Software's Undiscovered Frontier....
A couple of week's ago, I presented a keynote at the REA-25 conference. Another keynoter was Mark Nittler of Workday (www.workday.com) . Mark's software credentials are really strong as he's done time at Walker Interactive, PeopleSoft and a couple of other places. Like me, he's even got some Big 8 experience, too.
During a long break in the conference, Mark and I had the chance to discuss where the applications software market has to go. I'd already given a blistering talk on what was messed up with the space and had proffered some ideas on what must happen. A conversation with Mark always tunes up my thinking and this one was good.
I began the discussion by describing how application vendors have lost their way re: innovation and wealth creation. They no longer remember how to create something really new. Instead, we get marginal innovation. That is, we get new functions, features and capabilities built around the margins of the same old solutions we've always had. Worse, SOA solutions are just re-working the same stuff but allowing us to throw more bolt-on capabilities around the margins.
I also posited that current applications represent a way of thinking that is no longer relevant in IT. When ERP (and predecessor) solutions were originally created, hard disk storage was expensive, constrained and not very fast. Ditto for memory, processing speed, etc. Old systems were designed with crippling constraints in mind. Newer systems shouldn't.
Mark argued that application software today looks at a subset of business events. Those events almost always are accounting events or in support of an accounting event. We have system after system designed to capture data that has as some portion of its functionality a journal entry that's eventually headed to the big bad general ledger.
Many of the first applications were financial or payroll applications. Then, we saw MRP solutions but they weren't totally useful until someone made sure that all of those cost entries, variances, scrap data, etc. were re-formatted and sent to the general ledger. Even CRM solutions eventually feed data to general ledgers.
Luca Paciolli may have come up with the double-entry accounting system many hundreds of years ago, but can't we find something more expansive and more relevant to use to manage firms than this? Businesses have many constituents: regulators, board members, advisors, customers, etc. Do robust systems exist to satisfy their needs? No - not really.
Business people make all kinds of decisions based on econometric data, supplier health issues, interest rates, monetary actions, political upheaval, terrorist events, etc. Do any ERP products look at these events? Do they suggest course changes because of them? No, No, No!
In that moment I realized that Mark and I were discussing the real shortfall in application software innovation. Applications have been all about (accounting) transaction processing. So much so, that almost every screen in every application product out there is an input form waiting for someone to enter data. Yet, what businesses need are systems that advise their ever scarcer mid-management and other workers as to what they should input.
I'm not talking about drop-down lists. No, I mean can a Procurement system tell me:
- Whether we should even be sourcing from this country at all?
- What percentage of our spend should we allocate to this supplier, this country, this container port, this shipper, etc.? Why?
- What's the probability of our currency sinking relative to that of the supplier? Should we hedge, forward buy, etc.?
- Is inflation coming around the bend? Should we horde or cut back purchases?
- Is the Federal Reserve about to raise interest rates? Will the board want us to cut back expenditures to conserve capital?
Systems today don't help people make the decisions they struggle with before they enter data on a screen. That's where the innovation is flat-out missing.
If you don't believe me, tell me what CRM system out there would have helped an appliance maker have better luck selling me new kitchen equipment last winter? Did any maker know what I thought about the equipment that was already in my house? Did any maker know I was even in the market for new appliances? Did any maker bother to collect data at any time during the life of the old appliances? The answers were no, no, and no.
Businesses haven't had systems that help them understand constituents other than external auditors. The focus on software is so accounting driven that we've forgotten what people need to run companies well. Worse, we've forgotten how to innovate or how to really create something new in a land without artificial technical constraints.
I'll have a lot more to say on this soon. But for now know this:
- innovation in applications is tied to understanding new constituents
- innovation requires attention to external events (not just accounting events) and their impact on the firm
- ROI with software is attainable if vendors give up the TCO crutch and get with re-imagining new solutions that are value and wealth creating.