Contributors

HRO Safe Harbor Theory

HRO providers provide the comfort of application neutrality.

by Glenn Davidson

During the seemingly-endless takeover battle between Oracle and PeopleSoft, I argued that wise HR managers and CIOs would use the great software war as an opportunity to declare their neutrality. By moving towards HR outsourcing, companies could eliminate the risks of market turmoil and guarantee themselves access to any of the positive effects the software war could eventually engender.

 

Now that Oracle has won the fight, the value of such application neutrality may be greater than ever. In a March 1, 2005, Yankee Group report, Phil Fersht, Michael Dominy, John Fontanella, and Sheryl Kingstone make one of the strongest analyst statements yet about the value of HRO to help navigate the software industrys tidal change. Fersht writes: CIOs doubts regarding upgrades, service levels and overall control over IT architecture development and deployment are augmenting the appeal of application and business process outsourcing. With the vast majority of IT components, middleware, and applications becoming commoditized, the CIOs role has changed quickly during the last five years. CIOs now devote more time to business issues caused by the state of their IT infrastructures. Consequently, issues such as the Oracle/PeopleSoft merger are creating unwanted pitfalls in the IT road map for many enterprises. Many CIOs are taking the stance that these headaches are more easily cured by handing off responsibility to a third party, enabling them to focus on higher level business process alignment issues. [Emphasis added.]

 

Fersht and his colleagues make several salient points in this analysis that are worth elaboration. When he speaks of CIO doubts about upgrades, service levels, and overall control, his words are backed by a new Yankee Group survey of 192 PeopleSoft customers conducted shortly before the Oracle merger was announced.

 

The survey found that 46 percent of PeopleSoft customers had a propensity to switch from their current application, while 30 percent remained undecided. The good news for Oracle is that its platform was viewed as the number one alternative; 52 percent of PeopleSoft users suggested it was a strong alternative. But as the authors note, Oracle must operate a solid defensive strategy to prevail against aggressive competition from SAP, Siebel, Microsoft and others. The bottom line is that a lot of PeopleSoft customers will switchbut many will switch to Oracle.

 

Naturally, such flux in the industry is good news for HRO. Outsourcing providers that can lower the cost and risk of upgrades, guarantee service levels, and ensure customer control of their user experiences will gain all the benefits of application software upgrades without the risks. The Yankee Group survey proves that theres a fertile market for what HRO promises.The next point that the authors make is that IT components, middleware, and applications are becoming commoditized and a merger like Oracle/PeopleSoft is an unwanted headache for CIOs who want to spend their time dealing with business issues, not technology roadmap issues.

 

Fersht, Dominy, Fontanella, and Kingstone noted that Oracle acquired 70 percent of the Fortune 1000s HR platforms in the merger. PeopleSoft has set the industry standard in HR solutions during the last decade, Fersht said. Yankee Group survey data reveals this is the area least likely to suffer imminent upheaval, with only 17% of users declaring a strong likelihood to convert and almost 50% (including respondents answering unlikely and somewhat likely) showing minor indecision. Organizations will not uproot their software unless they are immensely dissatisfied with service levels. Oracle will have to make a complete mess of a gold-standard operation to suffer major losses.

 

But while customers have faith in PeopleSoft, does this faith transfer to Oracle? And while Fortune 1000 firms may not want to leave PeopleSoft, do they worry that PeopleSoft may leave them? HRO, in the end, may be the only reliable roadmap for CIOs demanding that service levels be maintained.

 

Fersht and his colleagues conclude that Oracle and its competitors are going to have to work harder than ever to build strong partnerships with HRO providers, who are moving into a far more powerful position with customers. With growing market trends toward outsourcing core business services such as HR, finance and accounting, and supply chain, Oracle and SAP must secure stronger partnerships with BPO and ITO organizations to push future product, Fersht said.

 

Without question, trends in the software industry are highly positive developments for HRO providers and customers. How soon will the word get out to everyone else? Given how quickly these ideas have spread from the HRO trade press to the analysts community, its quite possible that word will move like wildfire.

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