March 2003, Issue 17
Ray Lane knows a few things about application integration and enterprise-system management. In fact, in a market preoccupied with gaining better visibility, Lane has seen it all. He’s had decades of experience–most notably as president and chief operating officer of Oracle–where he led an expansion beyond its core database technology into enterprise applications and professional services. During his eight-year tenure, Oracle’s sales grew from roughly $1 billion in 1992 to $10.1 billion. Lane serves on the boards of numerous software companies, including FreeMarkets, Marimba, Quest, and SeeBeyond.
For the last two years, Lane has achieved new industry status as a general partner at Kleiner Perkins Caufield & Byers, one of Silicon Valley’s leading venture-capital firms. Among his investments are Valdero Corp. and MetaMatrix, both vendors of software and architecture solutions for real-time enterprises. Optimize senior managing editor Paula Klein spoke to Lane recently to find out what’s real and what’s retro about the real-time enterprise.
Q: Is the real-time enterprise a radical concept?
A: We’ve been trying to change 20th-century corporate culture for 20 or 30 years now. We’ve talked about automation of business processes, changing the way companies do business, and we’ve called it lots of things–business-operations engineering, client-server, or whatever. The idea is to replace labor with capital, automate, and process transactions more cheaply. Why are there still so many humans doing each step? Transactions are still mostly manual and labor-intensive, so we’re attempting to change the model again.
The intractable conclusion about 20th-century companies is that their structure has to change and be more virtual. They can’t be so rigidly based on location or organization; lots of nonessential work goes on. Processes can be outsourced cheaper, faster, better. Business processes will be more self-serve. Human resources (HR), order processing, those can be done without people. People will have higher-value jobs and they’ll process the exceptions only.
Q: What’s the promise of RTE and how is it different this time around?
A: The Internet offers real potential, but change is evolutionary. We’re still not there yet with RTE; even Dell and Cisco aren’t. Decisions are very latent. We still have serial execution, and there’s no visibility by customers or suppliers. We put new information into old systems. Even Cisco couldn’t see all the way through to its inventory levels when it needed to.
The goal is for a manufacturer to say, “I need 10,000 parts next week,” and the first-tier supplier has to know that and filter that through the supply chain as an organism and get the parts immediately. Better ordering and forecasting would cut overall expenses by 30%.
Automation did happen in the past decade, and some departments are doing tasks well. What’s missing is enterprise ability; it’s all departmental now. The enterprise is incompetent as a result of mergers and acquisitions and reorganizations. IT is the problem. It doesn’t give me competitive advice. That’s just wrong. We have to make computer systems faster, more responsive. We need to bring all the data to the enterprise level and react at the enterprise level.
We’re too set in old business processes. We try to change what’s new to the old way, but we have to get rid of the old ways. Young people recognize the value of the new ideas. They’re empowered to make the change in the next 10 years when they take over.
Q: What’s the business imperative?
A: We need full information transparency and on-demand response to questions. I have to know now. You need to integrate information and have messages flow through applications and out to customers in a few days, and go to the supply chain to get that information. I need global visibility. I want to know the status of one order immediately–I don’t care if it’s on an i2, Oracle, or SAP system. I want to know it will be shipped Thursday at 4 p.m. But we need applications to tie all the inventory and databases together.
How can the enterprise be responsive? That’s the next thing. Build apps, portals, query systems to allow businesses to access information. Customers want transparency and to serve their customers.
Now there’s a “push” mentality in the supply chain: Build to a plan and push inventory through the channel. For example, GM will build 2,000 Impalas, so it needs 8,000 tires, wheels, etc. If orders change, there’s excess inventory. In fact, there’s $200 billion in excess inventory in the auto industry alone. If you could eliminate those costs, you’d take $5,000 off the price of every car. Now replace this thinking with a “pull” mentality: You go to GM online and see what they have, drive one at the dealer, configure it, get a price, and order online; then you pick it up. There are huge benefits to the company and customers. That’s a build-to-order mentality. The year 2003 is not key to this concept. I’ve been talking about this for five years and will be for five more to come.
Q: Why do you favor startups? Won’t the big players dominate this market?
A: ERP vendors will take the transaction-processing role; their DNA is in supply chains, HR, finance, etc., and they work just fine. That’s their strength–a big, fixed world–but they can’t think like the new players. Why would Oracle want to build SAP modules? They’re not thinking about how to do that.
Some old-line vendors are paying attention–for example, IBM gets it, but they can’t just say the words. There’s still a disconnect between on-demand computing and the fact that [IBM] wants to sell lots of traditional products.
Microsoft has a great vision and ideas about RTE, but there are challenges. First, they’re not inside the enterprise, where the decisions are made. Second, they have to understand that there’s lots of software outside the Microsoft world. They can provide easy-to-use, robust tools, but they have to integrate them and embrace others. For example, .Net is a great language, but the real reason to use it has to be seamless connections to big, industrial-strength systems.
The infrastrucure companies, such as BEA, are starting to understand all of this and see through new glasses that they need to branch out to data integration, EAI middleware, etc. There’s a lot that’s still needed: all the dashboards, business-activity monitoring, business-process management, all of the business intelligence tools and EAI. Most companies haven’t built or even conceived of how to do this yet.
Typically, if the challenge is a discontinuous change in the status quo, startups have the advantage. Microsoft didn’t invent browsers; Netscape did. IBM didn’t invent the PC; Apple did, and so on. The RTE is a discontinuity with 100 years of status quo, so I think startups have an advantage.
Of course, well established companies can change, and fund skunk works within their walls to gain much the same advantage, but it’s rare. They will provide the massive infrastructure the RTE will require–operating systems, databases, application systems, etc., but the new tools and apps will likely come from the startup world. Some companies to watch are KnowNow and Asera/SeeC [SeeC acquired Asera in January].
Q: Who’s driving RTE at the customer level–the CEO, the CIO, or both?
A: The need is driven by competition. You’ll have no choice if you want to compete. Most CEOs haven’t spent time thinking about business processes in the past. It’s not something they’re chartered to do. But they need to ask: How do we do things? If they delegate that, it’s like the warden asking the inmates how to design the cells . . . you can’t do that. CEOs will have to spend time thinking about how they want the business to operate, how to do things faster, better, cheaper.
CIOs have been re-empowered; they were blamed for the dot-com problems and did lose control during the bubble. Everyone wanted to know why they weren’t doing more “E” stuff, so they bought products and overspent. But CIOs often deliver the message that people don’t want to hear: ERP didn’t show value, but value will come in time. We can do things better because of it.
CIOs have to push RTE while watching the budget, and that’s not easy. Of course you can do it a piece at a time, but first you have to have a vision: an enterprise architecture. Think of it this way: All of these apps at the bottom–Oracle, SAP, Web apps–form the foundation. Then there’s a metadata layer to represent the semantics and rules of the source data. On top of that are composite applications that can reuse existing apps. At the top of the stack is end-user programming.
I think it’s common sense, but businesspeople are in awe. They want to know, how do I get there? It’s still an education process, and there’s pent-up demand, so it’s all unfolding. It’s an interesting time.
Please contact Paula Klein with feedback regarding this article.