Fusion Business Solutions has today announced financial results for the period January to June 2010 which show a 35% increase in revenue over the same period last year. Earnings before tax also increased 30%. The company has now had 32 consecutive quarters of profitability and has no debt.
 

Commenting on the results, Mark Lyttle, CEO, said “Our performance is the result of customers investing to transform their organisations, improving their efficiency and in some cases consolidating their operations”.
 

BMC Software, Fusion’s main partner, also continues to show strong growth with ESM license bookings up 40% in Q1 FY11. BMC Software is now the world’s 8th largest software company by market capitalisation.

There has been some discussion recently about whether ITIL is dead or not. Our experience in Fusion suggests there has been a significant dampening down of interest from organisations in ITIL as a driver itself. This is not surprising as they have been in a recession. After all, who wants to make the business case for ITIL projects when budgets are being cut? Instead the focus is on projects that deliver performance improvements – cost reductions and improved quality of service and indeed many of these projects are using ITIL as a suitable IT service management framework. It is just that projects are all about performance improvement.  

I believe, however, that we could see a slightly different emphasis over the next few years. IT operations and service management functions need to focus on improved efficiency as typically over 80% of the IT budget is in IT Operations and most of this is people based costs. As a way forward we go back to the 1990’s when business process re-engineering (Hammer etc) was all the rage. This matured into a more basic mantra – simplify business processes and then automate them. Now with IT operations processes, we need to create standard, consistent and repeatable tasks and which we can then automate in order to improve efficiency. Of course, ITIL is a well placed framework to support (not be the central thrust of) this.

The market for Service Desk (SD) software has matured in recent years reflecting the shift from a basic Helpdesk to a Service Desk that acts as the front end for IT, providing communication to end users, processing service requests and being the focal point from more complex, integrated IT processes in the way that ITIL describes.

The market is divided between mid-market solutions and vendors and enterprise solutions and vendors. In my experience, many organisations rush to the selection of a solution based on functions and features rather starting with a higher level set of criteria. I believe these to be:

• Organisational complexity
• Asset and Application profile in the IT estate
• Complexity of IT processes
• Size of organisation
• Suitability of vendor.

Focussing in on the detail of these criteria will help ensure that you select Service Desk software that will not need replacing all too soon.

BMC Software is performing well despite a tough operating environment and I remain optimist on BMC Software’s prospects this year. While the recent Q4 revenue figures showed a definite slowing in growth, it was still growth which is better than some of their competitors. License bookings around Business Service Management, BMC Software’s core proposition, increased 21 percent (and 34 percent on a constant currency basis) in the final quarter even if most of that growth has come from the Bladelogic acquisition in April 2008.

I believe that this robust performance is down to BMC Software’s increasingly integrated “ERP for IT” solution as companies look to IT “transformation” projects to improve efficiencies and cut costs. If BMC Software’s performance is sustained during the year and they continue to spend significant amounts on R&D (last year it is was $222M), then the gap with competitors like HP, IBM and CA will only widen.

IT-enabled processes are key to the success of Service Management implementations.

The quote above appeared from a technology vendor around the time that ITIL was emerging into the mainstream. And it still seems to be true today!

It is clear that successful companies gain great benefits from implementing enterprise systems like Service Management (Harvard Business Review July 2008 – Investing in the IT That Makes a Competitive Difference) but many companies are failing to do so despite widespread adoption of ITIL and improvements in systems that align with it. Why is this?

We certainly believe that a consistent technology platform (e.g. an enterprise Service Management system) is the first and base requirement for success. You simply cannot run any reasonably sized IT department with piecemeal Service Desks across the business and different Change Management systems in each business unit! The same mistakes are repeated and there is no common platform for propagating lessons learnt across the business.

But is a consistent technology platform enough? Certainly not, as time and again we see implementations failing not because of the systems but because of poor processes. Implementations are too technology centric and not enough attention is paid to the processes and the people.

Process needs to be embedded in the Service Management system, generating real value through process improvements that can now be delivered on that platform. These Service Management systems are after all business applications, not software tools

A successful IT-enabled process, whether ITIL or not, has these characteristics:

• It is applied consistently across the business. People too often get trained in the technology but not the process and so everyone performs processes differently.
• It is embedded into the systems rather than an add-on. The process builds on itself and go can’t go forward without completing the prior steps.
• The process depends on systems but good systems don’t replace bad practices. Too many organisations buy new systems and customise them to deliver the old bad processes.
• The process is precise and based on instructions and not general guidelines. Lack of supporting work instructions and definitions mean that processes are performed inconsistently and reporting data cannot be relied upon.

Processes like this deliver results straightaway and allow you to refine them continuously over time, ensuring you are not a fool.

In HP’s most recent quarterly earnings figures, HP Software revenues declined 7% while BMC Software announced 6% growth. BMC’s strong focus on Business Service Management should continue to produce results not only in terms of revenue growth but also R&D investment. Meanwhile I’m sure HP Software will have to fight hard to retain its share of corporate resources.

In Fusion we have always believed in a “focus” strategy where we have an unparalleled depth and breath of experience in our niche. Customers know we are committed because there is nothing else of us. In the same way, BMC Software’s Business Service Management strategy is fundental to their future and it gets full management attention and resurces.

There is no doubt that Salesforce.com has been successful in the marketplace given the passing of the $1bn annual revenues milestone. Their results for the most recent quarter also indicate that they are making a good job in combating the effects of the recession. However the success of Salesforce.com does not mean all or even most SaaS will be successful. Why? Sales force.com has been around for 10 years and has undoubted scale, yet net profits are only 4%. SaaS is a low margin business but requires lots of cash to build scale. Many SaaS vendors may not survive the recession long enough to prove their success.

Look at Netsuite, considered to be one of the most successful SaaS vendors, founded 10 years ago. It has annual revenues of around $150M but is not yet profitable (a very small profit last quarter on a non-GAAP basis) but has an accumulated deficit of $250M. The SaaS vendors that make it will need lots of cash funding to reach a decent scale. Some will be successful, most will run out of cash.