Deck 8: Strategic Change: Implementing Strategies to Build and Develop a Company

Question 1

Oracle Corp., based in Redwood City California, is the world's largest maker of database software and the third largest global software company in terms of sales after Microsoft and IBM. This commanding position is not enough for Oracle, however, which has set its sights on becoming the global leader in the corporate applications software market. Here, Germany's SAP which has 45% of the market is the acknowledged leader and Oracle, with only 19%, is a distant second.38 Corporate applications is a fast growing and highly profitable market, however, and Oracle has been snapping up leading companies in this segment at a fast pace. Its goal is to quickly build the distinctive competencies it needs to expand the range of products that it can offer to its existing customers and to attract new customers to compete with SAP. Beginning in 2005, Oracle's CEO Larry Ellison spent $19 billion to acquire 14 leading suppliers of corporate software including two of the top five companies: PeopleSoft, a leading Human Resource Management (HRM) software supplier it bought for $10 billion, and Siebel Systems, a leader in customer relationship management (CRM) software which cost Oracle $5.8 billion.
Oracle expects several competitive advantages to result from its use of acquisitions to pursue the corporate strategy of horizontal integration. First, it is now able to meld or bundle the best software applications of these acquired companies- with Oracle's own first- class set of corporate and database software programs- to create a new integrated suite of software that will allow corporations to manage all their functional activities such as accounting, marketing, sales, HRM, CRM, and supply- chain management. Second, through these acquisitions Oracle obtained access to thousands of new customers- all the companies that currently use the software of the companies it acquired. All these companies now become potential new customers for all of Oracle's other database and corporate software offerings. Third, beyond increasing the range of its products and number of its customers, Oracle's acquisitions have consolidated the corporate software industry. By taking over some of its largest rivals, Oracle has become the second largest supplier of corporate software and so it is better positioned to compete with leader SAP.
Achieving the advantages of its new strategy may not be easy, however. The person in charge of assembling Oracle's new unified software package and selling it to customers is John Wookey, Oracle's senior vice- president in charge of applications, who jokingly says that his "head is the one on the chopping block if this doesn't work." CEO Ellison has been quick to fi re executives who don't perform well in the past, however, who expects a lot from his top executives. To grow Oracle's market share and profi ts Wookey must draw on the best of the technology Oracle obtain from each of the companies it acquired to build its new suite of state- of- the- art corporate software applications. He also has to persuade customers not to switch software vendors, for example, jump ship to SAP, while Oracle builds its package and then to gradually adopt more and more of Oracle's software offerings to run their functional activities.
Wookey is well- placed to implement Oracle's new strategy. However, he is known as a consensus builder and product champion, both inside the company and outside, when interacting with Oracle's customers. He spends his working day sharing information with the top managers of Oracle's various businesses, and meeting with his team of 14 senior staff members, to work out how the whole package should be put together and what it should include. He also regularly visits major customers, especially those that came with its acquisitions, to gain their input into how and what kind of software package Oracle should build. Wookey even formed an advisory council of leading customers to help make sure the final package meets their needs. One of Wookey's notable achievements was retaining the top- rate software engineers who Oracle obtained from its acquired rivals. These people could have easily found high- paying jobs elsewhere, but most of the top engineers Oracle wanted stayed to help it achieve its new goals.
Nevertheless, by the end of 2006 there were signs that all was not going well with Oracle's new strategy. SAP is a powerful competitor, its popular software is fast becoming the industry standard, so unseating SAP in the $23.4 billion corporate software market will not be easy. Moreover, SAP is still the leader in more advanced functional applications incorporating the latest technologies and its proprietary technology is all homegrown, so it doesn't face the huge implementation issue of bringing together the applications from many different acquisitions. Preventing customers from switching to SAP may not be easy now that their loyalty to their old software supplier has been broken because of its acquisition by Oracle. Analysts also say that Oracle runs the risk of stretching itself too thin if it continues to purchase too many companies too quickly because high- tech acquisitions are the most difficult to pull off in terms of management and execution.39 Larry Ellison is under pressure to accelerate sales growth and surpass investors' expectations and only if Oracle can put out corporate application software sales numbers that beat expectations will analysts regard its strategy as a success. Still, Oracle's stock gained 47% in 2006 compared to SAP's 15% and in 2007 Oracle announced record revenues and profits. Its stock price jumped as investors now believe he and Wookey have the ability to make its acquisitions pay. In 2008 Oracle announced yet another major acquisition of software supplier BEA Systems; will they be able to continue their track record of success?
In what ways is Oracle seeking to create value from its acquisitions?

Answer 1

Acquisition strategy:
Orle has a very sound acquisition strategy. The strategy pays of continuously. Through acquisitions the company seeks to create value for it in the following ways:
- Through acquisitions Orle strengthens the product offerings. It acquires not only the company but also its market share.
- The process of innovation is sped up. This is an easy way for the Orle to acquire the high skilled laborers to achieve their new goals.
- Customer needs are met more efficiently and effectively. Orle evaluates the feedback from the acquired customers to build new and innovative software.
- Market share increases as overall customer base increases. New market opportunities come across.
- Financial strength goes high and wealth of shareholders increases. Acquisition increases the total assets and the capital. It adds extra strength and trust to the investors to increase their investment.
Acquiring the rivals reduces the competition in the market and also increases the opportunity to become a cost leadership.

Question 2

Outline the issues and problems involved in identifying a company's desired future state.

