COVER STORY: Enterprise Systems: Risky Business?

ERP software partnerships are essential to operating most campuses today. The risk of relying on those partners is real, but it can be managed.

Jay Dominick has spent much of his 10 years as CIO at Wake Forest University (NC) dealing with the fallout from corporate actions that were well beyond his control. First, Bi-Tech, the company that provided Wake Forest’s financial software, was acquired by much larger SunGard (www.sungardbi-tech.com) in 1995. As a result of that takeover, Wake Forest set in motion a switch to PeopleSoft’s (www.peoplesoft.com) financial and human resources systems shortly thereafter.

Then, in fall 2001, Hewlett-Packard (www.hp.com) abruptly announced that support for the computer and operating system Wake Forest’s student applications ran on would end in 2006. So, the university decided to migrate all of its systems, including the new PeopleSoft financial and human resources applications, to SCT’s Banner (www.sctbanner.com). But just after Wake Forest signed the Banner contract in July 2003, higher-ed-focused SCT was acquired by the now mammoth international corporation SunGard. The circle was pretty much complete, except that, around the same time, Oracle (www.oracle.com) began its move to acquire PeopleSoft. That meant that even if Wake Forest had stayed with that company, the university would have faced the uncertainty of another transition.

On the other side of the country, though, at the very moment Oracle was launching its PeopleSoft takeover, the Maricopa County Community College District (AZ) was immersed in a 10-college PeopleSoft implementation. “Some of our customers worried that our student system project had just become an instant legacy system,” says Darrel Huish, who is associate vice chancellor for Information Technology at Maricopa.

11 Steps to Self-Protect
  1. Prove safety
  2. Go for market share
  3. Consider the client base
  4. Reconcile to complexity and change
  5. Influence vendor direction
  6. Weigh industry clout vs. higher ed market share
  7. Assess relationship vs. market share
  8. Consider higher ed community software
  9. Find partners in the community software world
  10. Cover other means of reducing risk
  11. Put M&A risk into context
The World of Mergers

Mergers and acquisitions, changes in corporate priorities—these are realities in the commercial world, and they have recently affected almost every one of the vendors that supply administrative applications to higher education. Yet, veterans like Dominick and Huish have learned how to position their institutions to ride the wake of the storms of corporate upheaval in relative safety. They and other corporate-savvy CIOs have learned how to pick the safest partners, how to structure the relationship with their partners to mitigate risk, and how to run the affairs of their institutions in a way that insulates them from abrupt changes on the vendor side.

Let’s examine some of the risk assessment and risk management strategies that CIOs believe in (and sometimes disagree with each other about). At the same time, let’s also look at how vendors view their roles in building solid and reliable partnerships.

Prove Safety

“I was purple with frustration when I found out that SCT was being purchased by SunGard,” says Jay Dominick of Wake Forest. “I expressed that as far up the chain of command as I could, at SCT. I was one of their most critical customers in the first year or so. But they’ve proved me wrong. They didn’t miss a beat.”

One reason that Wake Forest’s selection of SCT proved sound, even after a change in corporate ownership, was the way the university had probed the company’s compatibility before the decision. Dominick outlines the steps he and fellow administrators took to make sure SCT was the right match.

“We spent six months working closely with SCT to prove that Banner matched our requirements and would work in our environment,” he notes. Several factors increased Wake Forest’s comfort level: “We were the first client to launch Banner on Linux; we wanted to be on a platform where we could be more in control of our own destiny. And SCT was a large company that focused entirely on higher education, which addressed a risk we had seen with Bi-Tech.” The safest route, Dominick believes, is to “pick vendors who have no economic alternative than to stay in your industry.”

Go for Market Share
John Bielec, CIO and VP for Information Resources and Technology at Drexel University (PA), has a simple formula for picking a safe partner: Look for market share in higher education at similar (comprehensive research) institutions. “A lot of institutions would probably consider functionality first, but that is probably our last criterion,” he explains. “If you look at market share, you assume the functionality is built in. Market share is the key to vendor sustainability; the ability to keep enhancing the product over the years.” Following this formula, Drexel has gone with SunGard’s SCT Banner and BSR Advance (www.sungardbsr.com), and WebCT (www.webct.com).
Consider the Client Base

The case of Oracle and PeopleSoft shows how important it is to choose the company you keep. The California State University system and Maricopa Community College each had different kinds of commitments to PeopleSoft products, when Oracle announced its bid to take over the company. But both probably benefited from the leverage provided by belonging to a massive client base.

