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May 2, 2013 in Business Analytics, Business Collaboration, Business Intelligence, Business Mobility, Business Performance, Cloud Computing, Customer & Contact Center, Financial Performance, Governance, Risk & Compliance (GRC), Information Applications, Information Management, IT Performance, Location Intelligence, Operational Intelligence, Operational Performance, Sales Performance, Social Media, Supply Chain Performance, Workforce Performance | Tags: Big data, Business Analytics, CFO, CIO, Cloud Computing, COO, mobile, Oracle, Social Collaboration, Social Media | by Mark Smith | Leave a comment
I was recently at Oracle Analyst World which is the vendor’s annual gathering of technology industry analysts. Its executives and others in the products organization deliver the latest news on where the titan is focusing efforts to expand its technology and markets. This year, against the background of the consumer and business markets embracing mobile and cloud computing, Oracle is working to sound like a more friendly supplier that can help remove legacy issues and inefficiencies that plague CIOs and data centers. Oracle also used this forum to attract IT departments to the technology advances it has made across its deep and broad portfolio of products. Oracle has more than 3,900 software products and more than 3,000 software patents that indicate its significant investment in R&D. Now the company is beginning to release improved products more frequently, which most customers now expect from technology vendors.
To analysts Oracle emphasized four enterprise imperatives: big data, cloud computing, mobility and social media. These are among the six technology innovations our firm tracks – Oracle does not prioritize advancements in the other two at the top level, business and social collaboration and business analytics, although it offers products for them and are part of its significantly large product portfolio. There was significant time spent discussing their engineered systems of server, software and storage technology, which are targeted to transform data centers. This is a big-money center of opportunity for Oracle as IT organizations strive to streamline data processing and be more cost-effective in operations. Oracle also is furthering vertical integration of its technologies. Speakers invoked analogies to Steve Jobs and the innovative efforts of Apple, but that is really not a relevant comparison, as the dynamics of consumer markets do not translate to the business aspect of technology, whether it is rented by business units or purchased and installed by IT and are not as easily convinced about vertically integrated technology for business. The two constituents of business and IT and their approach to software continues to evolving differently, as I recently assessed. But even so my analysis of Oracle’s imperatives comes in the context of simplifying IT while pushing innovation.
Let’s look first at big data, a market that continues to grow across the spectrum of technology used to capture, store and access business information. Our benchmark research on the topic finds that the RDBMS has reached a saturation point, being used in 80 percent of organizations, while other technologies have smaller penetration but will grow significantly until the end of 2015: in-memory databases (22%), Hadoop (20%) and data warehouse appliances (19%) all will be deployed in that time. Our research shows that the expanding volume, velocity and variety of data are important across types of big data technology, and Oracle is investing to ensure that IT organizations see it as a viable option for all of them. Oracle is embracing Hadoop broadly, from loading to data services, to ensure it can utilize the HCatalog metadata and Hive-based methods in its business intelligence efforts. The latest Oracle Big Data Appliance, Oracle Exadata and Oracle Exalytics, which include its BI software, are designed to serve organizations that have limited resources and time to fine-tune their configuration. In my analysis Oracle has not been as aggressive as it could be on communicating the value of big data and now in conjunction with its acquisition of Endeca is beginning to focus on what we call information optimization, which ultimately is the value derived from big data, as I have pointed out.
I also think Oracle should look at more tightly coupling big data with its business intelligence and analytics to help business analysts in using large amounts of data. For example, the largest needs for big data according to our research are what-if analysis and forecasting (44%), predictive analytics (41%) and visualization (37%). Oracle has products for all of these, but they should be part of a more integrated presentation and technology stack for organizations to use them more easily.
In both big data and business analytics overall, where Oracle has a broad portfolio of products, its acquisition of Endeca shows real promise, achieving advances in information discovery, interactivity and visualization as well as self-service access to information. Oracle is working to make its BI products as appealing to the business side as they have been to IT organizations but still needs to make clear the value to analysts, let alone those in managerial or management roles. In this area improvements in the user experience are critical: According to our benchmark research usability is the top priority for organizations evaluating new software.
