As some of you know , after spending a few years in software industry , I am back in my old stomping grounds . The question I have been asked the most is whether anything has changed in the time I was away , and what I see as the future .
Plenty of things have changed and none of that surprised me . What has surprised me is the velocity of change – some things have changed way faster than I thought , while others have not moved an inch . Here are some observations and “predictions” for what they are worth. As always – all of this is strictly my personal opinion, and not that of my employer.
1. On premises ERP is mostly a maintenance business now
There are still some big projects , but not as much elephant hunting is left in SAP and Oracle lands for huge new projects . Customers are mostly sweating existing assets and some are moving to best of breed cloud . Plenty of maintenance work remain for integrators . Business opportunity is all in bringing new value out of existing investments . I haven’t yet seen any kind of mass exodus out of on Prem solutions to cloud in ERP space – just more of a cost containment play .
The few big ERP projects that remain are mostly on M&A deals where multiple systems get consolidated . A lot of customers seem to be in a holding pattern even for relatively less expensive upgrades .
SI community knew this was coming and were planning to change their business models all along . What has caught people by surprise is how soon this happened – probably in less than half the anticipated time
2. Plenty of custom build and SaaS work to go around
Many IT organizations have swung around from packaged solutions to custom built solutions . This will need significant retooling from SIs to adapt . I also see an interesting conflict happening between infrastructure software vendors and SIs in this field .
In newer technologies (especially opensource) , the consulting arms of software vendors have better skills than SIs. However when it comes to end to end work needed to make a production quality system , SIs have the upper hand . Rather than working together – I often see a battle for account control trumping the needs of the customer . Hopefully this changes quickly
The other kind of work that is seeing volume is SaaS implementations and associated integration work . These are significantly low in ASP compared to large ERP projects of old days. They also need a fresh new approach . SI world – barring few exceptions – hasn’t learned to do this at scale
3. Open source has arrived , but it is largely confusing
Compared to three or four years ago, enterprise customers are all generally happy to work with open source software in production . Skill gaps are getting addressed too to some degree. What is not getting addressed adequately is education on licensing . Vast majority of customers are confused – and I get confused too from time to time – when multiple open source and propreitory tools are needed to be licensed in same project . And there are still plenty of customers who think open source is free – both amongst customers and within SIs. One SI even has a “platform” built of community versions of several opensource systems that they claim to have put in production, even though there are no security features in many of its components .
4. Most customers and many SIs are not ready for “outcomes based” and “as a service” type projects
I am a big fan of “as a service” model . The current situation frustrates me to no end and a lot of inefficient cycles are spent both in Presales and post sales . With LOB buyers , outcomes based conversations are easy . That is because they do their daily business that way too with risk and reward based on performance . But when this conversation happens with IT and procurement , there is stiff resistance . A good majority of third party buyers agents are also stuck in the past on this topic . Even after they buy an “as a service” model , some customers get upset when they see a different person solving their problems each time even though all SLAs are met .
What is also hindering its adoption is a set of SIs who are not capable of offering “as a service” projects using significant FUD to keep customers in a time and materials mould .
5. The transition from one humongous project to several small ones is stressing out many SIs
Large SI businesses have traditionally been built on the idea that most of the revenue comes from a small set of large projects every year . This is shifting to the opposite end of the spectrum in a hurry . The disruption this causes to SIs is significant and many are not coping well with having to redo their org structures , pricing , methods and tools , recruiting and so on . Customer spend in aggregate remain more or less the same – just the mode is different .
6. Plenty of consolidation will happen in the SI world
Every large SI is buying smaller shops now, in SaaS and BigData spaces especially . And the valuation is pretty low – about 1 to 2X of annual revenue in most cases . This makes me believe that a lot of small companies will get bought out in the next year or so. I also expect larger SIs to more transparently engage freelancers in their projects in a big way in near future .
There is plenty of good news too . SI work is not boring anymore and we are able to hire some top talent . Cognitive /big data / IOT etc are all real now with actual products , and with live customer projects . We are now at a stage in the cycle where no two projects look the same – and that is good news for us consultants . There is never a boring day in my world off late .
