Category Archives: rants

2020 Is Here. Will we ever Get 20/20 Vision into our Technology Providers?

AI. Virtual Reality. Augmented Intelligence. Big Data. Autonomous Software. The Futurists are in a prediction frenzy and throwing around these words not only like everyone understands them but every provider has them.

Very few providers actually have these technologies, but the sad reality is that very few providers aren’t claiming to have them. obviously, this is a problem. A big problem. Because the number of providers claiming to have these technologies and actually have them is only a small percentage — making it hard for anyone to see the big picture.

But we need to — and we need to see it clearly. Very clearly — because, as we have indicated many times, there is a lot more applied indirection out there than artificial intelligence. Similarly, it’s not really virtual reality unless its immersive, and while a lot of gamers might immerse all of their focus into their games, most are not truly immersive. It’s not augmented intelligence unless the application intelligently provides a recommendation, and associated process, that is at least as good as you would come up with and, preferably, as good as a human expert. It’s not even close to being Big Data unless the application is capable of processing and working with more data than can fit in memory on an average server. (Big Data is a moving target — what was big in 2000 is small today.) And it’s not autonomous unless the application is capable of doing processes that would normally take a human to do on its own with the exception of truly exceptional situations (as it should be able to handle most exceptions, especially if the exception was handled before).

The reality is that while software is going to get more automated, and usability is going to continue to improve, we’re not going to see real AI for a while. The “Big Data” that most applications will be capable of handling will continue to be limited to user machine / browser memory. Virtual Reality is a ways off. Augmented Reality will continue to advance, but primarily in gaming.

But depending on what you are looking for, you likely don’t need AI, don’t need “big data”, don’t need autonomous, and definitely don’t need virtual reality. You just need a system that allows you, with some simple RPA, to digitize paper processes, automate common processes, and improve productivity.

And it would be nice if we could get some real 20/20 vision into what vendors actually have and what you really need.

But that might still be a pipe dream.

Have You Solved Your Supply Chain Water Problem?

While energy production and availability is likely to be a problem in the decade to come, most experts believe that non-renewable energy production will peak between 2030 and 2035 and then trail off as hydro, wind, solar, geothermal and other renewable methods take over and begin to meet energy demands for decades to come.

However, the situation is not the same when it comes to demand for clean, drinkable, usable water. Global water demand is expected to increase from about 4,600 km3 per year to 6,000 lm3 per year. As a result, by 2050, the projection from the United Nations World Water Development Report is that nearly 6 Billion people will suffer form clean water scarcity by 2050. That’s almost 6/7ths of the current population. Think about that for a minute. BY 2050 ONLY 1 IN 7 PEOPLE WILL HAVE ENOUGH CLEAR, DRINKABLE, USABLE WATER FOR THEIR NEEDS.

Now think about this. WHAT IMPACT IS THAT GOING TO HAVE ON YOUR SUPPLY CHAIN? Regardless of your industry huge. There isn’t a single industry that doesn’t require water. Agriculture, Apparel, Electronics, Forestry, Manufacturing and so on all require huge amounts of water. And Apparel, for example wasn’t a typo – it takes 7,600 litres of water to make one pair of jeans. And Agriculture, Electronics, and Forestry all take considerably more water than you think. That cup of coffee you’re drinking now required 140 litres of water. The smart phone you might be reading this post on, 900 to 1,000 litres on average. And that quarter pound of bacon you’re eating, 526 litres of water.

