PeopleSoft - Catching Its Second Wind From The Internet Part 2: Strengths and Challenges

Part 2: Strengths and Challenges
P.J. Jakovljevic - June 6, 2001

Executive Summary 

PeopleSoft, Inc. is one of the leading developers of enterprise business applications, which helps governments, higher education institutions and large-to-medium sized corporations manage human resources (HR), financials, supply chain management (SCM), customer relationship management (CRM), e-Business and business intelligence data from a wide range of operating systems and hardware platforms.

From its founding in 1987 PeopleSoft grew at a breakneck pace with a number of consecutive years of doubled sales until 1998, when its sales all but stalled due to increased competition and a saturated market. 1999 and 2000 were years of changes and adjustment culminating in a company with a pure Internet platform, a new set of products, and a new assertive attitude.

Indisputably, the most prominent event and the turning point for the company was the delivery of PeopleSoft 8 in September 2000. The product is an Internet-based collection of 160 applications, with 59 new applications in the 8 release, that span well beyond PeopleSoft's HR stronghold into e-business collaborative applications, CRM, SCM, professional service automation (PSA), and analytics to name but a few.

PeopleSoft's announcement of pure Internet connectivity with the elimination of required client side software represents a new twist. Not only should it speed application deployment time (browsers are free and often pre-installed), it should also allow access to anyone with a cell phone, hand held or browser equipped machine, which is an attractive prospect for remote offices, sales teams, and business partners.

This part examines the strengths and challenges PeopleSoft now faces in today's cutthroat competitive environment.

About This Note

This is a three-part note:

• Part 1 contains the Vendor Summary, Trajectory and Strategy, and Major Developments during the past two years.
  
  
• Part 2 contains an Analysis of PeopleSof's Strengths and Challenges.
  
  
• Part 3 contains the Bottom Line information with Predictions, and Recommendations for both the PeopleSoft and users.

Part 3 contains links to Parts 1 and 2.

ANALYSIS 

PeopleSoft Strengths

HRMS/Payroll Software Leadership: PeopleSoft is indisputably one of the best, the earliest-to-market and the most comprehensive human resource management system (HRMS) applications available. As it was the first application that the company developed, it drove the rest of development of PeopleSoft enterprise applications suite. This was in a sharp contrast to its ERP counterparts for which HR application was only a necessary add-on, and, subsequently, these competitive HR applications often display a financial and/or manufacturing approach to HRMS and use terminology that is not user-friendly to human resources and/or payroll staff. As a result, PeopleSoft can often compete with 'best-of-breed' HRMS applications with its product depth in areas such as performance reviews, benefits management, salary planning, complex payroll calculations (and transactions reversals if need be), pension administration, employee and managerial self-service, etc.

PeopleSoft HRMS is also delivered with a number of Business Process Graphical Maps for the users to easily navigate and process key functions (i.e., new hire process, termination process, performance review process), which include integration with email online alerts and automated work lists ('to do' lists) creation. Moreover, the PeopleSoft 8 product features architecture that may improve the ability to support internal and external enterprise processes, which will increase the need for employee and managerial self-service functionality and access to e-HR communities.

By delivering PeopleSoft MarketPay and PeopleSoft MarketPlace products, the company has extended its HR and financial systems expertise and taken a thought leadership over its direct competitors, which are currently only at early planning stages of developing these capabilities. Handling payment settlements and HR requirements are the next hot issues in the digital marketplaces frenzy, given the fact that ways of trading goods via Internet have mainly been resolved.

Also, PeopleSoft 8 Financials functionality is one of the strongest and broadest in the market. It features a high degree of flexibility (e.g., daily periods in the calendar, unlimited account key, etc.) and offers treasury management, as well as strong expense self-service module that is tightly integrated with Accounts Payable and Payroll modules. Having garnered strong HR/Payroll and recently financial functionality, PeopleSoft offers a strong and comprehensive vertical industry solution for non-manufacturing industries like government, utilities, financial, insurance, healthcare and higher education.

