Oracle, PeopleSoft And You

Computerworld - If your strategic supplier is the victim of a hostile takeover, who worries about your interests? Oracle's recent offer for PeopleSoft highlights industry consolidation issues. As part of the proposed takeover, Larry Ellison has threatened to stop supporting PeopleSoft applications, leaving PeopleSoft users adrift. PeopleSoft responded with a poison pill, offering to refund twice its license fee if
it is acquired and the new owner drops support for PeopleSoft applications within two years . Today, virtually every CIO is worried that a strategic supplier will be taken over and that support will slip.
What can be done? I conducted an informal survey of IT buyers. Many suggested escrowing source code as protection. With smaller software suppliers, contracts often give the buyer rights to the source code if the seller goes out of business or abandons the software. However, very few software companies will actually allow the source code to be released in the event of a takeover. Even with intellectual property protection, doing so would significantly lower the company's value. With large software suppliers, escrow clauses are rare, and they don't do the buyer much good anyway. Few buyers can afford or have the skills to maintain the source code for applications the size of PeopleSoft's.
Buyers sometimes ask for contract clauses allowing them to terminate their contracts or receive refunds in the event of a takeover. In general, these provide minimal benefit. When you implement new software, you generally change your business processes. Even if you get your money back, you still have to go through the pain and expense of a second implementation, not to mention the time and effort required to select, educate and build a relationship with a new supplier.
Unfortunately, it's too late for PeopleSoft users to start protecting themselves from the possible Oracle takeover. However, the episode emphasizes the importance of anticipating similar situations. In future sourcing decisions, you can do the following:
• Streamline your architecture. Design the architecture with ease of substitution in mind - use standard interfaces and commodity products where possible.
• Conduct your due diligence thoroughly. Part of your evaluation should focus on supplier viability and business strategy. Is the supplier's management team involved, committed and hungry? Is the company making money? Does it have enough cash to continue investing in the product if sales decline? Does its business strategy meet your goals? How will its future product line affect your architecture?
• Put all vendor commitments into the contract. Contractual agreements must be honored, even in takeovers. Include explicit