Anyone involved in Enterprise software or hardware companies should read this article from TechCrunch.  It has a few key insights, that mirror what I’ve been observing, but put it into words much better than I could have:

20 years ago, the technology adoption curve generally conformed to the following order:

1. Government, specifically Defense and Intelligence organizations.
2. Businesses, with large businesses going first and smaller businesses adopting later.
3. Consumers

Today things have completely reversed. The latest technology goes to consumers first, followed by small enterprises that behave like consumers, then larger ones, then the military. The stunning reversal is one of many profound side effects of broad scale Internet adoption.

The reversal in the cycle has really interesting ramifications for businesses who sell to other businesses… But this shift is going to take a lot longer to change Fortune-500 buying cycles than people anticipate…

Seems like just yesterday I was writing about the jobs outlook in Texas (and in Austin in particular).  And just a couple days later there was an editorial in the WSJ about the jobs picture in Texas vs. California:

The September state unemployment numbers came out last Friday, and we couldn’t help noticing that three of the four states with the highest job losses were California (-63,500), New York (-37,600) and New Jersey (-20,200). The other was Massachusetts (-20,900). Texas, meanwhile, gained 4,000 jobs.

This continues a longer term trend.Over the last year, as the economy was beginning to grow again, the Lone Star State has led the nation with the addition of nearly 153,000 jobs, while California surrendered 43,700, New Jersey lost 42,300 and New York dropped 14,600. This superior jobs recovery builds on the fact that Texas also weathered the national recession better than most states. According to a new Texas Public Policy Foundation study, Texas experienced a decline of 2.3% from its peak employment, while California fell nearly four times further, with 8.7% of jobs vanishing.

I’m all for boosting Texas.  But I do think that the analysis in this article misses a key point:  Texas never really had a housing boom.  All of the other states mentioned, did.  Nevada, for example, is certainly a business-friendly state, but they’ve had a horrible time with job losses because the housing / real-estate market collapsed.  Texas didn’t really have a real estate bubble to pop.  When the real-estate bubble was bursting, median home prices in Austin were approximately $210,000, and have since dropped a bit to $180,000+.  The market has remained robust.  Even still, construction workers have struggled and hourly rates have dropped in Texas.

Second, Texas has a robust energy industry  segment that is acting as a foundation for the rest of our economy.  At times, the energy business is out-of-step with the rest of the economy- doing well when the economy in general is suffering, or the other way around.  That energy business has acted like a low-tide limit on the Texas economy, and continues to help Texas add jobs and retain existing jobs across a range of support industries.

The article blames tax rates for the difference – but ignores the fact that Texas has an almost punitive property tax.  I’m sure if we did an income analysis of property taxes we would find that the wealthy in Texas pay the lion’s share of property taxes.  I don’t think the broader economic differences between the states are primarily about tax structure so much as about fundamentals at a more basic level – the balance of supply and demand of labor and real-estate.

There’s a case to be made for “slow and steady wins the race” – gradual changes in the economy can be adapted to by nearly everyone involved. Drastic changes (up or down) are really disruptive to the real people involved.

On Business Insider a few weeks ago:

Soaring healthcare costs are causing Microsoft to scale back its generous employee healthcare program.

The company told its employees today that they would have to start paying for some of their healthcare benefits in 2013, TechFlash reports.

Microsoft is one of the few companies that covered 100% of its employees’ healthcare.

We can understand why Microsoft changed their coverage policy – health insurance costs are going up much faster than underlying health care costs, and Microsoft has traditionally had some of the richest health benefits in the industry.  Sadly, we’re seeing this story repeated all over.  At many companies, including the ones I’ve worked for, employee benefits never approached the level of Microsoft’s benefit package.  At BP3 we don’t claim to live up to Microsoft’s high standard employee benefits either – but as a small business we review our benefits package every year, and we take it really seriously to provide good benefits for our employees.  This starts with running a conservative, healthy business that makes such benefits affordable.  And our core values are to take care of our team.

In our first year, we added health insurance – and as the employer, we pay the whole premium for our team members’ families.  In the current US system, we think this is the employer’s responsibility.  But we also leverage HSA accounts – so that employees are aware how much health services really cost.  It is the best balance between coverage and market forces that we can find in the market today.  We’ve been able to maintain this benefit, despite the increasing costs, because our business is healthy.  We also got a modest office to work from, so that we could take conference calls in peace and quiet and get together for team meetings.

Our second year, we added a 401k program, along with employer matching funds.  This was a commitment we made to our earliest team members- that we would get it sorted out by the end of our second year so that we could all save for retirement.  BP3 is the first company I’ve ever worked for that contributed matching funds to my 401k.  Its hard to believe that most companies in high-tech (and other industries) don’t match contributions, when it is such an obviously smart move for both employer and employee.

Our third year, we moved into a nicer office – still modest, but more professional.  It makes for a very nice home base.

This year, we’re adding group life and group disability coverage to our benefits (paid by BP3), because we’re finally big enough that we can get rated and get policies for this.  Our team members often travel – it is important to protect them, and their families, from unlikely but unfortunate circumstances.  (I remember vividly in my first winter as a traveling consultant for my first employer, one of our sales reps at that company died when his plane went down in icy weather.  It was shocking to the whole company, and we all pitched in for an education fund for his children.  Memories like this still shape the way we look at taking care of our people. )

I don’t know what we’ll do to improve our benefits next year.  But I know we’ll keep reviewing benefits; we’ll look for opportunities to get more cost-effective benefits, but also to get materially better benefits for our team.  I commend Microsoft for their progressive view on these benefits – but I fail to understand why so many startups and small companies take such a short-sighted view toward these essential safeguards.

