Almost five years ago, JDS Uniphase Corp., a go-go growth company that made super-high-tech optical components, signed a deal with Oracle Corp. to outsource its enterprise resource planning software, using an application service provider model that was supposed to be the next next thing in corporate information technology. It was a marriage made in hype heaven.
Then everything went south. The telecom-equipment business withered, taking JDSU with it. The company's $636 million in revenue for 2004 is less than half its 2000 sales, and JDSU now employs only 5,500 people, about a third as many as it did during the bubble-era glory days. JDSU stock is trading at a recent $3.14 per share, just a tiny fraction of its all-time high of $153.42, in March 2000. Meanwhile, the ASP model of software provision, now known as "software as a service" or simply "application hosting," failed to conquer the enterprise market. Most large companies still buy and manage their own enterprise applications.
Yet through bubble and bust, the hosted ERP and database software has performed well for JDS Uniphase, helping the San Jose, Calif., company integrate the operations of the many organizations it acquired during its growth phase, and rein in IT costs when money got tight. Now the hosted-software business is finally starting to live up to some of its earlier promise, and JDSU is hoping that its outsourcing strategy can help the company recapture some of its lost momentum by allowing it to respond more quickly to changing customer needs.
"We look at what we do as offensive outsourcing, the kind that allows you to accelerate the advancement of the company," says Al Etterman, JDSU's CIO. "Our information technology falls into two buckets, either advancing the business or running the business, and we want somebody else to do the running-the-business stuff," says Etterman, who joined JDSU from Openwave Systems Inc., in late 2004. In addition to being CIO, Etterman also holds the title of senior vice president of customer advocacythe idea being that with less focus on managing routine technology, Etterman will be able to do what every company says it wants senior IT managers to do: Support the business. "The original decision to host Oracle externally was one of cost optimization, and I would still rather spend on business-facing resources than database administrators. To run all that back-office stuff holds you back."
Company | JDS Uniphase Corp.
Corporate Headquarters | San Jose, Calif.
CIO | Al Etterman
Revenue (fiscal 2004) | $635.9 million
Net Loss (fiscal 2004) | $115.5 million
Stock Price | $3.14 (Jan. 4, 2005) 52 week high-low: $5.89$2.84
On the cost-cutting side, JDSU managed to reduce its IT staff by about a third by outsourcing the hosting and management of its database and ERP software to Oracle. But that's not all: The deal also allowed the company to eliminate hardware, minimize disruptions from upgrades, and centralize service and support for users for all that software; Oracle now handles almost everything to do with routine operation of the company in terms of orders, financial data, human resources and so on. Every JDSU employee around the world can use the Internet to access a single installation of Oracle database and ERP software hosted on servers in Austin, Texas.
The hosted strategy has served the company well, says Juergen Rottler, executive vice president in charge of Oracle's On Demand software-as-a-service unit, in part because the arrangement has been flexible enough to cope with both rapid growth, before the bubble burst, and with the ensuing slowdown.