My colleague Tony Cosentino recently covered Oracle’s latest release of business intelligence. He notes that it shows steps in the right direction but lacks integration or use of Oracle’s latest mobile and collaboration technology. Here the company cannot rely on the perspective of IT, which does not consider these aspects important; our business technology innovation research shows that the lines of business have them as two of the top three priorities. Not much is new in the mobile aspects of Oracle BI, although I pointed out at the beginning of last year that it needed significant improvement and requires more frequent updates.
Oracle also is slow in advancing its analytic applications across ERP, CRM, EPM for finance and industry-specific analytics; users in these areas need to transition from tools and dashboards of charts to applications that help not just measure performance but act on and manage it more effectively. Oracle has decided to concentrate its more advanced analytics and visualization on operating against the Oracle Exalytics appliance. This limited approach could hinder its potential as business analysts are less interested in having an appliance package than in tools and software they can use for business analytics with big data or not.
For cloud computing, Oracle is beginning to see returns on its investments in a range of engineered systems that can operate across private or public clouds in single or multitenant approaches; the approach also encompasses storage through archiving data to its Oracle Virtual Networking. Along with IBM, followed by HP and Dell, Oracle is working to turn its range of software into a competitive advantage and appeal to a growing population in IT that realizes it must emphasize usability of technology to meet the next round of business on a more timely and continuous basis.
In the realm of business applications, Oracle is working to support them in whatever combinations users want, even in a single organization. It has made its global data centers available for any level of demand on a 24-by-seven basis. With the acquisitions of RightNow and Eloqua it has become relevant in customer services and marketing applications. Oracle’s intention is to supercharge its efforts in the B2C markets and to provide more choices for customers. It has continued development of its Social Relationship Management and utilization of social media but but hasn’t caught up with point providers Attensity, Clarabridge and Kana. I believe Oracle will also need to address multichannel contact centers and the dynamic aspects of customer interactions. Mobile and social channels are driving a new generation of technology that Oracle is not now competitive with. At the analyst gathering I heard almost no references to its efforts in sales force automation and other sales-related tools where Salesforce is sharply focused and Microsoft is rapidly advancing. In our 2012 Value Index on Sales Applications Oracle showed a very competitive offering and earned a tie at the top spot, but it cannot afford to be complacent here. In fact Oracle’s Fusion for CRM in sales has integrated forecasting (65%) and analytics (47%) more tightly than Salesforce, addressing the top two priorities of sales organizations found in our Sales on the Cutting Edge research. Oracle is more effective in its suite of applications for human capital management (HCM), which has fully integrated its purchase of Taleo; it now has a convincing discussion of its cloud services to help HR and all employees be more efficient. Oracle also has progressed with its Fusion Applications; as I pointed out last year Oracle Fusion applications are now available in on-premises, hosted and software as a service (SaaS) methods. I like the innovation in the mobile technology that it is showing in areas like HCM. My largest concern is the continued lack of focus on the Office of Finance; Oracle’s enterprise performance management (EPM) application is still embedded within its middleware approach to BI and those in finance are most interested in business applications for their processes. Oracle’s potential to help Finance is significant but the split of its accounting and finance applications for management and operations remains a barrier that is an organizational challenge for Oracle than the buying audience readiness to advance its application portfolio.
It is positive that Oracle has gone beyond just virtualizing or cloud-enabling its applications into in-memory processing to take advantage of the growing potential of computing and memory capacity. Oracle sees its ability to handle data cache and grid in-memory as a competitive advantage, and its Oracle Database 12c and TimesTen can take advantage of D-RAM and Flash. In-memory capabilities are also important for accelerating the performance of its BI offering, which can now operate in a variety of options with its caching methods. Its acceleration of investment into in-memory and other next-generation applications for business comes just in time, as SAP continues its investment into Hana to power its applications. Oracle at this point seems to have a more comprehensive approach than SAP but will need to get these applications deployed in more organizations and build its customer reference base. Also, faster is not always better, and the usability and interactivity of the applications with the business processes will determine its future success.
