce.com
      • SAP

      The aggregation of these posts will result into a research report available for reprint rights.

      Business Models Converge During Recessions

      Is your technology provider a hardware vendor or a software vendor? Does your System Integrator now provide solutions in the cloud? These questions will continue as models converge.  Hardware, software, and system integration vendors must reinvent new models of revenue.  The economic recession has forced business model shifts at the major technology companies.  The goal – own the largest share of both the business and IT technology budget,  As these sellers attack new profit pools, buyers can expect continued convergence of business models because:

      • Hardware companies seek higher margins. Most hardware vendors face single digit margins in their core business.  To bolster margins, many vendors acquired system integration firms.  For example, HP purchased EDS and Dell acquired Perot Systems.  The next logical step requires the hardware vendors to get into software.  Software margins hover from 10% to 50% depending on the market.  Expect a hardware vendor such as Cisco, Dell, or HP to acquire a SaaS based company to move into the software business.
      • Service providers build differentiated intellectual property (IP) using the Cloud. Service providers should go on the SaaS/Cloud offensive if they want to deliver rapid innovation to customers and break the cycle of dependence on packaged apps vendors.  Service providers can take market share through SaaS by investing in white spaces in the solution road map with verticals and other pivot points that have not been well served.  In addition, expect forms of SaaS BPO to emerge as clients seek best of breed SaaS and hybrid deployments.
      • Software companies use Cloud to transform into information brokers. SaaS and Cloud deployments provide companies with hidden value and software companies with new revenues streams.  Data will become more valuable than the software in the Cloud.  Three areas of growth will include benchmarking, trending, and prediction.
      • Companies by-pass software vendors for competitive advantage. Roper Industries acquisition of iTrade Networks on July 26th, proves a key point.  Smart and innovative companies will put custom development in the cloud to meet last-mile solution needs that packaged apps vendors or system integrators fail to deliver.  Companies may also acquire software vendors if they can’t build the solution.

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      Research Report: How SaaS Adoption Trends Show New Shifts In Technology Purchasing Power

      SaaS Adoption Surveys Often Overlook Audience Composition

      Over the past year, analyst firms, tech media, and even mainstream business media have happily showcased positive news about SaaS adoption.  The common theme remains clear – SaaS adoption moves beyond the tipping point in 2010.  Cloud adoption will reach a tipping point in the next 12 months.  All this bodes well for customers and SaaS providers as organizations now embrace SaaS as an acceptable deployment option in their apps strategy.  Unfortunately, recent SaaS/Cloud adoption surveys continue to provide confusing and sometimes contradictory data about adoption.  Close examination of these surveys reveal that not all adoption surveys are equally created.  The unspoken question, who’s answering the surveys?

      SaaS Decision Making Firmly In The Hands Of The Business Buyer

      Anecdotally, business users drive SaaS decisions, while IT leaders remain skeptical.  To validate this hypothesis, Software Insider conducted a quick survey of 100 Global 2000 organizations.  Starting with the most senior IT leaders, the question was posed, “Are you using SaaS in your organization for major business processes?” (see Figure 1).  Of the 46 organizations who responded, the procurement leaders were then asked the same question (see Figure 2).  After comparing survey results, the following conclusions emerged:

      • IT leaders aware but hesitant on SaaS adoption. A little under a quarter of IT leaders (23.91% or 11/46) responded that they were using SaaS applications.  Key applications deployed include CRM, strategic HCM, expense management and project based solutions (PBS).  Delving deeper into these verbal and in-person interviews highlighted a desire to learn more about SaaS.  As one CIO at a major food and beverage concern stated, “The business heads keep showing up with these SaaS apps and then want us to integrate them.  We need to get a handle on all this!”  Key concerns included, “I don’t know if we can integrate all this in the future”, responded the CIO of a large Fortune 500 retailer and “I think we need better governance and security”, remarked the Director of Enterprise Apps for a Top 25 banking, financial services, and insurance (BFSI) entity.
      • Procurement leaders reveal surprising adoption by business leaders en masse for SaaS solutions. Conversations with the procurement managers highlight how business users have taken matters into their own hands.  Every one of the surveyed organizations (100% or 46/46) had an existing SaaS contract, contradicting the IT leaders who did not respond that they ran SaaS solutions.  In fact – these contracts ranged from five seat deals to 2000 seats at one organization.  As the procurement head at a large professional services firm indicated, “The teams will buy whatever they need now.  IT has no clue!”.  “Business has to go around IT because they are too busy keeping the lights on”, retorted a procurement manager at a global 10 pharma.  A procurement manager for a large multi-national manufacturer stated, “Our main issue with SaaS is finding enough solutions that will support our needs.”
      • Business leaders take charge but fail to communicate with IT leaders.  The key finding – lack of coordination among business, IT, and procurement.   Amazingly, the 35 IT leaders who stated they did not run SaaS apps for major business processes still may not know about the CRM, HCM, Project Based Solutions, and Finances deployments in their organization.  When some of them were shown the results, these leaders expressed amazement and surprise.  Organizations should be alarmed but not surprised by this lack of coordination between business and IT.

      Figure 1.  IT Leader Responses Show Muted Adoption

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