IT feature: Peoplesoft - Turning the tables in ERP

On the face of it, it’s not the best of times for Peoplesoft. In March, it reported dismal first-quarter figures, as the expected pre-millennium slowdown in ERP sales really started to bite.

The company’s 1998 financial summary had been hedged about with warnings and caveats that the next year would be a difficult one, and so far, the warnings have turned out to be fully justified. First quarter revenues were up by just 10 percent (the company is hoping for a 20-25 percent increase for the whole of 1999). Furthermore, it either made a whopping $171m loss or its profits fell by 77 percent, depending on whether or not you take the spinoff of the new Momentum research and development company into account.

Other ERP vendors are in the same boat, of course. Baan, for example, made a $19m first quarter loss and turned in revenues down on the same quarter the previous year. Mark Nittler, Peoplesoft’s vice president of application strategy, concedes that there are no two ways about it: the ERP market is in a mess. “People accelerated their ERP purchases because of the millennium. So in a sense all the ERP vendors were robbing Peter to pay Paul, and now, well, we’re paying Peter,” he says.

Nevertheless he argues that Peoplesoft is about to come into its own. “It’s finally our turn!” he says. “As a company, we’ve been focused on people from the beginning. Internet Protocol (IP) is the best thing that’s happened to us, because it finally allows us to address people as individuals.”

Times may be hard, but Peoplesoft has a plan, and the Internet is at the centre of it. At the end of last year, the company announced its new product direction, intended to separate it out from the rest of the ERP herd. “I think we’re seeing the beginnings of an ERP backlash,” Nittler argues. “A lot of time and effort has been spent on ERP systems, but once the results start coming in, people have a sense of disappointment with what they’ve delivered.” He hopes that SAP is going to take the brunt of that backlash “since it’s the company most strongly associated with ERP in many managers’ minds”.

Peoplesoft’s product strategy will, says Nittler, deliver the payback which has been eluding ERP users for so long. First announced last year, and called the Peoplesoft Business Network (PSBN) it’s basically a way of delivering a whole range of information and enterprise applications through a browser.

So far, it sounds pretty similar to all the other web-enabled applications coming on to the market, but the difference is that PSBN isn’t just about putting a browser front end on to existing ERP applications. Peoplesoft’s ambition is for PSBN to be the portal for a whole range of information services tailored around individual roles rather than business processes.

Nittler believes this strategy is the natural result of a paradigm shift currently taking place in business as we move into the third generation of information systems.

“In the beginning we had host-based systems which were organised around data,” he says. “But data was coming into organisations faster than they could deal with it, and the result was a lot of data but very poor information coming through. In order to get at the information they needed, people needed to understand the data structure of the system.

The second stage, says Nittler, started to happen when competition from the Far East, where companies were finding ways to manufacture more quickly and cost-effectively, forced those in the US and Europe to rethink their businesses and the systems that supported them with a view to increasing their efficiency. The result was client/server systems which allowed different processes and their associated data to run on separate servers across the network.

“They read Michael Hammer and started to restructure their information systems around processes, not data: the first step towards an information-based economy,” he says.

But having finely honed their business processes, companies are now at the stage where they can’t improve efficiency much further, and are looking for new ways of building competitive edge. What they need now, according to Nittler, is to be effective rather than just efficient. “Efficiency is about doing things right; effectiveness is about doing the right things,” he says. “It’s about finding out how to gain market share, add new customers, gain a better insight into customer profitability.”

The shift now taking place, Nittler believes, is a further step away from an industrial towards an information-based economy. “New business models inspired by Internet thinking are changing the market yet again,” he says. “Compaq is a great PC manufacturer, but it’s been put under serious stress from Dell, which has changed its model towards direct selling over the Internet, and doesn’t just compete on cost efficiency any more.”

Via Internet protocols, companies can now share information not only with employees but with customers and business partners, and connect them over the Web to their enterprise applications: what Nittler calls “buy-side” applications, such as billing and stock control systems for suppliers, and “sell-side” applications, such as ordering and delivery for customers.

The increasing value of information in business has not been lost on the ERP community as a whole. Peoplesoft has already formed alliances with both Informatica and Information Advantage to create a suite of analytic applications it calls Enterprise Performance Management (EPM), to fit into its overall product offering.

PSBN will take this a stage further by incorporating business intelligence into the range of “community applications” individual users have access to, and personalising it according to each user’s role within the organisation.

When you fire up PSBN, you move into a personalised front page similar to a My Yahoo front page – the difference being that it’s designed around the needs of your particular job.

You see a balanced scorecard display showing key indicators relevant to your role; clicking on them allows you to drill down into the underlying information, which will probably feed in from the ERP system. Links take you to areas such as favourite activities – which might be, for example, filling in an expense form or buying office equipment. A To Do list reminds you of specific work you have outstanding and links in to workflow applications.

Information sources from both inside and outside the company are woven into the applications; for example, a purchasing system might include product details provided directly by suppliers, and opinions on the items provided by company staff.

