In the business world, change is a constant. How businesses respond to mergers and acquisitions can affect not only business process and results, it can also determine which players will be invited to the table when planning future change. "Don't panic!" says Jim Shepherd (VP, AMR Research). He discusses the mergers and acquisitions scenario and offers strategies for turning change and circumstance to your advantage. Read how Oracle's acquisition of PeopleSoft played into the merger of two other companies with footholds in both camps. Learn from the pros how to minimize risk, address compliance issues steer through the rough spots and move ahead confidently.

As Published In August 2005

Agents of Change
By Marta Bright

Finding the potential in mergers and acquisitions

As segments of the technology sector—software, hardware, and consulting services—continue maturing, the pace is quickening in the race to acquire or merge with one's closest business competitors. These cataclysmic events can bring huge benefits to companies involved (and to their customers), but only when those involved can throw off their preconceptions—the employee's competitive instincts toward the other company, as well as the fears associated with being a customer of the acquired (or the acquiring) company.

Quantum, a global leader in storage, is one company that makes an interesting case study in reacting to the changes brought about by mergers and acquisitions. Quantum had to deal with the merger of Oracle and PeopleSoft as it was going through its own acquisition of Certance, known for designing and developing tape drives. Quantum's experiences serve as a best-practice study for any company experiencing the tumultuous effects of a merger or acquisition—either as an acquiring or acquired company, or as the customer of one such company.

The Big Bang

Snapshot Quantum www.quantum.com Revenue: US$794 million for the fiscal year ending March 31, 2005 Employees: 2,500 Products and services: Oracle Database; Oracle E-Business Suite, including Financials and Manufacturing; PeopleSoft Enterprise Human Capital Management

When word of a merger or acquisition comes, should customers be nervous, ready to take cover and wait for the dust to settle? After all, they've established a working relationship—not to mention a monetary investment—with their chosen vendor. Don't lose your cool, advises AMR Research Vice President Jim Shepherd. "There's really not a hard and fast strategy to follow.There are such a variety of circumstances that come into play in terms of the nature of the merger and the nature of a company's relationship with the vendor or vendors. This makes it difficult to have a highly defined strategy."

That said, Shepherd encourages customers to avoid wasting time and energy focusing on what-if scenarios. Instead, he advises customers to step up, engage with vendors on both sides of the acquisition, and get the information they need to understand what will change and how the changes will affect them. "The important thing," he adds, "is that companies should not panic and overreact to the news."

Don't Do Anything Stupid

In fact, pragmatism was the rule of the day at Quantum and Certance. "I didn't want to do anything that would be a violation of what I consider the first rule of management, which is, 'Don't do anything stupid,'" says Dave Carlson, former director of IT for Certance and now director of global applications at Quantum. "If Oracle didn't have a sensible approach to the huge installed base of PeopleSoft and Oracle users, or a plan to blend them in some sensible, rational, coherent, and cost-efficient way, I would have been worried."

Scott McIntyre, Quantum's vice president and chief information officer, agrees. "The actions of the executive team at Oracle have demonstrated a maturing of the company," he notes. "There are some of us who are way out in front of the technology curve, some of us are in the middle, and some of us are followers. Oracle has to deal with us all, and we've seen that Oracle will."

If the first step is, "Don't panic," the second one, according to Shepherd, is for customers to go beneath the surface to ascertain the logic of the merger. "Understand why the companies are doing this," Shepherd states. "Get a feel for what their goals are and what kinds of commitments they're making to investors, employees, and customers. This will offer you an indication of what your strategy should be."

Why should customers be concerned about the motivations behind an acquisition? "There are acquisitions that companies make because they want the customers," Shepherd says. "There are acquisitions companies make because they want the product or because they want intellectual property or employees or market access. Again, one of the best things you can do as a customer is to understand the vendor's rationale. This will tell you a lot about what the actions of the vendor are likely to be."

According to Shepherd, postmerger fears grip more than just the customer base. In fact, he notes, "one of the ways we see vendors make mistakes is, they assume buyers will take some immediate action and run off, stop asking for support, unhook the product, and invite in a competitor. The reality is that in the vast majority of cases, regardless of what buyers say, they ultimately don't do much. They end up staying with the product they have. They end up keeping it for a long time. They rarely rip it out and replace it with something else, whether you want them to or not. Inaction is in fact the standard activity."

