With growth as the dominant driver of valuation today, accelerating time to revenue has become the new business mantra. In addition to the fact that high-growth companies receive ultra-premium valuations, the velocity of business is accelerating. Business demands agility for competitive advantage. But enterprise applications are still, by and large, stuck in a 1990s paradigm.
Market opportunities appear and vanish, bequeathing profits on the fast and punishing the slow. Designed in less than a year, the iPod launched about nine months after the introduction of Apple’s iTunes. Late to market, the Microsoft Zune effectively did not participate in a $25+ billion market opportunity. Similarly, after dismissing the iPhone as a “toy,” BlackBerry saw its market share in North America plummet from nearly 50 percent in 2009 to less than one percent in 2014. Founded in 2009, the lightening growth of Uber awarded it a $40 billion valuation – which is higher than Deere & Company (founded 1837, 80th on Fortune 500), and about the same as Kimberly-Clark Corporation (founded 1872, 139th on Fortune 500).
Any business best-seller or b-school magazine today can be found exhorting the implications of speed, and the growing dichotomy between the rewards lavished on the speedy, and the paltry sums left for the laggards (see fig. 1).
Figure 1 – The gap between high velocity businesses and the mainstream is widening.
© 2015. MGI Research
In the quest for growth, companies today strive to deliver innovative products and services and are hell-bent on shrinking time to market. The good news is that technology is a massive enabler. The advent of essentially free and infinite compute capacity, storage and bandwidth – combined with new analytic tools (big data) and extremely low-cost networked sensors – is powering a business revolution. The Economist newspaper refers to this as the third industrial revolution. Others refer to this as the Digital Revolution.
Nomenclature aside, the panoply of digital tools available today is shrinking time to market radically. MGI Research estimates that by 2020, the majority of Fortune 500 companies will shrink their time to market by over 40 percent through the use of cloud computing, big data, 3-D printing and the like.
The push for faster growth and innovation places a spotlight on areas of the business like marketing and R&D. Unlike the 1990s when the mantra was to re-engineer the corporation and drive innovation through process and systems change, surprisingly little attention has been paid to rethinking core processes and systems.
Most companies today view their financials systems and their quote-to-cash process as the bedrock of their business. For many, their systems haven’t changed much, if at all, for 10-20 years. It’s hard to imagine having to use a Palm Pilot or 1990s mobile phone as a business tool in the app-oriented, always-on fast pace of today; but that’s exactly the vintage of enterprise processes and applications that many organizations are currently using!
The world of enterprise applications is still, by and large, stuck in a 1990s paradigm. Enterprise Resource Planning (ERP), a concept created in the early 1990s, is still used today – even though its sell-by date is long past. Once crisply defined, ERP commonly refers to any business software application, regardless of industry, functionality or supported business process. It has lost its meaning.
In addition to relying on an outdated concept, most enterprise software users, vendors and analysts are locked into a feature/function paradigm and project schedule that doesn’t match business reality. Enterprise software projects that require an implementation time lasting more than a year are increasingly untenable given the velocity of the business cycle.
In personal productivity applications, the widespread adoption of Google Docs and mobile apps are proving that it’s not about total functionality; it’s about the amount of consumable functionality. The same is true in many areas of enterprise business applications.
Market disruptors drink from the potent cocktail of speed and innovation – and when selecting enterprise applications, they place greater emphasis on agility over total functionality. No longer is it about the Nth degree of functional depth. It’s about how quickly the system can be implemented and, once implemented, how efficiently the system can be changed to adapt to changes in the business.
At MGI Research, we have pioneered the concepts of agile billing and agile revenue management in the billing and finance areas. This notion of agility isn’t confined to billing and finance. It is applicable across most, if not all, areas of enterprise application software. While cloud-based applications are not automatically agile, many of the attributes associated with SaaS companies are agile.
Our research indicates that approximately 85 percent of all enterprise applications in place today are on-premises solutions (or hosted legacy solutions masquerading as “cloud” applications), and just 15 percent of enterprise applications are cloud native. Even fewer deliver true agility.
In addition to supporting growth and innovation, there is another primary driver for agile enterprise applications – business volatility. The energy sector has experienced wild gyrations in 2015. Just last week, global crude oil prices rebounded strongly after the largest weekly drop in U.S. oil rig count since 1987. Prices for benchmark Brent oil saw the biggest one-day gain (7.9 percent) since 2009. And yet, some are calling for prices to fall further to $40/barrel. Already oil giants like Royal Dutch Shell and ConocoPhillips have slashed billions from their CAPEX spending plans. This will ripple (tear) through the energy sector. Hopefully, exposed industry players will have the tools to react quickly.
Whether driven by growth or unexpected industry shocks, CFOs and business executives today need business processes and supporting tools that are up to the task. Given that business process changes deliver 12-36 months of competitive advantage, it’s time to challenge convention and determine the effectiveness of many core processes. Equally, it’s time to rethink enterprise applications from the ground up. Business demands agility. Enterprise software needs to deliver.
ReThink. The Billing Innovators Summit West 2015 will be held April 29 at the Julia Morgan Ballroom in San Francisco, Calif. This event features business case studies, CEO interviews, MGI 360 Ratings, and panel sessions with MGI Research analysts and recognized experts in billing, quote to cash, revenue recognition and pricing. SandHill.com is proud to be a media sponsor of the event.
Andrew Dailey is a managing director of MGI Research. He leads the enterprise applications and billing solutions coverage for MGI. He has over 20 years of diversified technology and financial services experience as a software executive, industry analyst (Gartner) and advisor to Fortune 500 companies. Follow him on Twitter.