Insider Tip
“Pick vendors who have no economic alternative than to stay in your industry.”
Jay Dominick, Wake Forest University

At Cal State, David Ernst says he was never really worried about the takeover. Ernst, who is assistant vice chancellor for Technology Infrastructure Services for the California state system, says, “There certainly was some trepidation at the time. But our feeling was, whether or not the merger was successful, the impact was not going to be that great. Oracle was not motivated to lose the PeopleSoft client base. And we are their largest client, so we have some insight and influence.”

Besides being the largest customer, Cal State’s comfort level today is based a) on an intimate connection with the technical people inside Oracle/PeopleSoft who are working on the merger of the two product lines, and b) on a carefully cultivated relationship between the highest management levels of the Cal State system and Oracle. Despite the merger, Cal State is well on its way to completing its ERP project. The Chancellor’s Office and 21 of the 23 campuses are operational on PeopleSoft (now Oracle) HR and finance modules. Student Administration is the culminating phase, and 11 of the 23 campuses are already live with that. “We’ll probably be about a year late getting all the campuses up,” says Ernst. “The delay is due to budget conditions and other internal factors, and isn’t really bad for a seven- or eightyear project. The Oracle takeover didn’t slow down the project at all.”

Reconcile to Complexity and Change

Cal State was heavily committed to a complete PeopleSoft solution when the Oracle takeover loomed. By contrast, the Maricopa Community Colleges’ commitment to PeopleSoft was only part of a more complex plan. Maricopa already had a multivendor architecture up and running, including Oracle financials and PeopleSoft HR. The geographically dispersed college system wanted to simplify things by moving its 10 distinct, legacy student systems over to PeopleSoft Student Administration.

Insider Tip
“Market share with similar higher education institutions is the key to vendor sustainability; the ability to keep enhancing the product over the years. Some institutions look at functionality first, but that is our last criterion. If you look at market share, you assume the functionality is built in.” —John Bielec, Drexel U

So when Oracle acquired PeopleSoft, Maricopa ended up no worse off, and may actually stand to benefit from the merger. “We backed into integration,” says Huish, who has responsibility for the project. “It d'esn’t cost us anything to believe in Project Fusion [Oracle’s plan to meld PeopleSoft’s applications with its own]. We already have an investment in these systems. If Fusion d'esn’t work out, then we’re best of breed. We had reconciled ourselves to that beforehand.”

Huish says he is relatively relaxed about whatever transition Maricopa may go through as a result of the merger. For one thing, Maricopa has deliberately kept small the number of modifications to the software, which will ease the pain of any conversion. Second, Huish feels that Maricopa selected its student software package on the basis of its rich functionality, which gives his product an edge in the melding process. “It looks like what we knew as PeopleSoft Student Administration is going to have a large footprint in the successor product. That makes us think that the transition is not going to be very difficult.”

Finally, Huish relies on a safety strategy that is independent of vendor and product, performing a careful businessprocess analysis. He says, “How expensive a transition is depends on how good an idea you have of how to automate your business processes. If you have started to lose your institutional memory, and if it’s only the software itself that remembers what your business processes are, then it d'es get expensive.”

Influence Vendor Direction

In the early stages of the Oracle takeover bid, it was not so clear that things would go smoothly, and the client base—organized as the PeopleSoft Higher Education Users Group (www.heug.org)—was prepared to go its own way, if necessary. There was talk of forming a nonprofit consortium to keep the PeopleSoft applications alive long enough to allow the member institutions to choose a new course. “The worst-case scenario was that the only purpose of the merger was to capture the revenue stream and customer base, but not to maintain the business functionality, and so to force a transition,” says Huish.

Did the user group’s readiness to pursue other alternatives influence Oracle’s decisions about how to handle the transition? “It couldn’t have been a bad thing,” says Huish, “although the quality of the underlying PeopleSoft functionality ultimately would have carried the day.”

In the end, the plan that Oracle developed was aimed at convincing the client base that their message had been heard and that their needs, as well as Oracle’s business objectives, would drive the agenda.

