RESEARCH NOTE April 2005 ROI ANALYSIS YOU CAN TRUST TM The Real ROI from PeopleSoft Enterprise THE BOTTOM LINE Independent research conducted by Nucleus showed that 82 percent of PeopleSoft customers achieved a positive return on investment with an average payback period of 2.7 years. PeopleSoft Enterprise is a suite of business applications that automates business operational functions. Acquired by Oracle Corporation in January 2005, the product family includes the following key solutions: Campus Solutions provide applications for the management of administrative functions related to institutions of higher education. Customer Relationship Management includes tools and capabilities to manage and analyze customer sales and service activities. Financial Management includes applications for financial accounting, cash management, revenue management, budgeting, analytics, and compliance monitoring. Human Capital Management includes human resources applications to manage recruiting, benefits administration, payroll, performance reviews, and compensation planning. Service Automation includes applications to help services organizations manage projects, control project delivery costs, and manage resource and employee utilization. Supplier Relationship Management enables companies to streamline sourcing and procurement, manage spending, and manage supply chain business processes. As is the normal process with Nucleus Real ROI reports, Nucleus reviewed the PeopleSoft Web site, online technology publications and discussion forums, and print journals to identify companies using PeopleSoft and then independently contacted customers to assess the results they had experienced with PeopleSoft. 2005 Reproduction in whole or in part without written permission is prohibited. Nucleus Research is the leader in the return on investment analysis of technology. Please visit www.nucleusresearch.com. During the course of the research, Oracle acquired PeopleSoft. Oracle became aware of Nucleus s research, and was invited to supply customer names to be included in the sample. Nucleus identified 105 customers and contacted each one: Seventeen companies agreed to participate in interviews. Ten companies declined to participate for various reasons. Seventy-eight companies did not respond to repeated requests for interviews.
RELATED RESEARCH F31 The Real ROI from SPSS E116 The Real ROI from Microsoft Business Solutions-Axapta E36 The Real ROI from Oracle E- Business Suite E5 The Real ROI from Progress Software D114 The Real ROI from UpShot D112 The Real ROI from Salesforce.com D91 The Real ROI from webmethods D57 The Real ROI from Manhattan Associates D36 The Real ROI from ATG D23 The Real ROI from SAP D16 The Real ROI from Manugistics D8 2003 Technology Almanac D1 The Real ROI from i2 Supply Chain Management C61 The Real ROI from Cognos Business Intelligence C47 The Real ROI from Siebel Through in-depth interviews, Nucleus analysts explored the key benefits of the solution, challenges to an effective deployment, costs, and best practices for maximizing ROI. Unlike survey research, the Nucleus approach uses analysts skilled in both finance and technology to perform a full ROI analysis of each of the participants deployments. Nucleus has included the data from all customer interviews in this report. The majority of companies provided details of their deployments on condition of anonymity. Eighty-two percent of PeopleSoft customers interviewed had achieved a positive ROI from their deployments, with an average payback period of 32 months. PEOPLESOFT DEPLOYMENTS Customers evaluated multiple products before selecting PeopleSoft. Higher education facilities included Sungard and Datatel in their evaluations, while businesses considered competitors such as SAP, Oracle, BAAN, Lawson, JD Edwards, Dun & Bradstreet, and McKesson. The reasons for choosing PeopleSoft fell under three categories: Forty-six percent of the respondents thought PeopleSoft s technology was the most flexible. Several of these customers noted that PeopleSoft s internet-based architecture put them at the forefront of the market in terms of utilizing the latest technology. Thirty-one percent felt that PeopleSoft provided technology that would grow with its business and could be expanded as its requirements changed. Twenty-three percent found that PeopleSoft provided a better fit with its existing business processes. Seventy-six percent of PeopleSoft deployments were completed on time, and 47 percent were completed on or under budget. The biggest deployment challenges faced were usually related to change management, not technical issues. THE BENEFITS FROM PEOPLESOFT Organizations identified a number of benefits that enabled them to achieve a positive return on investment from their PeopleSoft deployment: Seventy-one percent of PeopleSoft customers reduced IT, paper and printing, or other direct costs as a result of their deployment. Seventy-one percent reduced administrative overhead, and 59 percent increased employee productivity or reduced headcount. Forty-seven percent increased visibility into operations or inventory to enable better planning. Twenty-nine percent improved customer service. www.nucleusresearch.com Page 2
