Larry Ties the Knot

Oracle's CEO today lumps consulting client engagements into two groups: those that need code punched, and those that don't, or as he puts it, "old models" and "new models."
"The old model of hiring consultants to do programming when that programming is modifying (applications), I think, is seriously flawed," says Ellison, who today champions the "new model," where the developer supplies a broad suite of applications, each tailored for a specific business process. (See Ellison interview above.) The vendor refers to this as a "software re-engineering" strategy, one where the developer has worked to fill gaps in its software — voids that, in the past, had been filled by code punched by armies of consultant programmers.
Today, Oracle prefers its consulting firm partners to limit their programming activities to the integration of the applications — even this type of programming, the developer says, is less necessary given how finely integrated Oracle's applications have become. As Ellison says he sees it, the role of consultants inside the "new model" is to persuade clients to simplify their business processes and remove the organizational complexity that undermines their ability to leverage Oracle software fully.
"Reworking business processes and developing best practices is not something we can do for clients by ourselves. … We need help with clients and we need the help of the highest-quality business strategists in figuring out how to do this," says Ellison, who last year made the developer's own re-engineering story a central component of the firm's marketing strategy. By simplifying its business processes and adopting a vanilla version of its software, Oracle saved $1 billion, or so the software vendor likes to boast to both clients as well as partners. The developer hopes the hefty sum will help trigger an upward shift in the decision-making that guides the adoption of information technology within large corporations.

According to Bain, such decision-making increasingly involves the CEOs of most top corporations.
"Technology at the CEO level and how it impacts strategy is where we focus, and we're world-class at this," says John Donahoe, the worldwide managing director for Bain. Today, that focus is found inside BainNet, a year-old technology alliances group that currently lists relationships with Oracle and nine other technology vendors, including i2 and Cisco Systems. While the consultancy refuses to disclose whether its BainNet partners are also clients, executives familiar with the two firms' relationship indicate such is the case with Oracle — a fact that, perhaps, magnifies Bain's stake in Oracle's ensuing tech battle.

Asked whether the anti-customization approach touted by Oracle and other applications vendors will undermine the activities of technology consultants, Donahoe says, "I don't think this will force out the implementation providers. There is still going to be some code writing, and we let our clients decide who they want to use for that, but we want to bring them the best solution and make sure it's a strategic solution."
Bain's budding IT alliance strategy appears to be unlike those hatched between IT consultancies and their vendor partners. The firm's management has emphasized the alliances are not subsidized by vendor funding or coop marketing dollars, and the firm appears far more bashful than IT consultancies, when it comes to discussing its partners.
"Too often companies have tried to solve what is fundamentally an organizational or structural issue by bringing in technology prematurely, and rewriting a lot of code within the system, as opposed to driving the organization to the best solution and than choosing the best technology later," says Vernon Altman, a Bain director, and one of BainNet's top consultants.
"What's important to note is that we are not coming into a situation with a bias. To use an analogy, we are trying to be the Swiss, and while sometimes we have influence on a (technology) selection decision, other times we'll have less influence, and by getting to know BainNet companies we get to know both their strengths and weaknesses," explains Altman, who says Bain's relationship with its partners is very unlike IT consultancies that have trained thousands of IT consultants using subsidies from their vendor partners.

Three years ago, Accenture, PricewaterhouseCoopers, and Ernst & Young each boasted of having more than 1,000 Oracle-based consultants within their organizations. While the firms today prefer not to disclose the number of Oracle-based consultants within their firms, it's believed the number has decreased as the vendor stepped up its software re-engineering software strategy.
Says Ellison: "Not all programmers are going to vanish from these firms, and we're not suggesting that, … but I think the consultants are excited about moving upstream and accepting a challenge that is a better business than just hacking code."
Asked about whether consultants were experiencing a falloff in revenue due to vendor efforts to curtail customization, Shell Smith, a global applications practice leader for Cap Gemini Ernst & Young, says, "Ultimately, the revenue is not much different."
According to Smith, each successful project leads to the next short-term project. "Companies are not willing to wait 18 months. They want something delivered, some benefits, in six months. Now things are incremental, milestone-based," explains Smith.

