by Peter Bendor-Samuel

Oracle announces it is not pursuing Accenture, but maybe it should

Apr 13, 2017
Artificial IntelligenceBig DataInternet of Things

Oracle faces two crucial threats, and buying Accenture would change the picture.

I recently blogged about a report of a potential acquisition of Accenture by Oracle. Founder and Chairman Larry Ellison has since stated that Oracle is not interested in acquiring Accenture. But, quite frankly, maybe they should. Maybe they never intended to, despite the report of rumored due diligence. There are some important implications of this decision, and I believe there are two crucial reasons why Oracle should buy Accenture.

1. Oracle is constrained in addressing digital needs in its core market

Our world is rotating into digital. Everest Group’s research finds that 22 percent of the services market is already defined by a digital-first environment. Digital technologies such as cognitive intelligence platforms, big data, analytics and robotic process automation (RPA) are the new growth markets for technology spend. The markets for enterprise resource planning (ERP) and databases are now mature. Digital tools and the Internet of Things are driving substantial disruptive change for Oracle’s clients. Oracle’s primary target (and bulk of its revenue) is the large, mature Global 1000 organizations.

The biggest problem for these clients is not digital technologies or implementing them (although those problems are formidable). Their biggest problem is how to change their company business model — which is necessary in a digital transformation. In fact, business model change is the biggest constraint for digital adoption in Oracle’s key market. If Oracle wants to accelerate its growth in this market, it needs to be able to attack business model change with its clients.

Business model changes are far more complex and involve deeper change than an ERP or database implementation. The level of change is much greater, and I believe it requires a more forceful response from Oracle. And this is a key reason for such an acquisition. Accenture is the foremost company in driving digital transformation. Combining the two companies’ efforts would present a formidable capability of matching software and transformation capability under one roof.

If Oracle doesn’t acquire Accenture, it still has the problem of how it can attack clients’ needs for business model change.

2. Oracle faces an existential threat

This constraint is further reinforced by the fact that digital transformation moves a company away from a functional orientation to business results. Digital journeys focus less on the actual technology and more on the business results. If this trend continues, Oracle faces an existential threat.

Accenture, Genpact, Infosys, TCS, Wipro and other systems integrators (SIs) are acquiring software companies with cognitive intellectual property specifically in the Artificial intelligence and robotic process automation (RPA) layers, which is where the future growth is. If they successfully mature those products, they will be in positions to disintermediate Oracle.

When SIs drive digital transformation, they can recommend and implement their own software instead of Oracle products, thereby depriving Oracle of a key growth area and potentially disintermediating Oracle over time.

Can Oracle allow software ecosystem partners to acquire software and become Oracle’s competitors?

This existential threat is reinforced by the nature of digital, which drives solutions end to end, rather than the functional layers that Oracle has long relied on for ERP systems and databases.

The overall market trajectory is toward end-to-end, as-a-service offerings — at least in important areas of large companies. And end-to-end, as-a-service offerings are starting to be defined and owned by the SI companies. They will become both systems implementers and software owners and can substitute their offerings for Oracle offerings. Will Oracle allow SI companies to capture the new growth engine for technology sales?

Acquiring Accenture would resolve this looming threat plus give Oracle the tools it needs to overcome its current constraints in being able to address clients’ needs for business model change.