Mark Hurd, the CEO of Oracle, made the point that this transition to the Cloud is big trouble for the $200 billion system integration industry, which has been designed around customization. “They need a new business model,” Mr. Hurd exclaimed, “the current model is unsustainable.”
Mr. Hurd made this argument at Oracle’s Modern Supply Chain Experience (MSCE) show last week. The central theme of the show was Oracle’s continued emphasis on the superiority of Cloud solutions and software as a service (SaaS). Their Cloud solutions launched 21 months ago. According to Rick Jewell, a Senior Vice President at Oracle, 18,000 customers are on the Cloud “transformation journey.”
Not all of Oracle’s Cloud products have the full functionality of the legacy products. But Oracle is getting close. In the next twelve months Oracle expects to release process manufacturing and project manufacturing. Meanwhile, warehouse and transportation management, global trade management, and supply chain planning are in the cloud. These solutions are selling very well. The warehouse management system Cloud solution, for example, has 2.5 times the sales it had at this point last year.
Mr. Jewell explained Oracle’s logic on the need for changes to the system integration market further in a meeting with industry analysts. System Integrators (SIs) business development tactic was to go to a company, talk to multiple departments and document requirements. There would always be a gap between requirements and what any system delivered. This was the entry point for expensive customization projects, long costly implementations, and the driver of very difficult and costly upgrades. In short, it adversely impacted the total cost of ownership of IT products.
Mr. Hurd also met the industry analysts. He was blunt, “What has dominated IT thinking has been procurement” and the drive to get low cost solutions. “That led to organizations having multiple vendors – mixing and matching solutions – that hasn’t worked. The bulk of the IT budget is spent on maintenance.” Thus, “the ability to innovate is almost zero. We can get 60 to 70 percent of the costs out of the IT budget.” These are not just software maintenance costs, but the need to own storage and IT data centers. IT data centers, another executive pointed out, can cost $20 million to build and $10 million to run per year.
The move to the Cloud has been supported by a changing set of players who influence IT deals. In the past, IT leaders often had “veto power” over deals. “But CEOs and CFOs are more IT literate. IT departments often report to CFOs. The Cloud has also liberated functional leaders.” But IT security issues are also beginning to give the CIO some of their power back.
But, as Mr. Hurd pointed out in his keynote, companies should not hesitate to move to Cloud solutions. “We are more secure than any individual corporation could hope to be”, Mr. Hurd averred. Oracle spends more on IT security than almost any other entity in the world.
Mr. Jewell expanded on this thought in his meeting with industry analysts. “We have more hackers working for us than almost any other company.” They are continuously “beating on our own systems” to try and detect weaknesses. Further, the Oracle databases are encrypted, so if a customer chooses to retain the encryption key, even Oracle can’t decipher the customer’s data.
What will the role of system integrators be? Mr. Jewell argues they need to evolve to be trusted advisors. SIs need to show a system to customers and explain how the system can be configured to meet their business. “They need to move to a business value consulting role.”
Jon Chorley, a Group Vice President for Supply Chain Strategy, said SIs can play another important role. “Their can be a huge role for SIs in helping customers adopt new enhancements. Instead of elephant hunting” – a focus on big, long costly implementations – “they evolve to more of a continuous engagement model.” The SI focuses more on a customer’s business model, change management, and helping companies to understand new technologies, like blockchain.
Mr. Jewell agreed, there could be more ongoing engagements where SIs do smaller implementations, but then have an ongoing maintenance contract. The SIs “take the quarterly updates and dev test in the Cloud.” Many customers will no longer hire IT maintenance personnel. Internal IT employees, in turn, will evolve to be more focused on being business process owners.
Oracle’s MSCE has grown dramatically over the last few years. Over 3000 people were in attendance, making this, according to Oracle, the largest gathering of supply chain professionals in the world.