Outsourcing Function, Not Form
Oracle On Demand provides Agilent with the flexibility it needs to thrive.
by Ann C. Logue
Santa Clara, California-based Agilent, which makes measurement devices used in communications, life sciences, electronics, and chemical analysis, needs to continually introduce innovative technology to meet the ever-changing advancements in measurement and scientific technologies. It is a variable business that requires Agilent to approach its investment information technology (IT) with equal flexibility.
Thanks to a decision in 2002, Agilent is achieving success with Oracle On Demand, which provides the flexibility the firm needs to grow and succeed as an evolving company in an evolving industry.
Agilent now has 19,000 employees generating US$5 billion in revenue from locations all over the world. Suresh Vaidyanathan, Agilent's director of IT and enterprise business solutions, reports that by moving from a traditional fixed-cost center to a flexible sourced model, the company's IT group made a significant contribution to achieving a return on equity of 17.9 percent in 2006. "We found partnering with Oracle On Demand to be a great strategy," he says.
Read how the company has benefited from a multisource approach to IT outsourcing with Oracle On Demand. Key functions in IT are still in-house, but many functions are outsourced. Via Oracle On Demand, Agilent uses Oracle E-Business Suite 11i's Advance Planning, Order Management, Manufacturing, Warehouse Management, Procurement, and Financials modules.
Business is variable. Every day brings new challenges, new opportunities, and new ideas. Despite the varying needs of business and the changing nature of information, most organizations view information technology as a fixed cost. That can create bottom-line leverage as the business grows, but what if your business introduces groundbreaking technology that causes huge spikes in demand? What if it makes acquisitions to bring the best technology on the market under its roof? What if it sells off product lines and spins off entire divisions in order to let everyone focus on what they do best? In a variable business, fixed-cost technology can weigh the company down.
Few businesses have entered the twenty-first century with more variability than Agilent. The Santa Clara, California-based company makes measurement devices used in communications, electronics, life sciences, and chemical analysis. The types of devices that its customers need change with every advance in measurement and scientific technologies. Some of its products measure things that weren't even discovered when the company completed its 1999 IPO that spun it out of Hewlett-Packard. Agilent now has 19,000 employees generating US$5 billion in revenue from locations all over the world. In 2002, it converted from legacy information systems to Oracle On Demand to get the flexibility it needed to thrive as a changing company in a changing industry.
Since Agilent's IPO, the company has not only introduced new oscilloscopes, microarrays, and multimeters but has also made four significant acquisitions and two business unit sales, and bought and sold different technologies and product lines as it honed its precision edge. In 2006, Agilent spun out Verigy, which makes semiconductor testing equipment.
"The company has been going through ups and downs in terms of mergers and divestitures," says Suresh Vaidyanathan, Agilent's director of IT and enterprise business solutions. Moving from a traditional fixed-cost center to a flexible sourced model, Agilent's IT group made a significant contribution to achieving a return on equity of 17.9 percent in 2006. "We found partnering with Oracle On Demand to be a great strategy to move the lever on costs, up or down, depending on which way we go with our business," Vaidyanathan says. Having lived through the conversion from Hewlett-Packard's legacy systems, Agilent's management realized how important the IT transition is to acquisition success. The company needs an IT infrastructure that can handle all the transactions, and it found it had the most control through outsourcing management of its software with Oracle On Demand. "Agilent IT now has a multisource approach for its IT sourcing strategy. We do have key functions in IT that remain in-house, but many of our IT operations are outsourced," Vaidyanathan says. Through Oracle On Demand, Agilent uses Oracle E-Business Suite 11i's Advance Planning, Order Management, Manufacturing, Warehouse Management, Procurement, and Financials modules.
Agilent operates almost like a venture capital firm. Its in-house research staff develops breakthrough measurement technologies. Some of these discoveries fit Agilent's core competencies; others would be better off as part of another company. Likewise, Agilent sometimes needs technologies developed elsewhere to complement its in-house mix. The goal is to have the optimal mix of measurement devices and services used in communications, electronics, life sciences, and chemical analysis.
No matter the size, each purchase, sale, or spin-off carries risks. If Agilent's fixed costs are too high relative to the posttransaction business, it won't have the money to put into research and development. If it can't convert the information systems of newly acquired companies, information won't be available to help everyone in the organization. Oracle On Demand solved both problems. "We found it's better for us to rely on Oracle," Vaidyanathan says. Because the IT application operating cost is now based on the number of users, the IT expense scales with the size of the business. It's a simple matter to add or subtract users as Agilent adds or subtracts business units.