In any business I can think of, you need people.  And the people are what differentiate your business, from every other business in your space.  Any advantage you have, that isn’t rooted in your people, is temporary and ephemeral.  Take care of your team.  Take care of your people.

Austin continues to lead the pack in Job creation among larger cities:

The Austin area continued to add jobs last month mostly in education as the school year began with a 2.3 percent growth rate compared with the same time last year.

The Texas Workforce Commission reported Friday that Central Texas gained 17,300 jobs from September 2009 to last month, for a total of 771,200 jobs.

That growth rate is the highest among major cities, according to Beverly Kerr , the Greater Austin Chamber of Commerce’s vice president for research.

Kerr, who compiles a ranking of the top 50 metro areas, said that Austin is ahead of Washington, D.C., which had a 2 percent job growth rate last month.

I don’t know exactly what Austin’s secret sauce is, but I think it has something to do with the diversity of employment (especially for a city our size), the affordability of living, the desirable arts and music community, emerging startup community, and strong organic and green movements.  It doesn’t hurt to be the state capital either.  Maybe we’re just lucky.  Whatever it is, we’re proud of our little city for putting people to work, and being a great place to live. We hope to see the rest of the country picking up steam in the next 6-12 months as well.

On 60-minutes last night there was a truly difficult-to-watch story about long-term out-of-work people in the San Jose area.  The really difficult thing about industry upheaval is when a whole job category “goes away” in a material sense – as has happened to so many real-estate-related jobs.  The new “normal” in that industry is rebuilding from a much lower base of employment (and revenue).  This isn’t because the industry got more efficient, it just shrank when the bubble burst.  But some of the people laid off in that business were in it for 20 years.  Once you’ve specialized to such an extent, it is hard to start over in another area – and the competition for open positions is pretty fierce.  There are often so many applicants that businesses can’t realistically review all of the resumes – and when they do they are more likely to rely on resume-screening techniques (which don’t work very well, but do limit the pool of people to talk to) rather than taking the time to talk to all the applicants and understand why someone might not look like a fit on paper but actually is a great fit for the role.  We’re going to go through a rough transition time as people with long-term investments in skills are forced to abandon their chosen fields and pursue new opportunities where their skills or experience may be less valued.

Max J. Pucher always writes interesting copy on his blog.  And one of his latest, on BPM and the Jobless Recovery, is no exception:

Well, I propose that it is the efficiency and cost-cutting mindset also employed in BPMS justifications that is a major cause of the ongoing lack of jobs in the US. BPM implementations focused on automating work with flowcharted processes (and excuse me,  the majority are!!!) are only usable for a subset of work – those repeatable, low value, high-volume admin processes that ERP can’t handle. The ROI justification is virtually always about less people needed per revenue!

I’m afraid that BPM isn’t in such common usage as to affect the staffing decisions of the local bakery, the law firm, the ad agencies, and the factory floors, which have all shed quite a few jobs in the US (and, of further note, manufacturing jobs in most countries around the world are in decline, as non-BPMS automation is displacing more and more human workers in the manufacturing process).  And it isn’t relevant as an explanation for the dramatic job losses in construction, real estate, mortgage financing, and other related businesses.  (Moreover, according to the New York Times, Eurozone unemployment was steady at 10% as of May 2010… perhaps the US is more volatile, but at 9.6% it doesn’t seem to be an order of magnitude off).

While I agree with Max’s frustration with companies that are so focused on cost-cutting that they’ve cut bone as well as fat – and I agree that this extreme cost-cutting actually deepened the recession and slowed the recovery (because, in this particular recession, the primary driver has been a reduction in consumer spending, rather than in corporate investment).  But BPM is hardly the reason that home building, mortgage processing, loan origination, and other related fields were hit so hard. Quite simply, there was a bubble in that segment of the US economy that had nothing to do with BPM. The bubble led to over-investment, and the bubble bursting led to dramatic re-valuation and contraction in those sectors.

But there’s more meat to Max’s article, regarding the cost of BPM implementations:

Yes, I totally agree with Jim’s assessment of the complexity and substantial people effort need to get BPMS implemented. Some of the cost is also not process related, but caused by the technology stack being used and the resulting INTEGRATION work. Therefore I propose a consolidated platform rather than integration with others. Businesses who try to integrate existing ECM, BPM, CRM, BRM, E20 and BI suites will never achieve a truly dynamic, adaptive and financially sound BPM.

Not too much to take issue with there. Integration is usually one of the biggest costs… And later:

Because the BPMS skills are expensive and rare they are mostly provided by outside consultants. In effect that means that once the processes are implemented the people who know and understand them move on, leaving the business with unskilled workers and killing the ability to improve or innovate. This is the worst possible business proposition I can think of.

(Max’s emphasis).  Max is blaming the wrong party here.  If businesses are left with unskilled workers, then it is the business that must change – by hiring and retaining talent for improvement and innovation.  Hiring consultants as part of a strategy for change makes sense. But making outside consultants the beginning, middle, and end of a strategy for change is not the answer.  Like *all* human resources applied to projects, consultants will move on.  But so will full-time employees.  It is important to build enough critical mass and momentum in BPM efforts to create sustainable organizational learning that can survive the departure of a key team member(s).