So far, the most visible impact of Oracle's software re-engineering efforts may be within Oracle's own consulting organization. Endowed with 12,000 consultants, Oracle's consulting unit saw its overall revenues shrink by four percent during the developer's fiscal year ended May 31st.  It's a feat the developer says it now wants to repeat, as it steps up efforts to curtail revenue-driven projects involving software customization, and begins rewarding its consultants more for the speed with which they implement software, rather than the revenue they generate from it.

The Biggest Tech Battle of the Post-Y2K Era

Meanwhile, services are booming at IBM. In the first quarter, services and parts for the first time became the majority of the technology company's sales. While services jumped 16 percent for the quarter, sales of consulting services, or the portion of business IBM dubs as Business Innovation Services, leaped 26 percent. (See related story, page 52.) Their rivalry largely confined to the database market in the past, IBM and Oracle now find themselves engaged in a battle spanning multiple fronts.

For its part, IBM abandoned the enterprise applications market in 1999, and has since formed alliances with close to 60 applications players. Today, it resells the applications software of its many partners, including Oracle's arch rival SAP, which last month inked a deal to have 5,000 IBM services personnel trained on the entire suite of SAP products. The new pact advances IBM's best-of-breed approach — one where clients can select technologies from a menu of different vendor offerings.
"Today, more often than not, customers know what they want and they are choosing modules. Whereas, historically, you could only get one set of applications, now we're finding you can put things together," says Peter Rowley, general manager of IBM global business partners.
Besides helping clients put things together, IBM's partnering strategy is helping drive the sale of its databases. Only months after Siebel signed a deal with IBM, the developer subsequently dumped its in-house Oracle database in favor of an IBM one. However, far more enriching for IBM is the fact that SAP, Siebel, and IBM's roster of other applications partners is now promoting to their clients IBM's database and WebSphere applications, and, of course, its services portfolio.

After many months of skirmishes between IBM's best-of-breed partners and Oracle, the biggest tech battle of the post- Y2K era arguably heated up this spring when Oracle's many application rivals attempted to share credit for a 24 percent drop in Oracle applications sales for the quarter ended May 31st. Explaining the slippage was due to a now defunct discounting strategy that aggressively pumped up the developer's revenues during the comparative quarter in 2000, Oracle executives are now coming out swinging.
"For consultancies like IBM Global Services, it's about making sure there are lots of custom interfaces so they can keep consultants on site for many years, and so they can come back and offer to outsource the intricate network because the client will now have to maintain what IBM put together," says Valerie Borthwick, an Oracle senior vice president. Other Oracle boosters believe IBM's application partners aren't likely to uproot the developer's popular database, given its large installed base. "Oracle is the most installed database in the world, and while applications vendors might not like the fact that Oracle has competing applications, they pretty much have to run on its database," according to Sharon Ward, an analyst with Hurwitz Group, who says she believes IBM has little choice but to advocate a best-of-breed approach given its applications void.

Responding to Oracle's charges, IBM says its applications partners monitor consulting fees closely and frequently measure their clients' satisfaction.
"I can tell you that players like Siebel go to a lot of trouble  certifying partners and they give us quarterly reports on client satisfaction in regard to our implementation. The software vendors today know the implementation is where the money will be made or lost around these solutions," explains Rowley, who says IBM has no plans to incorporate strategy consultants into its partnering initiatives at this time.

The Upper Links of the Enterprise Food Chain

Of course, there's always the possibility IBM may now be looking to buy the types of consulting firms with which Oracle wants to partner. Having earlier this spring paid $83 million for e-strategy firm Mainspring Inc., certain observers suspect the technology giant has already begun extending its reach to the enterprise food chain's top links.
"Whether you're a traditional hardware or an applications player, there is now a push going on to capture a larger portion of the food chain and move beyond your traditional space to control your destiny," says Art Peck, a senior partner at Boston Consulting Group, who, last fall, helped Hewlett-Packard & Co. evaluate a proposed acquisition of PricewaterhouseCoopers' consulting arm. 
According to Peck, as more technology companies look to have a presence within the top of the food chain, strategy and technology will become married like never before.

