Oracle launches sourcing software on demand: Why market adaptability may ultimately derail the transition (Part 2)

Posted on April 14, 2009

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“Recognizing that adoption or end-user compliance is one of the main barriers to a successful program, the ability for project champions to leverage user comfort with known applications such as Excel to access certain functions within the SAP architecture could stimulate stakeholder buy-in, at least internally.

By promoting the utilization of SAP through a familiar, easy-to-use interface, the overall level of possible resistance may diminish to the point of making the SAP PPS offering more viable.

The key of course will be the degree of dynamic connectivity that Duet offers between the MS software and the SAP application relative to an organization’s procurement practice. Given that one of the many benefits of Duet being advocated by Microsoft and SAP is the purported short implementation time lines and lower corresponding costs, means further investigation would seem warranted.”

From the Procurement Insights “SAP Procurement for Public Sector” White Paper

In this second of our two part review of the April 9 announcement by Oracle that they are now going to offer their Strategic Sourcing and Sourcing Optimization applications on a Software as a Service (SaaS) or on-demand basis, I will focus on the more technical elements of their decision. Specifically, the potentially devastating “weak links” within their current offering that may create an unbridgeable chasm to market acceptance.

Do not get me wrong, what I am referring to is not an issue of technological expertise as I am certain that traditional ERP-centric vendors like Oracle or SAP have relatively deep talent pools in this area. What I am talking about centers more on the issue of market or end-user adaptability. An issue that cannot be overcome by the “re-working” of a cost model.

In fact user resistance has represented what has become one of the insurmountable barriers to the acceptance of traditional ERP-centric solutions at the operational “real-world” level. This in turn has subsequently contributed significantly to the high degree of failed initiatives.

Gleicher’s Formula and the Mendocino Objective

In my soon to be published white paper “Utilizing an Intelligent Filtering Platform to Enhance Contract Performance,” I make reference to Gleicher’s Formula. Specifically, and citing various sources, Gleicher’s formula “illustrates that the combination of organizational dissatisfaction, vision for the future and the possibility of immediate, tactical action must be stronger than the resistance within the organization in order for meaningful changes to occur.” I go on to state that “a resistance to change is often referred to as the cost of change,” which is then “subdivided into the economic cost of change (monetary cost) and the psychological cost of change.” My review found that even if “the monetary cost of change is low, the change will still not occur should the psychological resistance of employees be at a high level and vice versa.”

Perhaps recognizing the validity of the principles behind Gleicher’s formula, coupled with the desire to “spare workers” from the “redundant entry of data” while simultaneously keeping “the companies’ systems in sync,” the collaborative effort that was originally launched as the Mendocino Project in 2005 fueled the “partnership” between Microsoft and SAP after the former’s efforts to acquire the German-based ERP giant a year earlier had failed. (Note: Microsoft made a second attempt to acquire SAP in 2007, a story that I covered in the December 5, 2007 Procurement Insights post titled “Microsoft Acquires SAP? (A Commentary).”

By the time the project’s name was changed to the present day “Duet” moniker, the objective of the collaborative effort was further clarified in a February 14, 2007 article which stated that “the solution addresses the inefficiencies and inconsistencies inherent in the gap between desktop productivity tools and enterprise business applications.” The driving force behind achieving this objective was based on “the pressing need to connect information workers with enterprise processes in the context of their standard work environment.” In this case, the “Microsoft Office System.”

If you read between the lines, what Duet represents is an acknowledgment by SAP that a chasm exists between the core ERP application and the effectiveness of their indigenous user interface. A problem that also exists for Oracle as well as any traditional ERP-centric solution provider.

Duet therefore represents the effort to address the “pressing need” to create an interface that reflects the way in which the end-user operates in the real-world. Unfortunately, the key tenets or principles behind the application development model of traditional ERP solutions are not conducive to a SaaS or on-demand world.

As a result, and similar to Service Oriented Architectures such as Oracle’s Project Fusion or SAP’s Safe Passage, Duet faces challenges in terms of being confined to an antiquated platform that reflects an equation-based versus agent-based development model.

Equation-based versus Agent-based

In my 2005 white paper titled Acres of Diamonds: The Value of Effectively Managing Low-Dollar, High Transactional Volume Spend, I made the following observation; “A true centralization of procurement objectives requires a decentralized architecture that is based on the real-world operating attributes of all transactional stakeholders . . . in other words, your organization gains control of it’s spend environment by relinquishing centralized functional control in favor of operational efficiencies originating on the front lines. This is the cornerstone of agent-based modeling.”

The above referenced conclusion was the result of extensive research (part of which was funded by the Government of Canada’s Scientific Research and Experimental Development Program), in which an agent-based model was utilized to develop a solution framework that would effectively operate within a Metaprise architecture.

In the January 26, 2009 post I explained that a Metaprise or centralized private hub is the “intelligent conduit that connects and manages the seemingly disparate relationship between various internal and external stakeholders on a real-time, real-world (re on-demand) basis to achieve the desired collective “best value” outcome at that particular point in time.”

I stressed the fact that “solutions that are developed in accordance with an agent-based methodology,” otherwise referred to as meta-enterprise applications, “deliver an on-demand capability that provides the purchaser with the needed insight to consistently make the best spend decisions possible.”

Unlike the equation-based models or platforms upon which traditional, ERP-centric applications have been built, on-demand solutions represent the future of eProcurement/supply chain application development.”

This is a critical distinction in that it highlights just how daunting a task traditional ERP vendors such as Oracle and SAP face in terms of being able to effectively compete with the original on-demand solution providers, whose applications have been developed using an agent-based model.

And while Microsoft continues to dabble on the periphery of becoming a new age ERP player through overt efforts to acquire an SAP, or as a partner in Duet-type projects, the jury is still out on whether they will be able to effectively leverage their application ubiquity in terms of end-user comfort and acceptance to emerge as a dominant “front line” vendor.

The Oracle View

What does this all mean relative to Oracle’s on-demand announcement?

It means that undertakings such as Project Fusion, Duet-type partnerships, or acquisitions of companies within the current on-demand world represents a patchwork approach to a rapidly evolving market. A market with which the company is becoming increasingly out of sync.

How Oracle’s senior management respond to these seminal shifts will ultimately determine the company’s mid to long-range future. In short, they are going to earn their paychecks over the next few months.

That said they should keep in mind the recent turn of events within the automotive industry. After all, who in their right mind 10 or 15 years ago would have predicted GM being on the verge of bankruptcy today. Or Kodak’s fall from the ranks of elite enterprise because of their unwillingness to fully embrace digital technology – even though they held the early leadership in terms of research and product development.

Perhaps Larry Ellison should ponder Caesar’s Rome in the context of the fact that empires never last forever.

Whatever the outcome, we do indeed live in interesting times.

If you have an opinion on Oracle’s move to an on-demand model take the Procurement Insights/PI Window on Business Poll on LinkedIn (http://polls.linkedin.com/p/32288/crizn).

In the meantime, please join me on the PI Window on Business Blog Talk Radio Show this Thursday between 12:30 and 1:00 PM EDT, as I welcome guest Tim Minahan, Chief Marketing Officer for Ariba to discuss that company’s transformation into an On-Demand solution provider.


 

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