How Oracle made the Sun deal work: a lesson for CFOs
- 21 November, 2011 08:49
18 Nov 2011 -- CFOs who gathered outside Boston Thursday to discuss how they can be agents for change within their enterprises were treated to a close-up view of how Oracle not only transformed its own business but made its Sun Microsystems acquisition a success.
“The CFO role is more far-ranging than finance,” Oracle Chairman Jeff Henley told the audience at the MIT Sloan CFO Summit. He spent 13 years as Oracle’s CFO before taking his seat as head of the board of directors seven years ago, and he singled out IT as a key area for CFOs to partner with, whether it reports to them or not.
The IT budget should be spent in a more transformational way, and CIOs can’t do this alone, he said. They need support from the rest of the business.
“Most companies are not using IT to its full potential,” Henley said. “More complexity means less innovation. When you reduce complexity, you get better information and better controls.”
During Henley’s tenure as CFO, Oracle began a major, two-phase transformation that by its 2010 fiscal year had resulted in $2.5 billion in cost savings.
From 1998 to 2003, CEO Larry Ellison drove the company to simplify, standardize and centralize, with the result that it saved money, got better information, and gained more agility to execute globally, Henley said. Then from 2003 forward, it moved to a global single instance of its ERP system and processes, as well as more centralized decision-making, shared service centers, and a global information system.
This transformation set the stage for the work Oracle did to make its acquisition of Sun a success. Henley called the Sun deal – one of more than 90 acquisitions Oracle has made since 2005 – “Unequivocally the finest acquisition we’ve ever done.”
Henley characterized the deal as a good one for Oracle: Sun was “cheap, but had tremendous IP and engineering assets.” Still, “when we bought it, it was a very sick company” with low margins.
Oracle identified a range of challenges facing Sun, where changes could improve processes and cut costs. These included inventory: the company had short delivery lead times and large excess and obsolete inventories, according to Henley. Its manufacturing was spread out over 21 final assembly and test sites, and it had three distribution centers and four global logistics providers. Its distribution network had four tiers and was expensive. Finally, Oracle judged Sun’s ERP systems to be fragmented, and it had multiple logistics systems.
Oracle took a hard line on inventory, throwing it out and simplifying the supply chain. It moved Sun to all configured systems, eliminated distribution centers and reduced the assembly and test sites to just five, while cutting logistics providers to a single one. Going forward, it would modify processes only when it made sense for all customers, according to Henley.
On the technology side, it integrated Sun with its Global Single Instance ERP system, and standardized on Oracle supply chain, demand management, and trade packages.
According to Henley, the results in twelve months were: -- 16.7% reduction in product lead time -- 9.8% reduction in headcount -- 63.2% reduction in excess, obsolete inventory -- 24% reduction in freight and warehousing -- 9.7% reduction in inventory
But just as CIOs can’t effect change alone, neither can CFOs, Henley said. He credited unwavering commitment from Ellison to driving the changes at Oracle.
“The CFO can’t do it all – you have to have your CEO behind you, “ he said. “You’re going to break a lot of glass.”