An article in last weekend’s Financial Times discussed how Bill McDermott, who will take over as sole CEO of SAP this week, plans to usher in a new era at the company. SAP is in the early stages of a disruptive shift from selling traditional boxed on-premise software to allowing customers to rent it via the internet. That marks a big change for a more than 40-year-old software company as it demands faster development cycles, more investment in remote data centres and new web-based sales and support operations (which will increasingly replace on-site staff).Yes, the enterprise software industry is undergoing a lot of disruptive change, led by the growing demand for cloud solutions, which is putting pressure on software vendors not only to innovate their solutions faster, but also their business models and go-to-market strategies. But the shift to cloud solutions requires more than a change in pricing and deployment models; it requires a shift in company culture too, which is arguably the biggest challenge traditional enterprise software vendors face in the months and years ahead.
Several years ago, I remember speaking with Art Mesher, former CEO of Descartes (a Talking Logistics sponsor), after he had led the company from the brink of bankruptcy back to growth and profitability. Art attributed the turnaround to Descartes’ shift from a “culture of selling” to a “culture of serving,” which is not a trivial transition for an industry long fixated on measuring its health and success by new license revenue (sales of products) instead of customer-centric metrics, such as realization of ROI and payback objectives.
“One secret to maintaining a thriving business is recognizing when it needs a fundamental change,” say the authors of a great 2008 Harvard Business Review article, Reinventing Your Business Model. Similarly, manufacturers and retailers don’t make money by owning software applications; they make it by using software applications as efficiently as possible to get their job done. Put differently, manufacturers and retailers don’t really want to buy supply chain software; they want to buy outcomes — cost reductions, productivity improvements, revenue growth, increased market share, improved working capital, and so on. As Harvard marketing professor Theodore Levitt famously said, “People don’t want to buy a quarter-inch drill; they want a quarter-inch hole!”
This is why the business models of third-party logistics providers (3PLs), software vendors, and consultants are converging today in the supply chain market. Software alone is not enough, and neither is simply changing the way you price and deploy software applications. You also have to transform your company culture — from a culture of selling to a culture of service — which is the most important and difficult job CEOs at enterprise software companies face today.
My closing thoughts today see this as a transformational change from we presently products in the supply Chain from a resellers point of view, we will need to focus on what the end result the customer needs instead of the tools we use to accomplish the task, these tasks will be choices that we will select form a suite of choices in the cloud. Services will become a larger part of our business offerings and the only question that remains is the process for how resellers will sell to companies that need complex solutions to grow their business.
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