Confidence Through Communication

Communication Is the Key Jim Shepherd, from AMR Research, offers this advice to customers and vendors affected by a merger or an acquisition: To Customers of the Acquired Vendor: Take advantage of the fact that in nearly all Don't let negative feelings about the acquisition color your relationship. It is very important to build a positive relationship with your new vendor, and that means moving pretty quickly after the acquisition closes to reach out to it to start a dialogue. To the Acquiring Vendor: Try to be as transparent as possible about why you're undertaking the acquisition. Don't assume that people will come to the right conclusion, because they often don't. They may think you've made this acquisition because you want the product when, in fact, you are interested in the customer base or the market access. Acquired customers always assume the worst. Even if what you think you have to tell them is bad news, it's probably better than what they're assuming, so you are much better off being as open as you can be about your plans.

For Shepherd, squelching fears and reinforcing trust with vendors is just phase one in a postmerger landscape. "If one of your vendors is being acquired, you want to be at the head of the line to have a discussion with the company doing the acquiring," says Shepherd. "If possible, begin those discussions before the transaction closes, although, in a lot of cases, there are reasons why the acquiring vendor can't say much."

Again, Carlson and McIntyre were ahead of the curve. "We maintain a hugely strategic partnership with Oracle from an application-vendor point of view," McIntyre explains. "I worked closely with the senior sales team while the PeopleSoft acquisition was going on, and we continually told them, 'We have no pain. Yes, we are a PeopleSoft shop in HR, but we trust Oracle and believe they will move forward in an appropriate way to give those of us who use both sets of applications the appropriate paths. We trust Oracle will continue to listen to us, because they always have when we've expressed concerns."

Maintaining confidence in Oracle and the company's ability and commitment to supporting the PeopleSoft and JD Edwards product lines was particularly critical for Carlson and McIntyre in light of their own circumstances. Having received final word that Quantum would be acquiring Certance less than four weeks after Oracle made its own announcement, Carlson and McIntyre effectively took a one-two punch. "We didn't have the luxury of extensive planning," explains McIntyre. "We knew the changes were coming, but, legally, we couldn't take any definitive actions, which included personnel actions, until the acquisition was complete."

Like-minded in their approach, both men are fanatical about implementing processes on the fly. "Process is in our DNA," McIntyre explains. "It's true of Dave, and it's true of me. We don't have time in this competitive industry to do things serially. In other words, it doesn't look like the usual road map, where you spend six months planning and then you do a design. With the condensed time frame, we adopted a top-down orientation where we planned only as much as we absolutely needed to, at the very highest strategic level, and then moved forward. The key point is parallel planning, rather than serial planning, which included focusing on the core financials and manufacturing-supply-chain parts, which we use the most."

Blended Families, Mixed Blessings

Although it was a boon that both Quantum and Certance use Oracle E-Business Suite applications, that commonality did present its own set of challenges. "In many ways, this was much less of an acquisition and more of a marriage," McIntyre explains. "When we've incorporated other organizations into our Oracle instance before, we have essentially brought them onto our business model. This time, it was critical that we preserve the Certance business-model benefits. Essentially, we're moving to a flexible foundation for a combined business model that will allow all benefits, based on the legacy Quantum and legacy Certance strengths, to be preserved. It's probably the biggest Oracle challenge we have."

Why the commitment to the Oracle E-Business Suite 11i footprint? McIntyre again points out how Quantum's acquisition of Certance was more of a marriage than a typical acquisition in that the product lines of the two companies were very complementary. "The acquisition increased our market presence and established Quantum as the world's largest volume supplier of both tape drives and tape automation," says McIntyre. "What we had to do was marry two different business models."

"Certance utilizes a manufacturing model that relies heavily on its own manufacturing plants in Scotland, Malaysia, and the United States," Carlson notes, "whereas Quantum relies on contract manufacturing. These are two very different strategies, so the flexibility within the new version of Oracle E-Business Suite 11i is essential."

At the time Carlson and McIntyre sat down to discuss the IT issues surrounding the merger, they still had a couple months of intense work ahead of them to meet their target completion time frame of October 2005. But they were happy to point out that one of the most pressing and complex requirements, compliance with the Sarbanes-Oxley Act (SOX), was well in hand.

According to Ann Auerbach, Quantum's IT project manager and the SOX project lead, "One of Quantum's biggest benefits is, we have never run more than two financial systems at any one time. We have always rolled the non-Oracle systems into Oracle. Because we can rely so heavily on the fact that both Quantum and Certance were running quality Oracle Financials products, it really reduced the level of questions that we get asked by the auditors. They can heavily rely on the integrity of the data, the configurations, the controls, everything. It does make our life easier. Now, on the flip side, because of SOX, even though we can rely on the Oracle product for our financials, we still have to do our own validations. There's just always that nagging voice in the back saying, 'Yes, but prove it.'"

