After a little more than a year on the sidelines, I’m pleased to share that McNee Associates will be much more active on a go-forward basis now that we’ve turned the corner into 2019 – as I am now beyond any constraints in regard to non-competes. I’m especially excited about re-engaging with friends and colleagues throughout our industry, as we are in the midst of so many important disruptive trends and emerging technologies, many of which are driving fantastic business innovation.
In addition to continuing to publish the blog (see topics / themes below), I’m delighted to share that McNee Associates will be providing a range of consulting services for clients. For technology providers, this will focus primarily around Market Strategy and Go-to-Market consulting services, as well as custom research programs that support both internal planning and strategy development, as well as external thought-leadership that can be used to drive business development / awareness with senior business and IT execs. For technology buyers, this will focus primarily around leadership workshops and technology strategy development.
I am excited about participating in a number of industry conferences, events and analyst briefings this year, across the target segments that I’ll be covering. First up is Salesforce’s Analyst Summit late next week in San Fran, to be followed by a number of additional events this Spring. If you are a provider who would like to invite me to your annual conference, or Analyst Summit – just reach out via email or phone (listed on Contact Us), or via LinkedIn.
As noted, I’ll be ramping up my blogging, with a plan to publish a couple of times per month, although we may invite some guest bloggers as well. My blogging will primarily focus on the continued evolution of enterprise applications and infrastructure, and how enterprise data is increasingly becoming a key weapon framing business strategy. This includes the range of emerging analytic tools and technologies that are reshaping how we engage with customers, plan and target new offerings, optimize operations as well as develop new monetization strategies.
Find below a slightly updated list of some of the key trends that I will be tracking and writing about (alpha order only):
Advanced Analytics / Data Science
Artificial Intelligence (AI)
Business and Technology Architecture
Business / IT Platforms
Business Model Evolution
CIO / CFO / CMO Spending
Cloud Analytics / Planning / Budgeting
Cloud ERP / Financials
Digital Strategy / Enablement / Transformation
Digital Marketing / Digital Customer Engagement
Driving Innovation / Innovation Management
Emerging Technology Trends
Future of Work
Next-Gen Technology-Enabled Products / Services
The New Finance
I very much look forward to the adventures ahead, and encourage everyone who visits the website to subscribe to the blog, and to join me in the coming weeks and months ahead as we explore the future of Business IT!
Sage Intacct: Acquisition On Track
Now more than a year post acquisition, Sage Intacct remains on a solid growth trajectory with accelerating product / technology investments and evolving distribution capabilities. Earlier in October, I had a chance to catch up with the leadership team in San Jose, CA, prior to their annual user and partner event just completed in Nashville.
Early on in the Analyst Day meeting, it became clear that virtually the entire leadership team has remained on board, and are committed to its future – and the Intacct “get-it-done” and people-centric culture has been maintained, with the business unit intentionally left alone for the first year. Having been involved in a number of acquisitions / mergers myself, maintaining a low attrition rate across the board is a sign that things are going well.
CEO Rob Reid emphasized that the business unit continues to achieve strong 30-40% top-line growth – with Sage corporate significantly investing in marketing and product management capabilities, and helping expand Sage Intacct’s VAR distribution channel internationally (especially in Europe). Given the $850 million (8.5X trailing 12 month) valuation associated with the acquisition just prior to its planned IPO – we estimate that the unit will likely reach a $130+ million run-rate before year-end, which is a real win for Sage.
While its AICPA channel remains important to its future, the business unit has increasingly targeted a range of micro-verticals (and channel partners) since the acquisition – including SaaS and Software firms, NFPs and Professional Services firms, with plans to expand into Financial Services, Healthcare, Hospitals and Wholesale Distribution.
This evolved go-to-market strategy is apparently working well, as seventy five percent of its new opportunities are now focused around the micro-verticals versus more traditional horizontal marketing campaigns. No doubt, leveraging Sage’s traditional partners has helped grow its VAR channel – however, it is also aggressively building new micro-vertical targeted relationships as well, as it attempts to evolve its Direct / VAR deal mix from 55% / 45% to 40% / 60% going forward.
While Sage Intacct made a number of new announcements at its annual Advantage 2018 conference in Nashville, TN last week (3,000+ attendees – up more than 50% from last year), the two big initiatives that I’d like to highlight are its launch of the new Sage Intacct Budgeting and Planning Solution, and its investments to embed a range of AI / ML capabilities into the product.
New SMB Budgeting / Planning Tool
While Sage Intacct continues to primarily target companies with 100-500 employees – the unit has a significant number of customers both above and below these thresholds. In fact, its new budgeting and planning offering is especially well suited for companies with 50-200 employees, a segment not very well served by the range of FP&A competitors in the marketplace (including Adaptive Insights, Host Analytics and others).
This past Spring, Sage Intacct acquired a small Tel Aviv-based software developer, Budgeta, that brought the initial version of the cloud-based financial planning and analysis application to market two years ago. Since its acquisition six months ago, Sage Intacct has been harmonizing the data models between its core Financial Management database and the acquired offering, as well as implementing “dimensions” (before launching at Advantage). Based on the demo that was provided during the Analyst Day, the product is clearly very easy to use, has bi-directional data synchronization with the core Sage Intacct data engine, and offers collaborative and what-if scenarios that make it very powerful. The offering is highly customizable, with the ability to add widgets, KPIs and dashboards.
We think this is a very smart line-extension for Sage Intacct. We anticipate rapid product adoption, well beyond the 30 or so accounts that participated in the BETA program – as this is a terrific cross-sell opportunity to expand the footprint into important market adjacencies that are under served (especially for small but complex orgs, with multiple departments outgrowing Excel). Sage Intacct believes that only 5-10 percent of its 12,000 customers have a planning tool. If it can sell even 10 percent of its customer base over the next two years, this would create a significant recurring revenue stream at $10-15K per customer per year. In fact, we would not be surprised to see the new FP&A solution potentially lead a product sale over time, with the ability to up-sell the core Sage Intacct accounting solution when the customer is ready. Everybody does budgeting and planning.
