The Oracle speaks
On the one hand, flamboyantly aggressive individuals have made the so-called 'New Economy' firms the stuff of legend (even if these new stars tend to shine a little less brightly than, say, five years ago). While on the other hand, technology aficionados love pointing to the egalitarian effect that the information revolution has had on business and other aspects of life, Oracle seems to prove these apparent contradictions can live side by side.
"That [Oracle's Chief Executive Officer Larry] Ellison is like this - that's OK," says Paweł Piwowar, the head of the company's operations in this country, referring to Ellison's brash personal style. From his desk situated in the same room as dozens of other employees, Piwowar adds: "But I'm surprised anyone should say that Oracle is perceived as an aggressive company here," although this is not to say he is the least bit bashful about the success the firm has enjoyed under his leadership in this country.
"This country is not quite unique globally, as there are other markets where Oracle competes with SAP [the global market leader in business applications] on equal terms," he says, naming the United Arab Emirates as one example. "But here we have a very competitive race and are very pleased that we can take on our competitor so close to their courtyard." For, while SAP insists that it is still the clear market leader in this country, analysts say that Oracle's revenues from management support software are no more than 20 percent below that of its main competitor's.
Piwowar's explanation for this apparent success is the company's business model, reflected in the falling share of services in the firm's revenue structure. In the current market, specialization is the key and it does not pay to try and be a jack of all trades, he asserts. So, instead of hiring an army of consultants, Oracle has developed "a very deep and very rich scenario of working together with our partners."
Coming from the environment of domestic integrators, Piwowar, who spent four years at ComputerLand before taking the helm at Oracle Polska in 1998, says he is speaking from experience when saying that integrators can find it very challenging when an international software maker also handles a lot of implementation work.
"That is very often what the clients want," he explains. "If they are buying an Oracle system, they want it to be implemented by Larry Ellison himself. We still get these kinds of requests from clients and then we always work very hard to convince them that it is better to entrust it to our partners who have a very deep understanding of clients' business." Such an approach, he says, makes sense on two accounts, as it allows the firm to avoid competition with its partners, which, according to Piwowar, is "why they prefer to work with us rather than with one of our competitors, who employ more than three times as many consultants. That is an army of mouths to feed, and it means that less revenue is available for partners." He describes Oracle's model of cooperation with service companies as "allowing the invisible hand of the market to decide where the market expertise should ultimately reside."
On the other hand, services are a lower-margin business than software, and Oracle's valuations are based solely on revenues from sales of software licenses. So every złoty, or dollar, earned from services at the expense of license sales has, in fact, a negative impact on the creation of shareholder value. Nor could the firm cross-subsidize its software licenses by offering services work at a lower price, as it would immediately show on the bottom line. That is why Oracle, in Piwowar's words, tries to avoid doing implementation work whenever possible. Otherwise revenues could be higher, he concedes, but only at the expense of profit margins.
But that is not to say that the strategy holds little growth potential for the company, he adds. Speaking shortly after the publication of financial results for the accounting year through May 31, Piwowar also reiterated plans for the company's continued growth, saying he expects it to pick up this accounting year from the eight percent recorded in the previous 12-month period. This year, he says, the figure "should be in the low double digits."
The chief cause for optimism, he says, is that the economic recovery is gaining speed, allowing the return of a favorable climate for investment in IT infrastructure by the corporate sector. Repeating the mantra of most IT executives in the country, Piwowar expects growth to be quickest in the segment of small- to medium-sized enterprises (SME's), where the dynamic could be in the region of 25-35 percent. But he adds that SMEs account for a relatively small proportion of revenues, reaching no more than a quarter of the total. But the larger clients should also dig deeper into their pockets over the coming months.
"When the slowdown came, some of our clients did not simply cut their IT budgets, but actually froze all capital spending for 18-24 months, or even longer," he says. "Now they have got to the stage that they simply cannot put it off any longer because their systems are simply too slow or not reliable enough." And Piwowar points to telecommunications and manufacturing as high-growth sectors in the coming months.