And your workers need water too. And right now even first world countries are experiencing water issues. Thanks to aging (lead-based) infrastructure, there are a number of places in North America where the population (including school children) do not have clean drinking water. And thanks to drought and lack of infrastructure, water shortages are becoming more and more common. Just this year alone saw major problems in (Cape Town) South Africa and (Chennai) India.
In fact, the World Resources Institute (WRI) identifies seventeen (17) countries, and 1.7 billion people (or 1 in 5 people on the planet), as experiencing “extremely high” level of baseline water stress (as per this graphic from the WRI). (Most are in the Middle East or Asia, or Africa.) Moreover, another 27 countries are experiencing high baseline water stress and within a few years we could be seeing this list (and population base) double. Plus, while the US ranks well overall, the state of New Mexico has “extremely high” water stress (similar to the UAE that is 10th on the list) and projections are that within a few decades the southern Great Plains Southwest Rocky Mountain States, and California will also be under extremely high water stress. (And if you go five decades into the future, about half of the US.)

Without an immediate reduction in water use, improvements in wastewater recycling and reuse, and overall process efficiency across industry, water scarcity and stress will soon hit everyone, and every supply chain, hard and put entire companies, countries, and global supply chains at risk.

So, Have YOU Solved Your Supply Chain Water Problem?

One Reason Why PE-LED M&A May Be A Good Thing

M&A Mania seems to be at an all-time high! It’s crazy days and crazy nights.

But as per a classic post from 10 years ago, sometimes there’s something to be said for private equity …

and the ability to tell Wall Street to take a hike!

Ten years later, the situation described in a classic piece on the intersection of Wall Street and Private Equity with the Supply Chain from the Supply Chain Digest still exists. And sometimes, the situation is even worse.

To jog your memory:

… one large retailer had the opportunity recently to save an expected $50 million from a supply chain network redesign project, included shifting from a number of smaller distribution centers to larger ones. The project had a great ROI and the capital was available — but the company delayed the project just because of the potential for Wall Street to view the project as too risky operationally and financially …

There’s wanting a good return on assets and there’s pure stupidity. And sometimes, all VCs and Wall Street care about is pure stupidity! The best returns come from a long term outlook, not a current quarter outlook.

So PE inspired acquisitions and roll-ups might actually be a good thing. But of course, only time will tell.

Dear Vendor: Your Code is Ugly …

You heard me! Your code is ugly! Butt Ugly! And if it’s not, then your UI is ugly. And if it’s not, then your functionality is ugly. But trust me. Something is ugly … and uglier than that horrendously ugly sweater you are wearing with pride this holiday season.

So just accept it — and stop complaining every time a new analyst report comes out that doesn’t put you on top. Because, first of all, only one vendor can be on top … and that’s not going to be you. (And if it is you, it’s not going to be for long.) Regardless if it’s a pure quadrant, blended quadrant, wave or some other report, the rating system used is only going to put one vendor on top — which is the vendor with the most mature, complete, and fleshed-out platform against that rating system. Unless you picked that exact path, how could it be you? And if it is you, and you’re far ahead, it’s probably going to look like the rating system was specially designed to put you on top. (We all know the story of the One Million Dollar PO — you don’t want someone thinking that you paid for your rating, do you?)

The goal is to be in the top quadrant, wave, or other leader area, not to win!

So stop complaining every time you don’t come out on top and start learning instead. (Do you seriously think complaints are going to get you anywhere?) If the rating, or at least a considerable portion of it, is objective, then, for every factor your solution is scored on, there’s a specific criteria you can access and evaluate. Generally speaking, if the analyst firm is at least worth its weight in salt, there’s a good reason for that criteria. If you don’t meet it, why?

  • is it because you just haven’t had time to implement the functionality yet?
  • is it because you feel the functionality is too simple or advanced for the market?
  • is it because it’s an area that you don’t define as core to your solution offering?
  • is it because you don’t think it’s relevant to your customers?
  • etc.

You should have a good reason, and you should re-evaluate that reason if the analyst firm considers a specific piece of functionality to be moderately to highly relevant, because:

  • the analyst firm has a reason for including it
  • the analyst firm talks to considerably more vendor companies, that collectively have considerably more customers than you
  • the analyst firm talks to customers YOU DO NOT HAVE
  • the analyst firm has a more comprehensive read on the direction of the market

Now, you can’t win them all, can’t serve them all, and can’t do everything (and definitely can’t be best at everything), so you may want to make some conscientious decisions not to go down some paths and instead go down paths where you can win and serve the majority of the market niche, and that’s okay. But if you make enough of those decisions, you need to understand that the more you have to make, the more niche the map has to be for you to win. And that’s not a very big market.

