And While You Wait? What?

March 31, 2010

A few days ago, I argued that a company that wants to replace its old, limping systems with a brand, spanking new Oracle or SAP application should probably wait for the next generation of apps.

The post got a lot of approving comments, which surprised me. I think there are pretty good arguments for just hauling off and buying. Consider what one of these hypothetical companies might say in defense of a decision to buy now rather than later.

1. We’ve got the money now and we should spend it.

2. The product we’ll get will be much more reliable.

3. The cost of services surrounding the product will be lower.

4. We don’t know when the new products will be out (with the possible exception of Workday 10).

5. We don’t know what will be in the new product.

Imagine what idiots we’d look like, the buyer might say, if we waited for five years for a product that was no better than what we could buy today and far more incomplete and buggy.

I see the force of this, which is why I thought it was a close call. Ultimately, I did decide it’s better to wait for markedly better products that are coming, despite the risks and delays. But I saw why people would disagree.

So are my commenters intemperate or am I dithering? One test for this is to look at the case of somebody who is not considering a replacement, but is considering a fairly big investment in the existing platform. Maybe they’re considering an upgrade, or maybe they’re considering some extension products, or maybe they want to push their existing installation out to other geographies.

This is a very realistic case. Several companies I know fairly well are considering one or more of these options. One is upgrading to Oracle 11i; another wants to upgrade to Infor LN. Still another wants to extend its QAD implementation to another geography. Still another wants to buy a CRM system from its existing vendor.

For each of these companies, the details matter a lot, but on reflection, I think the same argument applies. It will be hard to get the return on this big new investment in the old platform, because the useful life of what is to you a new product is not long enough to justify the expense.

This raises two questions. First, how does one calculate “useful life.” Most of the companies I’m thinking of believe that the useful life is defined only by how long they’re willing to use it, and for some companies, that’s pretty long. (There are, after all, big SAP clients who are still using R/2.) I think this is wrong, but I’m going to have to hold off explaining why till a later blog.

The second question is, “Assuming that the commenters and I are right, what kinds of investments should companies who have decided to wait actually make?” I have no determinate answers to this, but I think there are some guidelines.

Start with Gavin’s comment on the previous post. Gavin points out that some investments in the Oracle infrastructure and in new Fusion-based products will actually take you toward the next Oracle generation. He is quite right; Oracle designed things this way, and partly because of the problem that I’m describing, they quite deliberately created some ways of investing in products from Oracle without locking yourself into an older technology.

There are many, many caveats, of course. Among other things, if you have an Oracle system now, you might not want Oracle in the future. The three main products I mentioned in the earlier post (Workday, Business by Design, and Fusion Applications) are all highly differentiated, each with its own flaws and virtues. A rational person would do well to look at all of them before deciding to stick with the vendor they have now. (This applies to SAP customers, too.)

Even if you are bent on Oracle, you still may want to take some time thinking through your infrastructure stack before investing in pieces of it. Even the examples Gavin gives like OpenID, which are likely to be pretty good, may not be right in the long run, and if they aren’t, that will be a lot of trouble and expense gone to waste.

You should note that Gavin’s argument almost certainly will apply to SAP, as well. SAP is also workng on “hybrid” intermediate solutions, and I’ll bet you dollars to donuts that they’re trying to figure out every way they can to ease the migration to the new system by asking you to make steady, rational investments in products that extend your current capabilities.

But what about customers for whom an infrastructure or extension investment isn’t right? Here, I think there are some interesting arguments, akin to Gavin’s, for small, light cloud-based apps, point solutions designed to solve highly specific problems. I’m not just talking about a CRM app or a call-center app or a recruiting app; I’m talking about things that are very, very specific to your industry, but really powerful, things like Tradestone in the apparel industry.

Another possibility is to spend some time and effort cleaning up your existing installation. This will improve its current effectiveness, extend its useful life, and very possibly lower the cost of the new system significantly. (A lot of the cost of any implementation is cleaning up after the mess left by a system that everybody has given up on.)

There’s a very smart analyst in Europe, Helmuth Gümbel, who has spent a lot of time thinking about this problem. He has a blog, and he also has a conference, Sapience, which goes into these questions at length. If you’re thinking about extending your current ERP to other geographies, a reasonable alternative might be to find lower-cost ERP systems to serve those geographies.

The basic theme running through these latter approaches is that while you’re waiting, you can focus on saving some money and preparing your current installation, thereby making the later transition to a newer technology faster and more affordable.


One Response to “And While You Wait? What?”

  1. Thank you, David, for the nice mention. I am not even convinced that there will be a new generation as we knew it – it does not make a lot of sense to me to e.g. build pyramids using new technology. The influences from the Internet, social networks, Web3 and the much higher volatility of business approaches dictate different solutions. On the other hand, the tendency to replace functioning parts (e.g. General Ledger) has really gone down. I expect to see very heterogeneous installations (the suite was a dream anyway) and customers to organize process and data management seperately from their apps. The issue is to avoid repeating the dependencies of the past. Furthermore, I encourage users to invest into speculating about the residual lifetime of their apps in regular intervals. This exercise is highly educational: after a few iterations, you get a good feel about your roadmap and also about the required infrastructure. Do not talk to any salesperson before having gone through such an exercise.

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