Oracle Corporation's financial viability and customer service challenges

Oracle Enterprise Edition

Assessing Oracle's Financial Viability

Oracle Corporation (NASDAQ: ORCL) is a global leader in the development of databases and enterprise applications software. During it latest fiscal year the company recorded $23.2B in Revenues with an Operating Income of $8.3M and Net Income of $5.5M. Its primary competitors are IBM, Microsoft, and German software conglomerate SAP. With operations in the U.S. The UK, Canada, France, Germany, Japan and development centers in China, Oracle's global reach is among the greatest of all enterprise software companies. An analysis of the company's financial statements is shown in the Appendix, Table A: Oracle Corporation Financial Ratio Analysis. Despite the economic slowdown that has harmed the financial performance of many software and technology companies, Oracle continues to deliver strong financial results. Revenue Per Employee, a measure of productivity and also cost containment, has steadily increased from $236K in 2005 to $270K in 2009. The company's EBITDA Margin % has also increased from 37.51% in 2005 to 44.06% in 2009. The company's financial viability is very strong. Oracle's organizational structure is comprised of five operating divisions. These include new software licenses, software license updates and product support and in the services business sector, consulting, education, and On Demand. Of all five divisions, software licenses consistently contribute over 45% of worldwide revenues. With the recent acquisition of Sun Microsystems both for its Java software expertise and hardware business (Ricadela, 127) Oracle is positioned to compete with IBM for enterprise-wide IT implementations. This has been a stated goal of Founder Larry Ellison for the last several years. Based on this analysis, the bottom line is that Oracle is one of the most financially viable enterprise software companies globally today

Customer Service

Oracle on average has a 10:1 ratio of services to software costs in enterprise accounts that have standardized on Enterprise Edition. This means that for every dollar spent on software, an additional $10 is spent on services, customization of the software to customers' needs, and ongoing customer support (Evans, 10). Customer Service and Consulting Services are both major contributors to Oracle's profitability and long-term viability. Yet with maintenance fees in the 22% to 25% range and updates at times being 18 months or longer in terms of delivery, customers are complaining about this being unreasonable and not justified (Evans, 10). As a result Customer Service is often being outsourced to other companies besides Oracle, Including their primary competitors who also have expertise with Oracle systems and applications. When compared to its open source database competitors including MySQL, Oracle is considered to have mediocre, not excellent support (Himmelsbach, 36). Oracle also lags behind PostgreSQL on support. Both MySQL and PostgreSQL are much smaller and less expensive firms to operate. Add to this these two smaller competitors with better customer service have less of a cost structure to pay for and its clear that over the long-term Oracle has to consider changing its approaches to managing this function of their business. Advisory firms who assist enterprises with their software purchases also state that it is best to negotiate with Oracle at the end of a fiscal financial period to get the best deals as the company wants to get as many sales into a given quarter as possible. One advisory firm has also recommended that large-scale Enterprise Edition customers also negotiate for access to the development engineers for the specific modules of Enterprise Edition they are installing. AMR Research is an advisory and consulting firm that also specializes in supply chain management and order management consulting for enterprises installing Oracle as well. Like Forrester Research, Gartner Group and advisory and consulting firms, AMR Research has also been very active with Oracle's installed base of customers, many of which consult with the advisory firm to get better pricing and service options as well. In conclusion, Customer Service from Oracle is a profit center for the company and is also considered the basis of sales leads for its highly profitable Consulting Solutions division as well (Evans, 10).

System Functionality

Oracle was originally founded as a database company and as a result today dominates the industry from a technology leadership standpoint (Cochrane, 38). Oracle Enterprise Edition continues to set a pace of thought leadership in enterprise database design and development, as its structure supports advanced analytics called Business Intelligence (BI) (Ricadala, 14), support for Cloud or server virtualization computing (Babcock, 83, 84) and many other advanced application areas as well. Despite the many advances Oracle continues to make in the breadth of its databases, the central focus of database development is transaction management of distributed database systems (Alkhatib, Labban, 102, 103). This aspect of database product development is responsible for Oracle Enterprise Edition databases being extensively used in e-commerce and distributed order management and Supply Chain Management (SCM) enterprise application areas. Figure 1 provides a structural diagram of Oracle Enterprise Edition.

Figure 1: Oracle Enterprise Edition (Source: Oracle.com)

The design objective of Oracle Enterprise Edition is to define role-based views for the user and also support security and authentication of each role through a Semantic Object Layer, as can be seen from Figure 1. A more defined schematic diagram of Oracle Enterprise Edition and its integration to Deliver Server, Business Intelligence and Administrative functions is shown in Figure 2.

Figure 2: Oracle Enterprise Server Schematic Diagram (Source: Oracle.com)

Positive and Negative Points

Oracle has 48% of the worldwide market for relational Database Management Systems (RDBMS) (Evans, 10) and has strong financial viability as can be seen from the analysis completed earlier in this paper. Additional strengths include the following. Oracle has broadened the base of Enterprise Server support to include four warehouse configurations including standalone, certified server and storage, optimized warehouse and database machine configurations. Second, Oracle has also added in transparent SQL access and supports visualization of data sets. Third, Oracle has one of the more portable data warehouses on the market, capable of running on the Linux, Windows or UNIX operating systems. Oracle also has a leadership position in creating state-of-the-art transaction processing system structures within Enterprise Edition as well (Alkhatib, Labban, 97).

For all of these strengths however it is well-known that Oracle databases are high maintenance and often require one full time system administrator to keep them optimized. This is necessary for keeping the audit tools up-to-date and functioning, and also supporting patching of the database when updates arrive. Second, Oracle's pricing and maintenance policies are often considered exceptionally high for the market and are often questioned by customers (Evans, 10).

Recommendations for Implementation

In terms of implementing the system significant changes to processes for data capturing including extraction, transfer and load (ETL) and the integration of BI components are necessary. From manufacturers including Quantum who relies on Oracle Enterprise Edition to manage the production of high density tape drives to R.L. Polk and its use for automotive data, Enterprise Edition has been shown to scale globally. Further, the transaction engine component is being used for synchronizing supply chains and production centers as well (Alkhatib, Labban, 102).

Any organization undertaking the use of Enterprise Edition will first need to streamline their most critical business processes, and for manufacturers this is there supply chain and procurement systems areas. Once these processes are in place the company can selectively add in role-based workflows, integrating them in from the diagram shown in Figure 1. Further detailed workflow-to-data set integration to the level of Figure 2 is also critically important as well (McCown, 102, 103). Once processes have been redefined and value stream mapping completed, Enterprise Edition and its modules can be installed on a Linux-based server, running Red Hat implementation of Linux O.S. And scaled to support virtualization. This will ensure a higher level of performance at a lower Total Cost of Ownership (TCO) than if an Intel and Windows system were included in the configuration for example (Turetken, Demirors, 179).

Rating Analysis

Based on an analysis of the thirteen factors captured during this analysis of the Enterprise Edition customer base and form the secondary data sources used in the analysis, scoring was defined for each attribute. These scores are based on an assessment of Enterprise Edition relative to competing applications shown in the following table.

Based on a comparative analysis of these applications and the alignment of Oracle features, functionality and corporate strengths the following table of ratings has been devised.

Rating Factor

Data types and data integrity

10%

Performance and Scalability

15%

Application Development

5%

Database Availability

4%

Database Security

13%

Platform Support

5%

Database Administration

15%

Product Roadmap Alignment To needs

3%

Pricing and Licensing

2%

Company Financials

5%

Training

2%

Systems Integration

5%

Global Presence

1%

Totals

85%