Oracle's Fusion Formula

    The company’s major competitor, SAP, suggests Fusion’s promise may prove to be more an elusive fantasy--and an expensive one.

    Which claim is closer to the truth probably won’t be known until 2007, when Oracle plans to release the initial Fusion applications.

    But everyone agrees that Oracle chief Larry Ellison has set his sights on an ambitious software goal.

    "This is as complex as any application people have ever developed," says Katherine Jones, research director of human capital management at Aberdeen Group.

    The stakes are high for customers, Oracle and its rivals. How well Ellison and crew succeed in merging the PeopleSoft, JD Edwards and existing Oracle product lines could shape the human resources software landscape for years to come. Fusion could help usher in an era of cheaper, easier-to-use yet more capable HR applications. And the potential payoff for Oracle is big. Research firm IDC estimates that the worldwide market for human capital management and payroll processing software will grow from $4.8 billion last year to $5.2 billion this year, reaching $6.8 billion in 2009.

    Oracle has started putting out signs of what to expect, including a first set of applications that will include "dashboards" designed to give managers a single screen full of useful workforce data. But overall, the company has been cautious about setting firm Fusion deadlines. "Fusion is a path," says Deepjot Chhabra, Oracle’s vice president of HR strategy, "not a destination."

    The question is, will customers choose to follow that path?

Premium blend
    Project Fusion is Oracle’s effort to blend the best elements of at least three lines of business management software. Those include the Oracle E-Business Suite and the PeopleSoft and JD Edwards applications Oracle gained when it acquired PeopleSoft this year. (PeopleSoft acquired JD Edwards in 2003.) Human resources-related applications are part of the overall project, which also includes finance, customer relationship management and supply-chain management software.

    Oracle also has announced plans to acquire Siebel Systems, but has not stated whether Siebel’s HR applications will become part of Fusion.

    Oracle’s starting point for the Fusion applications will be its existing E-Business Suite. According to Chhabra, that product line makes the most use of so-called "open standards," which are slated to be a centerpiece of Fusion. Open standards refers to technologies such as the Java coding language designed to make it simpler for customers to modify their software systems. The approach also aims to allow different applications to talk easily with one another—similar to the way the standard electrical socket in the United States works with a wide range of electrical appliances.

    Next year, Oracle plans to release upgrades to its existing Oracle, PeopleSoft and JD Edwards HR software. According to Chhabra, the next PeopleSoft HR suite, dubbed V9, will include new dashboard features, though details have not been finalized. Oracle HR R12 is slated to have dashboards designed for HR executives, including a feature compiling data about contingent workers. Plans call for the coming release of JD Edwards HR software, dubbed R8.12, to have a dashboard designed for plant managers, including health and safety data analysis.

    Also in the near term, customers who have more than one Oracle application—the E-Business Suite and PeopleSoft, for example—should be able to link them more easily using a set of products dubbed Oracle Fusion Middleware. Thanks to this "infrastructure" software, Oracle says, a company could do such things as enroll a new sales employee in PeopleSoft’s human resource management system and automatically give them access to Oracle software for tracking clients.

    The Fusion applications themselves are expected to arrive in stages. In 2007, Oracle plans to release software for analytic dashboards. In 2008, Oracle plans to roll out heavily used human resource applications including payroll, benefits management and recruiting. Later, Oracle aims to introduce more industry-specific products, including absenteeism management software targeted to retail and manufacturing firms.

    Chhabra says Oracle will pick and choose the best aspects of its various product lines, such as the way PeopleSoft applications are easy to navigate and the E-Business Suite makes it simple to add functionality. Oracle also aims to develop new features, especially in the realm of talent management.

    What’s more, by using open standards and a new modular design called a "service-oriented architecture," it will be simple to make upgrades once Fusion is in place, Chhabra says. And it should be relatively painless for customers to get to Fusion from existing Oracle, PeopleSoft and JD Edwards applications. "This is going to be an upgrade," Chhabra says, "not a reimplementation."

    Neither Oracle nor analysts would predict the price of Fusion software or how it will compare with the costs that customers face today. As it stands, large organizations can pay millions of dollars for a combination of HR software licenses, implementation charges and annual maintenance fees.