It's a point of view Oracle executives clearly share. "The whole notion of getting something up and running and then over time determining what the priorities are from a continuous improvement perspective has been embraced among the strategy firms. What they are driven by is customer success and impact, and this ties in very nicely with Oracle's approach," says Oracle executive vice president Sandy Sanderson.
In certain ways, Oracle's new approach resembles the one upon which Bain was built. Back in the early 1970s, the consultancy's founder, Bill Bain, pioneered what was known as results-oriented advice, an approach by which consultants were rewarded not only for supplying their clients with strategic insights, but for implementing the strategy on behalf of the client.
With BainNet, the strategy firm appears to be taking its founder's concept one step further. It's a step that seems destined to blur the lines between strategic partnering and client relationships, and one that could potentially cast Bain in the enviable role of a post-Y2K arms merchant.
In the meantime, Bain's new mantra of "putting thought before technology" is one IBM may want to reflect on, given its familiarity with one of Bain's other satisfied clients — Dell Computer Corp.
Alan Radding contributed to this story.

Sidebar: The man who declared the PC is dead now has a similar diagnosis for consultants who customize his software. In an exclusive interview, Oracle's CEO Larry Ellison tells Consulting Magazine how the rudiments of technology consulting need to change.

CM: How is the value that consultants bring to Oracle client engagements changing?
Ellison: In the old days, the biggest thing the clients had to gain from consultants was that they were good programmers — they had very strong IT skills. They could come in and connect the Oracle software to existing legacy systems, which we still have to do today. But more importantly, they would customize the existing software to fit your existing business practices. And customers would spend, let's say, hundreds of millions, even billions of dollars with SAP, but still a lot of money with us, too, to customize our software and literally change the code. I would describe this as "the consultants coming in and finishing our software for us." And (they would) make it fit the existing business practices of a client.
With the new model, we have a much more complete suite of software that we think is already finished, and with 11i we really did deliver a complete and finished set of software. Now, clearly you still have to do systems integration and connect it up with legacy systems and third-party software packages. But the really important thing that consultants bring today are the skills needed to help clients better understand their business practices, and how to simplify and standardize their processes for the Internet.

CM: Oracle is now encouraging corporate clients to narrow their number of business processes. Does Oracle have the change management muscle it needs to trigger this change in corporate thinking?
Ellison: Well, let me give you an example. At GE Power, we signed a contract last November, and for the first two months we looked at a bunch of changes that our consulting team at GE wanted to make to our software. After that two-month period we looked at the cost and the time it would take to make all the changes, and GE and Oracle decided that "this is ridiculous." In the next three and a half months we installed the e-business suite at GE Power — with no modifications whatsoever.

If we can go ahead and automate a company the size of GE Power, and they can get a plant up and running in three and half months, and shorten the time and cost for GE to do that, it's really quite extraordinary. Furthermore, the most compelling thing is that when we come up with a new version of our software, GE can take that version very easily and gracefully. The problem companies run into when they modify our software is that when we come up with a new version they can't take it, because they are not running Oracle — they are running their own private version of Oracle.
It's an old style of doing business that I think is terribly flawed. By the time a client has finished the modifications, they are already one version behind, because it takes you a year and a half to do all the modifications. Customers should not finish our software for us. … The bulk of our implementations right now — about 85 percent of them — have no software modifications to 11i at all, and that's one of the reasons that we built 11i, our e-business suite — we wanted a complete and integrated system. We wanted to finish our software so that our clients don't have to.

Now, this changes the role of consultants from being contract programmers who modify our software to consultants working with the clients to standardize and simplify their business practices, and move those practices to the Internet. And that's another huge problem with these new consulting jobs — an awful lot of the benefits of putting in the new software have nothing to do with software itself and everything to do with simplifying and standardizing your processes.
In other words, the question we ask the customer is not, "How have you done business over the last 20 years?" Instead, we ask the question, "How do you want to do business in the next 20 years in light of this new technology called the Internet?" And that's what we did at GE Power, that's what we did at Alcoa, and that's what we did at Liberty Mutual, and a number of very large clients. We're putting in that software without changing it, and their businesses are changing enormously because of the business process changes — simplification and standardization — and the move to the Net.

