The Cost of Doing Business Differently

University of Michigan

PeopleSoft Inc., which has focused most on the higher education niche of the enterprise software market, and has hundreds of college and university customers, recently made a $1.75 billion offer for J.D. Edwards. PeopleSoft's mainstay is high-end, enterprise human resources software. J.D. Edwards' expertise is in mid-size, manufacturing-integration software. PeopleSoft rival Oracle Corp., then made a $6.3 billion hostile takeover bid for PeopleSoft. Many in higher education are alarmed.

PeopleSoft users are legitimately worried and will certainly suffer in the short term. We think that regardless of who merges with whom, the net result may be a diminishment of the importance of the higher education segment of the enterprise software business—to PeopleSoft, Oracle, SAP, Microsoft, SCT—and whatever other players end up in that competition. More institutions will modify their business practices to be more like software users in other industries. Some will reconsider homegrown—especially with regard to areas without parallel in other industries, such as student services.

Many in higher education are alarmed, because certainly, even if Oracle's bid fails, those implementing PeopleSoft solutions face diminished attention from PeopleSoft as its resources are diverted to fighting the takeover. That may, after all, even be the reason behind the hostile takeover bid in the first place, to divert PeopleSoft resources in a battle it would rather not fight.

Representing higher education institutions and other entities, Connecticut's attorney general has filed suit to stop the takeover, claiming that it would "directly damage the state and its economy and raise prices … by significantly reducing competition in the markets PeopleSoft serves."

The Higher Education User Group (HEUG), representing 400 PeopleSoft user institutions, released a press release saying, "As part of Oracle's hostile takeover attempt, [its] threat to terminate development of our higher education applications is appalling. The offer to help us migrate our applications onto a different suite is unacceptable in terms of impact to our students, to our faculty, and to our staff. … A migration to an ERP suite we purposely did not choose in the first place would force our institutions to expend vast amounts of money, precious staff time and talent, and place our core business processes at risk." That's probably not an overstatement. Individual institutions, many of whom suffered through years of arduous implementation, face hundreds of thousands of dollars of costs for migration

But let's think about those years of arduous implementation. The difficulties many institutions had implementing PeopleSoft solutions have caused many other institutions to look elsewhere—to maintain homegrown solutions, to open source, or to PeopleSoft competitors. There was a point in the last decade where it seemed like every institution was jumping on the PeopleSoft bandwagon, but no more. It may be that, like other software companies, PeopleSoft's move to purchase J.D. Edwards signaled a shift in emphasis that would have meant it would be paying less attention to higher education anyway.

The $36 billion enterprise software market is considered by many to be "ripe for consolidation." If Oracle consumes PeopleSoft, it will still be smaller than SAP, and other consolidations are likely to follow. As these companies get larger, they are likely to care less and less about what will look to bigger companies like a smaller and smaller niche market.

What is likely to happen is that the larger companies will produce better products, but with fewer choices for higher education institutions, and more expensive customization, if offering customization is even seen as a worthwhile business practice. Over time, that will increase an already growing trend for higher education institutions to more closely align their core business practices with those of other industries. That will be, after all, the way to get the most efficiency out of the enterprise systems available. What will happen to the more esoteric modules or packages, such as student services systems, is less certain. Others with a focus in the higher education niche, such as SCT, may refocus on higher education—or Microsoft's growing interest in the enterprise software arena may sweep up its higher education. None of this d'es any harm to the open source movement.

We empathize with our IT colleagues who face both painful certainty and resource-consuming uncertainty. In an already uncertain time, the path to integrated software solutions has become less clear. In a financially difficult time, they face, perhaps not a certainty but a strong likelihood of increased costs. For them, and possibly for the rest of us, what Norris et al., in Transforming eKnowledge, describe on page 97 as movement at a "judicious pace" from ERP systems to "open system architectures and protocols" may increase somewhat.

Although the thoughts expressed herein are mine alone, my thanks go to David Hollowell of the University of Delaware, and Laura Saunders of Highline Community College, for recent insightful discussions.

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