Five Questions CEOs Should Ask about Oracle’s Continuous Innovation Model
The relationship between Oracle and its customers is often a crucial one that has wide ranging business impact. If not properly managed, contracts and use of Oracle products can lead to licensing liability, problems in valuations during M&A due diligence, and unwanted lock-in that can stifle innovation. But a properly managed Oracle relationship can create huge value.
Therefore, any significant change in the way Oracle does business should be well understood by CEOs and boards of directors, and truly all members of the C-Suite. The advent of Oracle’s Continuous Innovation Release model is one such development. As we’ve pointed out in our first article (“Dissecting the Oracle Continuous Innovation Model: Great Deal for You or Oracle?”) and the ones that followed, the continuous innovation model must be approached carefully to avoid falling into traps.
Just because Oracle has put this model forward doesn’t mean that companies have to accept it as their only option.
In our view, the biggest trap is to let your company fall into the Oracle mindset. This mindset is one that views the company as being in the business of managing and optimizing Oracle in the way that Oracle recommends. A better way to view Oracle is as a component that is doing a job to support your business model. Oracle is not the point. Getting the work done is the point. If Oracle makes that hard, it’s gotta go! If Oracle is getting the job done, great!
The introduction of the Continuous Innovation Release model is an important development in Oracle’s evolution of its business model. Here are six questions CEOs, as well as board members, departmental leaders, CFOs, and CIOs, should ask before approving adoption of the model.
Question 1: What are the top strategic priorities for the business moving forward?
All companies function more efficiently and have a better chance of succeeding when they have specific goals and targets for the near- and long-term mapped out. Corporate leaders should understand thoroughly where they want their business to go. Once they have this understanding, they should then ask how their Oracle applications are helping to achieve that result, and whether the costs associated with maintaining, supporting, and operating those applications are worth it. The business goals must come first. Don’t adopt the mindset of playing the Oracle game by Oracle’s rules.
Evaluate whether your model aligns with your strategic plans and whether it is helping reduce costs and increasing revenue. If the updates being delivered are largely just focused on fixes or tax, legal and regulatory updates, as they have been so far in most Oracle application updates, then the cost of adopting Oracle’s model may not be worth it, as the funds could be better spent elsewhere to achieve the corporate strategic priorities.
Question 2: What is the total cost of support for the period you plan to use Oracle’s product under the continuous innovation model?
With Oracle’s continuous innovation model, companies pay an annual fee of about 20% and in return, they get updates that Oracle claims provide them with innovation as well as Oracle support. That means that every five years, they’re paying the full cost of licensing their software all over again.
The only way this makes sense from a financial perspective is if companies are consistently keeping up with the updates and applying them and seeing meaningful new innovation consistently. If they’re not, they are paying a lot for little in return other than support-related items.
But companies should also ask themselves how long they actually plan to continue use their current Oracle ERP applications. For example, if their longer term plan is to migrate to SaaS, it might make more strategic and financial sense to find new and innovative ways to save budget now to accelerate that switch sooner rather than later instead of continuing to pay the fees.
If a company can’t answer the question of what measurable value they are receiving for significant ongoing investment of money and resources in the Oracle model, then why spend the funds in the first place when there are other options?
Question 3: What alternatives do companies have?
Over the past two decades Oracle customers have adopted a muscle-memory of sorts where they pay maintenance and support fees while waiting for the next inevitable upgrade. With continuous innovation, this is no different except now the updates come on a more frequent basis, requiring a continuous allocation of budget and resources to oversee and implement this process.
It might be natural in one sense for companies to just continue following Oracle’s roadmap for their Oracle on-premise ERP applications, the de facto approach of adopting the continuous innovation model, but that doesn’t mean it’s the only choice companies have — nor certainly the best.
Instead of paying for Oracle’s model, companies could instead spend those funds on strategic business priorities, which could be simply sustaining current programs and people in a tough economy, or accelerating new growth and transformation such as a switch to SaaS. With SaaS, the burden of implementing updates is no longer on the business itself and maintenance is also outsourced.
Regardless of the strategic path you’re on, more and more companies are leveraging third-party support as a cornerstone for their Oracle ERP strategies instead of paying Oracle’s high annual maintenance fees. Companies should explore these options and do the math to see what makes the most financial sense.
The scope of alternatives under consideration tells a lot about whether you are trapped in the Oracle mindset. If it is unthinkable to consider a full range of alternatives, including migrating away from Oracle or using third-party support, then you are in the Oracle business just the way they want you to be. If you are thinking of different ways you can solve the business problem Oracle currently solves, you are on the right track, and you may gain power in your Oracle relationship.
Question 4: What innovations can companies really expect from Oracle’s model?
Part of the premise of the continuous innovation model that would appeal to customers is that they’d receive constant innovations in the updates from Oracle. For many, this creates a general fear of missing out (FOMO). However, Oracle has been vague so far about what exactly those innovations may be, and companies need to assess whether they’re really getting what they were promised. If the innovations are mainly minor fixes and legal and regulatory updates, companies should explore whether they can get similar features at a lower cost elsewhere. And, for those future features they may see as useful, the question is how useful. Is paying Oracle to wait the best use of budget and resources?
This is a key point. Just because Oracle is providing updates doesn’t mean that the updates are valuable to your business. And, in many cases, what they provide are simply updates to technology and tools customers already have today.
An important part of this analysis is the role that the application plays in your business. For many today, their current ERP system more than meets the needs of their business. If the application is just providing a pass/fail sort of service, then it is not likely that innovation will matter. If the application plays a differentiating role, then the question is whether the innovation provided will be relevant to that role.
Question 5: What is your company’s strategy for keeping up with and applying Oracle’s updates?
As documented in a previous article in this series, Oracle’s updates come at a minimum on a yearly basis with the continuous innovation model, and in the case of some applications, come out as frequently as monthly. Companies need to have a budget and plan for how they are going to implement and apply these updates or else they are just wasting money. That means having a detailed plan for who in the business will make the updates, as well as the additional resources needed to train staff and ensure widespread adoption and understanding of the changes.
If you aren’t planning on spending time adding the updates, which many people skip, then there is no chance they will help. One great way to answer this question is to ask how much of a backlog there is in applying updates to all your applications and, for the last few updates you’ve applied, how many of them reduced costs or increased revenue? In addition, for these Oracle continuous innovation releases, customers today have access to literally years of updates right now, including 9 E-Business Suite release update packs and well over 30 PeopleSoft updates. You have license rights to these updates and you can download and use them even on third-party support. Should updates come out a year or two down the road, you can always return to Oracle to get them. Many customers today use third-party support as an enabling foundation along their roadmap journey.