It's Nothing Personal—It's Just Sound Business

AMR'S Shepherd says, "Too often, we find that users never consider the possibility that a merger or acquisition is going to be good for them. It is actually quite common that you've got a relatively small vendor that may be financially shaky—or at least is limited in its ability to invest in the products and expand into new geographic or vertical markets—being acquired by a much larger vendor with deep pockets and resources. But it never occurs to the acquired customers that this is oftentimes in their best interest, that the acquiring company is in fact protecting their investment and removing risk from their IT strategy.

"They're so busy being upset about the fact that the vendor they selected and did business with is disappearing that they don't think about the fact that they got a real upgrade in terms of vendors," he adds. "They've now got one that's much larger and much healthier, just as interested in the market, just as interested in them, but in a much better position to help them."

Stick By Us, and We'll Stick By You

McIntyre and Carlson are determined to stay the course with Oracle. "We certainly plan to continue to be influencers on Oracle's road map, especially when it comes to questions of integration of PeopleSoft," promises McIntyre. "We fully expect Oracle will keep asking us what kind of pain this might cause us. Still, we'll continue to work with them and understand that there'll be some decision points in the road, such as, 'Do we remain with our PeopleSoft application for another year? Do we upgrade to the next version, or do we begin the migration task that Oracle will no doubt establish?'

"I'm not nervous about it at all," he continues, "because Oracle has been a good strategic partner with us, and we expect it to continue to be. Companies get into a competitive mode where they decide it's time to take the next acquisition step. But it's important to remember that there are bunches of people out here who are very dependent on the value of that strategic relationship at the most tactical level."

The Oracle Applications Road Map A Progress Report A Q&A with Oracle's Fred Studer With the acquisition of PeopleSoft, Oracle is engaged with more applications and database customers and partners than any other company. Profit sat down with Fred Studer, Oracle vice president of applications marketing, to talk about the progress that's been made since the beginning of 2005. Profit: How is the merger of Oracle and PeopleSoft progressing? Fred Studer: We're very happy with the progress. We've made great strides in integrating the employees, who are the most important component of this integration, but we've also done a lot of work integrating the intellectual property and PeopleSoft and JD Edwards' product excellence. Profit: What can people expect to see? Studer: First, we've agreed to create automated upgrade paths from both the current release and the next release of all product lines. We will be creating evolutionary upgrade paths from PeopleSoft Enterprise Performance Management 8.9 and 9.0, JD Edwards Enterprise One 8.11 and 8.12, and Oracle E-Business Suite Release 11i.10 and 12. We want customers to know that we're going to protect their investment and that we're continuing to innovate all product lines. And we've announced dates on which we're going to start adding some of that great business and technology value that only Oracle can provide, by certifying those applications on Oracle Fusion Middleware [a family of standards-based, customer-proven products, including Oracle Application Server, Oracle Collaboration Suite, and Oracle Data Hubs]. Profit: What can you tell us about Oracle Fusion? Studer: Oracle Fusion is about the business value of technology and applications coming together. Oracle has a very strong technology backbone in the database and Oracle Fusion Middleware, and we also have very strong applications. But those applications are improved by bringing in PeopleSoft and JD Edwards. The blending of Oracle's strong database and technology background with this terrific application set is going to be able to deliver unique business value. There are three principles that drive Oracle Fusion. One involves providing the greatest business insight. Customers everywhere need better information. They need it to make better decisions, so they can drive performance in their business. Second is the ability to adapt and optimize their business processes. The third principle is called the Superior Ownership Experience, a PeopleSoft best practice we will leverage. The Superior Ownership Experience is going to change the market, in that we'll be able to deliver our applications and technology better; help upgrade them more easily; and, over time, maintain them better and more cost-effectively so that our customers can get the benefits of all of this great technology quickly and inexpensively. Profit: Is there something customers can be doing now? Studer: If there's one thing we really want all of our customers to know, it's that we are committed to these applications. We are continuing to release all of the products. We just had a great release of PeopleSoft Enterprise Performance Management applications, which are very robust and can provide significant value to current PeopleSoft or JD Edwards customers who want to start looking at more-performance-driven management of their company. We released JD Edwards EnterpriseOne 8.11 late last year, and it offered a lot of new functionality for demand-driven manufacturing as well as in CRM. And a lot of significant benefits became available in Oracle E-Business Suite 11i.10. So our key message to customers is that not only are we going to support the applications you have but we're also continuing to enhance and innovate them. We want to share the excitement with customers and tell them about all the great things that are available in the current releases. In addition, as soon as they get on these current releases, they will be able to start participating in this journey called Oracle Fusion. That means we are going to be certifying a lot of these applications on Oracle Fusion Middleware, which will offer our customers some very innovative technologies such as service-oriented architecture; business activity monitoring; and the ability to leverage something called BPEL, which focuses on orchestrating processes better and more simply.