Finance 3.0 and AI
During the Analyst Day event, Sage Intacct emphasized that it believed we are entering a new era of Finance – what it is calling Finance 3.0. It framed Finance 1.0 as representing yesteryear’s focus on financial statements, compliance and the like, with Finance 2.0 helping CFOs move from GAAP accounting to a focus on real-time analytics. In its scenario, CFOs and their teams are increasingly freed up from repetitive tasks in Finance 3.0, to focus on strategic, future-focused issues, including evolving opportunities and threats.
As the chart highlights, at the heart of Finance 3.0 are three key aspirations: 1) eliminating the close; 2) continuous audit; and 3) predictive analytics. In this regard, Sage Intacct made a number of product announcements that begin to support its vision (e.g., Dynamic Allocations).
However, much of its investment going forward will focus on leveraging powerful (embedded / integrated) AI and Machine Learning (ML) capabilities to automate a number of routine financial tasks being performed today – where a huge chunk of staff time is devoted. In this regard, we wholeheartedly agree with Sage Intacct, as the Office of the CFO is especially ripe for the AI and Automation / bot revolution we are in the middle of.
Great examples of initiatives already underway include performing banking reconciliations, anomaly detection, continuous trend monitoring, and the like. While a number of other financial management players are likewise moving toward a “continuous accounting” or “continuous close” model (see Workday and Adaptive Insights: Summary Notes from Rising 18) – it is clear that Sage Intacct is right there with them for their SMB-targeted market segments.
Lastly, in regards to Predictive Analytics, Sage Intacct highlighted two key initiatives – a new interactive custom report writer and embedded financial analytics (coming in 2019). Importantly, Sage Intacct is now working more broadly with Sage corporate on a range of AI-based initiatives including cash flow forecasting, and real-time performance insights. Leveraging these core technology assets will be critically important to the business units success longer term.
Net / Net
I first started tracking Intacct more than 10 years ago. To see where they have journeyed is truly impressive. I walked away from the meeting firmly believing that the acquisition of Intacct by Sage is working – and will continue to work – so long as Sage continues to give the business unit some breathing room, and foster its people-centric “intrapreneural” culture.
The business unit has remained highly customer-focused – with Sage corporate investing for the future both in terms of enabling technologies (especially around AI), as well as innovative line-extensions such as its Budgeting and Planning solution. With no deflections thus far, Sage Intacct should be in for continued growth over the next 12-24 months. Stay tuned.
Workday and Adaptive Insights: Summary Notes from Rising 18
Earlier this month, I traveled west to the City of Lights (Las Vegas) to attend Workday Rising 2018. No doubt, we all missed CEO Aneel Bhusri’s charismatic presence. But the show went on without a hitch for the 10,000+ who attended. This blog post summarizes some of the broader key themes, but primarily focuses on the key takeaways relative to the acquisition and integration of Adaptive Insights.
Key Growth Themes
It is very clear that Workday is pumping on all cylinders right now – with multiple growth levers driving ever higher performance across all segments of Workday’s main marketing mantra of “Plan, Execute and Analyze.” On the Execute front, this includes continuing to grow its core HCM and Financial Management solutions domestically, as well as a major push to expand its international presence. With 95% retention rates, its 2,300+ customer base is fueling the expansion of a broad cross-sell strategy, with a major emphasis to further round out the “Planning” and “Analytics” segments (focused on below). Rounding out its announcements, Workday introduced what could be a significant initiative it is calling the “Skills Cloud”, as well as further investments its data-as-a-service and benchmarking offerings, its emerging set of Cloud Platform services (both native and on AWS) and future products – all of which will be additive like Lego blocks stacked on top of each other.
Throughout the event, company leaders emphasized the emergence of Workday as the “Predictive Machine.” As we have seen with other significant cloud apps players (see Salesforce 18: And the Beat Goes On), Workday is now several years into its journey to add a machine learning (ML) fabric into the core of its solutions / platform to bring a new level of intelligence and predictive power for its users.
Workday’s Leighanne Levensaler shared in her opening keynote remarks that Workday is “taking a very pragmatic approach to making predictions” – at the same time that developing predictive models in HR and Finance are “more difficult than we initially thought.” This has driven a new hiring profile for the firm that emphasizes next-gen skills, and a better pairing of its growing army of data scientists with subject-matter (business) experts to make sure that they are targeting and solving the right problems. The net of it is that the new ML / predictive layer is clearly becoming table stakes for virtually all major Cloud apps players going forward – which will no doubt only increase customer value and customer stickiness.
First, and foremost, it was clear from the get-go that Workday wanted to calm any fears that Adaptive Insight’s existing customers may have – as it repeatedly emphasized that the product line would not be re-platformed, and Adaptive Insights would be managed as a totally separate business unit that leverages a common Workday back-office. The Adaptive Insights product and marketing teams stay intact, which will operate under the Adaptive Insights brand.
The BU is getting beefed up immediately, as the entire Workday Planning team heads over there. Best of breed capabilities and next-gen technology initiatives will be shared (both directions). It is clear that Adaptive Insights will remain a very viable, strong and independent offering for its 4,000+ customers which should help minimize deflections from its large customer base (including NetSuite customers).
As noted, Workday has multiple routes to market with Adaptive. Cross-selling Workday’s HCM and Financial Management solutions into Adaptive Insights upper-mid and large enterprise customer base should yield some quick and sustainable wins. In fact, almost half within Workday’s upper-mid and large-enterprise target zone (1,900 of 4,000) – and only 326 have Workday. While Workday’s direct sales force will focus on these larger accounts, Adaptive Insights highly tuned digital and inside sales driven go-to-market model will continue to target small-to-medium accounts.
No doubt, Workday will begin to aggressively market the Adaptive Insights Financial Planning and Analysis (FP&A) solution to its installed base of 2,300 upper-mid and large enterprise customers. While we anticipate high long-term penetration rates, at issue, however, is how rapidly customers will adopt – as several that we talked to indicated that they will move forward, but only after a wait of at least a year (until Workday fully works out its integration plans).