    Apart from overall cost, Project Fusion marks an opportunity to simplify the way business software is priced, says Ray Wang, senior analyst at Forrester Research. Wang says PeopleSoft had a complex pricing model that took into account such factors as revenue and number of employees. A more streamlined pricing system for Fusion software could be popular, he suggests. "We would hope it’s more simple than the PeopleSoft approach," Wang says.

SAP skepticism
    Among Fusion’s biggest skeptics, not surprisingly, are executives at SAP America, the U.S. subsidiary of Oracle rival SAP.

    Mark Lange, vice president of human capital management at SAP America, says bringing together different lines of code means trying to merge the logic behind the applications. "That will have to be a seismic change," he says.

    An expensive challenge in Fusion, Lange warns, is reorganizing the tables that hold reams of corporate data. "It’s the (information technology) equivalent of a foundation retrofit on your house."

    Lange also questions whether Oracle’s focus on Fusion has distracted it from the trend to outsource HR applications. SAP has arranged to have its workforce management applications run by five of the largest outsourcers, including ADP and Convergys. Chhabra counters that a single copy of Oracle software can be used to tackle HR tasks for many companies at once. Oracle says its HR software is used by outsourcing firm Gevity to serve more than 8,000 small and medium-size businesses.

    SAP, though, has its own hurdles, says Albert Pang, research director of enterprise applications at analysis firm IDC. He notes that SAP customers can face a difficult and expensive upgrade when moving from older R/2 and R/3 applications to the latest mySAP applications.

    Ellison’s army also is battling a host of smaller companies that offer recruiting and broader talent management products, often delivered over the Internet. That "software as a service" model can offer customers quicker implementations and fewer technology hassles compared with the traditional method of a client buying a software license and installing code on its computers.

    San Francisco-based Taleo is one of the companies offering talent management software over the Internet. Taleo CEO Michael Gregoire, who formerly ran PeopleSoft’s services unit, says Oracle and its customers will face headaches as they try to integrate custom-built PeopleSoft applications with the coming Fusion products. He also predicts that Oracle will eventually adopt his on-demand approach, although grudgingly. "My gut is they will move to that model," he says. "But Oracle and SAP are very addicted to perpetual licenses."

    Oracle’s Chhabra responds that Fusion’s greater capacity for modification should make it relatively easy to re-create custom add-ons. He also points out that Oracle already offers a variety of applications in an on-demand fashion.

    IDC’s Pang thinks Oracle would be wise to break off some of the applications or functions slated for Fusion and sell them as a service over the Web, at least initially. "The biggest mistake that Oracle could make would be to turn the Fusion upgrade process into a monolithic, hard-to-manage process, leaving a lot of customers with a sour taste in their mouth," he says.

Customer concerns
    One question that may be on the lips of many Oracle customers is whether the fruits of Fusion will render their current database software stale. Currently, many customers using PeopleSoft and JD Edwards applications employ databases from IBM (DB2) or Microsoft (SQL Server) to store their corporate information. Oracle, which gets the bulk of its revenue from its database division, could conceivably decide to make Fusion run only on its own database products.

    So far, the company hasn’t disclosed which databases will work with the Fusion applications.

    Fusion also may amount to a heavier burden on some businesses. "For PeopleSoft and JD Edwards customers, it’s going to be a harder upgrade," says Jim Holincheck, research vice president for human capital management applications at research firm Gartner. "It’s a different data model."

    Chhabra counters that Oracle has every incentive to keep its 4,000-plus PeopleSoft customers and more than 1,300 JD Edwards customers happy.

    In some ways, Oracle’s task is like the physics challenge of harnessing energy from nuclear fusion. Nuclear fusion could be a nearly perfect answer to energy needs, given factors such as a virtually inexhaustible supply of fuel. But for decades, money has been poured into the research without practical results.

    Chhabra is confident his firm’s Fusion quest will fare much better than its energy counterpart. The key is the company’s extensive experience with HR applications, and the way Fusion reflects an evolution rather than a revolution. "If I didn’t have that mature set of capabilities, then yeah, I’d be nervous," he says. "But I’m not."