When Disruption Is Good
The year 2012 begins the big disruption, re-energizing the global economy, with its epicenter in enterprise software. All of the pieces and parts are in place, like a giant interstellar dust cloud slowly forming a star under the pressure of its own gravity. There is money available, the need for a massive IT swap-out, and the will to improve corporate competitiveness. These drivers will act as a very targeted and effective stimulus program. Let's look at the available facts.
It has been nearly a year since President Obama addressed the U.S. Chamber of Commerce and noted that U.S. corporations were sitting on $1.93 trillion in cash and other liquid assets. He was quoting a story in the Wall Street Journal, which appeared under the headline "Companies Cling to Cash." That number itself has not changed much, but what has changed is the realization that the economy, laboring under a credit crunch, is evolving toward more subscription services.
Subscriptions make it possible to continue doing business at a time when credit is tight and people and companies lack the necessary cash for big purchases. They are a form of vendor financing, and they are gaining popularity in all parts of the economy.
Subscriptions are the proverbial straw that breaks the camel's back. Aging and expensive ERP systems are not equipped to handle subscriptions and this fact, combined with high operating costs accumulated by systems well past their sell-by dates, signals the big disruption.
According to a ZDNet article by Larry Dignan, Peter Sondergaard, vice president of research for Gartner, said this past fall that the strategies of IBM, HP, Oracle, SAP, Microsoft, and Cisco—old standbys for enterprise tech buyers—should be viewed as "long-term risky." Going forward, Dignan continued, these vendors should be judged on how they embrace mobile, social, and cloud. Apple and Google will be disruptive enterprise vendors. You'll buy from all of them.
But the major ERP vendors—SAP, Oracle, Microsoft—all have invested heavily in light, efficient, and cost-effective cloud technologies that they are aggressively bringing to market. So have newer vendors who lack the baggage of conventional computing, including Workday, NetSuite, and Zuora, all of which offer solutions more in tune with the new and evolving marketplace.
But ERP is not the only place from which the disruption emanates. The social and mobile (and cloud) rumblings first felt in the front office are causing reverberations throughout organizations; smart companies are simultaneously trying to figure out how to become cloud-based, mobile, and social to meet the demands of global marketplaces.
The issue that all companies must begin dealing with this year is competitiveness. Recession strategies like commoditization and cost cutting have run their course. You can remain competitive by cutting prices and taking costs out of products through labor arbitrage, but that only goes so far. At some point, you can't make a profit, and that leads directly to increased innovation and entrepreneurship.
But innovation in the old paradigm would be difficult. We'll need to invest in the core systems of the next wave that will enable us to be competitive in a cost-conscious, credit-deprived, and socialized market—also one that is deeply mistrustful if the Occupy Wall Street movement is to be believed.
These changes will be massively disruptive. Corporations need to learn new approaches to their customers and, as in any market, some will succeed better than others. But all of the disruption will be a net good for the economy. No enterprise can afford to be left behind, and that will cause a stampede to find vendors and employees who can help with the transition. It will generate new jobs for people with new skills, like community managers and designers, and it will take several years.
When the great disruption is over, we will have a revived economy and more competitive companies. We will also be more closely knit as the simultaneous social revolution will leave us all better connected via our mobile devices.
It is starting.
Denis Pombriant, founder and managing principal of CRM market research firm and consultancy Beagle Research Group, has been writing about CRM since 2000 and was the first analyst to specialize in on-demand computing. His 2004 white paper, "The New Garage," laid the blueprint for cloud computing. He can be reached via email (denis@beagleresearch.com) or on Twitter (@denispombriant).