Mainly, however, I disagree with Max’ dark view of BPM:

I hope that Jim is wrong with BPMS adoptions speeding up and that we are rather on the verge of enough people realizing that BPM as a concept that turns people in to process monkeys is a failure.  In the worst case, it won’t just be the ‘jobless recovery’ that is going to crash on top of us, but it will be the inhumane, fully automated, mass-produced, market-segmented, analytically predicted process nonsense that will make even those customers walk away that still have a job.

As I’ve argued many times before, BPM can’t be about turning people into “process monkeys”.  It has to be about removing the mundane, and enabling the real humans in the process to excel.  Once someone’s job has been reduced to “process monkey” it is truly something that will be automated.  The point is to remove the “process monkey” parts via automation and leave the judgment calls behind.

From Silicon Alley Insider, on hiring decent engineers:

Unemployment in the United States is still at a brutal 9.6%, but for software engineers the job market couldn’t look much better.
Everyone in tech knows that there is a serious engineering deficit, but apparently no one outside tech knows about it, so new talent isn’t flooding in to fill the demand.

There’s an interesting disconnect in the economy right now.  Employers think that with high unemployment, people should be desperate for work, including software engineers (and BPM experts, incidentally).  But software engineers have more leverage than they’ve ever had because:

• Young(ish) companies like Google, Facebook, Twitter, etc. have created thousands of new jobs.
• Old(er) companies like Oracle and Microsoft and IBM seem to keep growing their software staffs no matter how many hiring freezes and layoffs they might have.
• Seed capital is plentiful
• The cost of starting up has come down dramatically, at least for “web startups”

But the key issue, captured brilliantly by Evan Korth (my emphasis):

Evan Korth, a computer science professor at NYU and cofounder of HackNY, tells us that people outside of tech, and college students in particular, are largely ignorant of how lucrative the opportunities are for programmers. This partly the result of stale media narratives, he thinks. In 1999, everyone was told that becoming a computer geek was the path to riches. Then the dotcom bubble burst, and the media was writing about out-of-work coders with no options. Programming skills were in high demand again before long, but the media was more concerned with the largely make-believe narrative that programming jobs were all being outsourced to India. So opportunistic college students are still focused on Wall Street.

If you watch the news, they’re still portraying software jobs as being under great pressure from outsourcing.  While that is true, supply and demand have found some equilibrium, and corporations and startups have realized that outsourcing isn’t a panacea, though some companies have clearly made it work well for their businesses (and others have not).  The overall job opportunities and job security for software engineers is quite high, as is the earning opportunity.

In the BPM world, there’s another dimension that makes things more difficult.  MWD Advisors’ Neil Ward Dutton captures the issue perfectly here:

And that disparity was something I saw echoed around other sessions in the conference and in conversations with those attendees who were already succeeding with BPM. Right now, success quite often depends on driven individuals who feel compelled to transcend their technical backgrounds and learn unfamiliar skills and languages.

I concur – the efforts required – cultural as well as business and technical – are so great that these individual heroics are often necessary to get an organization started.  But yet, a few driven individuals aren’t enough to sustain these efforts over time.  They have to transition to creating a culture of learning new skills and languages – and surmounting barriers.

Neil continues:

Increasingly, though, as the pace of business change increases and technology platforms bundle more and more high-level capabilities, the most crucial practices for IT organisations to get right themselves [...] are probably better classed as ‘art’ or ‘craft’ than ‘engineering’ – and please note that this doesn’t make them less important.

I couldn’t agree more – I’ve long been arguing that Software is more of a craft than an engineering discipline – and the way that we approach BPM is as a craft – taught by experienced practitioners to people who are still learning the ropes.

John Reynolds takes it a step further:

It’s time for a wakeup call in the world of programming… Our collective need for custom programs is growing at a much greater rate than our supply of master programmers.  We can either continue to focus on tools for these master programmers – to make them even more productive – or we can figure out how to empower those occasional programmers to do it for themselves.

If we don’t build tools that are targeted at the “occasional” audience, then nothing will change.  Occasional programmers will continue to suck.

John’s take is that we need to focus tooling for the “occasional” audience.  I agree.  And in particular, I think this is something that a tool like IBM’s Lombardi Edition could live up to (IBM is John’s employer) if the engineering team focuses on consistency (making sure that all similar functions are rationalized in a consistent fashion to the process author – inconsistencies make the experience more complicated), simplicity (make the easy cases easier, and boil away excess feature-itis ), and appealing (address the experience of both author and end-user). Interestingly, this could be done without giving up more advanced APIs and features.  (Not everyone believes this).

There’s also an interesting opportunity to address the “not programmer”.  If we divvy up the world into “master programmers”, “occasional programmers” and “not programmers… The latter two are clearly under-served markets- particularly in BPM, despite claims to the contrary!

Update: Looks like this topic got good treatment at Forrester’s Business Process Forum 2010, in a Connie Moore session (thanks to Sandy for blogging it!)

Donna Fitzgerald of Gartner has a very thoughtful post regarding whether our businesses might have cut too far in this latest economic downturn in a post entitled “Cutting to the Bone and then Some”  I think she makes a few valid points for sure.

