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.
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?
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
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.
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.
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).
is Part Two of a four-part note.
One detailed recent announcements.
Three will cover the manufacturing Industry.
Four will present challenges and make user recommendations.
Assimilating J.D. Edwards
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
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.
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).
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.
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.
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.
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.
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.
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.
concludes Part Two of a four-part note.
One detailed recent announcements.
Three will cover the manufacturing industry.
Four will present challenges and make user recommendations.