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SAP - Talent Acquisitions

                                         SAP's HR Plans

According to a piece in eWeek (www.eweek.com March 17, 2008, "SAP Looks to Add Talent"), SAP has made the acquisition and development of talent a major priority. Specifically, the company intends to:

• acquire talent via its software acquisitions (e.g., Business Objects)
• develop skills in existing employees in new areas like SaaS technology
• deepen its mid-market expertise
• help employees engage on a global level

The last two items are interesting ones. Mid-market expertise is something I've learned is easier experienced than taught. I spent 18 years serving global 1000 firms but my knowledge of the mid-market took a complete re-focus and continues to grow. The mid-market buyer is not like the buyers identified in Geoffrey Moore's "Crossing the Chasm". More often than not, these are 'break/fix' buyers of technology. Their needs are significant and their budgets meager. They are dissatisfied with the support and cost of service firms. Service firms that cater to huge clients are dismissive of mid-market firms. Service firms that cater to small businesses are underpowered and over their heads trying to serve mid-market companies.

I'm currently helping a client become more globally aware and competitive. It's an arduous process. Many firms don't possess cosmopolitan personnel and work hard to prevent these persons from interacting with others around the world except electronically. You can't begin to understand how to do business in new markets unless you visit those places and meet the players in person. I can tell you what it's like to do business in dozens of countries around the world; however, anything I tell you or ask you to read is insufficient for transferring the knowledge you really need. There is no substitute for being there.

Talent acquisition and talent development are critical competencies and SAP is wise to focus on them. The war for talent, especially in services and technology, is acute and not easy. It takes a concentrated and sustained effort to win. Good luck, SAP.

10 Mgmt Rules for SaaS Firms

Metrics That Analysts and Stock Buyers Should Use in Evaluating SaaS Firms

I found Byron Deeter's "Top 10 Laws for Being SaaS-Y" to be one of the best blog posts of the month. http://www.sandhill.com/opinion/editorial.php?id=176&page=1 Byron is with Bessemer Venture Partners and his posting reflects the knowledge Bessemer acquired in reviewing scores of SaaS companies.

An Excellent post!

Sourcing: Sustainability or Durability?

Sustainable Technology?

This weekend, I had some help cleaning up the office.  In the course of that effort, we discovered a Dell laptop with all of its accessories still in the box.  This device can't have more than 15 hours of usage on it; however, because it is an older machine with Windows ME as the operating system and an insufficient hard drive, it is hopelessly obsolete.  This is a shame as it’s actually a fantastic system but in today’s marketplace it has zero value.

We also found a Fujitsu laptop that is even older and less capable of being upgraded.  There's also a Sony VAIO laptop with Windows 98 SE on it.  This machine is probably eight years old but it does a phenomenal job of supporting multimedia tasks but, alas, it is no longer current.

Holding the floor down, I have an E-Machine desktop unit with a fried motherboard.  I've been slowly cannibalizing parts from this device and will continue to do so for some time.

Lastly, we emptied out five boxes of miscellaneous cell phones and cell phone accessories (to paraphrase Hank Hill).  Some of those date back to two cell phone generations. I've retained them because I sometimes need them when my current phone drops and breaks.

The cell phones are an interesting technology because my older Nokia cell phones took incredible abuse over the years.  Sure, some of those older Nokia's weren’t very attractive (I still have one with a monochrome screen) and yet they still work just fine today.  With the Nokia's, all I needed to do was move the SIM card from one phone to the next and I was done.  Earlier generation Nokia phones required me to visit the cell phone store and switch the ESN number whenever I needed to change devices.  However, for the most part, the Nokia devices and their accessories were long-lasting with a high degree of interchangeable parts.

Today's cell phones are far from that.  The phones my son and daughter possess rarely make it through the first 30 days without some material break or failure.  They aren't made to be durable or to last.  Just like our laptops and desktop computers, failure and/or planned obsolescence is running at an ever more rapid clip.  The throwaway nature of technology is clearly running counter to the concepts of sustainability and corporate social responsibility.

Yes, I'm aware that computer hardware manufacturers are getting more aggressive in recycling their own products; however, before we applaud their recycling efforts we should ask what they are doing to extend the lives of the products they sell in the first place.

Let's go back to those laptops I discussed at the beginning of this post.  These devices are obsolete because Microsoft no longer supports security patches for the operating systems found on each.  To complicate matters, the minimum memory and hard drive storage requirements that newer operating systems like XP require are well beyond the disk/memory capacity or capabilities of these machines. I have offered these devices to many people who might have uses for them only to find that they want to immediately connect them to the Internet.  To do so would be almost irresponsible in this day and age knowing that these devices cannot be protected from hackers and other malcontents.

