Innovation Opportunities in Enterprise Software
Date: Tuesday , February 03, 2009
Enterprise Software is at an inflection point. Over the past 15 years, it has gone from a fast growth, innovative industry to one that looks increasingly oligopolistic. The number of players in the industry has shrunk, and as IBM and Oracle’s most recent financial results exemplify, economic power is shifting rapidly to vendors with scale. Innovation has slowed as vendors combat challenging recessionary times. At the same time, other trends, such as Cloud Computing, and increasingly mobile workers are rapidly gaining traction, indicating the need for a new category of applications. However without critical enabling systems, it will remain challenging to reconcile the competing pressures of enterprise information security against the open access paradigms dictated by these newer trends. In this article, we explore the critical enabling systems that will power this next wave of innovation.
Shifting Dynamics in the Enterprise
As is frequently the case in maturing markets, economic power has moved away from smaller, typically more innovative enterprise software players to larger vendors. Many smaller vendors have gone out of business or been acquired. And venture capital investment in enterprise software has fallen dramatically. To make matters worse, battling recessionary times, larger enterprise vendors have cut R&D budgets and are raising maintenance prices. Faced with falling demand in their own businesses, customers are targeting several areas to cut IT spending, including software maintenance. Goldman Sach’s January 2009 IT spending survey (Figure 1) depicts this shift. Unfortunately, this situation does not bode well for innovation as it implies further contractions in R&D budgets for larger vendors. The result is an open door for those with the foresight to enter.
Increasing Mobility, Smartphones and Clouds
Even as IT spending shifts, there are other rapidly occurring changes that promise to forever change the economics and drive up value of corporate applications. Chief among these are the trends towards powerful smartphones, netbooks and cloud-based data centers.
The past few years have witnessed an explosion in the capabilities and shipment volumes of mobiles devices, such as the various RIM Blackberry models and iPhones. A newer trend is the use of netbooks – lightweight ultra mobile “palm tops” – that further enable mobility of corporate data access points. In addition, there is growing demand by employees to gain access to corporate data in ways that mimic the ease of use of consumer applications, such as facebook, wikis, business oriented social networks and blogs. However predictably, this category of access brings a new dimension of risk to corporate data as show in Figure 2.
A separate, newer trend is towards Cloud computing. The terms itself entered IT-speak only about a year ago and has spread rapidly since. Cloud conferences, blogs, startups are multiplying quickly. Up until recently, companies operated their own data centers. Clouds are essentially data centers in the “sky”, operated by another vendor (e.g. Amazon or Google) who enjoys greater scale in deploying and operating servers and operating systems, than individual companies do. There are several benefits to this approach, including ability to scale compute capacity up or down quickly, lower cost and greater system reliability. Cloud computing turns capital expenditures into operational expenses. Instead of needing to buy expensive servers, install and activate them, an IT manager can simply open an account with Amazon Web Services for a fraction of the cost. While this is a newer trend, it is widely anticipated that the cost and agility benefits of clouds will drive adoption in enterprises. In response, we predict that hardware and software vendors will respond with support for cloud-based deployments.
The plethora of devices wirelessly connected to the internet, applications, entire data centers operated in clouds, coupled with increasing mobility of workers will move us from a corporate-application-centric world to information-centric world. Instead of being forced to access corporate applications using the monolithic user interfaces provided by the software vendors, one could imagine an entirely new category of applications that combine, for example, the ease of use an iPhone with data mashed up from multiple corporate applications and the internet. The key barriers to success of such applications are ensuring the security of corporate data and understanding the semantics of corporate data itself. Typically, enterprise applications are used only in conjunction with user interfaces provided by the vendors themselves and therefore, for a third-party, it is not easy to decipher the taxonomy of data structures in these applications. To make matters worse, this data is distributed across the enterprise, and therefore nearly impossible to orchestrate from outside the firewall, unless specifically done so by the vendor itself. However a new generation of technologies are emerging that will add greater transparency to these opaque data sets. In doing so, we are all likely to benefit from richer, more flexible applications from a multitude of providers.