Sound Corporate Viability: PeopleSoft has restored a sound financial situation during the last 18 months (See Figures 1 - 2) in terms of growth and profitability, with exorbitant investment in R&D (27% of revenue, 26% of workforce), and a strong and efficient direct sales force (measured in revenue per sales employee ratio), and a traditionally congenial corporate culture that nurtures creativity and initiative of employees. In addition, having been able to provide a complete solution with a minimum reliance on 3rd-party products (and, consequently, with a lesser cost of software license), PeopleSoft should continue to post high margins and solid profits provided sustaining revenue stream. These impressive results coincide with the final phase of integrating the acquired Vantive CRM product within its flagship PeopleSoft 8 product suite and with the winding down of its ambitious and over two years long R&D endeavors.

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Further, PeopleSoft has a large and loyal HRMS (over 60% of global HRMS market share) and financial modules customer base, which could provide a significant recurring revenue stream through sales of new components and/or product upgrades. The blessing in disguise for the company is the stronghold within the service industries that have been much less affected by the current economic slowdown than their manufacturing or telecommunications counterparts.

Advanced Product Architecture and Technology: While we have strong reservations towards companies utilizing bombastic words like "technology leap", there may be a point in PeopleSoft's suggestion that its competitors' (read Oracle and SAP) products were initially (or currently) only Web-friendly, rather than an Internet-only application. Early Web enabled releases from both Oracle and SAP were a mere porting of client/server architecture to the Internet (in other words, basically rejuvenated versions of the existing, proprietary Windows-like screens and forms) through a number of Java applets and/or intermediary architectural layer.

Therefore, PeopleSoft's announcement of pure Internet connectivity with the elimination of required client side software represents a new twist. Not only should it speed application deployment time (browsers are free and often pre-installed), it should also allow access to anyone with a cell phone, hand held or browser equipped machine, which is an attractive prospect for remote offices, sales teams, and business partners. To that end, PeopleSoft currently offers an impressive range of mobile applications.

Also, PeopleSoft's architecture will challenge competitors' offerings with advanced XML messaging and application programming interfaces (APIs) options that promise to ease bi-directional integration. Other indisputable advantages of a browser are the ease of training and use, as well as a broad-scale deployability. The new architecture should also enable release independence, allowing upgrades of a single module without the need to upgrade the full suite.

Furthermore, PeopleSoft has possibly the strongest product technology in terms of support for almost all industry relevant OS and DB platforms and/or middleware standards and in terms of scalability & performance metrics, system monitoring & load balancing (e.g., by using BEA Systems' Tuxedo Monitor tool), backup & recovery issues, authentication, and authorization & transaction security issues.

Product Flexibility: Owing to an early modular approach of the design of PeopleSoft applications, its suite can be implemented in phases as required. This allows for critical functions to become operational without having to undergo a risky and harrowing big-bang approach. Also, given that PeopleSoft enterprise applications have been developed and added incrementally to the suite, the company has long had to rely on product flexibility and integration to 3rd-party products or tools. As an example, PeopleSoft features a set of embedded powerful and easy to use reporting tools like nVision, Crystal and Cognos Powerplay. Further, PeopleSoft Workflow integrates with any VIM, MAPI, or SMTP compliant email system.

Also, all PeopleSoft applications use effective dating and not only the applications where effective- and back-dating are generally accepted ways of doing business. In other words, it is not only limited to detailed transactions like journal entries or employee personnel transactions, but also to the supporting and edit tables (e.g., translate values). Also, with PeopleSoft 8, the Unicode language standard is supported which should grant the products strong global capabilities.

Product Horizontal Breadth: PeopleSoft 8, offering non-proprietary browser looking user interface, a completely redesigned Internet architecture, and notable additional functionality, places the company as one of the frontrunners in the next generation of e-business applications. It stands a chance to currently be the only vendor, other than SAP and Oracle, that can deliver a majority of the components of a complete e-business solution with its PeopleSoft 8 suite including CRM, SCM, HR, professional service automation (PSA), data warehousing, e-procurement applications, business intelligence, and enterprise resource planning (ERP) applications.