The first and most important step in improving the sustainability of technology is to develop technology that:

• can be upgraded easily
• is durable
• is supported for 10 years not 10 months

I don't want the technology I use contributing to the toxicity of other lands and people.  Nor, I do not I do not want my technology purchases filling up landfills needlessly and quickly.

Oh, check this out, I just found a bunch of old AOL installation CDs.  I wonder how I can recycle these?

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(If you ever get a sick iPod were soon be sure to check out www.rapidrepair.com . It could save you some serious coin and save the environment from other piece of technology headed for the landfill.)

Changing of the Guard

                 Burgum to Leave Microsoft

The Rumor Central column in eWeek (www.eweek.com, 9/18/2006) reported that Doug Burgum is leaving Microsoft (MSFT). Specifically, it reported:

"The crony also noted that Doug Burgum, who heads Microsoft's Business Solutions division, will leave the company in June 2007. Burgum was the founder of Great Plains Software, which was assimilated by the Redmondians back in 2001. Burgum, who claims to have no current plans after his departure, will be replaced by Satya Nadella, a corporate VP already with the Business Solutions group."

Over the last few years, I've heard rumors of Doug's imminent departure several times. This one may be right.

This part of Microsoft's empire has not impressed me over the last several years. They acquired several of Great Plains competitors and have attempted to integrate many of these applications into a new product line.

Great Plains had two legacy product lines with one of these being exceptionally robust. That product line would have been great for a company with a strong sales and marketing channel for mid-market firms. I always thought that asset was one of the most under utilized assets MSFT has.

Good luck with the retirement, Doug.

Bad Behavior in Tech World

         People I Don’t Want to Be

Lately, there have been several people in the world of tech that I wouldn’t want to be. 

   

For example:

 

The US Department of Justice has gone after 10 firms for backdating stock options. Five CFOs have lost their jobs over scandals related to this. (see www.CFO.com, July 2006, "Backdaters Get Clocked"). Companies mentioned in the article include: Comverse Technology, Mercury Interactive, Power Integration and Vitesse Semiconductor.

 

The Chicago Tribune dug further and reported a significant story on Comverse in its 8/10/2006 issue ("3 From Comverse accused of Backdating", Business section). That story detailed how the CEO and two former executives were criminally charged with stock-option manipulation. Back dating options for economic gain was apparently the impetus behind these charges. The article also indicates that 90 companies are being investigated including Apple Computer. The Tribune also reports that the FBI (US Federal Bureau of Investigation) is investigating 45 cases of back dating.

   

CFO magazine, in August 2006, continues to follows CA and its GAAP issues and executive departures. (See "Sins of Commission", www.cfo.com). The gist of CA's latest financial woes apparently involve the consequences of new sales commission plan.

 

The "Notes from the Field" gossip column in InfoWorld (see www.infoworld.com) always has a few nuggets in it. In the 7/31/2006 column, Cringely writes that Brocade Communications' CEO and HR executive could each do 20 years of prison time for their part in back dating options. He also indicates that Apple Computer, Intuit, McAfee and Juniper Networks could also get slammed.

 

Finally, in the "Notes from the Field" column of 7/24/2006, Cringeley writes about how the Dept. of Justice is trying to get a former Peregrine Systems VP extradited for cooking the books.

All of these stories indicate that greed is alive and well in tech. So, are government regulators. I can understand how executives could get talked into these backdating deals as I met a lot of pushy tech executive job applicants in my time. I had a couple of them question me as to why their options would not be priced at the rate of current employees and they had to wait until the board set a new price. I can remember having several pricing discussions with the board, too. However, anyone who was that greedy  and unethical to insist on this unearned benefit didn't get an offer from me. As for cooking the books, that's been going on since Pacciolli and still as wrong today as it was back then.        

Note: I'll be cross-posting this on a UK colleague's blog site www.kiteblue.net/jyoti . Jyoti's U.K. based and an avid watcher of the software and mid-market spaces. While the issues above are mostly limited to the U.S. for now, the problem of greed is universal.

Options & Compensation

                Sins of the Past Are Coming Forward

Story:

I saw a piece on the Bloomberg News wire this weekend (Options Probe Could Haunt Silicon Valley)detailing how unsettling a SEC investigation into stock options may become for tech firms.