Understanding Enterprise Information Assets
While companies strive for cost savings on one side, more and more are realizing that while containing cost is important, corporate and IT strategy should be based on sustainable competitive advantage. In the context of this article, there are two sources of sustainable competitive differentiation: Process know-how and enterprise information. In other words, what you do, and what you know.
Mainly driven by seeing their pool of enterprise information as a key differentiator in modern business, most companies have recognized the need to integrate information across the enterprise. Instead of leaving information in silos such as packaged applications, databases, data warehouses and so on, companies are integrating these sources of information to derive significant value-add from existing enterprise applications. Packaged applications vendors tend to have economic and organizational motivations to keep customers buying more and more from them. However, savvy IT executives are realizing that using off-the-shelf technologies that they have already purchased, substantial additional insights and business agility can be gained. This discipline and method of looking at information is known as Enterprise Information Management (EIM).
EIM can be defined as an open and integrated approach for centrally organizing and managing of core information (eg products, customers, assets, prices, POs, inventory, vendors, partners etc), and enabling this information to be leveraged in information-rich applications within the corporate firewall or in the cloud. Doing so enables the information locked in packaged applications to be leveraged in newer business processes. At Arizona State University, IT officials have applied these techniques to create a new system, dubbed “MyASU”. This system enables mashups of data in a plethora of enterprise applications (eg HR, Student Information System, Learning Management System, local news feeds etc) and then access to that data via mobile devices, portals, and soon, third party applications such as facebook. This is an innovative approach that squeezes a lot more value out of installed, operational enterprise applications. The net result is greater student recruitment, retention and improved fund raising.
The Taxonomy of Enterprise Information
In order to understand where the data is stored, what the semantics and constraints are, and how this data can be safely leveraged, it is important to understand the Information Architecture of enterprise applications. A typical Information Architecture in an enterprise is depicted in Figure 4. It includes Data Management, Archival and Security, Information Services, Master Data Services and Business Services layers. These layers are essential to the accurate and dependable execution of application business processes as well as for ad hoc access to corporate data.
A key piece of the Information Architecture of any large enterprise is the Master Data Services layer. Master data is the taxonomy of an enterprise. A well-implemented MDM system describes, persists and syndicates key data from across the enterprise, spanning organizational and systems boundaries. Examples of master data elements are customers, products, items, vendors, materials, prices and so on. Good master data systems not only store the core assets themselves (e.g. in the customer domain, this would imply customer ID, name, address) but also store, or link to, extended attributes such as loyalty score, purchase intent, credit history, and so on. This comprehensive approach creates a single view of the customer, vendor, product etc. In addition, keeping with the general move to Service Oriented Architecture (SOA), all leading MDM vendors have announced that they have already, or will soon be, service-enabling their MDM systems. The combination of the inherent capabilities of MDM systems, as described above, coupled with the modular services-oriented access methods, promise an entirely new class of applications that were not feasible until now. The reason is that, via MDM, new applications, infrastructures, and mobile devices can not only access but also more importantly, understand corporate data. By recasting data locked in arcane, bespoke applications into a business-focused taxonomy, a plethora of applications are now feasible. The key to leveraging data is to understand the semantics of it; MDM enables exactly that.
The importance of this shift from a monolithic set of vendor-controlled products, to business-oriented information taxonomies accessible through secure services is hard to overstate. Using these taxonomies and accompanying security methods ensures that this new generation of applications do not either overload the transactional systems, or expose corporate data to unnecessary risk. Yet, the existence of these easy-to-understand taxonomies, and accompanying access methods means that IT departments and independent companies can also leverage corporate data more easily in a new genre of applications. A key piece of the enabling infrastructure is moving in place, and startups are beginning to explore how to leverage it.
As the enterprise software industry matures, there is an exciting new set of developments that promise to once again, unlock innovation in the industry. The evolution of enterprise software into a collection of services, coupled with corporate data taxonomies will make it easy to understand and access corporate data via third party applications. This in turn will enable IT departments and independent companies to build and deploy exciting and innovative new applications using modern computing paradigms of cloud-based data centers and highly capable mobile devices.
The author is CEO of LumenData