Innovation, Ellison, and YouThe death of innovation has been greatly exaggerated, but there's something to be said for knowing where innovation ends and commodity takes overContinued from Page 1 The evolution of software has made a lot of formerly innovative products relatively noncompetitive. Most financial or human resources software is hard to distinguish on the grounds of feature and functionality: payables, receivables, and employee self-service are all basically the same whether you're buying from SAP, Oracle, PeopleSoft, or 14 other companies. These basic functions, critical to the back office, don't really make the front office any more competitive. To not have them would be extremely noncompetitive, but, considering the saturation of these functions across the bulk of companies making up our GDP, it's hard to imagine anyone believing these standard functions impart competitive advantage. This thinking has been churning in Ellison's brain for some time, and the relative success of Oracle's applications have borne this thesis out. Oracle hasn't been in the feature/functionality game on the apps side of its business for a while: Its applications haven't been pushed as hard as the database and server side of the business, and, for the most part, Oracle has had little ground to claim innovator status in the applications business. Where Oracle has been leading the pack, however, is in outsourcing (and pricing, the subject for another column). Its outsourcing division has wracked up some impressive wins, a solid growth rate, and remarkable returns for its customers' investments. Although Oracle does give its outsourcing customers some leeway in terms of adding innovation to the software, the real premise of outsourcing is that some key functions no longer need the constant vigilance of the innovator in order to be useful. Those functions — payroll being the quintessential example — are relatively standardized and should be taken outside the company where an expert can use economies of scale to provide a better service at a lower price. They are, to use Carr's language, infrastructure. And, to support his argument just a little, these infrastructure apps are no longer very innovative. It seems clear to me that this thinking looms big in Ellison's attempts to roll up the enterprise applications market. Ellison thinks he can get away with this in part because he believes Oracle's outsourcing model, in the long run, can make tremendous economic sense in an industry in which innovation, although not dead, has shifted once again to higher ground. As enterprise software matures, Ellison believes, it's time to look at the parts that have become infrastructure and treat them as such. In a nod to Carr and HBR, innovation in areas such as HR and finance are dead, or at least hardly kicking enough to command innovators' attentions. This recognition that some existing apps have become infrastructure also allows for a better benchmark on which to measure success in enterprise software merger and acquisitions. Success doesn't come when the customers of the acquired company throw out their old software and upgrade to the new company's products. In a world in which a large part of IT investment is in infrastructure, that kind of upgrade makes little sense. The acquiring company will probably have to content itself with maintenance revenues, not net new enterprisewide installs. Innovation and YouThe real benchmark will be found in the products chosen for innovative, competitive advantage — the stuff that Carr forgot. Ellison's move can work in the long run only if the customers he acquires look to Oracle for new, improved functionality. If they do, Ellison wins. If they go to the competition — something SAP in particular is hoping will happen — then Ellison may win the battle but lose the war. So not only is innovation not dead, it turns out to be the key factor around which our latest industry passion play is based. It may be hard to believe in Cambridge, Mass., but there are still a lot of inefficient processes and ineffective software inhibiting companies' ability to excel. We can argue about where innovation ends and commodity begins, but innovation is here to stay. At least until we innovators hit retirement age, if you don't mind. Joshua Greenbaum [josh@eaconsult.com] is a principal at Enterprise Applications Consulting. He researches the intersection of enterprise applications, technology, and business. RESOURCES"IT Doesn't Matter," Nicholas Carr, Harvard Business Review, May 2003. "Capturing the Real Value in High-Tech Acquisitions," Saikat Chaudhuri and Behnam Tabrizi, Harvard Business Review, Sept.-Oct. 1999.
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