Salesforce Key Points

Salesforce has created a mutually dependent trinity of services – Salesforce CRM, Force.com and Appexchange. These will create powerful forces in the developer community and in the market for applications.

Users should be very cautious about investing too heavily in the Salesforce trinity because of the profound lock-in that will be almost inevitable.

Salesforce is using some old (and very successful) tactics to appeal to management impatience with technology. The ‘No Software’ theme is childish to say the least, but will appeal to technophobes who distrust technology professionals. Instead they are encouraged to trust a supplier that offers a closed, proprietary applications and development environment with little way out.

Claims of massive productivity boosts using Platform-as-a-Service are already being made, and Salesforce has joined the party. These claims are generally nonsense since productivity is hardly affected by technology, but more by issues such as accurate specifications, design and skill levels. Managers should treat productivity claims made by PaaS suppliers as just so much hot air (we’ve been here before in the early nineties with fourth generation language 4GL suppliers).

Salesforce has every chance of making its triune offering very successful. Its marketing messages will have broad appeal, and it has created an environment for powerful network externalities to materialise – but IT markets have never been particularly sophisticated, because of a largely uninformed customer base.

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Some basic economics come to the rescue in this situation. Any search – on Google or other search engines, contains paid for advertisements sponsored by organisations and individuals who believe that what they have to offer is worth paying for. This is certainly one level of refinement. Of course we may come across some blindingly useful posts created by an individual or group of individuals, but getting to them will often cost more than the resulting information is actually worth.

The proliferation of low cost data (‘tweets’ being the obvious example) has ironically created a need for better quality, trusted information sources. Brand is becoming much more important, since it can convey authority and integrity. The current boom in sources of data is the soil out of which new information sources will flourish – but it will not be the low quality information that is just all too common. Instead we will see information of a quality that we are possible unfamiliar with, and the effort and investment needed to create such information will be the barrier to entry for most aspiring ‘experts’.

I suppose I should join the chorus of commentators saying cloud computing is over-hyped, but I actually believe it is under-hyped (I don’t know if Gartner has a means of incorporating this into its Hype Cycle). The basic economics behind cloud computing are so compelling that it would be hard to over-exaggerate, and yet this topic has hardly been treated by most writers.

The IT industry and its customers resemble a cottage industry. Each organisation reinvents what many other organisations are doing and the scale of IT infrastructure in even the largest corporations never gets large enough to realise significant economies of scale.  Programmers duplicate what many other programmers are doing in similar organisations and management sweat over similar problems. The cloud has the potential to change all of this – but it won’t happen without resistance from the very people it will eventually help.

Let’s have a look at some primary economic drivers…

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In today’s economic climate it seems very few managers are thinking about the long term returns from IT investments. If a return cannot be shown over a six to twelve month period a project never sees the light of day – and it’s quite understandable. Nonetheless if we are to be evaluate a potential IT investment sensibly we need to consider a timeframe extending beyond the initial justification period, and some estimate of long term returns made. It is often the case that projects that are justified on a short-term return basis simply fix some transient need. With IT we always overestimate short-term effects and underestimate long-term payback. This is unfair, and contributes to the negative press that IT often gets.

Unlike most investments – plant, machinery, office equipment and so on, IT systems do not wear out or depreciate. The usual accounting methods do not apply, although they will no doubt persist. The investment machinery in most organisations is fairly prescriptive, but it is certainly worthwhile considering the longer term impact of an IT investment – just to be fair.

The proliferation of information that accompanies a new wave of IT fashion is so prolific that it becomes hard to ignore. These waves can be easily identified by irrational exuberance, followed by a fairly bad hangover. The only way to avoid availability bias is to focus on what senior management within an organisation is trying to achieve, and researching the technologies that would support these goals with hands pressed tightly over ears to block out the noise of the IT industry. If this cannot be done then availability bias is the inevitable result.

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While it may be prudent to acquire information search capability, there is also a real need. The volume and complexity of information continues to escalate and getting hold of information in an operational context has become increasingly difficult. Inefficiencies abound, and while the ‘don’t fix it unless it’s broke’ approach may still cause some inertia; there is a growing operational pressure to address the search problem.

Before looking at the economics of search we should put aside the categories of search technology offered by the IT industry. Enterprise search, business intelligence, digital asset management, content management and any other technologies that are highly focused on search will inevitably converge and become a single technology. So we’ll use the generic term ‘search technology’.

The economics of search are fairly easy to understand. The cost of search should be less than the value it delivers. As always the ‘cost’ part of the equation is fairly easy to establish – the value part isn’t.  To get started we’ll consider some of the inefficiencies that search can address:

• Duplicated effort – either because information could not be found or because there was no knowledge of its existence.
• Excessive search costs – as people spend more time hunting down specific information in a rapidly growing information inventory.
• Lack of knowledge sharing – simply because there is no infrastructure to share knowledge.
• Undiscovered knowledge – not knowing what we know because nothing is telling us what we know.

The list is pretty well endless. The problem of course is putting a value on all of this.  Various surveys tell of information workers spending twenty or thirty per cent of their time fruitlessly searching for information, and obviously it is fairly easy to establish what this is costing. Other inefficiencies are much more difficult to value.