Adaptive Insights Integration Plans
In a small group meeting with the Adaptive Insights CMO, Connie DeWitt emphasized that they have already begun work on a unified UI, and within 12-18 months, will have deployed a unified data model and security model that is consistent with the “Power of 1.” Just to be clear, the two offerings already had some level of data integration.
As the chart illustrates, in Workday 32 (due out in Spring 2019), the company will provide meta data integration that understands the Power of 1, and provides drill through to the data. In Workday 33 (due out next fall), it will provide drill through to objects, as well as Workday Prism Analytics data sharing and a unified look and feel.
I reached out to Ms. DeWitt after the conference to see if she could provide even greater clarity in regards to the integration plans. She emphasized that the goal is for “Workday customers [to be able to] seamlessly share data across Workday applications including Adaptive Insights, have a single security model, and a common user experience. We will not be doing this by re-writing or re-platforming Adaptive Insights, but rather by creating the right software services connections between Adaptive Insights and Workday.”
She went on to explain: “Fortunately Workday and Adaptive Insights share similar cloud-first in-memory architectures that make this transformation easier. We currently have data integration with Workday using a professional services-led approach. As we realize our Power of One roadmap, this will become a product-led unification that is seamless for Workday customers and will not disrupt our non-Workday customers in any way.”
It was clear from the various presentations and off-line discussions that technologies will be leveraged between the development teams, and where applicable they will bring together various capabilities such as their two report writers, leveraging the best of both worlds. Look for significant cross-“pollenization” of its machine learning investments, with PRISM Analytics heavily leveraged going forward.
Workday Planning and Financial Management
Adaptive Insights is now the de facto Planning engine for the company. In fact, Workday quickly launched an Adaptive Insights version of Workday Planning (to complement what it already does around Finance) as a firm declaration of its emerging strategy going forward, although it will keep the existing Workday Planning customer whole by continue to support the product for some time to come. We would anticipate a continued aggressive expansion of Adaptive Insights land-and-expand push into other functional markets (e.g., Sales, Marketing), as it positions itself as the primary competitor to Anaplan – in what otherwise is a highly competitive market (including SAP, Oracle, IBM et al).
In regards to Workday’s Financial Management suite, we gathered that it now has more than 500 customers, 60 of which are public companies that are live on the solution. Workday is likewise embedding machine learning capabilities directly into the product. They already offer solutions around expense reporting, account reconciliation and anomaly detection (in regards to payments), with plans to roll out many more in the coming months.
Lots of talk about moving toward “continuous accounting” or “continuous close” – with the advent of the Workday Accounting Center (to launch in 2020), with its ability to bring non-Workday operational data in through as journal entries, and the ability to trace all the way back to source transactions even if not originally on Workday. We just hope that there is some meat behind the slides in these regards.
Other odds and ends:
They made a big deal about the launch of Workday Assistant, but I didn’t see a lot different than what Salesforce is doing with Einstein.
Launched “Stories” which looked interesting.
Last year launched Worksheets – this year adding “Live Sheets” which provides a potentially powerful real-time presentation tool.
While Workday is still very much focused on its core “Execute” offerings in the HCM and Financial Management segments – it is clear that it has expanded its vision significantly into “Plan” and “Analysis.” This provides a much bigger set of add-on opportunities into the base, but also brings with it the many sales challenges associated with a “big-bag”.
With “game-on” in the competitive race to add value from emerging ML fabrics across the broad Cloud apps pantheon, we hope that Workday stays focused on providing very specific / narrow predictive solutions across its primary functional targets, rather than general purpose capabilities.
Longer-term, we would not be surprised by additional strategic acquisitions that help accelerate market growth (especially around Supply Chain) – assuming they can find opportunities with the right cultural and architectural fit. But most we see a period of consolidation over the next 12-24 month (other than tuck-in technology acquisitions), as Workday works hard to make the most of its new go-to-market weapon to expand and grow the company.
Dreamforce 18: And the Beat Goes On
Last week, I spent several days in San Fran at Dreamforce 18, Salesforce’s annual customer and partner party / gathering. While there were a total of 2,700 sessions, with many, many announcements made, two big takeaways clearly were center stage – Customer 360 and the Einstein Voice initiatives – with a broad range of 2nd tier announcements including partnerships with Apple and AWS. For me, however, the biggest takeaway was a deeper appreciation for the amazing business model that Salesforce has built, and a richer understanding of its sustainable foundations.
Time Tells a Story
Last weekend, prior to traveling to Dreamforce, I revisited my first Dreamforce in 2006, some twelve years ago. How thing have changed, heh? (both for the company, and the enterprise software industry in general.) Luckily, I was able to find a summary research piece I co-authored back then – that highlighted that 5,000 users attended that event, with the vast majority enthusiastic Type A sales execs and leadership. One can’t forget that at that time, Salesforce was exclusively a Sales Cloud provider, with a powerful yet still emerging CRM solution in the midst of its battle with Siebel Systems for CRM market leadership (although Siebel had been acquired by Oracle roughly 12 months prior). The big news out of Dreamforce that year focused around Salesforce’s upcoming Winter ’07 release that promised expanded functionality, ease of customization and embedded mashup capabilities, AppExchange and the first release of the Apex programming language and platform. All-in-all, a lot of “stuff” – some of it very strategic long-term.
March forward a dozen years to 2018, and one can only be astounded by Salesforce’s significant and consistent growth, as well as the astounding evolution of the Dreamforce event itself. During this span, Salesforce revenues have grown from $497 million in FY07 (end of January Fiscal Year) to projected FY19 company guidance of $13.175 billion. Registered attendance at Dreamforce this year topped 170,000 (with titles ranging from Sys Admins to F100 CEOs), with an estimated 10 million + viewing the various keynotes online. Where there was once one cloud (and a narrower portfolio of development tools and associated integration capabilities), Salesforce now focuses across four major ones (plus several minor ones), each of which are at significant scale: Sales ($4.0B+), Service ($3.6B+), Platform ($2.5B+), and Marketing / Commerce ($1.8B+).
