Six months ago, database and applications software giant Oracle began to realize that its largest European subsidiaries were beyond its control, acting, as they were, autonomously of the corporate organization. Oracle in the UK, for example, was developing products specifically for the UK market. Oracle France often refused to release key products such as Oracle Applications until the French organization had put them through a customer testing cycle. France even had its own corporate color – blue, rather than the traditional badge of bold red. Furthermore, the organizational structure of Europe was inefficient. Each country had its own managing director, its own marketing message, and its own support and consulting organizations. At that time, chief operating officer Ray Lane tried to banish such anomalies by introducing a pan-European structure – the sales organization was to be driven by centralized management with region-wide responsibilities; the same for marketing, support, consultancy and so on. Many of Oracle’s managers in Europe had long argued that each country needed its own infrastructure in recognition of the different ways of doing business in each country. Lane thought that was merely an attempt to hang onto power. Oracle’s latest results are not a measure of whether Lane’s radical centralization of Oracle Europe has worked – it’s too early to say – but they reflect just how much upheaval the business model has caused. While revenues in the Americas region soared 49% to $667m in the company’s second fiscal quarter to the end of November, and Asia/Pacific sales jumped 44% to $208m, Europe looked markedly weaker. Revenues in the region rose from $376m to $436m, a 16% growth rate that compares with the 32% pace recorded at Oracle Europe in fiscal 1996. Insiders at Oracle suggest that the slowdown in Europe stems partly from confusion over sales territories, but has also resulted from a parallel Oracle reorganization – a move to focus its sales people on only the top customers in the region and to handle these accounts in vertical market groupings such as finance, government and so on. Those changes are only now beginning to have their effect in Europe.
Capped growth rate
The upshot for the company as a whole is a capped growth rate. As a result of the European slowdown, revenues for the quarter grew 36% to $1.31bn. A better result in Europe would have taken the company’s momentum closer to the 42% reported in Oracle’s fiscal 1996. Sales of its core relational database products, which make up 70% of its business, appeared to be the biggest problem, at least in Europe. Overall, sales of Oracle7 and related products grew 24.4% to $428m – a dramatically slower rate than the 43% it sustained over the previous four quarters. It is also considerably slower than its main competitor Informix Corp, which reported database revenues growing at 50% for the three months to the end of September. Again, the database problem was felt most acutely in Europe, where the estimated sales growth was less than 10%. That may be just a short-lived operational problem. Indeed, Lane appears to have smoothed out the blip that hit the company’s applications software business in the first quarter when the division’s run rate dropped from 73% to 4%. In this most recent quarter, revenues from Oracle’s applications suite rose 77% over the same period last year to $101m. Lane will be hoping that the impact of the transition in Europe is as easily solved as the applications blip.
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