For business and social collaboration, the Oracle Social Network is just beginning to roll out as part of its applications, which according to our research is how businesses would most prefer to access this type of software. With rollouts coming in HCM and SFA, the next year will critical for Oracle to build a strong reputation in this category; over the last decade it made many attempts to satisfy the business audience, which in the end cares about collaboration as a business technology and not as middleware, which is how Oracle has classified it. While many in the industry including IT analysts have not prioritized collaboration as important, this is more of a result to their focus on the IT organization and not one of the needs of business to collaborate and streamline their business processes and actions that require rapid coordination and dialogue. Oracle is smart to make collaboration part of its business applications first, as this is the most frequently selected deployment method in 43 percent of organizations, but other approaches including integrated with Microsoft Office (40%) and embedded as part of business intelligence (28%) or a stand-alone product (23%) are not far behind; we conclude that many organizations prefer a mixed approach. I like Oracle’s use of activity streams, broadcasting and discussion forums, all of which are part of the new evaluation criteria for social collaboration in business as we see a shift from the outdated approaches of just sharing folders and documents or posting links to files within a portal. Oracle’s offering is well integrated and now with collaboration being the second most important innovation priority in organizations, there is opportunity for Oracle if it can move forward faster with what I believe now is a good business and social collaboration software offering.
As Oracle’s opportunity grows with its range of new applications and tools for big data and business analytics, its challenges lie in marketing and presenting them to the business buyers who are leading a new wave of technology adoption; these people want to be spoken to in the language of business and time to value and will not be patient with technobabble. If Oracle can communicate with them, business buyers will find more than perhaps they expect in the Oracle portfolio of products and its ability to help them work better.
CEO & Chief Research Officer
April 26, 2013 in Business Analytics, Business Collaboration, Business Performance, Cloud Computing, Customer & Contact Center, Financial Performance, Information Management, IT Performance, Operational Performance, Sales Performance, Social Media, Supply Chain Performance, Workforce Performance | Tags: Accounting, Analytics, Big data, Budgeting, CFO, closing, cloud, Collaboration, FPM, GRC, Infor, mobile, Planning, Risk, SEC, spreadsheet | by Robert Kugel | Leave a comment
At this year’s Inforum user group conference, Infor representatives showed the progress the organization has made since last year in transforming itself from a ragbag of mostly small, often obsolete software companies to a competitive vendor of a modern enterprise management software suite. Infor was created by private equity investors employing a “rollup” strategy, aimed at combining smaller companies within an industry to form a single larger company that could achieve economies of scale and greater market presence. Others have tried this in the software industry in the past and encountered difficulty in making it work for two primary reasons. One is the technical challenge of achieving economies of scale in enterprise applications by turning a set of similar but separately developed software pieces into a single offering. Computer Associates achieved economies of scale through acquisition in the 1990s in the IT infrastructure software segment. But it did this largely by forcing customers of the various acquired companies to migrate to its single offering in the specific category. This is not a practical approach for business and finance enterprise applications because customers are willing to go off maintenance and eventually look for another vendor. The second difficulty is that newer or larger competitors can focus on innovation and overtake the rollup company while its attention and resources are focused on stitching the pieces together.
Infor has addressed the economies-of-scale issue with its loosely coupled, XML-based ION middleware. Introduced in 2011, ION is an elegant method for integrating the data and process elements of the disparate pieces of Infor’s portfolio. (And of other software, too: Half of Infor’s customers use it to integrate with other vendors’ software.) ION has made it easier and less costly, for example, for Infor’s ERP customers to add its financial performance management software, according to our Value Index analysis. This cross-selling had been at the core of the company’s strategy from the start but needed a practical solution to make it work; ION supplied that.
Innovation is the other important issue that Infor needed to address. The numerous incremental technology advances that have taken place over the past decade, combined with the rise of the “millennials” and the retirement of the Baby Boomers in the workforce, are driving fundamental changes in how people expect to work with software. This shift is a key part of my research agenda for this year.