Consequently, PeopleSoft offers its integrated product suite as a solution that could bundle necessary application components within a single integrated product (a "one-stop shop"), thereby avoiding the middleware porting and connectivity standards issues. Avoiding the need for integration between disparate components reduces the cost and risk associated with implementation and maintenance and the product can be implemented more quickly. The approach can also lead to more effective customer relationship management since the customers should obtain the identical response from the business application regardless of which communication channel they use (Internet, call-center, direct mail, etc.).

Moreover, in some instances, PeopleSoft may be able to offer best of both worlds (one-stop shop and best-of-breed). In addition to a leading HRMS product, the company's pervasive Business Intelligence (Analytics) components are impressive, with dedicated complex analysis and reporting around almost all crucial business areas including several new CRM components. Although the marketing, so far, of its Vantive CRM product acquisition has not matched the efforts of rivals such as Oracle or Siebel, PeopleSoft's huge potential advantage is the integration of its Vantive product to the back-office ERP system that handles the vital internal processes so important to customers.

The new system should allow manufacturers to get a 360-degree view of all their customer relationships. It provides tracking and management of marketing campaigns, the entire sell cycle, the fulfillment cycle, and customer service. This kind of knowledge only comes from integrating CRM software with back-office systems. Additional advantages of the Vantive product are its ability to easily integrate with other 3rd-party ERP systems as well as improved scalability (the company claims to be the first vendor to support 20,000 CRM users).

Also, supplier-facing applications have long been a strength of PeopleSoft, with over 1,200 existing customers. With PeopleSoft 8, new additional collaborative applications have led to the launch of a supplier relationship management (SRM) solution. PeopleSoft 8 SRM is designed to help organizations effectively evaluate the strategic value of their suppliers and leverage their relationships accordingly. It is envisioned to integrate the design, sourcing, procurement, manufacturing, and replenishment processes within a company. Since the solution offers an array of both direct and indirect materials procurement processes, it might provide PeopleSoft with the opportunity to sell its SCM products into some non-manufacturing industries such as healthcare, telecommunications and utilities, where it already has a large user base.

Furthermore, integration of SCM and CRM products should result in a convergence of these traditionally disconnected business processes (e.g., campaign-to-order, order-to-cash, service-to-profit, design-to-acceptance, plan-to-service, request-to-resolve, agreement-to-profit, etc.) through information at every touch point, and every channel across the expanded enterprise. To enable effective collaborative commerce, PeopleSoft has delivered role-based portals that encompass business applications, transactional data, workflow and analytics to make employees more productive. This approach has also been extended out to address specific industry needs as in the example of the broker portal for the consumer goods industry.

Partnerships and Service & Support Infrastructure: PeopleSoft has been adept in forming alliances with industry leaders to deliver a full range of Internet based solutions. From ASP/hosting and infrastructure to joint development initiatives, continued strategic alliances will contribute to the company's success. PeopleSoft seems to understand the benefits of effective channel management and of limiting channel conflict, the importance of developing vertical, industry-specific products, and the integration of the ASP delivery model as an upfront option during the sales cycle.

PeopleSoft has positioned the ASP business in a right manner - rather as a viable option for delivering PeopleSoft products, as opposed to a cheap, deal-striking alternative. Owning all elements of ASP business and/or selectively partnering with viable, vertically focused ASP service providers, along with its readiness to accommodate some degree of customization have reduced customers' initial reticence to venture into the uncertain land of ASP.

PeopleSoft Challenges 

Product Immaturity, Functional Holes and Integration Work-In-Progress: PeopleSoft 8, achieved through a radical rewrite of over 14,000 PeopleSoft 7.5 enterprise suite panels and/or program sessions and through acquisition of Vantive CRM product, is still an unproven product in its infancy and adopted mainly by a number of early adopters.