Answer 2

For any desired state of a company some changes need to be introduced in the organization. Identifying desired future stage of a company is a complicated process.
It involves following stages:
- Diagnosing the current state of the organization. The present positions in the market, industry and as well as financially have to be determined.
- Picturing ideal desired stage after the change is implemented. The gap between the present state and the desired state has to be closed.
- Conveying this vision to everyone in the organization without disrupting the message and vigor as they are meant for.
- Designing the means of transition to the new desired state.

Question 3

Oracle Corp., based in Redwood City California, is the world's largest maker of database software and the third largest global software company in terms of sales after Microsoft and IBM. This commanding position is not enough for Oracle, however, which has set its sights on becoming the global leader in the corporate applications software market. Here, Germany's SAP which has 45% of the market is the acknowledged leader and Oracle, with only 19%, is a distant second.38 Corporate applications is a fast growing and highly profitable market, however, and Oracle has been snapping up leading companies in this segment at a fast pace. Its goal is to quickly build the distinctive competencies it needs to expand the range of products that it can offer to its existing customers and to attract new customers to compete with SAP. Beginning in 2005, Oracle's CEO Larry Ellison spent $19 billion to acquire 14 leading suppliers of corporate software including two of the top five companies: PeopleSoft, a leading Human Resource Management (HRM) software supplier it bought for $10 billion, and Siebel Systems, a leader in customer relationship management (CRM) software which cost Oracle $5.8 billion.
Oracle expects several competitive advantages to result from its use of acquisitions to pursue the corporate strategy of horizontal integration. First, it is now able to meld or bundle the best software applications of these acquired companies- with Oracle's own first- class set of corporate and database software programs- to create a new integrated suite of software that will allow corporations to manage all their functional activities such as accounting, marketing, sales, HRM, CRM, and supply- chain management. Second, through these acquisitions Oracle obtained access to thousands of new customers- all the companies that currently use the software of the companies it acquired. All these companies now become potential new customers for all of Oracle's other database and corporate software offerings. Third, beyond increasing the range of its products and number of its customers, Oracle's acquisitions have consolidated the corporate software industry. By taking over some of its largest rivals, Oracle has become the second largest supplier of corporate software and so it is better positioned to compete with leader SAP.
Achieving the advantages of its new strategy may not be easy, however. The person in charge of assembling Oracle's new unified software package and selling it to customers is John Wookey, Oracle's senior vice- president in charge of applications, who jokingly says that his "head is the one on the chopping block if this doesn't work." CEO Ellison has been quick to fi re executives who don't perform well in the past, however, who expects a lot from his top executives. To grow Oracle's market share and profi ts Wookey must draw on the best of the technology Oracle obtain from each of the companies it acquired to build its new suite of state- of- the- art corporate software applications. He also has to persuade customers not to switch software vendors, for example, jump ship to SAP, while Oracle builds its package and then to gradually adopt more and more of Oracle's software offerings to run their functional activities.
Wookey is well- placed to implement Oracle's new strategy. However, he is known as a consensus builder and product champion, both inside the company and outside, when interacting with Oracle's customers. He spends his working day sharing information with the top managers of Oracle's various businesses, and meeting with his team of 14 senior staff members, to work out how the whole package should be put together and what it should include. He also regularly visits major customers, especially those that came with its acquisitions, to gain their input into how and what kind of software package Oracle should build. Wookey even formed an advisory council of leading customers to help make sure the final package meets their needs. One of Wookey's notable achievements was retaining the top- rate software engineers who Oracle obtained from its acquired rivals. These people could have easily found high- paying jobs elsewhere, but most of the top engineers Oracle wanted stayed to help it achieve its new goals.
Nevertheless, by the end of 2006 there were signs that all was not going well with Oracle's new strategy. SAP is a powerful competitor, its popular software is fast becoming the industry standard, so unseating SAP in the $23.4 billion corporate software market will not be easy. Moreover, SAP is still the leader in more advanced functional applications incorporating the latest technologies and its proprietary technology is all homegrown, so it doesn't face the huge implementation issue of bringing together the applications from many different acquisitions. Preventing customers from switching to SAP may not be easy now that their loyalty to their old software supplier has been broken because of its acquisition by Oracle. Analysts also say that Oracle runs the risk of stretching itself too thin if it continues to purchase too many companies too quickly because high- tech acquisitions are the most difficult to pull off in terms of management and execution.39 Larry Ellison is under pressure to accelerate sales growth and surpass investors' expectations and only if Oracle can put out corporate application software sales numbers that beat expectations will analysts regard its strategy as a success. Still, Oracle's stock gained 47% in 2006 compared to SAP's 15% and in 2007 Oracle announced record revenues and profits. Its stock price jumped as investors now believe he and Wookey have the ability to make its acquisitions pay. In 2008 Oracle announced yet another major acquisition of software supplier BEA Systems; will they be able to continue their track record of success?
Based upon the ways it is seeking to increase the value it creates, what is its corporate- level strategy?

Answer 3

Acquisition and Integration:
After acquiring a company, Oracle integrates it with its own culture and policies. Acquiring a company is one strategy and integrating is the part of the strategy. Oracle has really done a great job of integrating around 60 companies in recent years. Now Oracle is not a software company, rather it has become an integrated IT company.
Its strategy has worked quite well and increased confidence in investors. That is why its gross profit margin has gone up to 82 percent.

Question 4

How should a company manage the change process to ensure that it reaches its desired future state?

Question 5

Under what circumstances might it be best to enter a new business area by acquisition? Under what circumstances might internal new venturing be the preferred mode of entry?

Question 6

If IBM decides to diversify into the wireless telecommunications business, what entry strategy would you recommend that the company pursue? Why?

Question 7

Under what circumstances might a long- term strategic alliance with a key supplier enable a company to capture most of the benefits associated with vertical integration, without bearing the associated risks and costs?