PeopleSoft Keeps Truckin’ On A Potholed Road Ahead

Event Summary

On August 13, PeopleSoft (NASDAQ: PSFT), one of the leading business applications providers, announced it had launched a new reporting software partner program for Enterprise Performance Management (EPM) customers, which should further strengthen its leadership position in business analytics. The program provides customers the flexibility to integrate third-party reporting products that complement PeopleSoft's EPM solution that gives organizations the insight needed to improve business performance in the areas of customer satisfaction and profitability, supplier effectiveness and employee potential.

Initial members of the program include leading business intelligence software companies, such as Business Objects, Cognos, Hyperion, Information Builders, MicroStrategy, and Crystal Decisions. The program is designed to allow PeopleSoft EPM customers to take advantage of features and functionality from market-leading business intelligence solutions. Customers can create analytic reports in their favored reporting environment, allowing them to preserve existing investments in their preferred business intelligence technology.

According to InformationWeek.com, after 12 months of evaluation, the Internal Revenue Service (IRS) said on August 23 that it has awarded a $10 million customer relationship management (CRM) software contract to PeopleSoft. The IRS is licensing PeopleSoft 8 CRM suite, including PeopleSoft CRM Marketing, CRM Support, CRM Sales, CRM Help Desk, CRM FieldService, and CRM Interaction Management, as well as PeopleSoft's analytics tools. This is reportedly one of the biggest deals PeopleSoft has won in the CRM sector while going up against top competitor Siebel Systems Inc., with a few more significant wins to be announced soon.

On August 6, PeopleSoft announced that the U.S. Department of Defense (DOD) has licensed the PeopleSoft 8 Human Resources Management System (HRMS). The solution will provide personnel and payroll information to all branches of the U.S. military including the Army, Navy, Air Force, Marine Corps, Reserves, and National Guard, and will serve 3.1 million military personnel located around the world. DOD's Defense Integrated Military Human Resource System (DIMHRS) will unify HR support for both active duty and reserve members of the armed forces.

PeopleSoft touts that its global, pure internet human resources management solution will enable DOD to consolidate its legacy HR applications and information systems into one system, enhancing service to military personnel and to dramatically lower the agency's administrative and maintenance costs. With PeopleSoft's portal solution, DIMHRS will enable DOD to provide its military personnel with key HR information and services in such areas as benefits, payroll and pension using a standard web browser. In addition, PeopleSoft's internet-based applications will supposedly support the unique personnel requirements of each military branch, allowing individuals to access, view and respond to their unit's tailored information.

The above announcements might also illustrate that PeopleSoft remains one of a handful of enterprise application vendors that have been prospering in 2001, although this has been a slow period for the sector as a whole. On July 24, PeopleSoft announced fifth consecutive record financial results for the quarter ended June 30, 2001. Total revenue of $533 million was the highest reported in company history, and was up 27% compared to the same quarter of 2000 (See Figure 1).

Figure 1.

The company touted strong market demand for its Internet-based collaborative application suite, for the stellar license revenue growth of 51% to $166 million in Q2 2001. Net income from recurring operations increased sharply, rising 188% to $46 million, up from $16 million in the same quarter of 2000. However, somewhat slower service revenues growth of 20% over the Q2 2000 to $337 million, might indicate existing customers' cautious adoption of PeopleSoft 8 after the indications that the early adopters experiences have not been quite spotless.

Market Impact

PeopleSoft has been reaping the rewards from having delivered an attractive broad product portfolio while exercising immaculate managerial execution and financial discipline. During these times of risk-averse customers, PeopleSoft's 'can-do attitude' and the general perception of how well it deploys its Internet-based products (cost cutting and increased productivity) commands attention both from its existing customer base and new prospects.

PeopleSoft 8 contains well-integrated applications for almost every business function, from managing customer relationships and global corporate finances to supply chain planning and administering human resources programs. It also exhibits a set of analytic programs that allow a company to constantly monitor its overall performance. Users access these applications through Web-based portals that reflect their specific roles as an employee, customer, or supplier of the enterprise. A broad functionality footprint, product interconnectivity and support for many industry accepted open integration standards, product scalability, provision of the support for leading web platforms, and the product global capabilities all speak for PeopleSoft's strong competitiveness.

PeopleSoft should continue to thrive despite the ailing economy, since in times like this, companies are ever more compelled to get a better grasp of their customers' needs. Having a strong CRM offering integrated to back-office in its fold holds a great potential for PeopleSoft, as seen in its recent wins. Whether it will overturn Siebel from its royal CRM position is completely another matter. Although CRM driven revenue still represents significantly less than one would expect, it is not a problem because PeopleSoft has many more legs to stand on.