Nothing says “modern” like the Cloud. Most observers now recognize that corporations will continue to pick and choose how they deploy software and data for quite some time. Our benchmark research into business technology innovation confirms that organizations have different preferences in how they deploy information technology, as the chart shows. In some cases, such as analytics, they prefer on-premises by a substantial margin, while the cloud rules for social media. Many companies that won’t dream of having their ERP and financial management systems in the cloud are long-time users of Salesforce.
Infor has made strides in addressing this situation. For example, Inforce is a native Force.com tool that connects Salesforce with Infor’s back-office applications. Inforce enables a company to automate management of, say, the full scope of a sales order process that begins as an opportunity in Salesforce and ends with posting all details of the completed transaction in the company’s ERP system. This structure eliminates the need to rekey data and enables controls such as credit limit approvals to be enforced. Similarly, Infor recently announced Sky Vault, an offering based on Amazon Web Services’ Redshift. Sky Vault is a cloud-based variation of Infor’s Business Vault, a dedicated repository for data generated by any transaction system (not just Infor’s). Business Vault offers users a way to immediately access a full range of company data for analysis and reporting. When it is formally launched in the second half of this year Sky Vault will provide a cloud-based repository that includes prebuilt, industry- and function-specific business analytics, reports and dashboards. Its purpose is to give users low-cost big data capabilities. Our research shows that corporations are increasingly looking at big data technologies to retain and analyze more corporate data, increase the speed of analysis of that data and make it more accurate.
Simply having a cloud-based offering or an approach to big data is less important than what you do with it. To that end Infor has focused on improving the efficiency with which people use its software (one metric being the number of clicks required to perform a process) as well as making “beautiful apps,” in what it is calling “the SoHo Experience” created by its internal creative design organization. The dull, cluttered and difficult-to-navigate interfaces of the past were the result of inexperience in design and constrained computing resources. Today, it’s important to apply basic concepts of industrial design and ergonomics to creating user interfaces. This goes beyond making old code bases pretty. Largely because of tablets and mobile computing platforms, people now work with multiple types of interfaces and use a wider range of methods and gestures to interact with their devices. Today’s software design must reflect these changes. Having a modern user experience also makes it easier for Infor to attract customers and deflect claims that it is selling warmed-over applications that it acquired, which would have been a competitive vulnerability had it taken a more conventional approach.
Enhanced business collaboration for every part of the organization increasingly is a key requirement for software, and Infor is at work here also. Its Ming.le social collaboration software provides the means to connect groups of people within a workforce to achieve faster communication and more effective interaction in the context of specific issues or processes supported by computing systems. Instant messaging evolved from teenagers passing electronic notes to their friends into an easier way for business people to connect faster than through phones and email. Similarly, social collaboration is now more than a Facebook metaphor and addresses a key drawback to instant messaging systems. Individuals have multiple roles and multiple networks of people with whom they interact. Some relationships are tight, but others are transient. Some may be focused on a general topic such as marketing and therefore include a large and possibly diffuse group, while others such as performing reconciliations in the financial close process have a defined and controlled set of members. Well-designed social collaboration software can manage all of these types of interactions and enable people to resolve issues faster and with less effort than other means of communication.
As well, Infor has been building out mobility applications for extending functionality to people and functions that aren’t confined to a desk, such as a shop-floor tablet application, proof of delivery, requisitions and field service, to name a few. Mobility is rapidly becoming a table-stakes capability expected by software customers.
Integration and innovation support Infor’s core strength, which has been – and will continue to be – a customer base that values Infor’s highly specialized offerings. Infor’s “micro-vertical” strategy suits midsize companies (and midsize divisions of larger corporations) that have limited IT budgets yet want their specialized requirements addressed without having to pay a premium for customization and configuration. Many types of business adapt well to standard software, and all major ERP software companies have built industry-specific variations of their software offering over the past two decades. But milk and beer, for instance, remain two very different types of beverages with distinct requirements. Likewise steel service is a distinct form of distribution, and different types of industrial equipment dealers have specific requirements. Even Lawson’s S3 customers are focused in businesses such as government and healthcare that are people-intensive and therefore must manage the complexities associated with rapidly evolving workforce relationships.