“We have tried to listen to customers and reassure them about the continuity of service,” says Jim McGlothlin, VP for Higher Education at Oracle. “The key to the roadmap is to give the customers plenty of time to determine their own migration timeline. Customers have various goals. Some want to take advantage of the new version as soon as possible, others want to minimize the impact of their conversions.” McGlothlin himself is a symbol of Oracle’s desire to make the blending of the two companies smooth: A former Oracle executive who went to work for People- Soft’s Education and Government division, he is now back at Oracle after the acquisition, as one of the people overseeing the melding of the two companies’ higher education offerings.

The new Oracle roadmap provides for a major release of the PeopleSoft software, version 9.0, in 2006, followed by a fusion of the Oracle and PeopleSoft suites in about 2008. The fusion product is still in the design stage. Oracle says that the expense and change required to follow the new roadmap will not be much greater than the upgrade path for PeopleSoft would have been, if they had not acquired the company. If institutions generally agree with that, it is because customers who choose products at this level already accept high levels of technology evolution as unavoidable, and have budgeted for it.

Insider Tip
“We have tried to reassure customers about the continuity of service, but the key to the [transition] roadmap is to give the customers plenty of time to determine their own migration timeline.” —Jim McGlothlin, Oracle
Weigh Industry Clout vs. Higher Ed Market Share

When Northern Kentucky University went looking to replace its ’90s-era software, the metropolitan masters institution saw that it had a lot at stake. “The partnership with a vendor becomes especially important for schools in the middle,” says Bill Reed, director of Special Projects at Northern Kentucky. “We only get one shot at doing this right. If we got halfway down the road with someone and we had to stop and start over, that would be a disaster.”

That search led them, in December 2004, to a contract with SAP (www.sap.com/usa/industries/highered), one of the few administrative system vendors in the higher education market that has not gone through a change of ownership recently. Northern Kentucky is in the early stages of an implementation of the entire higher ed SAP suite, including mySAP, campus management, financials, human resources, Web portal, and business data warehouse.and would be in it for the long term,” says Reed. SAP’s huge presence in the global commercial market was reassuring, even if it included a relatively small presence in higher education. Reed was not worried that SAP would fail to make a go of it in higher education and leave the sector. “SAP has an excellent track record in other industries,” notes Reed. “We couldn’t find any instances of an industry that SAP entered that they had walked away from.”

The quality of the partnership with higher education clients was as important to Reed as their sheer number. Northern Kentucky did extensive reference checking and was satisfied that SAP paid close attention to its higher education user group. “Working with SAP was just the reverse of what we expected,” says Reed. “Even though they’re a large, global software provider, being part of a relatively smaller group of higher education clients allowed us to feel that our voice would be heard. Working with SAP’s higher ed group feels like working with a smaller company where everyone is accessible, including the product development staff.”

Although SAP puts heavy emphasis on the excellence of its technology platform, the company also stresses its success in forging partnerships with higher education. Malcolm Woodfield, director of Global Business Development of Higher Education & Research at SAP AG, thinks that institutions should find out what potential vendors mean when they say “partnership.” “Ask your vendor for examples that show where the company has partnered with universities, and what the results have been,” he suggests. He points to SAP’s work with the C'eus project as an example. MIT developed the C'eus grants management software and then licensed it to a consortium. SAP is part of the consortium and had integrated C'eus into its grants management module, but MIT retains the intellectual property rights. SAP, its customers, and the members of the consortium have all benefited.

Assess Relationship vs. Market Share

When Spoon River College (IL) selected Jenzabar (www.jenzabar.com) as its application provider, the school knew that few of its Illinois community college peers were using the same software. In fact, Jenzabar was added to the selection list as a backup, in case it turned out that the college couldn’t afford one of the products that dominated their market. “It says a lot that Jenzabar came from behind in our selection, because they were originally our Plan B,” says CIO Diann Jabusch.

The deciding factor was the solidity of the relationship that Jenzabar offered. Brett Stoller, the college’s VP for Administrative Services, says, “As a small college, we get thrown to the side a lot, but Jenzabar wanted to be our partner for the long term. They looked at what we wanted to do now and in the future.”

Spoon River was impressed by the functionality of the software in areas like communications management and a customized portal, but they were equally impressed by the personal attention they got from the Jenzabar team, with the company’s strategic implementation process that was based on identifying the college’s values and setting measurable goals. Spoon River was also not worried about the turbulence that some older customers had gone through during Jenzabar’s acquisition of four smaller software companies and the redesign of their technology base.