PeopleSoft has yet to resolve integration issues and reworking disparate CRM and ERP pieces into a unified data model. If one wants to be nit picking he/she may also notice that the entire PeopleSoft 8 product suite does not exhibit an identical look and feel across the board. Namely, its Vantive CRM suite still requires Java virtual machine and will supposedly be re-architected for the Internet and fully integrated within the suite in the 2nd half of 2001. This can prove to be a drawback at this stage, given that CRM is often the driving force behind e-business projects. In addition, while all PeopleSoft transactions are processed through the Web applications, part of its development tools, PeopleSoft Tools (e.g., administrative functions) are still WIN32 based.

In addition, SAP's recently renewed joint development alliance with Commerce One may derail PeopleSoft's own technology alliance with the same marketplace vendor. PeopleSoft MarketPlace is its e-procurement suite for which Commerce One's MarketSite technology is used to power content management, auctioning, and searching, with the initial target markets to be professional services, educational, and financial services. Future collaborative services are said to include direct procurement, travel, benefits, resource management and recruiting. PeopleSoft may now be forced to develop its own marketplace technology as a result of the SAP deal.

It also appears that Oracle and SAP have seriously closed the HR functionality gap with their latest product releases and have jeopardized PeopleSoft invincibility in the realm of HR. Both vendors have long provided better global features and integration to non-HR processes, which may be a decisive factor in some global selections within manufacturing industries. Furthermore, Lawson Software, Great Plains, Infinium, etc. are becoming ever more competitive in the HR mid-market, while the niche non-ERP HR vendors like Concur exhibit stronger vertical focus, alliances with major HR consultancies, and competitiveness for organizations that have older HR systems (e.g., Cyborg) or older versions of ERP HR packages.

Cutthroat Competition: PeopleSoft faces almost internecine wars from formidable competitors like SAP, Oracle, Siebel, and i2. Primarily service & maintenance revenues have driven PeopleSoft's revenue growth in the last two years (over 70% of total revenue), and one should note that PeopleSoft's license revenue in 2000 was still 25% less than the corresponding revenue in 1998 (See Figure 1), back when the company was only a mere ERP player. Therefore, one should not be too overly impressed with the magnitude of recent quarterly improvements that compare to the worst quarters in the company history during 1999/2000.

Despite a significant growth of PeopleSoft's license revenue in the last quarter, a more detailed look reveals things to not appear quite so rosy. Namely, Vantive CRM products have been the major license revenue contributor, which means that PeopleSoft traditional breadwinners' (HR and financial systems) revenues have shown below the market average growth year over year. Moreover, the overwhelming impression is that Vantive has not been utilized to its full potential either despite the fact that the CRM market has been experiencing stellar annual growth. PeopleSoft has recently recognized the issue though, and has taken the steps to address it by concentrating on delivering integrated CRM modules within its product suite and seeking acquisitions that would boost its CRM offering. However, replacing the Vantive brand with PeopleSoft CRM brand may disconcert current Vantive non-PeopleSoft users and may also confuse the marketplace.

The company has a reputation of squandering very promising acquisitions away - the Red Pepper purchase from a few years ago being one. A similar mistake with Vantive could be ruinous, particularly since CRM is part-and-parcel of the new IT trends giving PeopleSoft a golden opportunity. Its competitors will actively sow fear, uncertainty & doubt (FUD) in the market based on the above-mentioned PeopleSoft missteps and the lack of awareness about the enhancements of the Vantive product since the acquisition. One is to expect the likes of Siebel to counterattack users of Vantive products, particularly those that do not run on PeopleSoft back office, given that switching to PeopleSoft's next generation product would require spending more money and tinkering with the systems. In case PeopleSoft CRM 8 does not break any new ground, current Vantive users may opt to switch to still a deeper and broader leading CRM product.

