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When
a big company acquires a smaller one and phases out the latter’s
products, what happens to the IT professionals specialising in that
technology? MOHAN BABU explains why it is necessary for these
techies to read the writing on the wall
In
a fortnight of high-tech acquisitions, PeopleSoft first announced
that it was buying Denver-based J D Edwards, and then came news
that Oracle was bidding about $5.1 billion for PeolpleSoft, reminding
me of the advertisement where a large fish gobbles up a smaller
one only to be pursued by a bigger shark! In a way, this was already
prophesied by Larry Ellison recently when he predicted the shrinkage
of the software industry and failure of about a thousand companies.
(Remember my recent column on his vision titled Larryspeak: And
a thousand companies will fail...?) People hearing him speak thus
were probably not ready for the fact that Oracle itself would be
in the market for such a big target. But with the benefit of hindsight,
we could perhaps see it coming. And industry gurus are predicting
that there is more to come.
A
tech slowdown notwithstanding, Mergers and Acquisitions (M&A)—whereby
companies after growing for a while, expand their reach by acquiring
rivals, competitors or anyone else who can provide them with expected
growth—have started with greater vigour. Companies in the field
of technology are especially ripe for M&A because most players,
even larger ones, cannot develop innovative products and solutions
in all the emerging areas. When a small, nimble player develops
a product or innovative solution that complements the offerings
of a big player, it is immediately acquired. Microsoft has grown
by leaps and bounds, in large measure through its strategy of ruthlessly
(strong word?!) pursuing smaller rivals and either re-creating their
offerings or acquiring them.
Interestingly,
even before and during the boom, Cisco had made acquiring companies
a well structured process, gaining the awe of business leaders and
ending up as case studies in business schools. Cisco had a band
of M&A specialists in the company whose only job was to move
from project to project, ensuring that the acquired companies were
merged into the Cisco way of doing business with the least possible
disruption. Hewlett-Packard’s turn-of-the-century merger with
Compaq is another classic success story, attributed in no small
part to CEO Carly Fiorina’s aggressive take-no-prisoners management
style. She fought huge battles in first trying to spin off Agilent
and then acquiring Compaq, making the “new HP” a strong
contender to IBM’s leadership position in the global marketplace.
Even
with all the positives about M&A, most mergers are doomed to
fail. Most of the time, mergers take place because of a business
leader’s gut instinct about the marketplace; or the leader’s
urge to keep up with competition. Of course this mindset is like
questioning: Because Wipro acquired Spectramind and TCS acquired
CMC, Infosys should be in the market for an acquisition. Should
it be so? Common business sense would dictate that strategy (even
M&A) is not a one-size-fits-all tool. There are some that intuitively
make sense and help propel organisations that are merging to bigger
heights and others that just don’t cut it.
According
to research by Weekly Corporate Growth Report, 70 percent of mergers
fail to achieve their anticipated value. And they fail for a variety
of reasons. Either it is a mismatch of corporate cultures, wrongly
predicting growth, changing marketplace, management tussles or governmental
intervention. There are several examples where acquisitions made
perfect business sense but the government(s) in the US and Europe
stepped in and refused to ratify the acquisition fearing creation
of a monopoly. Imagine IBM trying to merge with either HP or Microsoft.
Even (hypothetically) assuming that Bill Gates would consider such
a move, it would be shot down in an instant.
Now,
getting down to the nuts and bolts, what does an acquisition mean
to techies in the field working on J D Edwards, Oracle Apps or PeopleSoft?
In the short run, the news of such mergers hardly has any impact
(unless one also happens to be employed by Oracle et al, in which
case it would mean uncertainty, changing job roles, etc, etc). To
the users and legions of techies supporting the products, long-term
impact of such M&A is of more significance. For instance, we
should set the clock back a few years when IBM acquired Informix—then
a large player in the database arena with hundreds of thousands
of developers, marketers, consultants, etc. IBM’s strategy
was simple: Acquire Informix and eventually phase it out so that
the DB2 family of products would reign supreme. As the first move,
they stopped selling new licenses of the product and stopped work
on newer versions and started weaning Informix shops towards DB2.
Where is Informix now, and more importantly, where are the Informix
“gurus”? They probably saw the writing on the wall and
switched to DB2, Oracle or SQL Server.
If
I were a J D Edwards and/or PeopleSoft developer, I would start
thinking of this as a strategic inflexion point in my career. The
same would hold were I managing a consultancy or group providing
support for these products. As the Microsoft slogan goes: Where
do you want to go today?
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