Insider Tip
“How expensive a transition is depends on how good an idea you have of how to automate your business processes. If it’s only the software itself that remembers what your business processes are, then it d'es get expensive.” — Darrel Huish, Maricopa Community College system

“You can leapfrog over steps that other companies have gone through,” Jabusch explains. Relative size was not a concern either. As he points out, “We’re a small college, and we know that being small d'esn’t necessarily mean that you can’t be a leader in what you are doing.”

Even with all that in mind, Spoon River prudently built features into the contract with Jenzabar to minimize the college’s risk, including review of the consultants assigned to the project and a hold-back of a percentage of payment until the college is satisfied with the implementation of the software.

Still, despite the care that Spoon River has taken in choosing its software partner, Jabusch is adamant that the success of the implementation depends on the college itself. “We’re counting on ourselves, not the software package. You shouldn’t put a lot of faith in the product you buy, if you’re not making a change in how you do things.”

Consider Higher Ed Community Software

For many institutions, the turmoil in the corporate world has increased interest in software development projects driven by the higher ed community itself. Is that the ultimate way to mitigate the risk of commercial partnerships? It’s a bit early to tell; to date, there is no comprehensive community-owned student or HR system. The Kuali Project (www.kuali.org), a community-driven financial system, is just now a yearling. But uPortal (www.uportal.org) and the Sakai collaboration/ learning environment (www.sakaiproject.org) have gotten plenty of traction.

Rutgers University (NJ) provides a living laboratory of how a community source project like uPortal can serve as the architecture to make a coherent whole out of many different kinds of applications. Rutgers links together Oracle financials and a homegrown financial system, as well as a homegrown student application. But none of that is evident to users of myRutgers, who see only the uPortal interface.

“The portal is the cornerstone of our enterprise architecture,” says Bill Thompson, associate director for Enterprise Systems and Services at Rutgers. “Some day, we may get out of the business of having a homegrown SIS. We manage that risk by building applications in a loosely coupled way.”

Find Partners in the Community Software World

Rutgers has a robust internal technical team, which is why it can juggle so many commercial, homegrown, and open source products. But even Rutgers calls on outside firms like Unicon (www.unicon.net) for some services. Unicon has made a market for itself in two ways: by building Academus, an enhanced uPortal, and by providing commercial support services for community source software.

Unicon CEO John Blakley explains what people want from his company: “There are bright folks out there on discussion boards, but being able to get someone on the phone immediately when you have a problem, is risk mitigation.”

The paradox of community-developed software is that it can succeed only if it manages to attract commercial partners who can provide support and development services. That looks like a workable model, but the track record is not yet long enough to make many people feel comfortable.

Cover Other Means of Reducing Risk

Choose the right partner for the right reasons, but take these precautions as well:

  • Make sure you have a perpetual license to use your software, one that remains valid even if the company is bought out or there is no one to accept your maintenance payments any more. Most CIOs blanch at the idea of running unsupported software, but as the PeopleSoft Higher Education Users Group demonstrated, having that option may be a big advantage. For similar reasons, it is good to have a copy of the source code or at least to have an escrow agreement.
  • Don’t pay maintenance fees too far in advance. Maintain some leverage.
  • Stick to open software standards, wherever feasible—both in the products you buy and in designing connections to other systems you run.
  • Keep an ear to the ground with your partners. Insist on having a seat on user councils. Invite the company’s top execs to campus frequently, for updates. Listen carefully for changes in tone and openness.
  • Manage realistic expectations about stability and risk, within your institution. Plan for unexpected transitions and costs, whether your vendor is bought out or not. While most institutions can’t manage to put money aside in a rainy-day fund to buy a new ERP system, think about where the money would come from, if it had to be found. Most institutions have at least a conceptual strategy for dealing with remote but massive risk.
Put M&A Risk into Context
Perhaps the most important thing about managing risk is to remember to make the big decisions based on strategic goals; don’t make them solely with risk avoidance in mind. Jay Dominick reminds us that few people could have anticipated in 1990 that one day entire institutions would operate on the Internet. Tectonic shifts occur periodically in our business. “The biggest risk,” Dominick says, “is the risk of falling behind the curve.” By managing the risks and building sound partnerships, institutions can keep an eye on what is truly important.

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