Now on to my point; I’m not seeing the increase in creativity or innovation I would be expecting as part of our changing economy and I’m not sure why.  I’ve got a gut instinct that says we’ve cut too far and adopted too much of an attitude that if we have enough process than any trained monkey can do the work.  The problem is that trained monkeys don’t innovate.

Part of my concern comes from a recent personal trip I took.  Almost everyone I spoke with in my travels was angry, over worked and stressed almost to the point of breaking.  Stress kills creativity.  It also kills productivity over the long haul (though not unfortunately in the short run).

I’ve observed the same in many of my dealings with businesses.  There is a lot of stress and overwork.  And I agree with her instinct that too many people think that people are like nails- that you can trivially replace them with cheaper nails.  As someone who grew up in Florida, where hurricanes are known to make landfall, I can tell you that there are nails, and there are nails (not to mention, how you apply them matters).  And there are architects and builders that are worth the money you pay them – and you know this when your neighbor’s house survives the hurricane and the rest of the neighborhood doesn’t.

Why is it so easy for people sitting in management chairs to believe that people are fungible commodities?  It is this belief that leads to endless pursuit of the lowest cost-per-hour labor, where ever it is (Too often, people mistake cost-per-hour as being the same as cost-per-unit-of-output… but the hour is not the output, it is the input).

People are the beginning, the middle, and the end of your business.

According to the Kansas City Business Journal, 40% of US Professionals want to quit.  Wow.

But lets turn out attention to why so many professionals want to quit: their employers view them as a liability rather than an asset (read the article, it is there, between the lines). And with all the layoffs over the last 18 months, there’s more work spread across fewer employees.  In an environment of more work and stress, and fewer bonuses and benefits, we can understand why people might want to quit.  I’ve heard people say that someone should feel lucky to have a job- but equally, the employer should feel lucky to have their employees stick with them through hard times. It is, after all, your best employees who can still leave when the economy is down, and find a new job.

In another post, I tried to explain the dark side of the staffing service “body shops” out there: BPM experts are not a commodity, despite their best efforts to treat us so.  The big staffing firms I previously wrote about are also not committed to their people in any meaningful way.  When a project kicks off, the firm staffs up via hiring and contracting. But what happens when the project is over?  At these big firms, they just let go of all the people that can’t immediately place on another project.  People aren’t an asset to these firms, they’re a liability:  An obligation to pay salary and benefits. This is especially true of firms based outside the US who  leveraging local resources on a temporary basis (the locals are staffed up and down for each project independently in many cases).

We recently reached out to colleagues from a previous project – and we weren’t going to be surprised if they weren’t still working with the same customer.  But you could say that we were surprised they didn’t work for the big consulting company any more.  You might be thinking, sure, some low-level programmers got let go when the project finished. But no.  We’re talking about the people who were entrusted with running the project and managing the customer relationship.  Rather than leveraging their talents in another project, they were shown the door.

It must, at times, be hard for people who work at Fortune 500 companies, with a wealth of people walking their halls that have worked more than 10 years at the firm to understand the amount of turnover that happens at a typical big consulting body shop.  Or to understand how these firms put their teams together on short notice, and disband them equally quickly.

As a small firm, we sometimes have to hire talent to meet the demands of a project, but we’re hiring talent to reach a new plateau, and we’re taking on a commitment to continue their employment beyond just the project (otherwise, we’d just offer a contract).  We just celebrated a colleague’s one-year anniversary at BP3, and he’s about to embark on his 4th project with us.   And it isn’t a burden to pay salary to these employees. They’re our only real asset as a firm – their knowledge, experience, and commitment to our customers.

I hope in this time of economic turbulence, more employers will realize how much their people mean to their success.  And I hope we never forget that at BP3.

Business Insider reports on wage increases at Foxconn:

WSJ reports that according to a company announcement, minimum wage workers may see a more than doubling of wages, while others will see at least a 30% hike — previously the company had indicated a 20% wage hike to deal with the problem, so this is already an expansion.

I’m curious if this is going to stick at Foxconn, and if it will affect wages in China generally.  If so, I think it is generally a good thing for China, for the potential growth of the middle class there, etc.  It may raise prices modestly here, but counter-balancing that it may also moderate downward wage pressures here as well.  Or, perhaps it will create pressure to put manufacturing in other locations around the world.  Time will tell.

Theo Priestley wonders if an upbeat economy will be bad for BPM:

I had an interesting conversation with Ian Gotts of Nimbus Partners this week that raised a thorny question. In a downbeat economy the focus is to drive out costs and improve processes a lot more aggressively, probably more so than in ‘normal’ conditions where continuous improvement already takes place, so the attention is immediately turned to what BPM can achieve for the enterprise and can potentially account for such strong results being posted by vendors.

While it is certainly a valid concern for anyone in the BPM business to have, it is too early to tell what this turn of the wheel holds.

An example.  In 1994 a little company that sold configuration software to the makers of complex equipments (PBXs, servers, super computers, mainframes, etc) was growing like crazy in the midst of a tech downturn in the US.  Why? Because those tech companies were looking to tighten the belt on costs, and accurate configuration at sales time could help them ensure they built what they sold, reduced errors by 10x, etc.

Fast forward to 2001.  Another tech downturn. But in this tech downturn, the strategy du jour was not to cut costs by being more accurate- it was to simplify the product line dramatically and reduce cost by increasing the volume of commodity parts and sell those at lower prices.  Configuration was out, commoditization was in.