And Vijay Says... 
Nice job with this Vijay and it is something that has been more disruptive in certain LOB so far such as HR, CRM and Analytics from my view. Having been in the SI “world” for going on 18 years I have see my share of “bloated” SAP HCM projects over the years but am seeing less and less of that in the SuccessFactors world and can imagine that trend is the same in other areas where there is a move to the cloud based technologies. That said customers were a big reason for some of these large projects (customization requests, no standardization, not enough skilled internal team members, customer IT and Biz not working together) and many of these can also be an issue in cloud based implementations as well.
I even recorded a short video on some of my experiences (shameless plug) 🙂
and Jon Reed wrote a good article on Luke and my experiences on making the transition.
http://diginomica.com/2015/04/17/hiring-an-hcm-saas-consultant-tactics-savvy-customer/
On a side note I found it interesting on the 1-2 times revenue acquisitions as like you I would expect to see more of that as time goes on.
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Vijay – interesting PoV on the SI market, and I agree with a lot of them.
There is a load of work in the custom build space and if it done right, using light adaptable frameworks then the TCO and ROI for customers is well worth the investment. Many vendors have done an amazing job of giving us the tools to do something amazing with. The customer and the SI have to think of this custom development as matching/supporting business processes and the associated lifespan with it.
I am constantly astounded by the lack of understanding about Open Source Software, it’s license implications in deployment and in customisation – we need to do better at this! To support that ecosystem and to protect our clients.
The Risk/Reward model is a great one, it levels the playing field between large companies and small ones in so many ways because it is outcome based. I feel a large reason for SIs resisting it is that with the increasing interoperability (or fragmentation) of the technology (infra/dev) stack along with a lack of delivery capability alignment with the sales team, they cannot guarantee their performance on Risk/Reward – something that does not play well in pipeline audits to senior management. Smaller players know their strengths and can cope with Risk/Reward better.
You know my feelings on large multi-year business transformation projects with heavy focus on technology – they don’t work, they have rarely delivered anywhere near the value projected for a variety of reasons. Although SIs still pimp them because they are consistent in revenue, change requests and provide stability for their consultants. With smaller projects, SIs have to change their org structure to allow for more consultant led sales as this is where most of these smaller leads now come from (within LoB structures), they have to move their consultants around more. For many years, I have frequently been on 2 projects at any one time – having to move between the client sites. I enjoy it many consultants would not.
There is a massive gap in the market for a great many skill sets, in areas like IoT, Big Data etc… this will give people great opportunities to carve out niches within large and small SIs – my only request of the larger SIs is to understand what you are buying. Your org structure needs to be able to cope with technical people who do not want to manage but who are worth a lot of money to you right now – you deal really well with those people who are technical and want to leave some of that behind to do pre-sales and manage teams. You are awful with people who don’t want to manage but want to be close to the projects, do some hands on and some pre-sales.
Sorry for such a long comment – Like you I have been thinking about this a lot since I came back into consulting as well.
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we have to brace for a hell of a ride – it will be fun 🙂
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very nice overview of what is happening ,Thanks for sharing vijay !
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glad you liked it Pradeep
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Hey Vijay, Interesting observations. What do you think is driving this move to Custom built solutions ? And are you seeing this in only particular verticals?
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Most customers have started valuing agility on their front office apps – these change all the time, and they are happy to trade off rock solid backends for a more flexible customer facing side. I see this a lot in financial services, media etc
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I concur, businesses no longer want to build something which they expect to be in place for 5+ years. They are designing apps and processes which are subject to change, as a result the size of the projects has decreased and the capability of the development frameworks for rapid development has increased. This has enabled customers to increase the number of development cycles possible in a period of time. With the decrease in size of the projects, it has led to lots of smaller projects which can be outside Procurement control and are really only visible to consulting led sales approaches – which plays to Vijay’s point about larger SIs and their pipelines.
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