CM: What percentage of Oracle's workforce resides in the consulting sector?
Ellison: It's declining. We have held the size of our consulting business steady for the last three years and we'll do that again this year. We plan to grow the software business and not grow the consulting business and there are two reasons for that. One is that we plan to work more closely with partners, and the other is that our consultants are pioneering these very rapid implementations. Our own consultants are constantly under stress within Oracle. Because what we used to do in a year, we do in a month. What we used to do in a month, we do in a week.
We're focused on rapid implementation. One of the ways we eliminated the need for modifying or customizing our software was to understand what it is our software was missing over the last several years and then fill in those gaps. We noticed that our consultants would make the modification over and over again at a lot of different clients. And so we constantly work with our consultants to make our software more complete. To make the implementation process faster. And by the way, another key thing is quality — virtually all of our troubled implementations, almost all of them, have to do with an implementation that has had lots and lots of customization. If Sony TVs were modified by third-party engineers, I'm sure Sony TVs would be less reliable than they are today.

CM: What value do strategy consultants bring to Oracle and its clients?
Ellison: If the consultants are going to do less and less programming — in the area where you have kids out of school doing programming on an hourly rate — if that's something we're trying to avoid, then where do we think the consulting dollars should be spent? Well, what's really important is to figure out the best way to do procurement in light of the Internet. And to figure out what the best way is to do selling in light of the Internet. What's the best way to do marketing in light of the Internet? Should we change the way we do these things?
I think the answer is unquestionably yes. Business processes — developing best practices — is not something we can do by ourselves. We are able to memorialize this in our software, but we need help with clients and we need the help of the highest-quality business strategists in figuring out how to do this.

We're working with strategy companies now in the procurement area, for example. Everything is affected by the Internet. The way you market, the way you provide customer support, the way you train your people, the way you treat your customers, the way you sell, the way you do all these things is affected by new technologies and what we call the Internet, and we have to constantly be improving not only software, but business processes. And to constantly improve business processes we need the help of our best clients, like a General Electric, and the best business process experts, a lot of whom are found in these strategy companies like a Bain or a BCG or a McKinsey.

CM: And when it comes to the realignment of business processes this always involves CEO-level decision-making?
Ellison: Whether it's GE Power, Alcoa, or Liberty Mutual, we're in contact with the CEO of these companies and many other companies. If you really want to modernize and automate your business … you have to change the way you market, change the way you sell, change the way you do customer support, etc., and the CEO has to be the sponsor of this. This is a very big deal, and it's not something that can be regulated down to other parts of the organization. Now, you need the cooperation of the CIO and CFO and different general managers — there are a lot of people who have to be involved in this — the basic question you're asking is, "How does my business need to change?", and how can it continue to be competitive in light of all this new information technology, and specifically the Internet?

CM: Does this mean that certain consulting firms that you have partnered with in the past may find themselves on the sidelines, as Oracle seeks out new partners with more change management skills?
Ellison: First of all, there is still code to be written and systems integration to be done. And there is still the connections between Oracle software and the legacy systems that all still need to be done — so there is some programming. What we're trying to eliminate is the customization of the Oracle software, so there should be less programming .
Not all programmers are going to vanish from these firms and we're not suggesting that, but if we cannot modify the Oracle software and just do the integration and then work with the client to improve, simplify, standardize, and modernize their business processes, then that's the new skill these consultants are going to have to have.
I think the consultants are excited about moving upstream and accepting that challenge as a better business than just hacking code.

CM: Is it fair to say that Oracle doesn't expect its consulting revenues to grow?
Ellison: Let me just say that we expect the number of implementations that we do to grow remarkably, but not the dollars we collect for doing implementations. We expect to be doing more implementations for the same number of dollars. … Most consulting companies would rather do three implementations for $5 million than one implementation for $5 million, because the customers will get three times as much value.  … I think the total number of dollars in the economy of consulting will stay the same or go up, but if we can deliver twice as many implementations for the same number of dollars within the consulting economy, that will mean customers are getting higher value and the consultants therefore are engaged and re-engaged again because they offer good value.