What will happen to a space like BPM if the economy improves?  Hard to say in advance – it will depend on how CEOs react to the new landscape- more hiring? more tech? more automation or capital spending?.  But in general, I think we’ll all be better off if the economy does improve :)

Austin’s economy has already been demonstrating a fair amount of resiliency in the last couple of years.  This week there’s been a flurry of good news for startups and entrepreneurs here.

First there’s the article from Bijoy Goswami in the Austin Business Journal, “Time has come for Austin’s entrepreneurs to make a scene.”  The ABJ has become primary source of business news for Austin business owners.  The article announces the launch of a news portal for Austin Entrepreneurs – www.abjentrepreneur.com.

Two of the first three articles:

Dachis buys third firm in 3 weeks

and

SolarBridge collects $15M in VC

Not sure how much overlap there will be with the kind of coverage we see on Austin Startup, which also focuses on entrepreneurs and startups in Austin, but it more of a blogging format.

I’ve been wondering if my generally optimistic view of the economy recovering was being influenced by being in BPM, or by being in Austin, where the recession has been “less bad” than it has been elsewhere, though it is still hurting a lot of families.  The Austin Technology Incubator had an article the other day with more evidence that Austin is a bright spot in the US economy at the moment.  (Heck, we even got our Metro Rail trains running)

I think this optimism will be spreading this year, however slowly.  I’ve been impressed with Austin’s resilience the last 10 years, and how the local economy has evolved:

Austin provides a useful lesson in how to stay on top of the innovation game. Start with an educated population (43% of Austin residents have a bachelor’s degree or higher), mix in a robust venture-capital scene (one of the best outside Silicon Valley), add a supportive community of peers (groups like Bootstrap Austin band together hundreds of entrepreneurs) and wrap all that up with a state government unafraid to throw money at companies that need a little help getting off the ground.

What I really find interesting about it, however, is how the actions of just a small collection of people have had such a big impact on the Austin economy and job market.  Some of the fastest growing employers in Austin simply didn’t exist 10 years ago.  And the startup “communities” here like Bootstrap and Capital Factory (as well as events like SXSWi) were spearheaded again by a very small group of people.  But the impacts have been broad – because these new companies, and the new communities, have grown bigger than the cadre of people who started them.  Its pretty inspiring to see the ripple effects of what people can accomplish with effort and funding that regular human beings can aspire to – and maybe that, right now, is the secret sauce in Austin: believing you can make a difference even if you’re just a “regular person”.

The summary of an MIT Enterprise Forum’s gathering of 3 economists seemed to be optimistic, but with major caveats and concerns.  With three bubbles in our rear view mirror (dot.com, oil, and banking/real-estate), the concern has turned to a potential fourth bubble: cash (when there’s too much of it, inflation can eat away at it too quickly).

Here in Austin, a major new shopping center has opened (phase 2 of the Domain), and the tallest building in Austin is nearly complete (the Austonian, apparently the largest residential tower in Texas).  Meanwhile, Facebook is opening an office and hiring 200 people in Austin.  And co-working facilities seem to be doing well, while providing a good support network for small businesses. So perhaps the better-than-average local economy is influencing my optimistic outlook.

Meanwhile, the Senate has passed a $15B jobs bill. I don’t know if anything in the bill will affect our business directly, but we make our decisions without regard to tax effects (generally that seems like putting the cart before the horse), and from what we can see the environment is still favorable for BPM software and deployments – businesses are investing in process improvement, and BPM.  And big software companies are investing in BPM software (witness the acquisition activity of December and January).  Its a good time to be focused on BPM.

Well, after much celebration before announcing the details, we now have some (just some) facts about Appian’s 2009.

It sounds like it was a good year – as MWD reports, its license revenue was up 59% (but we don’t know from what base, much like Lombardi’s reported numbers before it was purchased), and customers doubled.  Of course, another way to phrase this is that ASP declined by 20% (if my math is right), or that revenue mix has shifted from prepay (enterprise license revenue) to either post-pay or subscription revenue.

MWD’s assessment is that international revenue will grow faster than domestic revenue.  And while this argument makes sense, having worked at more than one company Appian’s size in my career, I can attest that international revenue can be very erratic.  For a few reasons:

1. When starting from a small base, a single deal (or two deals) can dramatically affect the percentage growth internationally or in a region.  However, with so few data points, it may say next-to-nothing about going forward revenue.
2. Even off of a bigger base, international revenue has so much to do with your sales operation, and so little to do with your product.  There are other products out there.  There are big consulting shops out there. Whether you capture the money (revenue) that is being spent to solve the problems your software solves depends almost entirely on your sales and marketing operation.
3. American companies of this size rarely understand the international markets well enough, and make mistakes which cause big revenue swings up and down.  This is true because the executives usually lack field operational experience overseas, and though they may hire that experience, they may not be able to successfully evaluate those international experts and may end up throwing good money after bad.
4. I’ve seen a single sales rep bring in 30% or more of a small company’s revenue for a single year, only to bring in zero revenue the following year.  Individual sales rep performance is crucial to small enterprise software companies.

Appian may well overcome all of these pitfalls.  But revenue in both the US and Internationally is coming off of a small enough base that we should expect to see high beta for any of the smaller vendors.

