Big Investment In Software's Future

Features and functions won't drive the enterprise software industry or its customers, forward anymore. What will? Smarter applications that are easier to configure and use as well as less expensive and taxing to implement, maintain, and upgrade.

That's the vision PeopleSoft Inc. touted at its Leadership summit last week in Las Vegas. The message isn't unique. Most of the company's competitors also have spelled out their ideas of using Web services to ease integration headaches. And to make implementations go more smoothly, competitors are building intelligence, such as data and processes specific to a particular industry, into their applications, as well.

But some business-technology executives say PeopleSoft has committed to a more comprehensive vision of how it will get to this goal. "PeopleSoft has thrown down the gauntlet for the other application vendors to pull back the screen on their efforts," says Steve Rice, VP of human resources for the Americas division of Hewlett-Packard, which runs PeopleSoft HR 8.4, with plans to upgrade to 8.8 this fall.

PeopleSoft says that during the next few years it will spend hundreds of millions of dollars and devote more than 500 developers to the companywide initiative, which it's dubbing the Total Ownership Experience. "This will be an era of reduced costs, reduced dependency, and much less middleware," PeopleSoft president and CEO Craig Conway said during his keynote address at the conference. Applications are still too expensive because they involve too many people at every stage, from installation to configuration to maintenance and upgrades. "Technology hasn't been utilized to improve the ownership experience yet," he said.

Leading this effort is Ram Gupta, PeopleSoft's executive VP of products and technology. There are at least 112 items on a spreadsheet related to this initiative that the company is beginning to work on, including developing software that can capture the configuration of a customer's application, then check and download, using XML, any application patches that are appropriate for that user's customized configuration. "Today, everything we fix is posted on the site, but the customer has to wade through all of it manually to find the right fix. We're going to automate that," Gupta says. The first pieces of the software are due in the fall.

Such capability is a step beyond the automated patch technology offered today, which typically focuses on patching system software. "Patching an enterprise application is a lot more complicated," says John Bermudez, a senior VP and general manager of enterprise management strategies at AMR Research Inc. That's because system software contains source code that can't be manipulated. With enterprise apps, "you get to modify this stuff," he says. That's why it's important to know exactly how a customer has configured the application when finding the right patch.

Photo of Craig Conway by Marla Aufmuth "PeopleSoft has always been very focused on technology and features, and it has a very good product. But they don't really understand our experience and what we have to go through to implement, upgrade, and maintain the software," says Steve Hill, senior VP of human resources at Weyerhaeuser Co., a forest-products company with annual sales of $18.5 billion. "Now it sounds like they're putting the accent on the right syllable."

Upgrades to the company's PeopleTools application-development software also will contribute to the vision. These include a June release of PS Ping to help customers identify bottlenecks that are affecting their applications' performance and an end-of-the-year rollout of tools to let customers more easily archive their files and data. "It will let you think logically about what you want to archive," Gupta says. For example, instead of dealing with abstracts such as "instance 478 running on disk drive abc," archiving practices can be done using more concrete notations, such as "employee's file of the customer master list."

Other initiatives leverage work PeopleSoft has already started. In March, PeopleSoft unveiled prebuilt integration to SAP's financial applications in its Supplier Relationship Management software, and Gupta says more of this is on the way.

Equally important to PeopleSoft's Total Ownership Experience is a new partnership with IBM to port all 170 of its applications to Linux, and an ongoing effort to provide clients with less-expensive support and services. To that end, PeopleSoft extended its offshore presence in India with a new global implementation, development, and support facility in Bangalore that will open next month. PeopleSoft is partnering with Hexaware Technologies Ltd., a systems integrator in India, to establish the center. As in seven similar facilities in other parts of the world, the Bangalore center will host a remote-configuration capability that uses the Internet to help customers install and integrate PeopleSoft apps. "You don't have to fly people in and out," Gupta says. "The net effect is that implementation is less manual and less expensive."

According to a Meta Group study of more than 200 organizations, enterprise resource planning implementations cost about 1% of revenue for large companies. That means a $1 billion company spends about $10 million, with more than 70% of that going to labor. The study also found that ERP implementations take about 20 months, but it takes at least 27 months before benefits are realized.

Anything that could save dollars at a time when budgets are flat is music to business-technology executives' ears. Bill Whitmore, VP of corporate IT at Fairchild Semiconductor International, says he believes PeopleSoft's strategy could do that. "I look at where we spend our money and the things we're doing in support of the products, and it does revolve around the things PeopleSoft is talking about--system performance, software quality, cutting installation times, cutting upgrade costs," he says.

Photo of Ram Gupta by Marla Aufmuth Some analysts estimate that during the first upgrade of an enterprise application, companies can spend as much as 30% to 60% of the cost of the original implementation. That's been the case at Weyerhaeuser, which typically upgrades its HR apps every two or three years. "When you are a poor HR guy like me and are going to the CFO asking for this kind of money all the time, you aren't well received,'' Hill says.

PeopleSoft's initiative could go a long way toward improving its bottom line. In its first quarter, ended March 31, the vendor reported a profit of $38.5 million on revenue of $460.3 million, compared with a profit of $44.5 million on revenue of $483.3 million a year ago. The big hit has come from declining software sales: revenue from licensing dropped to $80.8 million, compared with $133.3 million the same quarter last year.

If PeopleSoft can pull off what it promises, then companies will have to spend less on implementations, maintenance, and upgrades and have more to spend on strategic initiatives that require new software. "In the past three years, our IT spend has actually been going down," says HP's Rice. If PeopleSoft can make the user experience easier and bring total cost of ownership down, Rice could ensure that his environment is running well and invest in new technology to support sales-incentive programs or help identify the critical skills its workforce needs so that HP can expand its outsourcing and services business.

Some remain skeptical until they see more details. "This is a somewhat nebulous-sounding program, and there are a lot of little things that will have to happen to make it work," says AMR's Bermudez.

Conway doesn't seem worried. "The press and analysts are always skeptical. Then a year or two years later, people look back and say 'That really happened,'" Conway said last week. "This year will probably be no different."