The True ‘E’ In E-Business

NEW ORLEANS, Louisiana – What’s the ‘e’ in e-business? For many, it is electronic. But for Oracle Corp., the second largest software company in the world, the ‘e’ means efficiency.

"Efficiency is the bottomline of e-business," said Mark Jarvis, Oracle’s chief marketing officer, during the Oracle Applications World conference in this city late last month. "Without efficiency, this electronic thing is meaningless for business."

Jarvis noted that as markets and companies all over the world grow, the need for efficiency increases.

Gary Bloom, Oracle’s executive vice president, recalled that in the late 1980s and early 1990s, Oracle enjoyed tremendous growth, but everything changed in the third quarter of 1990 when the company saw itself losing $15 million on $240 million in revenues and had to lay off 400 employees in the United States.

"Incredibly, we were growing 100 percent a year and we planned our expenses with this growth in mind. Then, we had one quarter when we didn’t grow as planned. At the same time, we delayed the delivery of our products. So our competitors got a leg up on us for a small window of time," he said.

It didn’t take long before Oracle executives realized that their internal systems were not working. "Our rapid growth distracted us from focusing on our internal operations and infrastructure. We ran up and hit the wall," Bloom said.

‘E’ is for easy

Bloom explained that in the past, Oracle didn’t find any reason to spend money well. Money was coming in downpours, with the company growing 50 to 100 percent a year.

Despite this growth, however, Bloom said Oracle only had 20 percent margins. "We knew there was something wrong with this picture," he said.

Realizing the problem, Oracle CEO Larry Ellison made a daring public announcement: His company would save a billion dollars by the end of 2000 by transforming itself into an e-business.

During the announcement, Ellison said he didn’t care what others said. "Are you building our products? Are you servicing our products? Are you selling our products? If the answer is no, no, and no – tell me again, very slowly, what it is you do? We are going to try to automate you away," he said.

By automating, what Ellison wanted to do was make things simpler, easier. Before going e-business, Oracle had been doing things in a complicated manner. It has 97 distinct e-mail systems, 63 different company websites and hundreds of databases. Every office it maintained in different parts of the world had its own way of doing business. And Ellison saw this as a sure way to lose money.

What he did could be summed up in two actions – automation and self-service. He automated the tasks of his employees, and provided self-service options to both his people and his customers. And he did both through the Internet.

Oracle put its entire business on the Net in late 1999 and quickly reaped the rewards.

"After we put our business on the Internet, Larry can now know what’s happening in one country and decide on a separate problem in another country. That’s how integrated we are now," said Bloom. "Now, we only have one e-mail system, one website (Oracle.com) and one database."

Oracle also created an online store instead of hiring thousands of new sales people. It did away, too, with direct mail to customers and simply sent e-mails to C-level executives (i.e. CEOs, CIOs and COOs, etc.). And instead of holding seminars in hotels, Oracle now hosts online seminars with no limit to the number of attendees.

"We used to spend a lot for seminars. Now we only spend $1.92 for each participant online," Bloom said.

‘E’ is for earnings

Ellison bragged that Oracle would save $2 billion this year. And he emphasized that as the company reduces its expenses, it improves its margins, thus increasing profits.

"Yes, we will keep selling more software, we will keep delivering more software and implementing more software. And our customer base will grow," he said. "Oracle has created a blossoming economy – the Oracle Economy – all built and dependent upon Oracle technology."

To remain competitive, Ellison pointed out that Oracle has transformed itself from a software company into a service company. He said the software industry would give way to a service industry where a company no longer buys its own computers or hires its own staff to automate its business. Instead, it’ll buy an automation system that’s on the Internet.

"Businesses will run their shop floor, their warehouse, their retail outlet or their chain of pizza restaurants using our E-Business Suite from the Internet. Oracle will be the service provider because we offer the whole stack. And that is what will keep us in the number one position," he said.

Timothy Chou, president of Oracle Business Online, said that at present, no software company has been able to build bug-free software. Thus, software companies build support and development infrastructure to deal with defects in their products.

When problems occur, customers normally call the software company’s support desk which needs a whole lot of money to maintain.

"Software companies spend 25 to 50 percent of their R&D budget on support as well as use 100 to 1,000 people for this purpose. These figures translate into a staggering amount of money," he said.

In contrast, support through the Internet works more smoothly and efficiently. For example, customers facing a problem with a certain software can call the online service provider and the online desk will immediately understand the problem. If support cannot apply the fix, the problem is simply forwarded to software developers who will be able to see it themselves.

"This online model has the potential to decrease the cost of software by a factor of 10, making it 10 times cheaper," Chou said.

‘E’ is for enemies

Oracle’s bragging, however, has earned it many enemies. Just recently, a law firm in San Diego, California filed a class suit against the company and Ellison, alleging that Oracle had overstated the strength of its sales prospects and the power of its software.

Filed with the US District Court in San Francisco, the suit disputes Oracle’s claim that it saved $1 billion by implementing its E-Business Suite. The law firm said the Oracle software was riddled with bugs and Oracle’s cost savings came from job cuts.

Oracle spokeswoman Jennifer Glass denied the allegations. "The allegations are entirely without merit and will be defended vigorously," Reuters quoted her as saying.

Lawyers at Milberg Weiss Bershad Hynes & Lerach in San Diego said they have an unnamed "institutional plaintiff" against Oracle. They alleged that Oracle’s cost savings, which the company attributed to the implementation of its E-Business Suite, was actually the result of a decision "to terminate more than 2,000 employees."

The lawyers also said that Ellison knew the E-Business Suite "was fraught with massive technical problems and required expensive systems integration work to implement."

The usually talkative Ellison has not issued any comment. (To be concluded)