The conclusions that Appian’s results really drive home:

• BPM is growing, not dying.  And growing faster than enterprise software generally. (Not just from this datapoint, but from Lombardi, IBM, Savvion, Pega reported results)
• The BPM pure plays were doing well in 2009.
• The remaining pure plays may still have legs and room to run while Lombardi and Savvion acquisitions are digested – even if those acquisitions are quite successful.

Two articles caught my attention recently because there is an interesting synergy between the two.

In the first, Mike Gammage argues that BPM is the best career move for the next decade.  He makes a compelling argument: that BPM is the key to rescuing process management from silo views and project perspectives.  Others would argue that BPM saves the business from IT (or at least, saves its processes).

Mike’s take on why BPM:

• They are owned by the business, and are in the language of the business. They embed ownership of process management and process improvement in the line, where it belongs – not with IT or the Quality team or a Process group.
• They are truly the DNA of the business. They are holistic and integrated models of the organisation, so the impact of any proposed changes are understood and can be properly addressed.
• They deliver for the end user.They combine ‘live’ business processes with real-time KPI metrics, documents and e-Learning. They are personalised and delivered to every desktop across the enterprise in the language of the end user.
• They enable change. They underpin Lean and Six Sigma programmes, and foster a culture of continuous improvement. They provide a common language for collaboration between IT and the business stakeholders.
• They are governance frameworks.They are secure and auditable. They can force acknowledgement of process change, and ensure that every process and document is properly authorised.

Not a bad list at all.  The second article I read, makes the point that we are now a white collar country – more than half of us have white collar jobs now (actually, 60%).  And that manufacturing jobs are declining globally, not just in the US.

Really, it should be no surprise that final assembly is the least valuable, and the design genius of Apple the most valuable, work that go into an iPod, iPhone, or (coming soon!) iTablet. It’s been that way all along.

And this could explain why Dell’s prowess for logistics and final assembly eventually ran its course- once the logistics and final assembly were commodotized by its competitors, they didn’t have the investment in design to retain pricing power.

The interesting thing about this article is that usually, when people opine about the US becoming a “knowledge worker” economy it is with some wistful regret about the jobs and ways of life lost, as well as a concern that we’re ill-prepared to compete in such a world (due to our education system, etc).  But the author takes a more optimistic view – that we will compete well in the new knowledge economy but that we’ll have our work cut out for us.  He may just be right.

Great article from the business insider here.  In it, John Mauldin makes a great case for optimism in the long run, despite a lot of short-term difficulties.  Its a long read but well worth it as we approach the end of 2009 and a time for reflecting on the year past.

A few choice quotes:

We live in a world of accelerating change. Things are changing at an ever-increasing pace. The world is not linear, it is curved. And we may be at the beginning of the elbow of that curve. If you assume a linear world, you are going to make less-than-optimal choices about your future, whether it is in your job or investments or life in general.

and :

A pessimist never gets in the game. A wild-eyed optimist will suffer the slings and arrows of boom and inevitable bust. Cautious optimism is the correct and most rewarding path. And that, I hope, is what you see when you read my weekly thoughts.

At BP3, we agree.  We’re in the game.  We’re trying to help.  And we have a dream we’re trying to achieve.  Maybe John Mauldin is right.

This week I’ve seen a few articles at the global, national, and local level about the economy.  McKinsey has a new report out with their global economic conditions survey results.  You have to register for the report.

The key finding is:

Now, for the first time in a year, more respondents expect their companies’ profits to rise than fall in the near term. Product development and long-term planning are high priorities for many companies, and most are optimistic about their prospects in the longer term.

The general sense is that panic has receded to the background, and a new cautious optimism has taken hold.  I like the phrase used in the report – “an environment less comfortable than the one they knew in the pre-crisis world” – which is pretty much exactly the way I would phrase it for many of the companies that we work with.

Interestingly – more than half of executives surveyed support government intervention to support the various economies.  This isn’t necessarily what you would expect the survey results to show if you watch CNBC or Fox News.  As is often the case, executives’ outlook for their own companies is better than their outlook for the economy generally (this is usually true in good economies as well).

The key graph for BP3′s business was “Exhibit 4: What matters most.”  It shows that Cutting operational costs is the #1 priority for executives globally.  In fact, 4 of the first 5 priorities have to do with cutting costs and business agility.  These priorities line up beautifully with what BPM can do to improve their businesses.

Also, the percentage of respondents saying that they would decrease their workforce in the next six months has dropped from 50% or so to less than 30% since March.  Also,

Respondents from almost three-quarters of the companies expect them to be in a stronger competitive position five years from now than they were before September 2008.

There is a core, underlying optimism in our global corporations that, I believe, will eventually propel the economy forward. Of course, among startups, there appears to be even more optimism, in my judgment.  Compared to last year, the tone I hear from entrepreneurs is quite a bit more positive.

Locally in Austin, it seems that we are just starting to feel the pinch of the economic turmoil. We don’t get a lot of sympathy from other parts of the US, as the local unemployment rate has now reached 7.2%, compared to 4.7% one year ago.  But unlike many parts of the country, net job losses here are only .9%, so a significant percentage of the unemployment number is likely due to growth in the available labor force.

Statewide, Texas is at 8%, and nationally the US average is 9.7%.  As with many parts of the country, Austin’s manufacturing and construction businesses have seen a lot of job losses.