But the most important growth area for Oracle is likely to be found in the public sector, a strength area for the firm. The company still has large deals with PZU, an insurance giant, and Telekomunikacja Polska (TP SA), the fixed-line national operator, "to consume" in the coming 12-month period, he says. Following EU accession, upgrading IT systems of the administration has become imperative, and handouts from Brussels, in the form of structural funds, mean that finance for this should also be available.
Some of the competitors on the market think that, when it comes to structural funds, their European pedigree gives them a clear advantage over their American rivals. EU-based companies, these people say, find it easier to gain access to structural funds and work with Brussels eurocrats. But Piwowar is understandably indignant about this approach.
"I have heard these things said, but I strongly disagree," he says. "I am opposed to doing business po znajomości, or among friends. What matters is understanding of the client's needs and their business." He cites Oracle's success in this country as an example that geographical origins of a company fade into insignificance compared to the firm's actual behavior on the market.
"I would not deny that there is a political element to IT," Piwowar concedes. "But, OK, if you want to talk about this political aspect, let's see how you behave as a citizen. All our costs and revenues are based locally. We actually pay taxes in this country. Not everyone does that." That is why, Piwowar adds, Oracle was awarded the title of "good firm" by Rzeczpospolita. The new Prime Minister, Marek Belka, was the chairman of the jury that awarded this title, usually won by Polish companies.
So Oracle's CEO is surprised that anyone should perceive his company as particularly aggressive in this country. It is, perhaps, the image of the corporation at the global level that finds reflection at the local level. One recent example of Oracle's aggressive stance is its hostile bid for PeopleSoft, a competitor, which the U.S. regulators are currently trying to block. As the case is being fought over in the U.S. courts, PeopleSoft announced two weeks ago that it would be taking on Oracle in a new market by beginning operations in this country under its own name. While declining to comment on either the takeover battle or on PeopleSoft's intentions in entering the market, Piwowar appears to allow for a possibility that the two are linked.
"A merger is always a painful and difficult process," he says. "I would only say that it is easier when one of the operations to be merged is small, or even nonexistent." So while this market is far too small to be of much importance at the global level, PeopleSoft's decision to enter a new market could make a possible merger more difficult. That is, in the case that Larry Ellison gets his way. But that is a different story.
"That [Oracle's Chief Executive Officer Larry] Ellison is like this - that's OK," says Paweł Piwowar, the head of the company's operations in this country, referring to Ellison's brash personal style. From his desk situated in the same room as dozens of other employees, Piwowar adds: "But I'm surprised anyone should say that Oracle is perceived as an aggressive company here," although this is not to say he is the least bit bashful about the success the firm has enjoyed under his leadership in this country.
"This country is not quite unique globally, as there are other markets where Oracle competes with SAP [the global market leader in business applications] on equal terms," he says, naming the United Arab Emirates as one example. "But here we have a very competitive race and are very pleased that we can take on our competitor so close to their courtyard." For, while SAP insists that it is still the clear market leader in this country, analysts say that Oracle's revenues from management support software are no more than 20 percent below that of its main competitor's.
Piwowar's explanation for this apparent success is the company's business model, reflected in the falling share of services in the firm's revenue structure. In the current market, specialization is the key and it does not pay to try and be a jack of all trades, he asserts. So, instead of hiring an army of consultants, Oracle has developed "a very deep and very rich scenario of working together with our partners."
Coming from the environment of domestic integrators, Piwowar, who spent four years at ComputerLand before taking the helm at Oracle Polska in 1998, says he is speaking from experience when saying that integrators can find it very challenging when an international software maker also handles a lot of implementation work.
"That is very often what the clients want," he explains. "If they are buying an Oracle system, they want it to be implemented by Larry Ellison himself. We still get these kinds of requests from clients and then we always work very hard to convince them that it is better to entrust it to our partners who have a very deep understanding of clients' business." Such an approach, he says, makes sense on two accounts, as it allows the firm to avoid competition with its partners, which, according to Piwowar, is "why they prefer to work with us rather than with one of our competitors, who employ more than three times as many consultants. That is an army of mouths to feed, and it means that less revenue is available for partners." He describes Oracle's model of cooperation with service companies as "allowing the invisible hand of the market to decide where the market expertise should ultimately reside."