CM: How is the value that consultants bring to Oracle client engagements changing?
Ellison: In the old days, the biggest thing the clients had to gain from consultants was that they were good programmers — they had very strong IT skills. They could come in and connect the Oracle software to existing legacy systems, which we still have to do today. But more importantly, they would customize the existing software to fit your existing business practices. And customers would spend, let's say, hundreds of millions, even billions of dollars with SAP, but still a lot of money with us, too, to customize our software and literally change the code. I would describe this as "the consultants coming in and finishing our software for us." And (they would) make it fit the existing business practices of a client.

With the new model, we have a much more complete suite of software that we think is already finished, and with 11i we really did deliver a complete and finished set of software. Now, clearly you still have to do systems integration and connect it up with legacy systems and third-party software packages. But the really important thing that consultants bring today are the skills needed to help clients better understand their business practices, and how to simplify and standardize their processes for the Internet.

CM: Oracle is now encouraging corporate clients to narrow their number of business processes. Does Oracle have the change management muscle it needs to trigger this change in corporate thinking?
Ellison: Well, let me give you an example. At GE Power, we signed a contract last November, and for the first two months we looked at a bunch of changes that our consulting team at GE wanted to make to our software. After that two-month period we looked at the cost and the time it would take to make all the changes, and GE and Oracle decided that "this is ridiculous." In the next three and a half months we installed the e-business suite at GE Power — with no modifications whatsoever.

If we can go ahead and automate a company the size of GE Power, and they can get a plant up and running in three and half months, and shorten the time and cost for GE to do that, it's really quite extraordinary. Furthermore, the most compelling thing is that when we come up with a new version of our software, GE can take that version very easily and gracefully. The problem companies run into when they modify our software is that when we come up with a new version they can't take it, because they are not running Oracle — they are running their own private version of Oracle.
It's an old style of doing business that I think is terribly flawed. By the time a client has finished the modifications, they are already one version behind, because it takes you a year and a half to do all the modifications. Customers should not finish our software for us. … The bulk of our implementations right now — about 85 percent of them — have no software modifications to 11i at all, and that's one of the reasons that we built 11i, our e-business suite — we wanted a complete and integrated system. We wanted to finish our software so that our clients don't have to.
Now, this changes the role of consultants from being contract programmers who modify our software to consultants working with the clients to standardize and simplify their business practices, and move those practices to the Internet. And that's another huge problem with these new consulting jobs — an awful lot of the benefits of putting in the new software have nothing to do with software itself and everything to do with simplifying and standardizing your processes.

In other words, the question we ask the customer is not, "How have you done business over the last 20 years?" Instead, we ask the question, "How do you want to do business in the next 20 years in light of this new technology called the Internet?" And that's what we did at GE Power, that's what we did at Alcoa, and that's what we did at Liberty Mutual, and a number of very large clients. We're putting in that software without changing it, and their businesses are changing enormously because of the business process changes — simplification and standardization — and the move to the Net.

CM: What percentage of Oracle's workforce resides in the consulting sector?
Ellison: It's declining. We have held the size of our consulting business steady for the last three years and we'll do that again this year. We plan to grow the software business and not grow the consulting business and there are two reasons for that. One is that we plan to work more closely with partners, and the other is that our consultants are pioneering these very rapid implementations. Our own consultants are constantly under stress within Oracle. Because what we used to do in a year, we do in a month. What we used to do in a month, we do in a week.

We're focused on rapid implementation. One of the ways we eliminated the need for modifying or customizing our software was to understand what it is our software was missing over the last several years and then fill in those gaps. We noticed that our consultants would make the modification over and over again at a lot of different clients. And so we constantly work with our consultants to make our software more complete. To make the implementation process faster. And by the way, another key thing is quality — virtually all of our troubled implementations, almost all of them, have to do with an implementation that has had lots and lots of customization. If Sony TVs were modified by third-party engineers, I'm sure Sony TVs would be less reliable than they are today.

CM: What value do strategy consultants bring to Oracle and its clients?
Ellison: If the consultants are going to do less and less programming — in the area where you have kids out of school doing programming on an hourly rate — if that's something we're trying to avoid, then where do we think the consulting dollars should be spent? Well, what's really important is to figure out the best way to do procurement in light of the Internet. And to figure out what the best way is to do selling in light of the Internet. What's the best way to do marketing in light of the Internet? Should we change the way we do these things?
I think the answer is unquestionably yes. Business processes — developing best practices — is not something we can do by ourselves. We are able to memorialize this in our software, but we need help with clients and we need the help of the highest-quality business strategists in figuring out how to do this.

