July 2003

Enterprise Software M&A: Strategies for Maximizing ROI

	WHAT'S NEW! Alinean offers free e-book: Financial Reader for IT Executives, compiled articles from ComputerWorld Two New Alinean Partnerships: IDC and Intel Alinean and IDC are offering a powerful ROI Selling Program to help solution providers better communicate value propositions to CxO executives, and collaboratively create comprehensive financial business cases. Click here For more information  » Intel has joined forces with Alinean and IDC to deliver the PC ROI Analyst, a powerful tool that calculates the costs and benefits of accelerated PC refresh cycles. Click here for a complete view of this solution  »
	IN THIS ISSUE: FEATURE STORY: Enterprise Software M&A: Strategies for Maximizing ROI » Storage Networking – Which Solution Is Best?  » Inside the Harvard Business Review Debate: Does IT Matter?  »
	Quote of the Month “The ROI business is booming, with consultants continuing to hawk various forms of guidance, from simple formulas to high-priced hand-holding, while purveyors of hardware, software, and associated gear tout ROI seals of approval from everyone this side of Consumer Reports. Meanwhile, in the real world, companies are finding that one size does not fit all and that smart IT decisions require continual reevaluation and plenty of input from a range of executives and departments.” CFO Magazine, June 15, 2003
	Did you know...? ERP implementations typically come with seven-figure price tags, and the cost of the hardware and software is only a fraction of the total ownership cost. Other lifecycle cost elements, such as implementation, professional services, customization, user training, business process change management, support and administration, can cost four or five times more than capital purchases. These projects typically: » take six to18 months to implement » achieve payback in the two- to six-year range from project start, because deployments take time, user adoption takes time and business change needs to occur around the technology platform » deliver risk-adjusted returns ranging from 100 to 400 percent for most projects, making them some of the best projects on the company’s plate

This month’s merger and acquisition announcements by J.D. Edwards, Oracle and PeopleSoft are a snapshot of events to come. Competition between enterprise software vendors will escalate in the coming years, as companies look to standardize their software platforms and share critical information across the enterprise.

In the ideal cases, this consolidation will create offerings that are greater than the sum of its parts, integrating new capabilities, features and functions – which is the inevitable outcome of a marriage between PeopleSoft and J.D. Edwards.

Oracle’s bid is clear strategy to break up this increasingly competitive duet, and its promise to quickly end-of-life legacy applications from the acquired companies – at a significant cost to customers – is intended to effectively freeze the market.

Many IT executives are pausing, and wondering what to do next. In reality, most companies can’t afford to wait, as maintaining and extending the value of an organization’s “knowledge capital” becomes a top priority.

When considering enterprise software investments, executives should assume that their solution provider of choice may have a different name before the two- to six-year payback typical of large-scale, strategic deployments. In light of this M&A activity, what can be done to minimize the impact and maximize ROI?

Recognize that uncertainty is a given in the enterprise software space. Enterprise software is becoming a commodity in a consolidating market. We’ve seen this occur in other sectors, such as the infrastructure marketplace, and the large players who can acquire market share through acquisitions will inevitably drive the economics of this sector over the next five years.

The good news is that customers stand to benefit from some of this activity, such as lower prices and improved customer service, as vendors eager for business move to deliver more value.

Factor vendor risk into ROI analysis. A range of risks is important to consider for every IT project, and vendor risk can be factored into the decision-making process.

For example, if the vendor selected is a smaller player and likely to be acquired, the team can demand a quicker project payback, divide the project into smaller projects with quick paybacks, discount the future benefits, or plan for future costs that may be required to support some type of product migration or transition.

Once risk has been considered, do not hold off on making decisions if the investments make sound business sense.

Separate the ‘transaction layer’ from the ‘data layer.’ Engineer the enterprise software solution so that the business process layer, which is the subject of most of the current tumult in the marketplace, is isolated from the data layer/data warehouse. The data warehouse can be the foundation of the solution, so that the information is the most vital element of the solution, with less investment and customization made to the business process/transaction layer. Web services will help in this endeavor.

The IT battlefield of the past was infrastructure. The current IT battlefield is business process efficiency. The emerging battlefield is knowledge capital and intelligence, and the recent issues in enterprise software may serve as a catalyst, migrating the market’s focus to information and intelligence, rather than transactional efficiency.

Look twice at managed services. Often, the IT department is responsible for too much of the risk for an investment decisions and on-going management. What if these enterprise software solutions were utilities with services on-demand? The vendor or solution provider would manage the infrastructure and guarantee transition to the latest platforms as part of the contract. Service level agreements could be constructed to provide required functions, performance, availability, security, accountability, and most importantly, isolation from M&A fallout.

Select the best vendor – today. Don’t fall into the noise of merger mania, as the mergers themselves can take a year, and the product transitions even longer. In the meantime, business – and the competition – is not standing still. After performing ROI due diligence, select the vendor with the lowest cost of ownership and the projects with highest returns and lowest risks.

Some of the vendors involved in the current mania, PeopleSoft in particular, have shown a total cost of ownership that’s 10 to 20 percent lower than its competition, less time than average to deployment and benefits and have offered risk-mitigating licensing contracts which promise an aggressive money-back guarantee should a forced migration occur. This customer-centric commitment should be a vote of confidence for current PeopleSoft customers and make pending decisions easier. Moving forward on a PeopleSoft purchase is a vote for such customer commitment and care policies – and for the PeopleSoft management team.

Storage Networking – Which Solution Is Best?

Storage area networking (SAN) and network-attached storage (NAS) are becoming high-priority items for next year’s IT budgets for those companies that haven’t already taken the plunge. Both strategies directly address IT departments’ top mandate: to reduce the complexity and cost of managing data resources. But how do you determine which approach – NAS or SAN – is right for you?

The planning and implementation labor costs are less for NAS, which makes it a good first step, especially for conservative organizations. By removing captive storage, companies can improve scalability and manageability. With NAS, options are always open to upgrade to a SAN.

Inside the Harvard Business Review Debate: Does IT Matter?

Alinean’s research data was exclusively used in the article that has sparked one of the hottest debates of recent months: “IT Doesn’t Matter” (HBR, May 2003). For more food for thought on the strategic importance of IT in determining companies’ performance, and ultimate market success, HBR editors have created an online forum as analysts and industry experts weigh in, including feedback from Alinean CEO, Tom Pisello and long-time CIO Paul Strassmann. To read Alinean’s response to the debate “IT Does Matter” and all the coverage, click here » 

About Alinean Today’s rapidly changing economic climate supports the renewed need for information technology cost-justification. Alinean aligns IT and business performance through research methodologies and customized software tools, which measure and quantify the value of technology investments. For more information on Alinean and its tools for both vendors, consultants and CIOs, call 407.382.0005 or visit www.alinean.com.		SEND TO A FRIEND Email this Newsletter to: ^ Email Address