A massive centralization effort promises to boost the bottom line--especially if the company can leverage it as a sales tool.


Vendor, heal thyself may seem an odd prescription for a company that just completed the most successful year in its history, but Oracle Corp. 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, the database and software applications vendor 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 $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 $2 billion per year. Not bad for a $10 billion 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 megacenter at its Redwood Shores, Calif., headquarters (a second site, in Colorado, will be on standby in case of emergency). 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 $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 percent to 30 percent thanks to an integrated suite of Web-enabled applications, that equals about $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 on 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 some bloody noses, 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 Enterprise Applications Consulting, in Berkeley, Calif., argues that Oracle, as a software vendor, has certain advantages over other companies. Not only does it happen to make virtually all the software it needs to run its business, 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 Nestlé 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 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 Inc., however, has taken a look at Oracle’s single-instance effort and says it dovetails with Sun’s recent move toward centralization and a reliance on Web-based applications. The company has consolidated its accounting functions into 4 centers around the globe, down from nearly 30, and wonders if it has gone far enough. “Having 4 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 far to take centralization. “We’ve saved 45 percent on payroll costs, 75 percent on T&E processing, and similar amounts on GL, 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.”

One thing is certain: Sun’s experiences to date make a powerful case for consolidation. In addition to cutting costs, Laverty says the quality of work has taken a big step forward. Error rates are lower, cycle times are faster, and employees can now execute many administrative tasks in minutes rather than days. “One huge benefit,” Laverty says, “is that people who are paid to develop microchips or write software can spend more time doing that, versus being distracted by all kinds of paperwork.”

Laverty believes that by consolidating its accounting functions into four centers, Sun prepares itself for future changes. “Now you have to ask tougher questions about what sorts of systems you would develop in-house,” he says. With application service providers offering a plethora of software on a pay-as- you-go basis, Laverty says, a company that has retooled its IT operations to take full advantage of the Web is positioned for the future. “There’s a sort of natural globalization taking place, as companies reduce the number of interfaces they rely on so they can tap into this new world order of software delivery.”

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. Whether the lessons it has learned apply to other companies remains to be seen, but one thing is certain: Oracle, renowned for its sales-driven culture, will be selling itself like never before.

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