Oracle Acquires Sun: A Lesson in Corporate Culture
For those of us who have been in the software industry for a while, Oracle’s acquisition of Sun represents a bigmilestone in the evolution of the the computing industry. Why did the IBM-Sun merger fail? Why was Oracle willing to pay so much more for the company than IBM?
While there are many business issues to consider, I think there is also a strong story about the importance of corporate culture – and why I believe the Sun-Oracle combination is likely to be tremendously successful.
Sun Microsystems: A Culture of Innovation
Sun has always been a company that prided itself on technical and business innovation. The company pioneered the Unix workstation, the Unix business server, the Java programming language, the RISC microprocessor, the “database server,” and in fact really popularized the whole concept of computers as “servers.” One could argue that much of the architecture of the internet (thin clients with highly scalable servers) was really invented by Sun. “The Network is the Computer,” one of Sun’s most memorable taglines, was way ahead of its time.
I will never forget my first glimpse at the Sun 3 workstation in the mid 1980s. I was working for IBM (selling mainframe computers and PCs) and one day I stumbled upon this huge computer screen on the desk of one of my customers. In that world of mainframes, PCs, and mini-computers I could hardly understand what it was. Not only was it a desktop computer running Unix, which was strange enough, but it was tethered to a server somewhere in the basement and didn’t even have it’s own hard disk. Needless to say, it took IBM more than five years to figure this market out, and by the time it did Sun was a $2 Billion company.
The company innovated in its business model as well. In the early days Sun pioneered the real concept of an “open computer” – one which had an open operating system, open hardware architecture, and a network of resellers and OEM partners. This combination of innovation and strong marketing made the company unstoppable in its early days: Digital, Apollo, Sequent, Silicon Graphics, Ardent, and many other unix-based computer manufacturers went out of business trying to compete with Sun.
But as our “enduring organization” research discusses, corporate cultures must change over time. As Microsoft and others started to dominate the corporate computing landscape, Sun failed to make the transition from a “pioneering” culture to a purely “market driven” culture. Rather than try to build more “complete products” for its existing customers, the company moved continuously into new, technology-driven markets. During my days at Sybase, Sun virtually owned the server and desktop business for Wall Street traders. But by not focusing on building complete solutions for this market, companies like IBM slowly entered and today this market is a far more heterogenous environment than Sun would like.
Oracle: A Pioneering Culture which has Shifted toward Market Leadership
Oracle had very similar beginnings. The company revolutionized corporate computing by commercializing the standard SQL database (which was actually invented by IBM, much to IBM’s chagrin). Like Sun, Oracle is an engineering-driven company. In its early days the company focused on building the fastest, most feature-rich database in the market. Back in the days of the “database wars” (I spent 7 years at Sybase, so I had the opportunity to participate in this market), Oracle tenaciously and aggressively defended its technology leadership and made up for some of its technical flaws with a highly aggressive sales and marketing culture.
Oracle learned, as perhaps Sun did not, that as the company becomes a market leader, it must integrate its operations and behave more like an end-to-end solutions company, not only a technology leader. Hence the company moved aggressively from IT infrastructure to applications, with the acquisition of a wide range of applications companies, including PeopleSoft.
One cannot argue with Oracle’s astounding success. The company’s relentless focus on database allowed Oracle to force Sybase, Ingres, Informix, and even IBM out of the mid-market database industry. Today its only real competitors are Microsoft and OpenSQL (which the company now owns through the Sun acquisition).
From a cultural perspective, Oracle and Sun have always aligned well. The companies jointly engineered one of the highest-performing combinations of hardware and software in the world of corporate applications – and have continued to work closely together over the years. (Oracle in fact works with all major hardware providers, just as Sun used to work closely with competing database providers.)
But unlike Sun, Oracle evolved into a serious, solutions-driven enterprise software company. While we still see tremendous engineering focus in the company, Oracle now focuses on application software, vertical markets, and end-to-end business integration. Where Sun continues to define itself as an innovative provider of internet-based products and solutions, Oracle now defines itself as the “safe and reliable market leader” in enterprise software. This has not reduced Oracle’s fierce focus on sales and marketing – but has given the company a real culture of “business planning” and “market leadership.”
While there are many details to work out, my cultural antenna tells me that Oracle will greatly enhance Sun’s market viability – by taking Sun’s innovative solutions and making them into market leading, revenue-producing engines for profit.
IBM: A Culture of Industry Solutions
What about IBM? In many ways the IBM-Sun combination seemed perfect. Both companies are highly committed to Java, both companies have strong sales and service organizations to sell computer servers, and both companies have strong expertise in underlying internet and server technologies.
But would an IBM-Sun combination work? And why did IBM offer such a lower price for the company than Oracle?
Having spent time at IBM and worked with many IBM leaders over the years, I have great respect for this organization. But at their core, Sun and IBM’s cultures are very different. IBM is several generations past its days of “technical innovation” – and has transformed itself into a global consulting company. The company’s strengths, expertise, and innovation focus on industry solutions, consulting, and talent management.
Could IBM and Sun have made a powerful combination? Absolutely – on paper. But the cultural fit may have been tough. Most of the Sun engineers would end up working in one of IBM’s large development organizations, which do not have the entrepreneurial, pioneering approach to technology they once had. One story I was told about the Sun-IBM merger came down to a simple issue of personalities: the IBM and Sun leadership simply did not feel they could work well together into the future.
A Story Just Beginning
This story is only beginning. I believe we will see the full impact of corporate culture play out in the coming months. Can the pioneering, technology-based culture of Sun fit into the hard-nosed sales and marketing culture of Oracle? I believe it can – and we are likely to see products like Java, OpenOffice, and OpenSQL take on an even larger life in the future as Oracle applies its market-focused approach to managing these businesses.
The Critical Importance of Culture
We see this issue taking hold in many of our clients. Corporate cultures are often built by the founders and take on a strong and embedded life of their own. Many mergers have failed simply because the cultures were not made to fit, and key people left early in the transition.
We will be publishing much more on this topic in the coming months – as always we welcome your thoughts and comments.