On the other hand, services are a lower-margin business than software, and Oracle's valuations are based solely on revenues from sales of software licenses. So every złoty, or dollar, earned from services at the expense of license sales has, in fact, a negative impact on the creation of shareholder value. Nor could the firm cross-subsidize its software licenses by offering services work at a lower price, as it would immediately show on the bottom line. That is why Oracle, in Piwowar's words, tries to avoid doing implementation work whenever possible. Otherwise revenues could be higher, he concedes, but only at the expense of profit margins.
But that is not to say that the strategy holds little growth potential for the company, he adds. Speaking shortly after the publication of financial results for the accounting year through May 31, Piwowar also reiterated plans for the company's continued growth, saying he expects it to pick up this accounting year from the eight percent recorded in the previous 12-month period. This year, he says, the figure "should be in the low double digits."
The chief cause for optimism, he says, is that the economic recovery is gaining speed, allowing the return of a favorable climate for investment in IT infrastructure by the corporate sector. Repeating the mantra of most IT executives in the country, Piwowar expects growth to be quickest in the segment of small- to medium-sized enterprises (SME's), where the dynamic could be in the region of 25-35 percent. But he adds that SMEs account for a relatively small proportion of revenues, reaching no more than a quarter of the total. But the larger clients should also dig deeper into their pockets over the coming months.
"When the slowdown came, some of our clients did not simply cut their IT budgets, but actually froze all capital spending for 18-24 months, or even longer," he says. "Now they have got to the stage that they simply cannot put it off any longer because their systems are simply too slow or not reliable enough." And Piwowar points to telecommunications and manufacturing as high-growth sectors in the coming months.
But the most important growth area for Oracle is likely to be found in the public sector, a strength area for the firm. The company still has large deals with PZU, an insurance giant, and Telekomunikacja Polska (TP SA), the fixed-line national operator, "to consume" in the coming 12-month period, he says. Following EU accession, upgrading IT systems of the administration has become imperative, and handouts from Brussels, in the form of structural funds, mean that finance for this should also be available.
Some of the competitors on the market think that, when it comes to structural funds, their European pedigree gives them a clear advantage over their American rivals. EU-based companies, these people say, find it easier to gain access to structural funds and work with Brussels eurocrats. But Piwowar is understandably indignant about this approach.
"I have heard these things said, but I strongly disagree," he says. "I am opposed to doing business po znajomości, or among friends. What matters is understanding of the client's needs and their business." He cites Oracle's success in this country as an example that geographical origins of a company fade into insignificance compared to the firm's actual behavior on the market.
"I would not deny that there is a political element to IT," Piwowar concedes. "But, OK, if you want to talk about this political aspect, let's see how you behave as a citizen. All our costs and revenues are based locally. We actually pay taxes in this country. Not everyone does that." That is why, Piwowar adds, Oracle was awarded the title of "good firm" by Rzeczpospolita. The new Prime Minister, Marek Belka, was the chairman of the jury that awarded this title, usually won by Polish companies.
So Oracle's CEO is surprised that anyone should perceive his company as particularly aggressive in this country. It is, perhaps, the image of the corporation at the global level that finds reflection at the local level. One recent example of Oracle's aggressive stance is its hostile bid for PeopleSoft, a competitor, which the U.S. regulators are currently trying to block. As the case is being fought over in the U.S. courts, PeopleSoft announced two weeks ago that it would be taking on Oracle in a new market by beginning operations in this country under its own name. While declining to comment on either the takeover battle or on PeopleSoft's intentions in entering the market, Piwowar appears to allow for a possibility that the two are linked.
"A merger is always a painful and difficult process," he says. "I would only say that it is easier when one of the operations to be merged is small, or even nonexistent." So while this market is far too small to be of much importance at the global level, PeopleSoft's decision to enter a new market could make a possible merger more difficult. That is, in the case that Larry Ellison gets his way. But that is a different story.