While PeopleSoft now has strong management with an invigorated stance, and is running a profitable business, it may be short-lived without sustaining license revenue. PeopleSoft has lower license revenue (expressed both as a percentage of total revenue and in raw dollar amounts), market share, global presence, and resources compared to SAP, Oracle and, in part, Siebel Systems. Also, the great part of its revenue comes from its existing customer base, which may be reluctant to jump on a heavily involved product upgrade both because of current economic conditions and because of their contentment with the current product release in use. On the other hand, potential users that might be attracted to the new release, may postpone the software acquisition until economic conditions improve.

While PeopleSoft's international expansion has been impressive during the last few years, it still lags the international diversifications of its peers. There is also an indication that the most of its international accounts are the divisions of US-based corporations where the company already had an instance of its product. Given that these markets are likely to feel the economic slump echoed from the US, PeopleSoft's further international expansion efforts may be seriously hampered.

Low Mind Share within the Manufacturing Industries and Insignificant Number of Full-ERP Reference Sites: PeopleSoft is still not regarded as a full-fledged ERP solution provider, owing to lagging main competitors in complex manufacturing functionality and with only a few hundreds full-ERP reference sites overall. While the number of additionally released applications is impressive, the product portfolio still shows serious functional holes or unproven new functionality, particularly in its proverbial 'bogey' areas like manufacturing and supply chain management, where its competitive position is not going to improve dramatically very soon (see Vendor Predictions in Part 3).

While there is significant new supply chain execution (SCE) functionality (e.g., directed put away and/or picking, steamlined fulfillment, wedge-based parcel packing, available-to-promise (ATP) reservations, tolerance-based over picking, etc.) and in supply chain planning (SCP) functionality such as promotion planning and collaborative planning, forecasting, and replenishment (CPFR), vendor managed inventory (VMI), transportation management and warehouse management system (WMS), the company is still mainly doing the catch-up with the major SCM players. Also most industry-based templates have not been revised from the 7.5 release and will only be delivered with PeopleSoft 9 release.

Nonetheless, while PeopleSoft has so far failed to exploit its purchase of Red Pepper several years ago, its new tack of addressing manufacturers' needs may result in far greater success. Namely, for the last two and a half years, PeopleSoft has focused its manufacturing and SCM solutions on only consumer packaged goods (CPG), high tech/electronics, and wholesale distribution industries. It already has a strong customer base within these industries, primarily with its financial and HR applications, but also to a degree with its manufacturing and supply chain modules.

During the above mentioned period, the company has built out functionality specific to these industries and has become a competitive force therein. A good example in that regard would be its new promotions management module, which offers CPG manufacturers a flexible, comprehensive way to manage and optimize trade-spending funds. As a closed-loop solution, PeopleSoft promotions management integrates with existing supply chain management and financial systems for efficient promotions and forecasting, planning tracking, reporting, and execution. It is designed to capture information across the entire supply chain and to reveal both visible and hidden costs.

What may also help PeopleSoft in this particular endeavor is the change in both the business applications climate and the users' mindset. The times when features and functions (bells and whistles) were the order winners are over. The new selections fights are fought on the peripheries of ERP, in the CRM, the SCM and e-collaboration arenas, with very sharp vertical focus. Assuming solid flow manufacturing functionality, bundled with CRM capabilities and with traditionally strong analytic applications developed in house, PeopleSoft may turn out to be an adequate contender in future manufacturing and material management software selections.

The company's biggest challenge, without doubt, lies in creating marketing awareness, promoting its new products, and the Web architecture as well as in crisp sales execution.

Dubious Early Adoption of Pure Internet Architecture: Another impediment to PeopleSoft's short-term success may be the market's generally low awareness of the Internet-only architecture advantages. At this stage, users mainly require the look and feel of the Internet and, therefore, other only Web-enabled products may not be seriously disadvantaged while competing against Web-based PeopleSoft 8. Besides, Oracle, J.D. Edwards, Baan and SAP have already significantly improved their latest product releases and there is every reason to believe that they may eliminate the PeopleSoft architectural advantages very soon. And this is aside from Lawson Software that has long been acclaimed for its advanced product architecture and superior user interface.