Bucking these trends, we’ve added one person to our team recently, and we hope to hire another 1 or 2 employees before the end of the year – but like the McKinsey survey results, we are cautiously optimistic and we’re being careful in our approach to growth.  The market may be favoring BPM and other efficiency investments, but investments are being made very conservatively across the board.

Business week recently put out a 4-page (on the web) article entitled “The Failed Promise of Innovation in the US“.

But after reading it, I can’t help but feel the failure was in the promises more than in the innovation.  The author (Michael Mandel) takes us back to 1998, and recounts some of the great expectations of that year – across a great number of industries – and then examines reality 10-11 years later.  The author finds our progress over the intervening years to be quite wanting, relative to the promises made in 1998.

Essentially I don’t find fault with his depiction of expectations (the Promise) in 1998, nor his description of the current-state reality.  But I think his assignment of “blame” or cause, is misplaced.  He seems to be saying that, in some fashion, the US has lost its “innovation mojo”, with some not-quite-determined cause for that.  The consequences of less innovation could be severe, as he rightly points out…

Here are a couple of the aspects of the last 10 years that the author has overlooked, which I think have a profound affect on the perception of innovation on the one hand, and on the actual pace of innovation on the other.

Is Perception Reality?

First, on the perception front.  I believe that the expectations of progress (Innovation) have a tendency to outstrip what reality can produce.  The reality is, innovation takes longer than people expect it to take to go from a successful lab experiment to something that we can connect with in daily life.  And the media is particularly focused on “lab” innovation, rather than the innovations that affect our daily lives.  I think this bias is because the innovations rampant in our daily lives don’t seem as dramatic and futuristic as the innovations that are bubbling in beakers in a cleanroom.  There’s something the big media companies love about showing footage of lab-coated or bunny-suited technicians titrating liquids in a gleaming lab. There’s a tendency to overlook more gradual innovation that is, in some cases, more remarkable.

Let’s take an example.  Look at Google’s iPhone and Android applications… you pick up your phone, ask it a question, it interprets your voice to understand what you’re searching for, and returns to you locale-based results, followed by more general results.  So if you pick up the phone and say “Italian Restaurants” the Google phone app will find Italian restaurants that are near you based on GPS coordinates.  The concept that SEARCH would yield this kind of innovation, in 1998, was unthinkable.  It certainly wasn’t part of our expectations for phones or for search at the time.  And so this kind of innovation gets short shrift from the author of the article.

The author spends a lot of his column discussing biotech – an area that requires an enormous amount of clinical trials before going to market.  In other words, regardless of how fast the “innovation” part of the engine is churning, there will be an enormous lag time between the lab and the real world.  Why?  Because of safety concerns.  Because we had some unfortunate drug safety mishaps with a whole category of drugs (pain relievers) that had side effects that could be deadly (heart problems primarily).   As the author points out toward the end of the article, there is a glut of biotech drugs about to hit the market – so it may appear that the next few years have an unusually high degree of biotech innovation, but in reality most of that work happened over the previous decade…

Another example from the author was Apligraf, with a skin replacement tissue that seemed groundbreaking.  Apligraf had problems with delivery, despite the fact that the product worked:  getting production ramped up, getting delivery of live tissue right, and getting costs down to make it competitive.  What the author failed to point out is that, during this same timeframe, another company, Lifecell, was achieving quite a bit of success with its products, in particular with AlloDerm and Strattice.  Lifecell was sold to KCI, but not before having a successful run as a public company (I should know, I made a little bit of money off of my Lifecell stock, thanks for the recommendation, Dad). The point here, is that even in specific categories we can cherry pick our data to argue either that innovation was great or that innovation was slow…

Other examples of how perception may not match reality?  Most Americans probably believe that American manufacturing is on the wane.  Employment in manufacturing is down year after year after year.  That part is true. But what most people don’t realize is that the US still is the largest manufacturer in the world… And that we actually manufacture more “stuff” now than we did in 1998.  We’ve just gotten less labor-intensive in our manufacturing businesses.

Even so, why wasn’t the reality of Innovation better?

Returning to the “actuals” front… to the extent that more innovation didn’t happen, why is that?

The author points out several valid reasons.  However, I think he overlooked something really important, specifically as it relates to one of the “innovation metrics” he uses: productivity.  Historically, innovation and improvement in productivity is a reaction to pressure.  The pressure that drives increased productivity might be competition- the company with the lowest cost often wins in the long run – and lower cost is either achieved by having cheaper labor or a more efficient (productive) operation.  When labor is scarce, companies focus on improving productivity.  But something happened between 1998 and 2009.  Large US-based multi-nationals discovered that, rather than improving internal processes and investing in productivity-enhancing capital equipment or software, they could move massive numbers of jobs from the US to Asia (India and China, largely).  A certain amount of innovation was enabled by the opening of labor markets overseas in combination with better (cheaper) telecommunications and internet connectivity – outsourcing of callcenters, IT, radiology, etc.

But it also stymied innovation at large corporations.  Largely they outsourced swaths of business (often IT), that were previously sources of innovation.  The quick win was to swap out expensive personnel for less expensive personnel (taking advantage of exchange rates, cost of living, etc.). This was true for skilled labor and for manufacturing.