What really got my attention was the tale of one VP hire of a tech firm. His employment package included:

- $240,000 salary

- $1,000,000 relocation bonus

- options to buy 200,000 shares

This VP was offered the job in January of 2000 and came on board in April. His options, though, were back-dated to early January at a price that made his options worth more than double by the time he started work. Amazingly, those shares were now worth $19 million.

Now, 29 firms are being investigated for option accounting and grant issues.

Analysis:

I remember all sorts of interesting demands being made by job seekers in the wild and crazy tech boom. I had a Marketing exec who expected 4% of the outstanding stock. I had a prima donna corporate attorney who brought in her own perk list to the interview. I had many people ask for home office equipment (and were reasonable about it) and many others who wanted us to furnish them with exquisite offices away from their homes.

Stock option greed was rampant back then and too few companies had a plan for how to dole it out effectively. This SEC review will likely expose a number of bad option grants made at a strange, heady time in tech. Thankfully, the foolishness and hubris of those times is over. I doubt few deals today approach anything like the one described above (If there are some out there, where can I send my resume?!).

The SEC investigations will make great reading but will likely fail to produce big changes in tech companies today. Why? No one's offering absurd options deals anymore.

Just recently, I was involved in the capital financing behind a high tech metals plant. I had a whale of a time explaining these facts of life to some of the parties involved:

- option equity must be earned. It isn't given outright. Even if you possess unique skills or knowledge, your equity will be pro-rated over time. Why? Should something happen to you, the remaining unearned stock would be used to attract your replacement.

- option equity is a type of compensation and can be substituted for salary and bonus in some situations. However, asking for a top market salary, a huge commission and a big options grant while taking no equity risk yourself is just plain greedy. In 1999, I met a lot of very greedy tech sales people.

- not everyone gets options. Sure, companies can choose to give everyone a little taste of equity, but the bigger pieces go to those who really make a difference and take the most risk. If you're getting paid a great salary and can get some nice bonus pay and promotion opportunities, you'll likely get a low options grant.

- option accounting is time consuming and expensive. There will often be RSPA (restricted stock purchase agreement) and ISO arrangements. These will often apply to the common stock (Not the preferred stock that investors get). Attorneys often maintain copies of all completed agreements and this adds to the cost.

- options agreements are generally not negotiable. Sure, an employment candidate can haggle for more options or see if the vesting term can be accelerated but the general terms involved in the grant are not open for discussion. What few seem to realize is that the board, not a management or HR executive, establishes a pool of stock that is eligible for option grants. Smart firms then allocate that amount by functional area and title within each area. Your job position may only warrant a few shares and that amount was established long before you were being considered.

- newer employees get fewer options than founding employees. The founders took more personal risk in launching a company with no sales, no prospects and no capital. If you are the 1000th employee, chances are you're not assuming much risk.

- employees may want to vigorously argue/negotiate the accelerated vesting provisions but the employer isn't really in a position to do much here. If they permit any material change of control to trigger full vesting, few employees would stick around after an acquisition. Acquirors kind of hate when that happens. Employees should expect the new owner to offer sweeteners to encourage the retention of desirable folks or offer a package to those who will be leaving.

Divorcing Vendors

                              Divorcing Vendors - An Eventuality

The Story:

InfoWorld had an interesting piece titled "How to Divorce Your Vendor" in the 5/1/2006 issue (www.infoworld.com).

Analysis:

This subject gets almost no coverage by the tech press, research analysts and even firms who make a living connecting buyers to sellers of software. That's a real shame as almost every company must divorce itself from consultants and vendors frequently.

The reasons for this kind of divorce vary although some of these include:

- software vendor has failed to innovate the product

- the customer no longer needs or values the installed solution

- the vendor is too distracted by its own internal issues (e.g., post-merger product integration) and is ignoring the customers it still has

- the vendor is moving its product line in a direction that is incompatible with the customer's stated direction

- etc.

Historically, large firms have de-installed major ERP applications once every 10 years. Desktop applications are only replaced when machines are replaced but this occurs usually every 3-5 years (more frequently if you're tough on your PC like I am).

Software vendors are still in the nascent stages of understanding how to nuture, retain and cultivate their install base for maximum retention. The need for better understanding of this customer behavior should be a higher priority for many application software firms as alternative software solutions (e.g., open source, SaaS, hosted or BPO) are becoming available and starting to reach critical mass with some buyer groups.

For all application vendors, the question should be "How many customers will serve us with divorce papers? Can't we try counseling first?"

Comments?