PeopleSoft Gathers Manufacturing and SCM Wherewithal Part Two: Market Impact

Market Impact

This article analyzes whether the array of recent PeopleSoft, Inc. (NASDAQ: PSFT), moves will finally and lastingly establish it as a serious contender in the manufacturing enterprise resource planning (ERP) and supply chain management (SCM) space. These moves are discussed in detail in Part One of this note. In a nutshell, we have been looking positively at PeopleSoft's mega acquisition of J.D. Edwards since its announcement in June albeit not overly enthusiastically due to its inevitable challenges down the track. True, the PeopleSoft-J.D. Edwards merger was in great part about retaining the big five (or big four, or big three) seat and about the need to be bigger within shrinking market opportunities.

It was no big secret that PeopleSoft had long been looking to expand its reach through acquisitions (see PeopleSoft's Buying Momentum Goes On. Pageant Participants, Line Up Please!), but many expected a smaller scale acquisition, such as its most recent: JCIT. Following the quite involved and disputably successful acquisitions of Red Pepper and Vantive (see PeopleSoft Buys CRM specialist Vantive for $433 Million), PeopleSoft had subsequently acquired a slew of smaller niche vendors such as Calico Commerce, a product configurator provider; Annuncio Software, a marketing automation provider (see PeopleSoft Annuncio-es Continuation Of Its Shopping Spree); SkillsVilage, a service procurement vendor; and, Cohera, a catalog-management and contact-integration product. Thus it would seem logical to expect a smaller manufacturing ERP or SCM vendor to be the next prey. Indeed, PeopleSoft could have achieved most of its objectives by acquiring,,for example, Baan, QAD, Epicor, IFS, Intentia, or i2 Technologies for only a fraction of J.D. Edwards' price tag (provided, of course, these vendors' shareholders were keen on a prospective sale). Why then this significant and quite pricey acquisition that possibly prompted Oracle to join the slugfest?

In addition to the joy of finally vaulting over its formidable foes, Siebel Systems and Oracle, there were many cultural similarities between PeopleSoft, J.D Edwards and their respective CEO's. Their financial disciplines and ways of turning their respective companies around at about the same time in post-2000, prior to the merger are two such examples. Additionally, PeopleSoft did not want to inherit any excessive baggage with the acquisition of a non-profitable vendor. It reportedly appears that even the vendors' founders, David Duffield and Edward McVaney, who shared a similar touchy-feely approach with customers while actively running their respective companies, were friendly and long toyed with the idea of a merger during the 1990s. However, both were repeatedly distracted by extraneous events like the Y2K bug frenzy, the outset of difficult economic times, and their respective poor performances in some stages.

With Craig Conway at the helm, however, PeopleSoft aptly managed to avoid the early stages of the high-tech downturn, with its shares peaking above fifty dollars in early 2001. However, PeopleSoft might have become the victim of its own success during 2002 (see Figures 2 and 3), since 2001 was an exceptional year for its financial performance. This included a record total revenue, record profit, and more than $500 million (USD) of generated cash Its nineteen percent growth was far better than the estimated dismal growth in the 2001 applications market. During 2001, PeopleSoft was perceived to have the purest internet-based product architecture. With improved international market penetration and brand recognition (nearly forty percent of revenues coming from outside the US), one could conclude that 2001 was the year PeopleSoft promoted itself into a formidable applications competitor. Its growth was matched only by SAP, Siebel Systems, Oracle, and i2 Technologies during their happiest years in the big league. PeopleSoft certainly bucked the trend afflicting most of the enterprise IT sector at the time.

Figures 2

Figures 3

However, it was an apparently tall order for the company to repeat the feat in 2002 and 2003, given its position and size of approximately 5,200 customers. PeopleSoft, while number one in the human resource applications market (with an estimated sixty percent of the market share) ranked third behind SAP and Oracle for general enterprise applications. With its customers representing more than sixty percent of Fortune 1000 companies, it had been in a neck-and-neck contest against Oracle for second place in the financials application markets after the first place holder SAP. Although in dispute with SAP for second place (behind Siebel) in the customer relationship management (CRM) market, PeopleSoft possibly remains the only vendor among several dozens ERP vendors able to seriously sell beyond its base in stand-alone CRM applications.

PeopleSoft had even developed around thirty individual applications within the realm of SCM and manufacturing, and the supply chain product modules can be combined in several ways for different sectors and their requirements. For example, a manufacturing suite with configurable product and process design suitable for repetitive and assemble-to-order (ATO) discrete manufacturing was developed (however, it had no functionality for complex discrete and process manufacturing, which is J.D. Edwards' forte), and a supply chain planning (SCP) suite (from Red Pepper acquisition, at the level of operational supply chain demand, inventory planning, and enterprise production) were developed. Furthermore, recently PeopleSoft has concentrated its supply chain offerings more on the supplier relationship management (SRM) and service procurement side, rather than on true strategic and complex SCM bits and pieces, such as network planning or execution.