Addressing micro-vertical specific requirements in business analytics, planning and control software will enable Infor to continue increasing its penetration of these products into its installed base. For example, by deploying Infor’s financial management software, one longstanding ERP customer I spoke with was able to shave half a day from its accounting close in part because it was able to automate more and eliminate 300 spreadsheets that were used in the process. Rather than have three people spend a half day each creating spreadsheet reports that were distributed to individuals by email, reports are generated automatically and individuals can retrieve them from a central repository. In addition, the company controller is now able to complete the management accounting narratives half a day earlier, making critical information available sooner than before. All of this is consistent with our research that demonstrates the value of automation in accelerating the financial close process, as shown in the chart. Across its range of micro-verticals Infor offers off-the-rack basic dashboards and reports tailored to the businesses requirements of its customers. Another example of cross-sell potential is its Approva continuous monitoring software, which can be especially useful for government, education and nonprofits. Unlike most businesses that pay expenses from a common pot, almost all of these entities must use funds-based accounting, so it’s necessary to keep tabs on these individual funds’ balances for specific programs, departments and so on to avoid overspending.
None of what Infor has added over the past two years is groundbreaking technology or a revolutionary approach to enterprise computing compared to what’s available in the broader marketplace. On the other hand, it doesn’t have to be. The changes it has made offer existing customers substantial advantages for sustaining and even expanding Infor’s footprint in their organization. From the perspective of private equity investors and bondholders, this has been and continues to be the most critical aspect of the company’s business strategy. Without it, their investment in Infor would be doomed. And in this respect current leadership has succeeded where the previous management group did not. All of the steps in modernizing and upgrading the products have been achieved at a critical time. The prices paid for software companies in the consolidation of the past decade were based on the assumption of a long stream of annual maintenance payments. However, new technology and a new generation of buyers with more demanding requirements put those dependable maintenance streams in peril. Vendors can no longer assume that they will sustain their current share of wallet without adding functionality and capabilities as well as eliminating ancillary ownership costs (for example, by reducing customization and implementation costs).
The company’s senior executives appeared much more at ease this year than in the past, which might be an indicator that business is improving. But it’s hard to know for certain because Infor is a closely held corporation and is not required to routinely disclose its financial statements. Presenters declined to answer specific questions about the financial performance this year. However, Infor filed its fiscal 2012 financials with the U.S. Securities and Exchange Commission (SEC) as a result of an exchange offer for its debt last year. The company data relates to its fiscal 2012, which ended that May 31, so the information is now almost a year old. The S-4 filing shows the company had revenues of $2.5 billion, a 35% increase over the prior year. This reflected increased demand for software generally but also renewed confidence in the company’s future as well as the Lawson Software acquisition, without which the top line would have been up 24%. Infor’s income statement had been holding its own under the weight of heavy interest expense related to debt taken on to fund acquisitions and a substantial investment in R&D. In fiscal 2012 it lost money on a reported basis but was slightly above break-even when noncash and nonrecurring items are excluded, as well as solidly profitable before interest expense. The numbers also illustrate the substantial investment Infor has made in R&D, which rose by $115 million to $322 million, representing 13% of revenues, up from 11% in the previous two years. For Infor to go public, the company would have to demonstrate ongoing organic revenue growth and prospects for more in the future. One reason for going public would be to retire the company’s high-cost debt, which would allow more spending on sales and marketing focused on gaining new customers.
Infor appears to have come a long way toward achieving the objective of making a very challenging enterprise software rollup work. The first, relatively easy step was buying a set of unsustainably small software companies at reasonable prices. The more recent, much more difficult step has been to make the technology and product design investments needed to transform solid but stodgy intellectual property into a modern software suite. I’ve been describing Infor as “the largest software company you never heard of,” but I expect that won’t be true much longer.
Robert Kugel – SVP Research