While Salesforce does not like to think of itself as a “legacy” company per se – in many respects the leadership is not given its due in regards to the amazing story of adaptation and evolution that has occurred over the past 20 years (since its founding). The company has transformed itself from a niche cloud-based CRM pioneer into an formidable enterprise-wide application and platform behemoth for all things related to the “customer.” Change is good, but change is hard. Keeping everybody on board with the expanding vision I am sure has not been trivial. Recruitment of additional leadership has been critical – and in this regard, I was quite impressed with the next-generation that is increasingly taking the reins.
The very success that it has had in launching all of its various clouds cuts to the very heart of why Customer 360 is so critically important. Customer 360 is Salesforce’s answer to the long sought after “holy grail” of creating a single-view-of-the-customer – connecting the various “islands of automation” that have grown up – whether it be separate systems and data repositories for sales, marketing or service. What Customer 360 provides is immediate, real-time access to data across these systems, with the ability to create a single view of the customer.
The way that it works is that Customer 360 leaves the data in its original data repository, and connects and manages all relevant customer data and profiles across Salesforce apps using a common Customer 360 ID. In this sense, Customer 360 reinforces Salesforce’s increasingly federated view of data to help create a single view of the customer through Customer 360. No doubt, creating a 360 view should help drive significant add-on business for Salesforce (see below), as who wouldn’t want to 1) better understand their customers and customer behaviors, and 2) drive more personalized sales and marketing campaigns, and connected shopping experiences. The challenge for Salesforce is that from a marketing and branding perspective, this is well worn territory, which will only heighten the need for flawless execution.
Einstein Voice and the Emergence of an AI Platform Layer
In reviewing my notes, I absolutely agreed with Bret Taylor, President and Chief Product Officer, who shared in a special Analyst Visionary session early Tuesday morning that “the platform shift to AI is one of the biggest in 10-15 years.” Einstein Voice was front and center as Salesforce’s next volley in the race to the 4th Industrial Revolution. My take on it is that while Salesforce demonstrated some advanced voice recognition capabilities, the bigger impact was its ability to impact a range of business workflows, which makes it appear to be a visible winner.
More importantly however, the broader incorporation of Einstein (AI) analytic capabilities across the full range of the Salesforce portfolio of products suggests that a new embedded AI platform layer may be emerging, and this applies not only to Salesforce but to other enterprise apps vendors as well. Rather than general purpose AI engines, these new AI platform layers will need to be very functional specific so that they truly understand the dynamics of the domain that they are supporting. I’ll be pursuing this line of thinking further in future research. Stay tuned.
Resilient Revenue Model
One of the great treats of the conference was joining the Investor (Wall Street Analyst) sessions on Wednesday afternoon – as I walked away better understanding why the Salesforce train stays so mightily on its tracks, year after year. Having worked in subscription businesses for most of my professional career, I was truly impressed by how well Salesforce leverages its highly recurring subscription business model, which drives amazing P&L visibility and predictability. In fact, 80 percent of next year’s revenue is already in the can, with 60 percent already visible two years out.
More importantly, the presentations helped demonstrate why Salesforce has significant upside potential on a go-forward basis. No doubt the trend toward digital enablement is part of the answer. But a big part also has to do with its strong retention model, and how it generates incremental new revenue from the base. While new logos have long contributed approximately 27 percent of new incremental growth each year, the revenue mix coming from the installed base is evolving significantly over time, and to Salesforce’s benefit.
In FY17, 57 percent of the incremental revenue that came from the installed base was from selling additional seats and upgrades (all highly profitable), with the remaining 43 percent coming from new products. In FY19 (that will conclude at the end of January), new product sales will reach 51 percent – as Salesforce is having greater and greater success cross-selling its growing arsenal of functional clouds and associated capabilities. So far, 38 percent of its customers are multi-cloud – but more importantly, they drive 92 percent ofrevenue, with these customers typically spending 10X what single cloud clients do. And clearly the longer-term trend is toward more and more customers having multi-clouds. This should translate into big bucks going forward.
What this all means is that Salesforce looks to have a continuing runway of at least 20-25 percent top-line growth ahead of itself (even with the diminishing impact of scale on growth), driven not only by adding new customer logos and selling add-on seats into the installed base, but cross-selling its multi-cloud portfolio. In this regard, Customer 360 should be a real winner that helps create significant upside demand.
In sum, there is growing competitive threats for Salesforce, especially in the CRM and marketing arenas, with SAP, Oracle, Microsoft and Adobe all on the march. Further, the breadth of the company’s portfolio is getting very wide, which only increases operational risk. In such an environment, I wouldn’t doubt some hiccups along the way, due to transitional issues – especially as senior leadership rotates to the next generation. However, the net of it is that Salesforce is a well-oiled machine – and appears well positioned to reach or exceed its FY22 goal of $21-23B in revenue.
Workday And Adaptive Insights: A Strong Pairing
Earlier today I opened my laptop for the first time in 10 days (after a glorious family vacation to Yellowstone) – to Workday’s announcement that it is acquiring Adaptive Insights for $1.55 billion (in cash), inclusive of $150 million in unvested equity issued to Adaptive Insights employees. At 13x (+) trailing 12-months revenue of $114 million (33 percent y/y growth, 3,800 customers), investors Bessemer, Norwest, Salesforce, JMI and others will no doubt be pleased with their return on the $176 million invested across several venture rounds.
While the price tag might appear to be high – more than double what Adaptive Insights impending IPO was valued at – what is less surprising is that these two companies came together in the first place. The Workday leadership team has long known that powerful cloud-based financial planning, budgeting, forecasting, consolidation and modeling software is the most important beachhead to successfully penetrate the Office of the CFO. And Adaptive Insights is a clear leader in this category.