Given that PeopleSoft had been able to weather the storm for so long, where did the abrupt slump in 2002/2003 revenues came from (see Figures 2 and 3) and why was its stock so punitively thrashed afterwards? The overall continued slowdown in IT spending, which did not happen overnight, certainly contributed. It came as no surprise that users had been, for some time, penny-pinching their IT budgets to implement or upgrade software they already own. In addition to promoting its collaboration-centric architecture, PeopleSoft was also successful in up-selling new modules to its customer base that, on average bought three additional modules when upgrading to PeopleSoft 8 (many customers also used the upgrade as an opportunity to add new ERP modules and extended-ERP applications, most frequently implementing portals, e-procurement, CRM, and employee self-service [ESS]). Therefore, it was possible that PeopleSoft had exhausted all the early adopters of its product in its customer base, and it was not able to develop another product line compelling enough to keep producing sales as the economy slump stubbornly persisted (see PeopleSoft Building Muscles To Overcome The Rough Patch).

This is Part Two of a four-part note.

Part One detailed recent announcements.

Part Three will cover the manufacturing Industry.

Part Four will present challenges and make user recommendations.

Assimilating J.D. Edwards

On J.D. Edwards' side, the appointment of the new pre-PeopleSoft merger chair and CEO Bob Dutkowsky (see J.D. Edwards' CEO Retires Again; This Time For Good?) resembled a feat by current PeopleSoft's CEO, Craig Conway. Bringing an outsider even one who has the pedigree of a formidable foe or closest partner (Oracle in Conway's case and IBM in Dutkowsky's case) to the helm of a company which had jealously guarded that position and hired only from its dynasty's rank helped bring a new prospective on how to further satisfy the customers, thus allaying sluggishness and the not-invented-here mentality that typically comes from ruling a too familiar territory for far too long.

Although J.D. Edwards did not stampeded like a raging bull in the bad economy, the new management team at least attained many positive changes, including creating a winning attitude. It leveraged a proven product and a congenial (albeit often ineffective and anemic) organization in last few years, by fathoming how to deliver pragmatic value to a born-again-loyal installed base and to the prospective, fertile mid-range to mid-cap target market, consisting of enterprises loathing any radical changes to their business practices, instead being more inclined to improving their businesses incrementally by adding additional functions around their core ERP investment.

Like Conway at PeopleSoft, Dutkowsky's initial focus at J.D. Edwards was on the company's improved financial performance, sales execution and continuation of products portfolio integration. He will have address the following two important issues: 1) the common perception of the troubled company, and 2) the difficulty of regaining confidence. To that end, important operational areas, like pipeline management, cash flow increase, collections and days of sales outstanding (DSO), reduction, margin improvements, etc. were improved. Increased sales to the installed base, expanded business services business, and the company's enhanced market visibility also occurred (see J.D. Edwards Finds Its Inner-Self Within Its 5th Incarnation).

While, like PeopleSoft, J.D. Edwards had two disappointing quarters prior to the merger (see Figures 4 and 5), it had remained a strong and financially healthy company that was generating cash, increasing its research and design investment, and improving its sales and service operations significantly. Still, both companies were finding it increasingly hard to compete globally and domestically against bigger and up-and-coming competitors in such a depressed technology economy. In addition to sharp decline in license revenue for both companies, PeopleSoft saw its stock tumble more than fifty percent in value and it even warned of much lower revenue than 2002 in 2003. The combined vendors should now a have solid foothold against SAP and Oracle, particularly given that a better-performing side could cover up for the underachieving one, if necessary.

Figures 4

Figures 5

Although the new PeopleSoft has shown a growth in its last quarter, it is still less than the combined vendors' revenues of a year ago (as indicated in Part 1). While it is up to the market to discern whether this was attributed to the acquisition or to an organic growth or decline, at least the acquisition seemed to result in the synergy and calculus to prove that the sum may be bigger than its parts, especially in other areas like manufacturing and SCM capability. Namely, the acquisition has expanded PeopleSoft's geographic reach particularly in Europe, Asia-Pacific, and many other overseas markets like Latin America and Africa. Prior to the acquisition, neither company had enough staff and infrastructure to be effective in many of these global offices, whereas now they will have twice as many people and have gained a lot of credibility in the regions.

Complementary Strengths

First, the acquisition unites J.D. Edwards' recognition in the upper mid-market with PeopleSoft's strong position in the large enterprise space. Second, the new company combines PeopleSoft's strength in the services industries and government, with J.D. Edwards' strength in manufacturing and distribution, asset-intensive, and project-oriented industries. Thus, conversely, PeopleSoft gains an entry into the challenging area of manufacturing, and is now able claim several thousands of manufacturing customers rather than the measly few hundred it has on its own. The combination should give PeopleSoft a boost particularly in Europe and Asia-Pacific, where it has had a problem convincing doubting prospects it was anything but a human resource company. Not having a viable manufacturing product and recognition has hurt PeopleSoft a lot in the past, but J.D. Edwards has had a strong presence within these markets in addition to notable manufacturing products, giving PeopleSoft the credibility it needed badly at long last.