Reduced costs In many cases, organizations deploying PeopleSoft were able to reduce or eliminate maintenance associated with multiple IT systems and applications, or reduce the use of paper-based reporting practices. These savings were most often found in companies deploying human capital management, supplier relationship management, and financial management applications: A number of human capital management solution customers were able to eliminate paper check printing and processing costs. One large PeopleSoft human capital management customer was able to save $2 million by consolidating its HR functions. A smaller company in manufacturing consolidated from 3 systems to 1, and gained efficiencies from reporting, financials, and manufacturing. Another customer replaced five budgeting systems with a central system and was able to close a warehouse because with a fully electronic purchase order process we can reduce the amount of on-hand stock we need by $1 million a year. Reduced administrative overhead / increased productivity Increased productivity of both administrative and general employees was a key area of savings for many PeopleSoft customers. These savings often included changes in existing processes. Although not all customers reported savings in headcount as a result of their PeopleSoft deployment, many were able to increase the responsibility of an existing team without adding staff members: One banking customer doubled in size but maintained the same number of accounting staff because employees were able to access and process financial information more rapidly. A healthcare customer using PeopleSoft for electronic invoice processing was able to improve efficiency while reducing errors: If we had to hand key them we would have to get another 4 or 5 FTEs and now I don t have to spend the time with purchase orders problems from disparate systems. It used to take 18 days to close 15 business units for month s end; now I can do 30 business units in 7 to 8 days. Another customer was able to provide general users with access to information that previously had to be requested from technical staff, enabling the workforce to become smarter with more accurate access to data and more capabilities to see where costs can be cut. Improved visibility Consolidation of data in one system, integrated order and inventory management tools, and using PeopleSoft to support standardized business processes enabled improved visibility for a number of customers. In some cases, improved visibility delivered productivity-based savings because it took employees less time to gather and analyze information for decision making; in other cases, www.nucleusresearch.com Page 3
improved visibility led to significant savings in inventory and working capital: One manufacturing company Increased the amount of information we have and decreased the time it takes to get it. Now we have information on margins both on customers and products we never had that before. We increased our margins; we narrowed it down where we are pricing based on the customer and what margin we wanted for that customer per a given product. Another customer was able to improve production planning, scheduling, and inventory control using PeopleSoft: We had a significant reduction of inventory and less stockouts and back orders. It s not all because of the system, but it certainly played a part. Improved customer service A number of companies noted that they were able to improve customer service through their PeopleSoft deployment: Some manufacturing customers were able to provide Web-based account self service to their clients, reducing inbound call center costs while improving customer satisfaction. A number of education customers were able to streamline processes and present a more efficient image to students by providing online access to information and processes. Another customer was able to gain market share by enabling sales, marketing, and the call center to work more effectively together they used to be three silos. We now have a better understanding of where our sales are coming from. KEY COST AREAS In calculating the costs of customers PeopleSoft deployments, Nucleus analyzed companies actual and projected spending on software, hardware, consulting, training, and personnel over a 3- year period. The PeopleSoft customers analyzed in this report ranged in size from 30 users to 150,000 users. Given the broad range of deployment size and scale in the sample, Nucleus has presented both median and average data for the PeopleSoft deployments studied in this report to give companies reasonable guidance on expected costs and benefits. In comparing these results to other ERP research, Nucleus found the 3-year cost per user of SAP to be more than six times higher than the 3-year cost of PeopleSoft. The annual per-user cost of SAP was more than 12 times higher than the annual per-user cost of PeopleSoft. Software The average investment in software licenses for PeopleSoft was $1,295,833 and the median license price was $750,000. www.nucleusresearch.com Page 4
PeopleSoft license investments ranged from a low of $75,000 to a high of $10,000,000. The company on the high end of the scale had a global deployment with more than 150,000 users on the system which affected the average calculation. Annual license maintenance rates for PeopleSoft ranged from 8 to 25 percent, with an average rate of 17 percent and a median rate of 20 percent. The average software license investment for PeopleSoft was $1,295,833, with a high of $10 million and a low of $75,000. Table 1. The Median Cost of a PeopleSoft Deployment Initial Costs Median Data Components Software $750,000 Median initial license price Consulting $900,000 Median standalone consulting expenditure of customers interviewed Hardware $500,000 Median hardware expenditure of customers interviewed Personnel $2,068,000 Median number of personnel needed to deploy: 18.8 Median time of deployment: 16.5 months Assumed fully loaded cost of an employee: $80,000 Training $410,400 Median number of users: 600 Median training time: 18 hours Assumed fully loaded hourly cost of an end user: $38 Total $4,628,400 Median initial cost of deployment Ongoing Costs Software maintenance $150,000 Median license maintenance: 20 percent Personnel $560,000 Median number of FTEs required to support PeopleSoft: 7 Assumed fully loaded cost of a support FTE: $80,000 Total $710,000 Median annual cost Consulting The average consulting investment for a PeopleSoft deployment was $1,545,714, with a median investment of $900,000. Customers that used PeopleSoft consulting services were all satisfied with the services provided. Those that used third parties found varying results depending on the skill level of the consultants. www.nucleusresearch.com Page 5