In fact, rumors have long circulated that Workday danced with several companies – including Anaplan, Tidemark and Adaptive – prior to announcing its own Workday Planning offering in 2015. Today that product has more than 250 customers. However, all but a handful are squarely focused around Workforce Planning, as Workday has not yet delivered competitive feature / functionality in the financial planning and modeling arena.
Don’t Derail the Train
Given this, the acquisition should be a win-win for customers. As Workday CEO Aneel Bhusri explained in the investor call earlier this morning, Adaptive Insights will be largely left alone to run as a stand-alone business. The good news is that Adaptive Insights has been integrated with Workday since 2015 – although Workday will move quickly to “harmonize” the Adaptive Insights offering, leveraging Workday’s UI, security and meta-data models. How this ultimately plays out within the context of Workday’s core mantra of “the power of one” is still unknown – but it would not be surprising to see a highly coupled model emerge, given the architectures currently in place. Workday Planning will become the de facto offering for Workforce Planning, whereas Adaptive Insights will become the core offering for both Finance and Sales planning (and any other functional domain it may pursue).
While Adaptive Insights began as a channel-driven mid-market focused player, it has been investing significantly over the past several years to both better scale and support large-enterprise customers (see Adaptive Insights: Poised for Continued Growth, 13Feb2018). In fact, 23 percent of the business now comes from Enterprise customers – which is up substantially over the past three years. With an overlap of only 30-40 customers, the enterprise-focused Workday salesforce should be able to quickly monetize the acquisition by upselling the Adaptive Insights solution into the 450+ Financial Management customers it already has (60 percent of whom are now live) – let alone leveraging it as a lead value proposition to drive new customer acquisition with large enterprise Finance prospects, and cross-sell to Workday’s existing 2,000+ HCM clients.
Given Adaptive Insights heritage, the acquisition should also help Workday evolve its nascent plans to go down market with targeted / packaged HCM offerings that appeal to mid-market customers. What is less clear is how Adaptive Insights highly tuned channel strategy will play out in the new scenario, and how many of its mid-market customers will flee over time that are hooked to other cloud-based systems of record (e.g., NetSuite).
Change in M&A Strategy
While the acquisition is the largest Workday has undertaken to date, the announcement clearly reflects a fundamental change in Workday’s M&A strategy. What the announcement suggests is that unlike many of its previous acquisitions that have focused on enabling technologies / capabilities or to acquire talent / teams (e.g., Rallyteam, SkipFlag, Platfora, Gridcraft, CapeClear) – Workday is now beginning to look seriously at a broad range of adjacencies that can help it maintain its rapid growth clip.
While it would be surprising to see Workday pursue Manufacturing in the near-to-midterm, my bet is that Supply Chain and a deeper / broader view of Procurement could be on the table over the next 12-to-24 months – both sectors that play well in the cloud, and that are ripe for further consolidation. As Bhusri emphasized, however, acquisitions of this type need to highly strategic for the company, and bring with them complimentary company values and culture.
While advanced analytics and data are clearly at the center of its evolving vision, it was very clear from the recent Analyst Summit I attended that Workday will continue to put the pedal to the metal around its core HCM and Finance offerings. At this point, HCM is highly profitable with an industry-leading position among enterprise customers. The acquisition of Adaptive Insights only strengthens and accelerates its market momentum in Finance – with a well-oiled solution that should provide significant cross-sell opportunity.
Net / Net: this acquisition will clearly help Workday accelerate its roadmap by 2+ years, and deliver significant value to customers. All-in-all, this should be exciting to see play out over the next 24 months. What will determine its ultimate success will be how well the go-to-market synergies are exploited / monetized, not only among large enterprise customers but in the mid-market as well.
Pitney Bowes – Transformation in Process
Last week, I traveled to San Diego to participate in Pitney Bowes Software’s annual Industry Analyst Summit. I thoroughly enjoyed getting an update on the company’s progress, as I first engaged with the business unit nearly 10 years ago, a few years prior to the start of the significant company-wide transformation that has occurred after the new leadership team came on board. What I learned is that Pitney Bowes is at an interesting inflection point, where the fruits of its digitally-focused and data-driven restructuring are beginning to overtake the remnants of its legacy SMB-focused mail business.
Transforming a 100 year old business is not easy, especially one that historically was based on a natural monopoly in slow decline – the mail meter. Yet today, it is clear that Pitney Bowes has evolved significantly – leveraging its strengths, while repositioning the portfolio to new growth markets that are now delivering positive (and sustainable) revenue and margin growth.
I must admit, in preparation for the Analyst Summit – I was a bit taken aback when I first read the most recent quarterly earnings call transcript (in Seeking Alpha), in which CEO Marc Lauterbach emphasized that the “growth is centered broadly around shipping.” What I didn’t fully understand then, and do now, is that the subtle shift in words – from “mailing” to “shipping” – has allowed Pitney Bowes to leverage its strengths and identity with customers, while significantly reorganizing itself to better monetize its core assets.
eCommerce On The Rise
At the heart of its transformation has been the growth of its eCommerce business, which collectively now makes up the largest share of revenue for the company. I look forward to learning more about this juggernaut when I attend the upcoming Retail (R)evolution conference it is hosting in Orlando in early May. But the net of it is that the company has built a powerful eCommerce and parcel management platform that provides end-to-end support for retailers – from customer engagement / experience all the way through to fulfillment. The recent acquisition of Newgistics – an innovative provider of package tracking / returns – is a big step forward for the company. While its eBay back-end fulfillment relationship was the early catalyst that helped kick-start the firm’s innovations a number of years ago, it now goes well beyond this – as it appears that Pitney Bowes can potentially become an important and cost effective logistics / fulfillment alternative to Amazon for a broad range of online retailers (especially in international delivery scenarios).