We're working with strategy companies now in the procurement area, for example. Everything is affected by the Internet. The way you market, the way you provide customer support, the way you train your people, the way you treat your customers, the way you sell, the way you do all these things is affected by new technologies and what we call the Internet, and we have to constantly be improving not only software, but business processes. And to constantly improve business processes we need the help of our best clients, like a General Electric, and the best business process experts, a lot of whom are found in these strategy companies like a Bain or a BCG or a McKinsey.

CM: And when it comes to the realignment of business processes this always involves CEO-level decision-making?
Ellison: Whether it's GE Power, Alcoa, or Liberty Mutual, we're in contact with the CEO of these companies and many other companies. If you really want to modernize and automate your business … you have to change the way you market, change the way you sell, change the way you do customer support, etc., and the CEO has to be the sponsor of this. This is a very big deal, and it's not something that can be regulated down to other parts of the organization. Now, you need the cooperation of the CIO and CFO and different general managers — there are a lot of people who have to be involved in this — the basic question you're asking is, "How does my business need to change?", and how can it continue to be competitive in light of all this new information technology, and specifically the Internet?

CM: Does this mean that certain consulting firms that you have partnered with in the past may find themselves on the sidelines, as Oracle seeks out new partners with more change management skills?
Ellison: First of all, there is still code to be written and systems integration to be done. And there is still the connections between Oracle software and the legacy systems that all still need to be done — so there is some programming. What we're trying to eliminate is the customization of the Oracle software, so there should be less programming .
Not all programmers are going to vanish from these firms and we're not suggesting that, but if we cannot modify the Oracle software and just do the integration and then work with the client to improve, simplify, standardize, and modernize their business processes, then that's the new skill these consultants are going to have to have.
I think the consultants are excited about moving upstream and accepting that challenge as a better business than just hacking code.

CM: Is it fair to say that Oracle doesn't expect its consulting revenues to grow?
Ellison: Let me just say that we expect the number of implementations that we do to grow remarkably, but not the dollars we collect for doing implementations. We expect to be doing more implementations for the same number of dollars. … Most consulting companies would rather do three implementations for $5 million than one implementation for $5 million, because the customers will get three times as much value.  … I think the total number of dollars in the economy of consulting will stay the same or go up, but if we can deliver twice as many implementations for the same number of dollars within the consulting economy, that will mean customers are getting higher value and the consultants therefore are engaged and re-engaged again because they offer good value.

Sidebar: Inside the People's Court

Placing limits on customization is necessary, but large clients still require it, says Oracle's arch rival.

Oracle Corp.'s latest dictum to change the business, not the software, may privately resonate with executives of other application vendors, but they aren't rushing to agree publicly with Oracle. To the contrary, "we think Oracle is a little too far out. Their applications suite certainly isn't the be all and end all," says Michael Gregoire, senior vice president, PeopleSoft Global Services, Pleasanton, Calif. "Where a customization can give you a competitive advantage, we think (it should be considered)."
PeopleSoft recognizes that companies may need to change its software, no matter how rich and flexible its features and capabilities. "We realize that Boeing knows the aerospace business better than we do," Gregoire continues. As far as customization goes, about 80 percent of PeopleSoft's customers make minor modifications to the software, amounting to less than 200 hours of work, while only 10 percent, primarily large Fortune 500 companies, do significant customization. Among middle-market customers, the vast majority does no customization at all.

Understanding the need for modifications, PeopleSoft has designed its software to accommodate customization. PeopleSoft's Internet architecture makes extensive use of XML,  which, as a standard, will provide consistency across upgrades, simplifying the task of linking PeopleSoft with external applications, Gregoire says. Much of the customization that companies request focuses on integration.
With PeopleSoft, like other modern ERP systems, there should be less of a need for customization. "Our consultants knowPeopleSoft technology better than anyone else," he continues. As a result, they can make it do things without changing any code that others cannot. 
— Alan Radding