Winning is not winning the map. Winning is surviving long enough to win the market. That means being ahead enough to win more deals than average, but not being so niche you start winning less or shrinking the market available to you.

Just When We Thought M&A Had Peaked … WorkDay Tries for the Win with Scout!

Now, while I thoroughly agree with the acquisition, as I quoted in Spend Matters’ initial coverage … because it does make perfect sense for Workday and for Scout … I have to admit that the valuation is incredible and the multiple almost non-sensical at first, second, and even tenth glance.

So let’s take a step back. One of the rules that investors follow is the rule of 40, which means that, in 5 years, the company revenue should be 5X what it is today. It might be a bit less, but if growth stays steady, revenue should at least be 3.5 to 4X what it is today, and that’s enough to justify a 7X investment as the investor should be able to “sell the company up the chain” to a bigger investor at 3X what they invest today. And if the deal is just right, maybe a 8X to 10X if there is a lot of cross-company application synergy with another company in the portfolio and they can quickly market and sell to a larger customer base than either company could on its own, but that’s about it. (And of course, assuming the revenue is focussed entirely on license/subscription fees and not services.)

But, as far as can be fathomed, Workday payed a 20X+ multiple for Scout, and that, on the surface, is usually beyond absurd. Even at aggressive growth, it will take Workday at least a decade to make their investment back if we follow the rule of 40. And a lot can change in the market in ten years. But it’s more than just an application and another market for Workday. It’s a strategic acquisition that will give Workday much more than a key component missing in its B2B wheelhouse. Why?

Whatever the reason the acquisition team came up with internally, Workday has to contend with the fact that not only was it’s suite lacking in S2P, and significantly lacking in upstream capability, but that in order to move upstream in the ERP world, and contend with the likes of Oracle and SAP (and fend off any efforts of SAP and Oracle to poach Workday’s customers as the customers grew and matured), Workday needed a good S2P offering, tightly integrated with their Finance and HR applications, and Workday needed one fast. Scout, with which they already have a few integrations with, fits the bill and has a track record, like Workday, of rapid development. It is Workday’s best shot at building and integration an 80% S2C solution for the mid-market quickly.

Also, Workday also has to contend with the fact that some of its earlier interfaces, while more modern than many of Oracle’s and SAP’s older interfaces, are not as modern as some of its newer applications and even some of its newer applications could use a facelift. And Scout has the interface customers like.

Finally, if the mid-market is moving towards a combined Procurement/Finance suite, Workday is going to need to have a true cloud-native S2P platform integrated sooner rather than later. (It’s not a party that Workday, with its ambitious growth plans, wants to miss.)

So while a deal like this would usually be absurd and one that any investment firm should run from as fast as they can, this was a very strategic acquisition investment for Workday and the sooner they got started on the S2P path, the better their chances of actually becoming a serious player both in the ERP market and the S2P market before it’s too late to make a difference.

(This is just a high level analysis. If you really want to understand all of the nuts and bolts behind a deal such as this, I recommend checking out the prophet‘s 4-part deep analysis over on Spend Matters Nexus [membership required]: Part I, Part II, Part III, and Part IV. In addition, the prophet and the maverick teamed up for a customer recommendation piece over on Pro [membership required]. Note that the prophet‘s views may not entirely correspond with the doctor‘s.)

However, the end result is that they’ve just taken the M&A mania up a notch, and now firms that don’t have a solid grip on the models, but want in on the action, will be making mad men bids and all hell is sure to break loose. So buckle up, the ride’s about to get rough!