ORACLE'S CASH COW
By Scott Leibs

Vendor, heal thyself may seem an odd prescription for a company that just completed the most successful year in its history, but Oracle, the US-based database and software giant, insists that its self-diagnosis is accurate. "In order to become a true e-business, we need to change how we do business," says CFO Jeff Henley. Toward that end, Oracle is pushing ahead with an ambitious centralization project dubbed its "single-instance effort," in which dozens of worldwide data centers will be consolidated into one location. The move is made possible largely by the maturation of the Internet, which will provide an accessible, low-cost way for Oracle to share data and applications with offices in 60 countries.

Initially, Oracle estimated it would reap US$500 million in savings for its troubles, but as the project has progressed toward a January 2001 completion date, the company has upped that figure to a stunning US$2 billion per year. Not bad for a US$10 billion-a-year company. "It's a complex subject, and it's taken us months to fully understand it internally," Henley says. It has taken far less time for Oracle to grasp the external implications. Indeed, it appears the company has turned its initiative into a sophisticated marketing tool for its own services.

Having nominated itself the poster child for centralization, consolidation and webification, Oracle now offers clients and prospects white papers and a range of consulting help on the subject, sharing what it has learned over the past 18 months. "We think we're on to something huge," Henley says. "I give four to five talks to customers every week, and I've also been doing lots of road shows."

Productivity Gains

By year's end, Oracle will consolidate all its IT operations into one mega-center at its California headquarters. By relying on just one database and one version of every software application it uses, Oracle predicts it will save huge sums in IT costs and, even more important, take advantage of a simplified, Internet-based infrastructure that it says will make employees considerably more productive.

In fact, only a small portion (about 13 percent) of the US$2 billion gain Oracle anticipates will come from outright savings on IT costs. Most of the value will derive from increased productivity. Henley explains: "If 80 percent of our 40,000 employees are customer-facing, and if we can boost their productivity 20 to 30 percent thanks to an integrated suite of web-enabled applications, that equals about US$1.45 billion a year reaching the bottom line."

Henley says that increased productivity will come, in part, from faster access to information, from standardizing of best practices, and from new "self-service" applications. And he insists the savings, speculative though they may be, will materialize - and that, in fact, they must materialize. "Many CIOs believe in the advantages of this type of effort, but we need to prove it so that they can hold us up as an example." Of course, Henley admits that "there is a huge amount of emotion," around becoming that example. And, he says: "Since you can't always get everyone to agree, sometimes you need a heavy hand."

Enter Larry Ellison, the world's richest man, thanks to the relative swings in the stock prices of Oracle and Microsoft. When European partners balked at relinquishing control of their software, for example, Ellison gave them a choice: tap into a centralized system for free, or finance their own IT from their operating budgets. They opted for free.

But it wasn't all a case of "my way or the highway." To build support for the effort, and prove that global consolidation can work, Oracle managed to reduce its e-mail network from 100 widely dispersed servers to just two central hubs in California. "That was a relatively modest test," Henley says, "just to prove the sky wasn't falling." At least not yet. Henley says that within Oracle, there have been fierce debates and that companies seeking to emulate this strategy "may require years to get it done, even with great leadership."

Follow the Leader?

Even if Oracle succeeds, should other companies follow suit? Joshua Greenbaum, principal at California-based Enterprise Applications Consulting, argues that Oracle, as a software vendor, has some advantages over certain companies. Not only does it happen to make virtually all the software it needs to run its businesses, Greenbaum says, but "it has a single set of products it sells around the world, requiring little modification. And most of its growth has been internal. I can't imagine a Nestle or a Unilever, with multiple brands and a penchant for buying and selling companies every day, being able to run on this single-instance model." Henley maintains that: "The issues are the same for [all companies] whether they play in high-tech or any other line of business: are you tapping the power of the Internet to change how you do business?"

Greenbaum argues that the same Internet technology that drives Oracle's effort also facilitates other approaches to the IT architecture. "You don't have to centralize to get advantages from the web," he says. "You can get information from a distributed environment just as easily. And without having to host everything on a single database from guess who."

Andy Laverty, director of the Americas Accounting Services Center at Sun Microsystems, however, has taken a look at Oracle's single-instance effort and says it dovetails towards centralization and a reliance on web-based applications. The company has consolidated its accounting functions into four centers around the globe, down from nearly 30, and wonders if it has gone far enough. "Having four centers is like owning four houses," Laverty says. "If you want to put on an extension or make an improvement, you need to hire four architects, four builders, four everything."

But he adds that each company needs to ask tough questions about how to take centralization. "We've saved 45 percent on payroll costs, 75 percent on T&E processing, and similar amounts on fixed assets and other functions. We don't know if the cost of further consolidation will reap enough savings to make it worthwhile. We're still having lots of discussion around it."

Like Henley, Laverty says that the new order won't emerge without firm direction from the top. "We followed a rigorous change-management program," he says, "and even so, certain issues came up that had to be resolved at the highest levels. To make this work, you really have to have very strong executive leadership."

And, perhaps, the inspiring lessons of companies that have positioned themselves at the leading edge. With its IT staff due to be cut in half, Oracle has made substantial progress on a project that doesn't come easily to any company, even one steeped in high-tech.