Furthermore, the client/server architecture is still far from being dead. There is a great likelihood that client/server and Internet architectures will coexist for a long time until interruptions and Internet instability are tremendously curbed.

Moreover, PeopleSoft's decision to offer only an Internet browser look-and-feel interface has, in some instances, initially met the power-user resistance and resentment for not being given the choice. While the HTML-like interfaces are perfect for casual and task-specific users with minimum training requirements, power-users may still prefer the functionality and drill-around capability of Windows-like user interfaces (drop-down menus, right-click menu, etc.). Some power-users cite the awkwardness of conducting more complex transactions only via hyperlinks, jumping to and fro among a number of screens, which defeats the purpose of simplicity. In that regard, the Web-enabled user interfaces of its competitors (e.g., Oracle, SAP, J.D. Edwards, Lawson Software, etc.) that either still contain many Windows features or offer different interfaces for casual and power users, may be the better approach at this stage.

Some prospective customers who have seen the new Internet UI in demonstrations use words like "complicated", "flimsy", and even "tedious" to describe it. For starters, the browser-based client lacks the cohesiveness and predictability of the Windows-metaphor version. Users have become accustomed to Windows-like GUIs that respond to mouse clicks in a timely fashion, while the browser often fails to load quickly or accurately. Another complaint is the search feature that seems to wipe out the users' work environment while in use rather than appearing in a frame or separate dialog window.

Availability of Upgrades: Timeliness and availability of upgrades have always been a concern for PeopleSoft clients, but that is particularly true with migration to PeopleSoft 8, which might require a considerable effort, one that feels like a new implementation. As the system is responsible for a company's mission critical data, upgrades must be scheduled in advance and PeopleSoft will have to work closely with its customers to provide a detailed upgrade timeline.

Like SAP and Oracle, PeopleSoft should also carefully reevaluate its product migration strategy from current product instances (7.5 and earlier), in order not to alienate and disillusion its loyal customer base. PeopleSoft 8 has allegedly disconcerted some users because its licensing model requires that existing customers re-license its older software, rather than pay a lower upgrade charge as with previous updates. Some customers may see this as only another hefty investment with little added value other than improving the user interface. The competitors are only begging for a surge of similar news.

Sales and Consulting Force Orientation: The PeopleSoft sales and consulting force will need to embrace a "service" sales model as the company begins supporting hosted applications and Internet solutions. This is a departure from the license-based architecture the company has traditionally sold. Also, one should expect a significant effort to train the sales force in the new product and to change their mindset from a Windows-like to a browser-like metaphor. In either case, the fact remains that PeopleSoft is not simply a basic and easy-to-use enterprise application.

Perhaps more disappointing is that the PeopleSoft 8 Web interface seems to have lost the intuitiveness that was a hallmark of its past releases. The natively supplied menu is difficult to navigate for novices and even PeopleSoft presales representatives are reluctant to use it, preferring instead to streamline their demos by setting up Internet Explorer-like "favorites" in advance.

Performance: Dynamic pricing, Personalization, real-time Collaboration, Complex Product Configuration and Virtual Live Caching all require high bandwidth, efficient networks and hardware optimization. This challenge is not only PeopleSoft pertinent though. Any application run on a network or across the Internet is limited by its narrowest point. Additionally, by shifting much more processing power to the application server side, PeopleSoft 8 may require much more hardware processing power of the application server compared to its preceding releases. The company will have to work with each customer to establish appropriate performance benchmarks in an effort to set customer expectations.

Conclusion of Part 2 

This concludes Part 2 of a three-part note on PeopleSoft. Part 1 contains a summary of the history of PeopleSoft, its current trajectory and strategy, and major developments during the past two years. Part 3 contains the bottom line information with predictions, and recommendations for both PeopleSoft and users.