Thus, PeopleSoft and J.D. Edwards complement each other in industry sectors, product functions, and enhanced geographic presence. J.D. Edwards had long been ranked an industry leader in manufacturing and distribution. This is highlighted by its integrated advanced planning and supply chain execution (SCE) software. In addition, J.D. Edwards' solutions in real estate, construction, and enterprise asset management are products PeopleSoft had hardly ever offered before the merger.

On the other hand, in addition to the non-manufacturing and SCM areas like enterprise service automation (ESA), human capital management (HCM), financial management, and enterprise performance management (EPM)/business intelligence (BI), the PeopleSoft product that will fill certain J.D. Edwards' gaps the most are PeopleSoft Supplier Relationship Management (SRM) and e-business (i.e., PeopleSoft Portal, eProcurement, eStore, and Marketplace). PeopleSoft eProcurement solutions feature auctions, reverse auctions, supplier analysis, purchase order management, purchase requests, requests for quote (RFQs), etc., while PeopleSoft SRM covers the areas from design collaboration to strategic sourcing. To be more precise, in PeopleSoft's lingo, SRM refers to the entire "Source to Settle" business process including design collaboration, sourcing, e-procurement, purchasing, services procurement, settlement, supplier enablement, and analytics.

Recently, the vendor announced upgrades to the SRM portfolio, with analytics and improvements across purchasing, e-procurement and collaborative sourcing. For example, PeopleSoft EPM now features analytics for SRM with links to quality management, customer profitability, workforce analytics, supply chain analytics, and balanced scorecard, to name some. Prior to the merger, J.D. Edwards had to partner with MicroStrategy for business analytics and with Hyperion for consolidations and budgeting, while its SRM offering had been mainly at the visionary stage.

For its part, J.D. Edwards has contributed with manufacturing oriented J.D. Edwards ERP 9.0 (formerly OneWorld) and supply chain planning and execution (SCP&E) suite (coming mostly from former Numetrix). The focus on industry solutions such as for high-tech and electronics, industrial fabrication and assembly (IFA), automotive, life sciences, and architectural and construction, should continue as well. The former J.D. Edwards 5 product family featured solutions for ERP, CRM, SCM, and web-based collaboration, as well as an architecture that is evolving to embrace web services. Prior to the merger, the vendor delivered more than 400 new products and product enhancements for the J.D. Edwards 5 suite, which went almost unnoticed and overshadowed by the Oracle/PeopleSoft controversy during its Quest Global user conference on June 9-12. The vendor even claimed that it had surpassed the 24-month R&D goal in just 12 months with more than 400 enhancements, many of them being a result of the vendor's work with the special interest groups (SIGs) for its industries of focus.

While 2002's enhancements across ERP, SCM, CRM, BI and so on have catered more to service industries, this year manufacturing and distribution industries benefitted with enhancements like pricing and promotions, demand forecasting, engineering project management (EPM), work breakdown structure (WBS), cross-docking, dual unit of measure (UOM), configuration management, product variants, to name only some.

By providing the noteworthy spate of SCM functionality pieces such as advanced planning adapter and agent technologies, demand collaboration and planning, order promising, production and distribution planning and scheduling (in both discrete and process manufacturing flavors), web planning, demand consensus forecasting for engineer-to-order (ETO) industries (where the pure statistical forecasting based on historical data does not suffice), multi-site pegging, and supply chain event management (SCEM), J.D. Edwards had joined the elite of SCM leaders. Supply chain execution (SCE) suite, on its hand, exhibits the portal system, advanced pricing module, advanced stock valuation, agreement management, bulk stock management, forecasting management, inventory management, management accounting, and product costing.

By going well beyond core ERP, the former flagship J.D. Edwards' OneWorld product also covers aspects of quality management, requirements planning, sales order management, shop-floor and work order management, and transportation management and warehouse management. Former J.D Edwards had also made significant forays with its enterprise asset management (EAM) solution, which had been re-architected as a stand-alone product in addition to a native integration with its ERP system and solid functionality including predictive maintenance analysis based on the application of analytics to historical maintenance records, criticality analysis, and warranty management, with service agreement management slated for a future release. PeopleSoft had to deliver these through partnerships with MRO Software and Indus International.

This concludes Part Two of a four-part note.

Part One detailed recent announcements.

Part Three will cover the manufacturing industry.

Part Four will present challenges and make user recommendations.

comments powered by Disqus