Data Doghouse - performance management, business intelligence, and data warehousing

On-Demand (or SaaS) Index: Fundamentals Matter

The On-Demand Index (ODI) is down 18.55% YTD. This compares to YTD performance:  iShares S&P GSTI Software Index Fund (IGV)  -7.69%, Dow -14.46%, Nasdaq Composite -12.69% and S&P 500 -12.94%. But the stocks in the ODI vary widely from a 24% YTD gain to a 69% loss.

The stocks recording a YTD gain include: The TriZetto Group, Inc. (TZIX), Ultimate Software Group Inc. (ULTI), Salesforce.com (CRM) and Kenexa Corporation (KNXA). Although these four companies vary widely in what they sell they have several key business attributes in common:  profitable (earnings now), applications that businesses need in growth and recessionary climates, ability to beat out competitors (even much larger companies with deep pockets) and, a reasoned business growth plan.

 

This does not imply that the other companies in this index are not as good companies (you have to pick your criteria for what that means) as the top stock gainers but that investors have not felt their stock prices at the beginning of this year were as justified as the top gainers. Fundamentals matter, especially when the bull is taken over by the bear. There were a number of articles and posts about these companies being recession-proof but that is different than the stocks being bear-proof. Any of these companies in the ODI may be good investments at (different) times but you have to do your homework about the company’s products, revenue and earnings prospects, management team and competition. On-Demand software may be the wave of the future but that does not mean any company selling it is a good investment. In the initial hype and IPO wave everyone is seemingly a winner but we are past that wave now.

On June 25, the article in Barron’s titled “Pack the Cooler, Dump These Stock” reinforces our message of examining valuations and fundamentals in regards to tech stocks. The article stated “Stocks of some leading tech companies are trading at absurd multiples relative to the rest of the technology universe. Why, for example, is Salesforce.com (ticker: CRM) trading at a price-to-earnings (P/E) multiple of 110 times next year's projected earnings, when Microsoft (MSFT), the largest software vendor in the world, trades at just 13 times?” many of us would have no problem making the case for why CRM should get a much higher multiple than MFST, but a 110 FORWARD P/E is pricey and has expectations built in for perfection (or acquisition.)

Eric Savitz, in his Barron’s Tech Trader Blog on June 25^th summarizes Goldman’s tech analysts’ feedback on salesforce.com: “Goldman says the company is benefiting from the transition to software-as-a-service; they also think it is an attractive takeover candidate. But they keep a Sell rating, noting that the stock is “priced for perfection, with a take-out premium baked in.”

Now is not the time to just buy a stock just because it is down and the company sells “cool” software. It is great to be a on-demand enthusiast but before any of these stocks become one of your investments make sure you feel the company business can meet the expectations implied by its stock valuation.

Disclosure: I have no current stock positions in any of the companies listed in this index and no current business partnerships.

Note: The index is calculated on an equal-weight representation based on closing prices as of 12/31/07.

“Failing to Plan is Planning to Fail”, Part 1

Some clichés ring truer with experience and this one is re-enforced by countless DW, BI and performance management projects. Most of these projects have a plan and many are very well thought out but some critical success factors (CSFs) are:

• Never really incorporated into the plan
• Removed or reduced significantly during the budgeting process
• Cut back when the project is going over budget or missing its milestones

The CSFs to a DW, BI pr PM application that is used and trusted are:

• Testing
• Documentation
• Training & Knowledge Transfer

Time and time again you can trace the fact that the business people do not trust or understand the solution to these factors being short changed. Hundreds of BI licenses becoming “shelf-ware” or data shadow systems being used instead of the BI solution are great indicators that despite an IT group having implemented the latest and greatest BI suite and loaded a DW with terabytes and terabytes of data, if the business people do not know about it, understand it or trust it then it will not be used.

Despite business and IT both being complicit in the decisions to inadequately fund or cut resources when the project gets behind schedule for testing documentation or training, the bottom line is that BI solution does not get used. And the fingers start getting pointed which is never pretty.

In subsequent posts, we’ll discuss why each of these areas get short changed and some suggestions on what you should do.

Mars (IT) vs Venus (Business): The Latest Round

The “Men Write Code from Mars, Women Write More Helpful Code from Venus” posting in the Wall Street Journal’s Business Technology blog on June 6 produced very lively discussion. The post discusses the insights of Emma McGrattan, the senior vice-president of engineering for Ingres who is one of Silicon Valley’s highest-ranking female programmers. She basically says that women document their code versus men who not only do not document their code but often “...try to show how clever they are by writing very cryptic code. They try to obfuscate things in the code...” Emma is on a mission on a mission to get more women interested in computer-programming careers but she says “it’s proving very challenging.”

I am not touching the issue of men versus women in programming, follow the link for that discussion. The question that I have is does this impact IT and business communication and interaction? I initially raised the issues on IT and business interaction in the following articles but deal with it on a regular basis while consulting, training or writing.

· “IT is from Mars, Business users are from Venus”, SearchCRM.com, 30 June 2005

· “Business Intelligence Goes Back to the Future, Part 2: Couples Therapy for IT and Business Users”, DM Review, August 11, 2005

IT along with engineering, math and science oriented college studies are still populated by primarily by men. When received my undergraduate degree my engineering university was 90% male while now is has only(!) 65% enrolments by men. [When I mentioned this to my teenage son he said why would anyone, meaning a guy, go to a university with a 2-to-1 male to female ratio? Thanks, son.] Unfortunately, girls are turned off by or diverted by math and science before they even get to high school. But since the business people that IT works with are often also primarily male this does not explain the interaction problems.

Maybe it is not the male versus female aspect of IT but rather the geek thing! After girls are diverted from math/science in elementary & middle school, it’s in high school where peer pressure, poor curriculum and parental advice steers kids (male and female) away from math/science. First, it’s a geek thing. Only nerds like math and science all your buddies say. And the nerds are socially awkward and stick together on the math club or debate team. [We are taking about my youth here] Second, high school math/science curriculum stinks in the US. Could educators make these subjects any more boring and unrelated to the real world? [A shame] If the peer pressure doesn’t turn you off the boring classes certainly will. Finally, parents and the news media keep telling kids that there are no jobs in IT or all the jobs are going offshore. Computer science enrolments have been declining for years.

There are two factors from the high school experience that do impact IT and business relationships. First, many people in IT would rather spend their day working with technology and other people who are technically oriented. They might not interact well with business people because they have difficulty relating to people who do not understand technology or discussing business issues. Or maybe business people still view IT as geeks!

Second, an increasing portion of the IT workforce is foreign. [Math and science is more respected overseas?!] Without debating the offshore, H1-B or immigration issues, it is a fact of life that many US-based IT shops are increasingly percentage of their workforce being foreign-born workers. These cultural differences do impact IT and business interaction just as every immigration wave has impacted people’s interaction in the past.

IT is still from Mars and business people are from Venus.

ps: Athena (picture) is the goddess of wisdom (and war)