|
Big M&As
on the horizon
When a big
company acquires a smaller one and phases out the latter’s products, what
happens to the IT professionals specialising in that technology? MOHAN BABU
explains why it is necessary for these techies to read the writing on the wall
In a fortnight of
high-tech acquisitions, PeopleSoft first announced that it was buying
Denver-based J D Edwards, and then came news that Oracle was bidding about $5.1
billion for PeolpleSoft, reminding me of the advertisement where a large fish
gobbles up a smaller one only to be pursued by a bigger shark! In a way, this
was already prophesied by Larry Ellison recently when he predicted the shrinkage
of the software industry and failure of about a thousand companies. (Remember my
recent column on his vision titled Larryspeak: And a thousand companies will
fail...?) People hearing him speak thus were probably not ready for the fact
that Oracle itself would be in the market for such a big target. But with the
benefit of hindsight, we could perhaps see it coming. And industry gurus are
predicting that there is more to come.
A tech slowdown
notwithstanding, Mergers and Acquisitions (M&A)—whereby companies after growing
for a while, expand their reach by acquiring rivals, competitors or anyone else
who can provide them with expected growth—have started with greater vigour.
Companies in the field of technology are especially ripe for M&A because most
players, even larger ones, cannot develop innovative products and solutions in
all the emerging areas. When a small, nimble player develops a product or
innovative solution that complements the offerings of a big player, it is
immediately acquired. Microsoft has grown by leaps and bounds, in large measure
through its strategy of ruthlessly (strong word?!) pursuing smaller rivals and
either re-creating their offerings or acquiring them.
Interestingly,
even before and during the boom, Cisco had made acquiring companies a well
structured process, gaining the awe of business leaders and ending up as case
studies in business schools. Cisco had a band of M&A specialists in the company
whose only job was to move from project to project, ensuring that the acquired
companies were merged into the Cisco way of doing business with the least
possible disruption. Hewlett-Packard’s turn-of-the-century merger with Compaq is
another classic success story, attributed in no small part to CEO Carly
Fiorina’s aggressive take-no-prisoners management style. She fought huge battles
in first trying to spin off Agilent and then acquiring Compaq, making the “new
HP” a strong contender to IBM’s leadership position in the global marketplace.
Even with all the
positives about M&A, most mergers are doomed to fail. Most of the time, mergers
take place because of a business leader’s gut instinct about the marketplace; or
the leader’s urge to keep up with competition. Of course this mindset is like
questioning: Because Wipro acquired Spectramind and TCS acquired CMC, Infosys
should be in the market for an acquisition. Should it be so? Common business
sense would dictate that strategy (even M&A) is not a one-size-fits-all tool.
There are some that intuitively make sense and help propel organisations that
are merging to bigger heights and others that just don’t cut it.
According to
research by Weekly Corporate Growth Report, 70 percent of mergers fail to
achieve their anticipated value. And they fail for a variety of reasons. Either
it is a mismatch of corporate cultures, wrongly predicting growth, changing
marketplace, management tussles or governmental intervention. There are several
examples where acquisitions made perfect business sense but the government(s) in
the US and Europe stepped in and refused to ratify the acquisition fearing
creation of a monopoly. Imagine IBM trying to merge with either HP or Microsoft.
Even (hypothetically) assuming that Bill Gates would consider such a move, it
would be shot down in an instant.
Now, getting down
to the nuts and bolts, what does an acquisition mean to techies in the field
working on J D Edwards, Oracle Apps or PeopleSoft? In the short run, the news of
such mergers hardly has any impact (unless one also happens to be employed by
Oracle et al, in which case it would mean uncertainty, changing job roles, etc,
etc). To the users and legions of techies supporting the products, long-term
impact of such M&A is of more significance. For instance, we should set the
clock back a few years when IBM acquired Informix—then a large player in the
database arena with hundreds of thousands of developers, marketers, consultants,
etc. IBM’s strategy was simple: Acquire Informix and eventually phase it out so
that the DB2 family of products would reign supreme. As the first move, they
stopped selling new licenses of the product and stopped work on newer versions
and started weaning Informix shops towards DB2. Where is Informix now, and more
importantly, where are the Informix “gurus”? They probably saw the writing on
the wall and switched to DB2, Oracle or SQL Server.
If I were a J D
Edwards and/or PeopleSoft developer, I would start thinking of this as a
strategic inflexion point in my career. The same would hold were I managing a
consultancy or group providing support for these products. As the Microsoft
slogan goes: Where do you want to go today?
|
