Robert Kugel's Analyst Perspectives

There weren’t any headlines (or even many tweets) about Oracle Fusion Financials emanating from this year’s Oracle OpenWorld (#OOW12) conference. Maybe that’s by design, because it’s not in Oracle’s best interest to kick up a lot of dust about ERP migration. The financial applications software market is mature, and market share leaders such as Oracle have less interest in getting customers to upgrade than they did a decade ago. For a software vendor with a large installed base, cashing rich maintenance checks is more profitable than selling new software, and arguably is as dependable a source of revenue as software-as-a-service (SaaS) contracts. Companies, and especially CFOs and controllers, see replacing ERP systems akin to a root canal procedure: expensive and painful and best put off as long as possible. In North America (and to a much more limited extent in Europe) a major upgrade of a company’s current ERP software usually means it’s time to evaluate alternatives. For the incumbent, any time there’s a major upgrade there’s the potential to lose a customer.

Fusion Financials is the go-forward accounting and financial applications suite that will coexist with but ultimately replace PeopleSoft Financials, Oracle E-Business Suite and JD Edwards. It has been designed to smooth the migration of existing ERP customers on these packages to Fusion, offering incentives to begin partial adoption sooner rather than later. This fits with Oracle’s long-term strategic objective to retain as many of its legacy ERP customers as possible and even expand the scope of its software deployments in order to capture a higher share-of-wallet of a corporation’s overall IT budget. Oracle’s approach is to makes things as comfortable as possible for existing users and to make the migration process to Fusion Financials more pain-free and more attractive than moving to the alternatives.

I reviewed the initial announcements around Oracle Fusion Financials two years ago and noted at the time that, from my perspective, Fusion Financials embodied this objective. The software became generally available last year and adoption since then has been unremarkable. I think this is more a reflection of the market’s maturity and the business realities that drive purchases than a competitive issue. In this market, boring is cool.

For at least the next five years I believe Oracle has a good strategy, because the transition from the existing Oracle ERP offerings to Fusion Financials can be less painful than similar migrations in the past. Oracle is giving user organizations more flexibility in the timing and scope of the switch. And, as with SAP’s HANA, deploying Fusion General Ledger (GL) creates an accounting data hub that can make core enterprise data readily accessible to users. Companies can use the hub as a way to integrate the full range of Fusion applications with legacy ERP systems. Accounting data created and stored in PeopleSoft or E-Business Suite is duplicated in the hub, where it can be used with, say Hyperion Planning, Strategic Finance or Financial Management. Once the accounting data is in the hub, companies can create and use dashboards and alerts, slicing, dicing and drilling down and around. Because the information is already aggregated, users can instantly see period-to-period differences. All of this should be available shortly in a deploy-however-you-want mode – in a public or private cloud, on premises, hosted or in some combination of these modes. Companies that want to avoid being pioneers should wait until others have demonstrated how best to deploy and what to avoid.

Deploying Fusion GL can facilitate a more consistent and faster way to execute finance department functions. For example, many of the “heads-down” data entry functions in ERP-driven processes require some additional data to complete the transaction. Making that data readily accessible speeds the completion of that job and increases finance department productivity. This capability grows increasingly valuable as companies employ end-to-end processes such as order-to-cash and procure-to-pay. As well, Fusion GL makes it possible for a company to make its ERP environment tax-aware, thereby facilitating the construction and use of a tax data warehouse. Fusion Financials is a breakthrough in the making, but owing to the conservative nature of the buyers and the lack of any compelling reason for Oracle to encourage them to migrate, it’s one that I expect will take most of this decade to pan out.

Although the software has been in release for a year, the modest pace of adoption makes it hard to know exactly which caveats apply to which users of which Oracle ERP application. The total cost of ownership is an important point buyers must consider. Some of the costs of migrating may be lower and some maybe higher; the specifics are partly a function of what a company already owns and what it plans to acquire. Some capabilities may be available today while others may be available in theory.

Whether or not it’s time to migrate, I think all users of Oracle’s E-Business Suite, Oracle Applications, PeopleSoft and JD Edwards software should consider Fusion GL as part of an ongoing program to extract more value from their core financial systems. Our ERP research finds that a majority of companies fail to sufficiently utilize the existing capabilities of software they already own.

Companies that are coming to the end of the useful life of their ERP applications need to take a fresh look at what’s possible rather than settling for a newer version of what they already have.  They also must consider the many different options that they have on how to deploy the software they are using – in a cloud, on premises or some combination. In the end, they may decide its best to stay with an existing vendor, but even if they do, they may get ERP software that improves business performance.

Regards,

Robert Kugel – SVP Research