High-Stakes ERP Consolidation

By Renee Boucher Ferguson  |  Posted 2003-07-28

High-Stakes ERP Consolidation

The stakes in the ERP consolidation game are high for enterprise resource planning software developers and users alike. The ongoing drama surrounding Oracle Corp.s proposed $8 billion takeover of PeopleSoft Inc. has highlighted the quandary facing corporate IT departments. Customers want new technologies from ERP providers, but vendors say they must increase revenues and market share to fund new development.

Other than raising prices, ERP vendors know they can increase revenues by simply buying more customers through acquiring competitors. But while acquisition and consolidation strategies may solve one problem for companies such as Oracle, they create new problems for customers caught in the cross fire.

"This whole issue with Oracle has us concerned," said Randy Senn, CIO of Scana Corp., in Columbia, S.C. Scana is nearly finished migrating from Geac Computer Corporation Ltd. to PeopleSoft applications. "We had done a lot of process engineering and documentation with the Geac implementation, and I figured it would be easier to do the PeopleSoft implementation because of that," Senn said. "What we found out is that previous work is probably not going to minimize the work of going to the second set of applications; thats a wrong assumption."

The Oracle deal is just the latest sign of consolidation in the $20.6 billion ERP market. PeopleSoft, of Pleasanton, Calif., gained customers and technologies with its $1.8 billion acquisition of J.D. Edwards & Co. this month. SSA Global Technologies Inc. last week closed on its acquisition of manufacturing ERP software maker Baan Co. That purchase followed acquisitions by Best Software Inc. and Epicor Software Corp.

(Read about more ERP consolidation moves.)

Microsoft Corp. over the last few years has jumped in with acquisitions of Great Plains Software and Navision A/S.

All these companies are chasing ERP leader SAP AG, of Walldorf, Germany, which last year acquired TopManage Financial Solutions Ltd.

Oracles proposed PeopleSoft buyout is under investigation by the Department of Justice, and a resolution is not likely for several weeks or months, experts agree. This gambit could end sooner if Oracle does not renew its offer to buy PeopleSoft shares, which expires Aug. 15.

Several factors have promoted ERP market consolidation—slowing sales of new software licenses, an increasing reliance on an existing customer base and low stock valuations that make acquisition targets attractive.

SAP, PeopleSoft and Oracle, and their midtier brethren, are looking to attract new customers as well through development of add-on technologies such as supply chain management, customer relationship management and business intelligence. Each company also hopes to provide bigger pieces of the IT pie by offering their software as Web services and ultimately composite applications, which are business automation services that can be assembled to form ERP-like applications.

SAP announced in January its Enterprise Services Architecture and NetWeaver technology stack that promises application integration through Web services. PeopleSoft similarly plans to bundle its Portal, Integration Broker and Enterprise Data Warehouse as a single infrastructure offering.

Oracle made some mention of buying infrastructure provider BEA Systems Inc., which offers its own integration software with WebLogic Workshop. However, CEO Larry Ellison, who suggested that possibility earlier this month, did not say how Oracle would use BEA technology.

Oracle Executive Vice President Chuck Phillips said that while acquisitions are important for Oracle, the company will continue to focus on internal development. "Well be larger through internal growth, and [the] Applications [division] will be larger with some acquisitions," said Phillips, in Redwood Shores, Calif. "We have a lot of things that were doing. The acquisition [of PeopleSoft] is just one thing."

Next page: A changing technology landscape?

Page Two

The question remains, then, what will the technology landscape look like should Oracle succeed in its PeopleSoft bid?

Phillips said Oracle does not believe in a converged product. "Its a very risky strategy to combine and merge code that wasnt meant for each other," he said. "What happens is you spend too much time doing integration, where everyone else is innovating."

"Naturally, there is some healthy skepticism in what will play out in the longer time frame," said John Wright, executive vice president and CIO of Sun Life Financial Inc.

"We are very, very happy with PeopleSoft human resources and are of the mind that Oracle Financials are a good product. [But if] Oracle acquires PeopleSoft, there will be a conversion for us as Oracle puts more of its efforts into something that is homogenous," said Wright, in Toronto. "Oracle has said they will support [PeopleSoft], but you have to wonder if youll be on the PeopleSoft platform long term."

Oracles Phillips said the company will support PeopleSoft post-merger but Oracle is committed to its current applications. "Were not saying were going to actively market all the products. Well have one answer for a new prospect—the E-Business Suite."

"What do they mean by support? You dont really know," said Rick Lowrey, executive vice president at Deltek Systems Inc., a maker of ERP software for the midmarket, in Herndon, Va. "We could support a product for 10 years and not put a dime into it."

ERP developers have to work harder at offering streamlined, end-to-end packages, some users say. The danger, however, lies in bundling too much into one package.

Keith Morrow, CIO and vice president of IS at 7-Eleven Inc., is in the process of standardizing his company on Oracles E-Business Suite.

"[ERP companies] need to be just as open and modular as they can be and adopt emerging technology," said Morrow, in Dallas. "If you dont keep it modular and nimble and [include] emerging technologies like Web services, companies and suites get so large they become landlocked."

Morrow said his concern is that with consolidation, Oracle will become so complex it will inhibit him from making changes in the suite.

"Right now, with all the company that weve got running on this suite, if we make a change in fixed assets, we have to make a step with the software that affects every department," said Morrow. "We do not have the luxury of taking down our primary IT system for 10 days for an upgrade—it just cant happen."

Yet, with ERP companies generally looking to take new development in the same direction, some IT managers say their relationship with a vendor has become more important than ever.

"Whats interesting is a lot of [ERP software makers] are standardizing on Web services using front-end Web development tools. What people dont like to admit is that a lot of implementation involves customization, so [technologies] all morph," said Todd Inlander, CIO at Fleetwood Enterprises Inc., in Riverside, Calif. "So its almost less important in the technology but [more important] in the availability of talent and how the vendor supports you.

"Pick your poison, and everyone has some issue. So what it comes down to is your relationship with your vendor," said Inlander. "With massive consolidation, thats the most troubling thought."

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