The average consulting cost for deploying PeopleSoft was $1,545,714, and the median was $900,000. Hardware The average hardware investment for a PeopleSoft deployment was $625,000; the median hardware investment for PeopleSoft customers was $500,000. Table 2. The Average Cost of a PeopleSoft Deployment Initial Costs Average Data Components Software $1,295,833 Average initial license price Consulting $1,545,714 Average standalone consulting expenditure of customers interviewed Hardware $625,000 Average hardware expenditure of customers interviewed Personnel $3,697,867 Average number of personnel needed to deploy: 28.3 Average time of deployment: 19.6 months Assumed fully loaded cost of an employee: $80,000 Training $11,357,136 Average number of users: 10,674 Average training time: 28 hours Assumed fully loaded hourly cost of an end user: $38 Total $18,521,550 Average initial cost of deployment Ongoing Costs Software maintenance $220,291 Average license maintenance: 17 percent Personnel $944,000 Average number of FTEs required to support PeopleSoft: 11.8 Assumed fully loaded cost of a support FTE: $80,000 Total $1,164,291 Average annual cost Note: the average data includes one customer with more than 150,000 users, driving high figures for software licenses and training. Personnel Most organizations used full time technical or IT staff as well as full or part-time line of business personnel to plan and manage their PeopleSoft deployments. The average number of full-time www.nucleusresearch.com Page 6
equivalents (FTEs) devoted to deploying PeopleSoft was 28.3; the median was 18.8. The average number of months to deploy was 19.6 and the median was 16.5. For ongoing support of PeopleSoft beyond the initial deployment, customers used an average of 11.8 and a median of 7 FTEs. Training Training time and requirements varied widely based on the number of users, number of components deployed, and skill levels. A number of customers invested in significant training for a small set of super users and less extensive training for the broader user population. The average number of hours of user training was 28 and the median was 18. DEPLOYMENT CHALLENGES AND BEST PRACTICES Like other large-scale application projects, customers told Nucleus that an effective PeopleSoft deployment requires a clear view of business benefits, collaboration between technology and line of business staff, effective management of consultants, and a strong project plan to ensure success. A number of PeopleSoft customers indicated that the technology was part of a broader change management initiative, making effective project management and training even more important. Most deployed more than one module, and staged the deployment in phases to ensure effective management. If users won t use technology, its ROI will always be negative and training is just one step in the adoption process, particularly where process changes are concerned. Customers cited early usability testing, training, and communicating objectives clearly as key factors influencing adoption, particularly when process or culture changes were involved. Strong internal project management including the evaluation, management, and direction of consulting or professional services firms is critical to project success. A number of customers that did not use PeopleSoft professional services found that they overspent on consulting because they had not aggressively managed the scope of the project with consultants or had consultants that didn t have adequate skills and experience to get the job done. Checking references of service providers, demanding fixed-cost bids, and getting consultants buy-in on project timelines and ROI objectives help keep things on track. WHAT NOW: ORACLE AND PEOPLESOFT Many customers had already considered the impact that the Oracle- PeopleSoft merger would have on their technology environment. www.nucleusresearch.com Page 7
Seventy-six percent of PeopleSoft customers planned to maintain or upgrade their PeopleSoft environment. Twentyfour percent were waiting for further information on product roadmaps, pricing, and support. None were planning to move from PeopleSoft at this time. In fact, 47 percent of PeopleSoft customers planned to either upgrade or deploy additional PeopleSoft modules in the near future: We re looking at adding new PeopleSoft products next year we have a good relationship with PeopleSoft and Oracle, and we re holding Oracle to its commitments on PeopleSoft products. We re going to 8.9 as soon as we can. It s far too early to know what level of support Oracle is going to provide. Having said that and knowing the amount of effort it would take to implement another system, there are third-party vendors that provide product support that we can use if we need to. One PeopleSoft customer that was also an Oracle database customer expected the merger would reduce future integration costs. The customers that were unsure were assessing their options, but most were planning to stay with PeopleSoft provided support for their solution was available: We re going to wait it out. The worst case is that we will have support through 2013. We ll give Oracle a fair shot and see what happens if they give me a good migration path and a good product. We have an assessment team weighing our options. We re waiting to see how things will play out. Of course, they say that they are going to support you, but it may not make business sense for Oracle, so we may be forced to look at some changes. This is business. CONCLUSION Cost savings, increased productivity, reduced administrative overhead, and increased visibility into operations for better decision making are all key return areas that drive a positive return on investment for PeopleSoft customers. With limited adoption challenges and a clear view of the business benefits they hoped to achieve, most customers achieved a positive ROI from their PeopleSoft investment and plan to further leverage that investment in the future to deliver additional value. Corporate Headquarters Nucleus Research Incorporated 36 Washington Street Wellesley, MA 02481 United States +1 781 416 2900 Europe, Middle East, and Africa Nucleus Research EMEA 17A rue Pavee 75004 Paris France +33 1 42 77 75 38 www.nucleusresearch.com Page 8