PeopleSoft has achieved success in many other concurrent product initiatives including its Accelerated Solutions for the mid-market, Enterprise Portal Solutions, Enterprise Service Automation (ESA), hosted and/or ASP offerings, etc. Even its erstwhile holy grail, HRMS and Payroll applications, have been experiencing rejuvenated acceptance, as seen in the case of DOD and IBM opting to deploy these. PeopleSoft has managed to add new spin to these supposedly mature technologies and make them attractive despite the slow times. Global Payroll features and HRMS amenability to efficient recruitment purposes are the examples thereof, in addition to now proverbial self-service and workflow routing capabilities. It appears that PeopleSoft will also soon provide a solution to enable mobile users to use a system without the current mandatory need for Web connections or to export data elsewhere (e.g. MS Excel or Access) and work offline.

But particularly encouraging for the company should be the success of its supply chain management (SCM) campaign. These applications are currently among its fastest selling products, possibly trailing only the analytic applications. This should be attributed to a sharp focus on specific vertical markets, such as consumer products, wholesale distribution, and high-tech manufacturing, and to aptly predefined solutions and service delivery options for these industry segments (see PeopleSoft Supply Chain Is Music To Mid Market Ears). Gone are the days of other vendors' complacency and shrugging PeopleSoft off as a serious contender in this area.

However, one should distinguish between first time users product deployment feasibility and the not quite so easy migration efforts of existing users of older product releases. Likewise Oracle's experiences with its 11i product, new users have experienced (product bugs aside) far fewer implementation difficulties compared to what existing users have undergone in implementing product upgrades. Customers always prefer a more gradual and, therefore, less painful, transition from their existing fat client client/server based systems, and may consider PeopleSoft's HTML-only new product release a steep technology leap.

Slower service revenue growth compared to impressive new license growth in Q2 2001 may indicate existing users' reticence to jump on an upgrade bandwagon. , PeopleSoft is not immune to problem-plagued upgrades when they involve a quite complex application that is interfaced to a number of legacy and/or third-party systems. There are indeed indications that upgrades to PeopleSoft 7 and older releases have been taking much longer than originally anticipated, which might force the company to rethink the date of PeopleSoft 7 support discontinuation. On the other hand, a bifurcated product strategy continuation would then mean doubled product development and support resources.

Moreover, the Vantive-to-PeopleSoft 8 CRM migration likely involves much more than a standard upgrade, requiring customers to invest both in new technology and training. While the recently delivered methodology, toolset and packaged services to assist customers in migrations from Vantive to PeopleSoft 8 CRM platform are a step in the right direction, they do not address integrations Vantive customers might have made to other systems. Also, current Vantive users may not appreciate the need to convert to PeopleSoft's value-based pricing model that charges based on the number of modules and the size of the company, which is the departure from the user-based pricing Vantive had originally used. Therefore, PeopleSoft needs to speed up the installed base PeopleSoft 8 acceptance and the upgrade success testimony, in order to preempt any bad publicity and customer defections.

User Recommendations

It appears the market has been buying into PeopleSoft's message and the benefits of Internet-based products. It remains to be seen whether the pure-play competitors will emulate the pure Internet architecture before PeopleSoft delivers the all-encompassing deeper e-procurement, CRM and SCM functionality. If one considers all aspects of e-Business evaluation, PeopleSoft has earned the license to be evaluated along with market leaders. The depth, breadth and innovativeness of PeopleSoft's offerings for the above-mentioned industries are attractive at first sight and deserve due attention bearing in mind the risks associated with the first release of the product.

In general, enterprises in need of a CRM or SCM solution and departments with a need for a solid customer service product should evaluate PeopleSoft 8. However, enterprises that need mobile computing or personalization/data mining right away should evaluate other vendors at this stage. PeopleSoft 8 CRM's value proposition comes for enterprises that are XML-compliant and/or have data scattered over several different systems/platforms, and the need to integrate those into a single solution. Discrete manufacturing enterprises within PeopleSoft's industries of focus and with extensive distribution needs may benefit from evaluating the PeopleSoft SCM solution.

It will also be interesting to see how PeopleSoft shores up its existing customer base and keeps them from undertaking complete reevaluations and possibly defecting. Existing Vantive users have a more complex decision process that involves pricing, new implementation, new skills, and new technology. PeopleSoft is still defining specific services packages for Vantive customers, which will be supported on the Vantive product for the next 30 months. It is likely that most of the upgrade tools will be covered under normal maintenance fees, and customers will receive credit for existing investments in the software. However, users must recognize that there is much more at stake than a standard upgrade and that they will have to invest in services, technology, and training.

More comprehensive recommendations for both current and potential PeopleSoft users can be found in PeopleSoft - Catching Its Second Wind From The Internet; Part 3: Predictions and Recommendations.