However, we’re now seeing the glut in labor overseas evaporating.  Exchange rates are working against offshoring as the US Dollar gets weaker.  Skilled labor costs in India and China are considerably higher than they were in 1998, while labor costs in the US are relatively flat. Shipping costs are going up with higher prices of oil and gas.  All of this makes local production more important, and regardless of locale, a lack of additional units of cheap labor means that efficiency starts to look more important (as an aside, the author noted that lack of productivity improvement might have been a factor in why wages didn’t rise – but wages didn’t rise primarily because of a change in the supply/demand ratio more than because of a lack of productivity growth, in my opinion).

From where I’m sitting, BPM is the right way to focus our attention on where the efficiencies will come from.  Other technologies may be the keys to unlocking some of the efficiencies (for example, new capital equipment), but BPM techniques and process improvement techniques generally, can help us focus on the keys to the ROI kingdom.

Impressive sounding title to this article on BPM.com by Terry Schurter.

Terry gives a good background to bring new arrivals to the BPM market up-to-speed, and then dives into dividing the commercial BPM market into 4 segments:

1) Executable BPM software:
Software that is executable, meaning it moves data (in one of a number of forms) from interaction to interaction (between any combination of systems and people).

2) Non-Executable BPM software:
Software that is used to plan, manage, architect, analyze and visualize “processes.”

3) Technical Consulting services:
Services that design, manage, implement and maintain executable BPM software and/or other software to achieve a similar result.

4) Process Consulting services:
Services that help organizations address problems from a “process” perspective; deal with the change requirements associated with “business” changes, and lead improvement initiatives.

Hard to argue with this part.  BP3, for example, provides services to the latter two categories, because we feel there is a gap in offerings in the BPM space that address both technical consulting and process consulting adequately, with appropriate experts in both (there are services companies that are experts in one and novices in the other).

However, I found the overall tone of the article to be a bit negative- perhaps to counteract vendor “hype” which he refers to at several points in the article.  For example, he posits that BPM does not address human processes well.  But of course, when making such a statement, one has to follow with “as compared to what?” – because the bar that any software should be judged against is not an abstract concept of perfection, but rather that of its peers.  If, for example, BPM executable software suites represent human processes 50% to 100% (picking arbitrary range here) better than existing application integration software, that may well be “good enough” for now. In another part of the article, he points out that executable BPM vendors don’t address more dynamic/ad-hoc processes.  I would agree that they don’t address these well -but in my experience the factor holding us back from addressing these processes is the creativity of the process author (consultant, in many cases), rather than the underlying technology.  Technical consultants want to see order out of a chaotic process and try to fit the square peg in a round hole.  Process consultants don’t understand how they can parameterize the underlying software to make it more dynamic and responsive to the individual user’s personal process.  Both types of personalities need to be experts in their software of choice, and creative with their application thereof.

At one point in the article, Mr. Schurter mentions that BPM vendors have been frustrated by the space not “popping” as they hope or expect.  But I didn’t feel like he directly addressed why.  My personal opinion:  First, any software that is focused on real ROI, and delivering it, is training customers to not buy all at once, but to buy piecemeal and prove the value.  Second, BPM requires an intersection of skillsets that are hard to come by in one person’s body.  So what’s the good news?  I don’t believe there will be a popping of a BPM bubble either.  In several other spaces, the market grew faster than the vendors’ ability to mature and provide quality software to a bigger and broader set of audience needs.  The vendors ossified around narrower technology offerings faster, and sold them like hot-cakes. But when it came time to extend and branch out, it wasn’t in their DNA, and the growth stopped or stalled dramatically.  I believe BPM’s growth rate has afforded vendors the time to invest in new features, and mature their platforms, considerably.  The growth rate is also giving the market time to provide the skilled practitioners needed to deliver these solutions.

Mr. Schurter also offers several lessons learned:

1.  The Need for Individual Process Orchestration

2.  Workflow Queues are Extremely Limited

3.  The need to “Capture” Reality

4.  Unstructured or Free-forming Processes

Its hard to argue with these on the face of it, but I found myself looking for more prescriptive solutions rather than just acknowlegment of the problems (lessons).  The part I wanted to learn from the article was how he suggests to address these issues.  For example in discussing alternates to workflow queues, he says the “means by which this is accomplished is highly variable”, but I was looking for examples:  RSS feeds?  simpler integration to email?  How does one provide the work to the right people without introducing new work?  How do you measure without interfering? For Capturing Reality and Free-forming processes, Terry rightly points out there are vendors scratching the surface of these ideas now.  But Unstructured processes isn’t really a technical problem (as I pointed out earlier) – it is much more a problem of creativity of representation.

Maybe to sum it up, the state of the union for BPM in 2009 has as many questions as answers.  My take, however:  the ROI from BPM projects is real, and companies are going to keep investing in BPM as a result.  Nothing in 2008, or early returns from 2009, convinces me otherwise.

Earlier Appian reported results, and on the heels of the Gartner Magic Quadrant, Lombardi put out its 2008 announcement.  I’m interested to see announcements from the other vendors – luckily, estimates of BPM financial results will be available at www.itinvestmentresearch.com after march 1, 2009 (thanks for the tip from ebizQ).

Overall, it looks like Lombardi grew faster than the software market in general, which is consistent with the results from other BPM vendors (reading between the lines of course, since actual numbers aren’t reported by the firms that are still private).  The good news is that the BPM market overall appears to be relatively healthy.  47% Growth in software licensing is robust, and Lombardi has several other statistics to tout.

Previously I believe Appian announced Q4, which was covered on Sandy’s blog here (forgive me if there is coverage of more specific numbers elsewhere).