“It’s a solution for the Internet economy,” says Nittler. “We’re moving into an era when the Internet will be the technology platform for business.”

In March, Peoplesoft started to firm up its plans for PSBN by announcing it would be using Microsoft technology and standards to build the product infrastructure. It is aiming to have a beta version running with 10 showcase customers by the end of 1999, with a view to putting it on general release in the first half of the year 2000.

Peoplesoft is aiming to provide all the “community applications” underlying PSBN – including, most obviously, the ERP system – and existing customers will be its initial target market. But in the longer term, the idea is that the PSBN superstructure will plug into competitors’ ERP backbone systems too, via standard interfaces such as SAP’s Business Application Programming Interfaces (BAPIs), making it possible for customers to invest in PSBN without having to throw out their existing ERP system.

“We haven’t tried linking into other systems yet, but I see no reason why it shouldn’t work,” says Nittler. Even with SAP’s R/3? “Well, SAP can’t have it both ways – either BAPI is an open standard or it isn’t. If it is, then SAP can’t very well insist that its customers buy all their enterprise products from them.”

Because PSBN is powered by existing ERP offerings, Nittler argues that implementing it won’t be such a daunting task as moving from the original host-based systems to a process-driven, client-server approach. “It will mean some reengineering, but not as much as before, because they won’t have to rip out their entire ERP foundation,” Nittler says. “What it really means is that companies will have to sit down and think about where the value is in their organisation.”

Nevertheless the PSBN view of the business is still quite radically different from what has gone before. For many companies, the upheaval they went through to reengineer their business and IT systems in the late ’80s will still be a painful memory. Peoplesoft is going to have to do a nifty selling job to convince them of the value of further upheaval, this time to refocus their systems around individual roles within the company and how they interconnect.

To relieve some of the pain, PSBN will come equipped with “role models” – templates for typical job roles, along the same lines as data models in other ERP systems. “It will have 80 percent of the content filled in – customers will have to specify maybe 20 percent,” Nittler says.

Even this 20 percent could, however, mean rich pickings for consultancies. If Peoplesoft’s grand plan takes off with customers, there will be a need for consultancy to help them re-evaluate their businesses, and define what performance indicators, activities and information requirements are associated with all the different roles in the company. Nittler predicts that the shift to a people-centred approach will indeed mean more service revenues, but that the nature of the services will shift from workaday code-cutting to high-level business analysis. “I think it’ll be more high-value consultancy; the number of days may be less but the value goes up significantly,” he says. “Consultancies will be competing with their intellectual rather than their physical capital – on skill rather than on bodyshopping.”

Looking at Peoplesoft’s first quarter results, one might wonder whether much of that service business was likely to go outside the company. Compared with the same quarter of 1998, its service revenue rose by 62 percent, accounting for 75 percent of total revenues. “I don’t think it will remain at 75 percent,” says Nittler, hastily. “Though the services proportion of our revenue is growing along with the growth in our customer base, the ratio of services to licence revenue is also affected by how high licence fees are. In 1999, because of competitive pressure, those fees are flat or declining. But we don’t expect that to be permanent.”

And it won’t, Nittler says, affect Peoplesoft’s relationship with its third-party service partners, which include small specialist implementation partners as well as the Big Five. “Our service partners provide services we’re not in a good position to deliver. We will continue to concentrate on making our main service focus Peoplesoft-specific,” he says.

The ERP market boom of last two years has led to a shortage of quality ERP consultants and created an opportunity for cowboys with limited skills and experience to charge high fees for ERP implementation. However, Peoplesoft has no immediate plans for an accreditation scheme along the lines of SAP’s consultant certification programme. “We believe in the system we have, namely to work with a select group of consultancies that have established a good reputation,” says Nittler.

It’s a strategy that may prove harder to stick to, however, if Peoplesoft succeeds in its aim of penetrating the medium-sized enterprise market. In the US it has already launched Peoplesoft Select: a turnkey ERP solution including hardware, preconfigured software with built-in implementation templates, and some support bundled into the price. Customers who buy a boxed solution of this kind are not going to be keen to pay Andersen Consulting or Ernst & Young-style fees – but they may still need limited consultancy support. As yet, though, Peoplesoft has no plans to a certification scheme to stave off the cowboys.

However cowboy consultants are probably not high on Peoplesoft’s list of worries at the moment; the key question it faces is whether its gamble of moving to a radically different way of delivering enterprise applications will pay off.

Certainly Nittler sees it as the factor that will differentiate Peoplesoft from its major competitors. “Oracle is a database company at heart; data is what they’re really good at. SAP is very focused on the processes that happen in an organisation. But Peoplesoft thinks that it’s the people in an organisation that provide value,” he says. “Our origins are in HR, people are in our name.” The next couple of years will show whether PSBN ensures that name’s survival.

Candice Goodwin is a freelance journalist.