No names, no pack drill on this story. Last year, after software giant PeopleSoft had taken over enterprise resource planning specialist J D Edwards (much loved by logistics pros), there were concerns about whether the new owners would hike prices and change the software roadmap.
Some supply chain users saw the takeover as a threat to the good relationship they’d enjoyed with their supplier but one saw it as an opportunity. As it happened, his J D Edwards’ software licences were coming up for renewal. He decided to play a game the company’s new American owners know well – hardball.
So, as negotiations opened he told them, no, he wasn’t prepared to pay an increase in licence fees. No, he wouldn’t even settle for a rollover at the same fee. And, no, the first discount offered wasn’t even worth getting out of bed for. After a not particularly tortuous negotiation the user settled on a new fee just shy of e1.5m. He’d been paying e3.75m before the takeover. The story indicates that, in the short-term at least, software industry takeovers are not necessarily bad news for the end-user.
Which is just as well. Because the past couple of years has seen a rush of software takeovers. And there are more to come.
Cause for concern
It’s easy to see why logistics pros get worried about this. They sign up with a vendor for software to run their supply chain. They take trouble to talk through the vendor’s software roadmap and make sure that it aligns with their own business plans. They build up a positive buyer-seller relationship. Possibly the talk even turns to that elusive concept of partnership.
Then, wham, the software vendor is no more. At least not as an independent entity. All the plans and the relationship-building goes out the window. Worse, if the new owner decides to change the software roadmap, there could be a need to reappraise business plans.
Well, yes, those are real problems. But it could be that if more users were to take the kind of feisty attitude displayed by that J D Edwards user, a software takeover could actually present opportunities. I discussed the issue recently with Peter Lumley, a partner at PA Consulting Group and head of the enterprise-wide solutions practice in the UK.
Lumley believes software users should look separately at the short, medium and long-term scenarios if they find a favoured software supplier has been taken over. ‘In the short-term, I’m convinced there’s opportunity for the user to make real commercial gains,’ Lumley says.
‘When these mergers take place, stock markets take a close interest in the outcome. Analysts are interested in whether the vendor’s takeover target is selling as many licences under its new ownership. There are some incredibly good deals to be had in the transition period. The reason is the newco really needs to show the markets it can build volume.’
So the message in the transitional months following a takeover seems to be: look for the opportunities. But the issues for users become more subtle in what Lumley calls the medium term. ‘The question that really emerges in this phase is about access to expertise,’ he says. For example, senior management and consultants – the people who provide the high-level expertise which adds value to the basic software products – might choose to move on from the taken-over company if they feel the acquisition isn’t working out.
‘So in the medium term you need to be thinking about your sourcing strategy,’ says Lumley. ‘Whereas you might have been going to the software supplier for expertise, now is the time to go to the market and analyse alternative sources.’
Which leads us on to the long-term. And in this period, users tend to worry about whether a takeover will ‘contaminate’ the roadmap they’d been led to believe their software would follow. ‘I think you can get much too hung up on this,’ says Lumley. ‘You have to ask – which elements are absolutely essential for the future? What must we deliver to the business? When you’ve answered those questions, you’re in a much better position to decide whether you’re still with an appropriate supplier for the long-term.’ But all that’s probably going to mean taking a more tactical (rather than strategic) view of software used in the supply chain.