Bob Guidotti, head of the Software business unit, kicked off the Analyst Summit by emphasizing that PBs data assets will clearly help drive the future growth of the company. While the Software business unit has been focused on three key segments in the recent past – customer information, location intelligence and customer engagement – its emerging data-as-a-service initiative is a clear and visible reflection of its evolving growth strategy.
“Everything is Addressable”
Central to its data business are the 190 million addresses that it has in the US (which is substantially more than the 140 million that USPS has). When combined with its location intelligence data, and a variety of complimentary demographic and household data (as well as digital email addresses) that it has at its disposal, the firm now has an incredibly rich asset that can be exploited by customers – in what it is loosely calling its “Knowledge Fabric.”
In many ways, the broader business trend toward AI-driven decision making is clearly playing to PBs strengths. Interestingly, PBs ability to uniquely cleanse address-driven data – gives clients an amazing level of accuracy across a number of important use-cases in insurance, financial services, retail, telco and public sector. I can only imagine the impact that this data is having on their businesses, as they better target and price opportunity, or conversely, let the competition take on bad business.
I especially like the new messaging around the Knowledge Fabric, as it uses terrifically vague but compelling language that should help the business unit start conversations and engage with customers around the things that PB does well. The downside is that the concept is much broader than what PB actually delivers, which may confuse some prospects.
All-in-all, I came away with a very positive sense that PB is on the uptick, after years of entrenchment. The combination of its evolving data business (that leverages its heritage around “addresses”) with its targeted software business provides some unique differentiation in the marketplace – all of which will help fuel the firm’s broader eCommerce play.
No doubt, important brand awareness and channel execution challenges exist. I recently talked to several eCommerce and supply chain execs in my network, and PB was just not yet on their radar. I would think that this awareness challenge would likewise apply to the marketing space, which will be critically important to PBs emerging channel-driven growth strategy. Building brand awareness that PB has evolved into a substantially different company will be critically important to their success.
Adaptive Insights: Poised for Continued Growth
In mid-January 2018, I had the opportunity to catch up with Adaptive Insights’ VP of Product Marketing, who provided an informed update on the firm. Having followed Adaptive Insights for more than 10 years, I was gratified to learn that it had reached two important milestones by year-end 2017 – surpassing both the $100 million USD revenue threshold and $100 million USD in annual recurring subscriptions under contract. Both of these are visible markers that often signal an IPO on the horizon – which I would not be surprised to see by mid-to-late 2018, should the current window remain open. With more than 3,700 customers, 30 percent top-line growth, a rebuilt and strengthened senior management team (built to further scale the business), and an expanded set of beachhead solutions beyond the Office of the CFO (and the Financial Planning / Performance Management / Budgeting / Forecasting / Reporting market), Adaptive Insights is poised to enter its next phase of growth.
While hinted at in our call last month, Adaptive Insights yesterday announced the launch of its Business Planning Cloud, the latest repositioning of its core planning platform – as well as the first of what will likely be several new functional solutions, Adaptive Insights for Sales. It was clear from the recent briefing (and a short follow-up call again yesterday morning) that Adaptive Insights has continued to invest in the platform – putting differentiated product “meat” behind its marketing mantra of “Easy, Powerful and Fast.”
While well known for its ease-of-use, highly collaborative approach to planning and strong data discovery / visualization capabilities (via dashboards) – especially for its primary mid-market target audience – Adaptive Insights has scaled-up its core planning platform to support larger enterprise requirements. In fact, I was not surprised to learn that 24 percent of its business is already with enterprise customers, although that figure is likely to grow substantially over the next few years as their sweet spot expands to firms with as many as 10,000 employees.
Built from the ground up as a multi-tenant and in-memory offering, its core multidimensional modeling, reporting and analytics platform can now scale to support the needs of large and complex models (and enterprises). This applies to the number of transactions records / users / accounts / what-if versions / scenarios or dimensions in their multi-dimensional cubes.
The Adaptive Insights for Sales solution appear to be the first of several new functionally-targeted solutions on the drawing board at it formalizes its vision of serving other functional domains beyond the Office of the CFO. Specifically targeting the sales operations function, the offering focuses on capacity and compensation planning, as well as quota and territory modeling and management. It is easy to see the significant opportunity in front of them – although they will no doubt face stiff competition, from specialists such as Ops Panda, as well as broader competitors such as Anaplan.
While having six live customers is a great start, this is a new and different buying center for the firm, and will no doubt take considerable time to create and capture significant demand. Helping to propel growth – of both large enterprise accounts and its expanded bag of functionally-targeted solutions – is a direct sales force launched mid-year 2017 (which now has 8 reps). While Adaptive Insights estimates that 50 percent of its recent deal activity has been touched by its 200+ partners, its growing direct sales force will no doubt lead the charge as it moves up market and creates larger and larger (multi-function) planning relationships.
Other planning-intensive areas that Adaptive Insights has already had some success include Workforce Planning, Project Planning and Operations Planning. Which one leads the way to become the next (functional) solution beachhead is not yet clear. However, what is clear is that Adaptive Insights will increasingly pursue a land-and-expand go-to-market model.
At this point, Adaptive Insights biggest challenges appear to be execution related, as the market opportunity for cloud-based planning tools is robust and growing. At the same time, the space is ripe with both traditional competitors (e.g., Oracle, Anaplan, Host Analytics, IBM, SAP), as well as a bevy of emerging players mostly targeting specific niche markets. It will be interesting to follow how it plays out over time among Adaptive Insights’ large installed base of NetSuite customers, after its acquisition by Oracle a little more than a year ago.
We like Adaptive Insights move beyond Finance, and beyond the mid-market, as it sets itself up to grow into a sizable platform-based business planning player. Many of the core user benefits that today brings it to the table in Finance will likewise play elsewhere – but it will take time and substantial sales and marketing investment / muscle to establish the brand beyond its well-known core Financial Planning beachhead. Continuing to put the pedal-to-the-medal on its international expansion and vertical offerings will also be critical for success.