The cost of addressing information search problems appears fairly straightforward, but there are some costs that will never be accounted for. Hard costs include hardware, software, training and consultancy. These can be listed neatly in a spreadsheet. The soft costs include the cost of setting up metadata (the information that describes information assets such as documents, photographs, presentations etc.) and time spent by information workers using the search capability.

The value delivered by search technology is almost impossible to calculate. However it is common to hear managers complain that decisions are often made with insufficient information, and one must assume that better access to information would add some value here. At the macro level there are strong arguments showing how knowledge and information capable organisations are valued more highly (higher share price). This should interest senior management if bonuses are linked to share price. It doesn’t require too much thought to show why this is the case. Lack of information is closely linked with increased risk and diminished capability. Easier access to quality information would reduce risk and improve capability and this would show in the overall performance of an organisation.

Most organisations will adopt search technologies simply because they have to. More enlightened management will see the opportunity to deliver a real advantage to their organisation (and possibly to themselves). Search is the other half of the information problem and at the moment global spend on search is less than two billion dollars. Global corporate spend on IT is around two trillion dollars. So we spend 0.1% of our IT budget on search – we’ve got a long way to go to balance the equation.

Finally it is worth remembering that acquiring data is nothing more than a cost (data input, document creation etc.) and only when we convert data to information (by addressing uncertainties) do we get any value.

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There are many reasons for this phenomenon and most of them derive from behavioural issues, well understood in behavioural finance and economics. I will be treating these issues at length in various posts. Some of them are not pretty, and I’m well aware that treating issues such as IT careerism may ruffle a few feathers.

Paul Strassmann has a web site at  www.strassmann.com

Along came the PC. Users could manipulate spreadsheets with ease and correct mistakes immediately. Documents could be created at will and small databases be created which contained information that could not be accommodated on the mainframe. The rest is history.

The corporate IT function eventually legitimised the PC through client/server architectures, and the PC has become so ubiquitous that we rarely use this term to try and put the PC in context of the corporate IT function.

The arrival of the PC saw a massive boost in demand for technicians of all kinds. The fears of the old guard were unfounded – the PC did not destroy the corporate IT function it expanded its scope and influence even further.

Around five years ago there was a change in the use of information technology that went by almost unnoticed. In 2004 the consumer market for semiconductor technology became larger than that created by corporations and governments. While we may all think that corporate IT is the where all the action is, the reality is somewhat different. The major advances in the way we use information technology are happening in consumer markets. Cloud computing resources are used without hesitation by many individuals. FaceBook, Twitter, Google applications and any number of other on-demand applications have seen massive uptake – while the corporation jealously guards its in-house resources, fiercely arguing how dangerous cloud computing might be.

We also need only look at the widespread uptake of devices like the iPhone with voice, text, email, video and access to on-demand applications. Consumers are running ahead of the traditional corporations that serve their needs, providing much opportunity for new market entrants.

If we want to know what the future of IT looks like we need to eat a little humble pie and look at the consumer. On-demand IT resources, mobility, social networking, opportunistic collaboration, personalisation and most importantly much cheaper IT.

So how does this map into the managed IT environment of the corporation. The first thing we can say is that commodity applications such as CRM and ERP will sooner or later be hosted in the cloud. The companies offering these applications as SaaS (software as a service) will inevitably be able to do so at less cost than the do-it-yourself model that is used today.

Individuals and even groups of individuals within organisations will use on-demand resources, with or without central IT knowing about it. Collaboration systems are perhaps the best example of this. Departments within corporations are simply signing up to one hundred dollar a month collaboration systems and using them to coordinate their activities. Others informally use cloud storage such as Microsoft’s free SkyDrive offering to share documents, databases and other files. If a cloud resource becomes available that addresses a need not addressed by the organisation’s IT function then people will use it.

The IT department needs to understand one thing – the consumer model for the use of IT will become the dominant model within the enterprise. It will happen by osmosis and there will be no stopping it. So where does this leave the IT professional?

The starting point is to consider the employee as a consumer – a consumer of corporate IT resources. They will expect on-demand, personalised resources from within the enterprise, and if they don’t get them they will go elsewhere. So does this sound like less work or more work for IT?  Well it sounds like more work to me – but since IT has only so many resources it will have to let go of something – those commodity applications.  The enterprise will have to offer its own cloud to the user, and this will probably involve shifting some of its current workload into the cloud.

Let’s pretend for a moment that we are old-guard. We continue to offer a rigid set of applications with limited personalisation and little opportunity for sharing. Our users will simply go do their own thing within their departments and we will become less relevant to them. If we embrace the on-demand consumer culture we become fully engaged and the user will ask more of us.

This is a big change. IT likes to talk about centralised systems and grand architectures. Knowledge management is still perceived as some centralised function – but people are sharing knowledge informally in a way that suits them through networking and informal collaboration. It’s the same story with integration and large SOA projects. I’m not saying that these activities are unimportant, but I am saying that the focus is wrong. It should be outside-in and not inside-out as is usually the case. Some CIOs will get it others won’t.

I’ve already spoken with many IT professionals who see on-demand as a threat. It’s just a replay of what happened twenty five years ago.  Resistance is futile, adapt or die.