by Thomas Wailgum

Oracle and SAP Are Big: Too Big for Their Own Good?

Jan 15, 2010
Cloud ComputingEnterprise ApplicationsERP Systems

The billion-dollar behemoths are top dogs in enterprise software. But they just might be too big to manage the change that's happening all around them.

The battle and competition in the enterprise software market between SAP and Oracle has fast become one of the hottest rivalries in high-tech. And while it might not have the pop-culture pizzazz of Red Sox-Yankees or Coke-Pepsi, the passion of the thousands of the combatants involved makes it no less fervent or important a battle.

As it stands now, these companies are big. Not only in revenues, customers and market cap, but also in the number of employees who call each vendor “my employer.”

[ analyzes The End of Traditional Software Licensing and SAP’s new maintenance fee offering ]

Oracle has approximately 83,366 employees wearing the red and swearing allegiance to Larry Ellison. At last corporate count, SAP has 47,804 workers, who probably can speak a little German (Danke!).

But I’ve wondered this lately, especially as the Great Recession still works its way out of the global economy’s system and enterprise software vendors struggle to sign on new customers and license agreements: At what point do vendors of this magnitude, with their various lines of businesses, traditional product portfolios, competing in-house personalities with vested interests of their own, and inherent aversion to real change, start interfering with the overall efforts of trying to serve their current and future customers?

In other words: Have SAP and Oracle become too big to compete in this new decade of constant change, next-generation app pipelines, pricing upheavals and innovation-first business strategies?

It’s easy to suspect that the two companies’ relative bloat and market complexity have made decision-making and strategizing thornier propositions for them, especially as of late, though it’s difficult to know the exact answer.

But what we do know is that companies such as SAP and Oracle could, internally, be dealing with a unique, festering problem that may be overwhelming executives: Are the companies too big to manage?

That’s the question posed by an MIT Sloan Management Review article (though not specifically with SAP and Oracle in mind). The article offers an intriguing premise: Looking back at the companies that did and didn’t survive the global economic meltdown, were these companies not only too big to fail but also too big to manage?

Complexity inside large organizations manifests itself in several ways, note authors Julian Birkinshaw and Suzanne Heywood: dysfunctional management, risk-management blunders, burdensome regulations, bureaucratic hurdles, and an inability to quickly respond to changing market demands.

In sum, write Birkinshaw and Heywood, “Some companies are simply too complex to be run effectively.”

Certainly today’s large and global high-tech companies are complex, sometimes unruly beasts. In Oracle’s instance, its unquenchable acquisition thirst would seem to indicate that it’s in a perpetual state of adding complexity to its ecosystem—new businesses, new products, new employees, new strategies. In fact, “Oracle: The Conglomerate,” is a label that might not sound so odd in the near future. (The next CA? Perhaps.)

In addition, one can weigh the merits of the “too big to manage” question by looking at the vendors’ respective responses to new SaaS and cloud computing business models in the ERP, CRM, BI and supply chain software marketplaces.

SAP’s fumbling and stumbling with its Business ByDesign on-demand software suite—marked by overpromises and underdelivery to a customer base that wanted the product—illustrates the byproduct of organizational mismanagement. The same could also be said for Oracle’s “slow-out”—er, rollout—of the Fusion Applications Suite of next-gen business apps.

As authors Birkinshaw and Heywood rightly point out, complexity isn’t always a bad thing. “There is often value in having multiple business units and operating on a global scale,” they write. “Complex management structures can help mergers and acquisitions succeed. Complexity can also be part of a successful business plan.”

“But other kinds of complexity are dysfunctional,” they add, “and lead to huge operational problems.”

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