If you are not already subscribed to my blog, I encourage you to do so. After taking a couple of months off over the winter, I’m gearing up to more regularly publish again. This will include highlights from some new buyer demand research I have been conducting related to the digital journey, and the AI-driven future that is in front of us. Lots of interesting new insight on the horizon.
February 13, 2018
IBM Cloud Summit: Its All About the Data
In the emerging Age of Insight, or what Mike McNamara, CEO of Flex recently termed the Age of Intelligence, machine learning and artificial intelligence are becoming central to effective business strategy and decision making, product design and development, and all aspects of service delivery. Unlocking the critical corporate data that support these initiatives and systems were key themes presented at the IBM Cloud Summit that I attended in New York City earlier this week (along with 60-70 other industry analysts / influencers).
No doubt, IBM is in a truly unique position with clients, given its heritage of providing world-class infrastructures to the F1000 for the past 40+ years. These systems hold vast vaults of transactional and operational data that IBM wants to help clients make available in the cloud, and to its’ growing arsenal of highly differentiated Watson-based offerings.
Throughout the one-day Summit, IBM demonstrated its commitment to help its clients adopt and deploy hybrid cloud strategies and environments – as they transition their huge portfolios of on-premise apps to the cloud. Byrson Koehler, CTO and General Manager, IBM Watson and Cloud Platform, kicked the session off by emphasizing that IBM is building a “rich collection of capabilities to deliver an end-to-end hyperscale cloud platform” . . . In fact, IBM Cloud now includes 450 services, 127 of which are customer-facing, with IBM committed to supporting the full range of deployment options, whether it be Public, Private or dedicated on-prem.
A big part of the day focused on IBM Cloud Private, IBMs newest hybrid cloud offering that leverages common platform-as-a-service tools and developer runtimes, as well as popular and developer-friendly technologies such as Kubernetes, Docker and CloudFoundry. IBM’s strategy is to develop and deliver (via containers) a common fabric across all three environments. IBM also announced new data cataloging and data refining offerings for the Watson Data Platform that helps developers and data scientists analyze and prepare data for AI apps.
I especially valued the late-morning presentation by Don Rippert, CTO, IBM Industry Platform, that demonstrated how committed IBM is in building next-gen AI-based SaaS vertical solutions. As they develop their industry roadmap, beyond Banking, Healthcare and Retail (among others), IBM is clearly focused on business processes where it can help take cost out of the equation, and that can exploit the deep (and sticky) machine learning capabilities of Watson.
All in all, IBM’s presentations demonstrated to me that IBM is coming into a sweet spot as it helps clients exploit the massive vaults of locked-up data and systems ripe to get redeployed to next-gen cloud(s). The biggest question is whether IBM will likewise win the hearts and minds of developers building cloud native solutions, in the increasingly multi-cloud world (e.g., Amazon, Microsoft and Google) that is emerging.
Overcoming Our AI and Automation Fears
I am an optimist; always have been. That is why I find all of the growing anxiety around the advance of technology so fascinating. No doubt, the triad of Artificial Intelligence (AI), automation and big data are driving profound changes in business (and society) given their bottom-line impacts. What I don’t fully understand is the growing hysteria – often led by responsible business and scientific leaders – that suggest that AI and automation may led to WWIII (Elon Musk) and / or massive and growing economic discontinuities / inequalities (Stephen Hawking at the recent World Economic Forum).
Change is Hard
Yes, automation and AI will cause major economic dislocations, and forever change the employment landscape. Change is hard. Yet when has business and society been static? The range of transformative technological and scientific improvements over the past 150 years has been staggering – regularly impacting markets profoundly, and often over a very short period of time (e.g., advent of electricity). The only issue today is that the pace of change has accelerated, and the technologies that are transforming business and society now are being applied to cognitive problems that previously were believed to be the endeavor of humans. Frankly, in my opinion, we are only in the early stages of the economic and employment disruptions / discontinuities that are likely to occur. And while change is hard, change is usually good.
Earlier this month, ServiceNow (NYSE: NOW) and Oxford Economics published a terrific new 24-page report focused on the business impact of machine learning (ML) and automation entitled Global CIO Point of View, based on a survey of more than 500 CIOs in 11 countries. To net it down, the report asserts that ML is at the very heart of most CIO digital transformation efforts as they reimagine the way that their enterprises work. Some of the key findings from the study include (lightly edited from the report):
Almost three-quarters of CIOs surveyed (72%) are leading digitization efforts, and more than half (53%) say [AI and] machine learning is a [strategic] focus.
Nearly 90% say greater automation will increase the accuracy and speed of decisions.
Over two-thirds (69%) of CIOs say decisions made by machines will be more accurate than those made by humans.
CIOs who are at the forefront of adopting machine learning recognize the need for process and talent changes, but many cite challenges – including the need to redefine job descriptions to focus on work with intelligent machines, and hire employees with new skill sets.
Data quality (51%) and outdated processes (48%) are substantial barriers to adoption.
Lack of skills to manage smart machines is cited by 41% of CIOs, and lack of budget for [the acquisition of the] new skills is cited as a challenge by 47% of those surveyed.
A select group of CIOs, whom ServiceNow and Oxford Economics call “first movers,” is outpacing their peers in their use of machine learning.
Roughly 80% have developed methods to monitor machine-made mistakes vs. 41% of others.
Half of them say automating routine processes will be key to their business’s success compared with 33% of others; more than three-quarters have redefined job descriptions to focus on work with machines, compared with 35% of others.
Almost 90% of first movers expect decision automation to support topline growth vs. 67% of others.
The lack of skills to manage our new machine-learning driven business environment will likely continue for some time. In a recent ISG Insights report, based on a survey of more than 300 senior IT and business professionals (Automation and AI Survey 2017 – Enterprise Plans and Operating Model Impact – click here for a summary Research Alert), former ISG colleague Stanton Jones reinforced this key challenge:
“. . . as enterprises become more willing to embrace automation and AI, their number one issue will be talent – whether sourced internally or via a provider or partner ecosystem. Our research identifies data science as the most important skill set of the future and the one companies are having the least success finding and retaining.”
I found the following chart from the ServiceNow report especially revealing, as it reconfirms in my mind the fact that automation and AI / ML are mostly supportive technologies in the decision-making process, and that except for the automation of truly low-skill repetitive tasks, they will only enhance, not replace, most decision making and job roles.
Title: Most decisions still require human intervention
Source: ServiceNow and The Global CIO Point of View “The New Agenda for Transformative Leadership: Reimagine Business for Machine Learning” N=500+
Fear mongering related to change is not new. I still fondly remember reading about Thomas Malthus (1766-1834) and his systematic theory of population in which he proposed:
“the principle that human populations grow exponentially (i.e., doubling with each cycle) while food production grows at an arithmetic rate (i.e., by the repeated addition of a uniform increment in each uniform interval of time). Thus, while food output was likely to increase in a series of twenty-five year intervals in the arithmetic progression 1, 2, 3, 4, 5, 6, 7, 8, 9, and so on, population was capable of increasing in the geometric progression 1, 2, 4, 8, 16, 32, 64, 128, 256, and so forth. This scenario of arithmetic food growth with simultaneous geometric human population growth predicted a future when humans would have no resources to survive on” (quoted from the AAG Center for Global Geography Education).
Little understood by Malthus and his contemporaries at the time were the incredible productivity gains brought about by the 2nd Agricultural Revolution of the late 18th and early 19th centuries, that paralleled the advance of capitalism and the Industrial Revolution. More recently, agricultural yields have skyrocketed based on modern biotechnology and advanced digital technologies – with governments throughout the world often paying farmers not to farm so as to manage yields and maintain pricing stability.
Creative Destruction and Remaining Optimistic
So I remain an optimist – as today we don’t even know the new innovations and markets that will be created, at the same time that some jobs will be destroyed. Capital for labor substitution isn’t new – especially when it unleashes profoundly new and better outcomes, and innovative forces. This is what Joseph Schumpeter’s (1942) model of “creative destruction” is all about. What the current trends clearly indicate, however, is the tremendous need for labor market retraining investments, especially to help those caught with yesteryear skills become more relevant in our emerging knowledge-based and service-oriented economy.
And I am not just talking about one-off retraining programs, but a long-term commitment to continuous training. This includes structural changes to the US economy and our educational system that helps foster technical skills [up and down the job ladder] that helps create talent suitable for the 21st century. Other countries, most notably Germany and France, do a much better job in these regards. Let’s learn from our long-time partners about dual-track vocational programs, and other important initiatives that are working. As I regularly tell my daughters, becoming a lifetime learner is not only fun, it will be critically important to their success and happiness.
“Will the new machines displace many current workers? Yes. However, on a larger scale, new machines will also create work that is better, more productive, more satisfying than ever before. The new machines will raise living standards and usher in a new period of widely distributed economic growth that will be far stronger than any we’ve seen in the Western world during the past 50 years.”
Please join me in being an optimist. We live in an amazing time, and the future is ours.
If you are not already subscribed to my blog, I encourage you to do so. Next week I’ll provide highlights from my trip to New York City and the IBM Cloud Analyst Summit that I’ll be attending. As previously noted, my plan is to publish a blog post roughly once a week, so I won’t overwhelm your inbox!
McNee Associates Is Officially Launched!
I am delighted to announce that McNee Associates officially launched earlier today – a new blog platform I will use to explore the key trends and technologies that are driving business innovation, and related topics.
I’ve been tracking emerging and disruptive technologies that are transforming business and society for more than 30 years, starting in the mid-80s (when I worked in finance and strategic planning roles at CBS and HBO), through more than a dozen years at Gartner as a research analyst / executive, and more recently at Saugatuck Technology and ISG. At this point it’s firmly rooted in my blood, and I look forward to the evolving journey!
McNee Associate’s mission is pretty simple – to provide a platform to help senior business and IT leaders think clearly and deeply about the future, so as to be better prepared to develop and execute winning technology-enabled business strategies.
The goal of the blog is to cut through the jargon and the buzzwords, delivering original insight and analysis around the key market shifts that are occurring, and the players who are making it happen. In my experience, consistently questioning commonly held assumptions is key to creating new awareness, which is fundamental to developing and honing winning strategies and tactics.
As has been my research philosophy for many years, the blog will include first-person research I’ll conduct with early adopters – both summary insights as well as extended interviews – who often share important lessons learned and the key challenges to be overcome, as well as regular engagement with leading and emerging technology providers to stay abreast of changing market dynamics. I look forward to actively engaging with our network of seasoned business and IT leaders, as well as meeting all of the interesting entrepreneurs and industry leaders that are leveraging a range of disruptive technologies transforming business and society. Where appropriate the blog will leverage 3rd party surveys (when credible), and over time we may develop and publish our own forward-looking surveys as the blog evolves.
I’ll be the primary author of this blog, although I may occasionally invite guest bloggers to join in the debate. Further, I want to welcome all of our readers to be a part of our journey, so please reach out with your thoughts and feedback, to help make the blog better and more useful.
Key Areas of Focus
Find below some of the key trends that I will be tracking and writing about (alpha order only):
Advanced Analytics / Data Science
Artificial Intelligence (AI)
Business and Technology Architecture
Business / IT Platforms
Business Model Evolution
CIO / CFO / CMO Spending
Cloud Analytics / Planning / Budgeting
Cloud ERP / Financials
Digital Strategy / Enablement / Transformation
Digital Marketing / Digital Customer Engagement
Driving Innovation / Innovation Management
Emerging Technology Trends
Future of Work
Next-Gen Technology-Enabled Products / Services
The New Finance
I very much look forward to the journey ahead, and encourage everyone who visits the website to subscribe to the blog, and to join me in the coming weeks and months ahead as we explore the future of Business IT! My plan is to publish a blog post roughly once a week, so I won’t overwhelm your inbox!
Authored by on March 21, 2019 at http://mcneeassociates.com/author/billmcnee/