Inside Oracle's Corporate Strategy: A Conversation with Doug Kehring

Sure, so I've been at Oracle for a little over 20 years, and actually joined back right before the dot-com crash, 'cause I wanted to invest in startups, back when that was the hot thing and corporate started doing venture investing. And after I lost several hundred million dollars at Oracle, I switched over and started working in our corporate development group, where I spent about 15 years doing all of our mergers and acquisitions, which totaled about 140 over the last 15 years or so. But most recently, in the last couple years, I've taken a broader role with the operational side of things, to look at how we transform the business from an on-premise company to a cloud business, and what are all the things that need to change.

You know, we're still led by our founder, CEO Larry Ellison, and he's got a history of really thinking through and making some dramatically smart moves. And in fact, back early on in my tenure at Oracle, I was here for one of them, which was, at the time, that we did and announced the PeopleSoft acquisition. No one really had made significant acquisitions of software companies. It was just something you didn't do. In fact, in the years leading up to that, I still remember Larry indicating that, the idea that, 'We write code, we don't buy code.' And then all of a sudden, of course, packaged together, at the manufacturing plant. So we thought, what greater time than to start making some acquisitions, and we purchased PeopleSoft and Siebel Systems and several other great companies, put them together, and really created a lot more value for customers by having them from Oracle. So I'd say that, as a company, we really tried to figure out how to see where the puck is going, and skate to it, in that saying. Another great example was as the cloud started up. You know, Larry Ellison himself was one of the early investors in some of the first cloud companies ever, including NetSuite and Salesforce.com. So he saw where the technology was headed, and he had Oracle begin making those investments as well. And since then we've been maturing that product and building up many customer references, to the point that most customers realize that if they want a modern application suite that's built around cloud technologies, where they can get access to quarterly innovation and new functionality, there's no one better than Oracle.

Having done that many transactions, I think it boils down to four simple criteria. They're really easy, but it took us a long time. The first is strategic fit. You have to find companies that don't fit together, because you can't create value by having acquired them. You can't get unusual synergies in which you can return the value to your shareholders and to your customers. So at Oracle we've always prided ourselves on ensuring that we actually find the right companies that fit the best with our business. And when that's not the case, we don't make the acquisition. In fact, we walk away. I think that's held us in good grace, mainly because if you look at us as a company from a divestiture standpoint, we've made no significant divestitures to date, which means everything that we put together under one roof has been strategic. Then the second criteria is to pay the right prices. You know, it's really easy to use your checkbook and write a runaway value for a company because you think it's strategic. In the cycle of making software acquisitions, where we bought very marquee assets at two, three, four times' revenue. Today, companies are trading at 30, 30 to 40 times' revenue. So Oracle's been very disciplined about looking at acquisitions and ensuring that when we find a strategic asset, that we only proceed when we can find the right price, in which case we can generate a shareholder return, so they can be around for our customers for the long haul. I think the third criteria is to integrate effectively. So be the best integrator possible, which means that you've gotta think about how you bring these assets into your fold, so that the companies that don't do any integration, but even more importantly, the employees and the customers don't see it as an integrated company. They don't get a lot of value from standalone assets. At Oracle, we try to use our systems and integrate the companies very, very quickly, so that when we're done, after three or six months of the integration process, there's but one company again. We have one HR group. We have one IT organization. We have one finance group. And so everybody's under the same system, and rolling together toward the, to help customers be more effective. And then the fourth criteria for success is to repeat, and by that I mean you really have to be in the acquisition business, or not. It doesn't make any sense for you to do one acquisition every now and then, because you won't build up the knowledge base across every function, to helping integrate these acquisitions quickly and effectively. And they learn each time, that after every deal we can sit back and look at the transaction and understand, what did we do right? What did we do wrong? And in the cases of, where we might have done something wrong, we figure out how to do it more effectively or better the next time around. And that means that we can outcompete for these assets compared to our peers, because we know how to do this so well.

As a result of the pandemic. Many of us have never worked from home, and all of a sudden we're caught in a situation that wasn't business as usual. And over the first few, I'd say the first few weeks or the first month or two of this work-from-home environment, I think people got up to speed really quickly, and we started realizing that you actually could be more productive than ever, from an efficiency standpoint, and that resulted in not only sorta not worrying about, is there downside here, to this new environment, but what's the upside? And I think the upside has been that there's a real opportunity to take a look at your business, and try to figure out how to accelerate the pace of change, that we've all been down this idea that digital transformation is front and center of the future, and we've been advocating for this for a long time. And we're actually all realizing that the digitization of our business is creating a lot of efficiencies. So what it's resulting in is an acceleration of that. So now people are like, oh my gosh, let me look at other ways that I can accelerate these moves. So whether it's the cruise industry, technology industry, retail, et cetera, it's a great opportunity during this pandemic to make some of these changes.

You have to have someone thinking about those things. So left to their own, what I do find is that most businesses just go about their day-to-day processes. So incremental change is all they have the stomach for, because it's all they're looking for. So the idea being is, I did what I did yesterday, and today I'm gonna wake up and do the same thing. So I might grow five or 10% faster if I do a better job at this, but it's not gonna transform, because I'm not thinking about that. And one of the things that, what we talk to our customers about and certainly we follow here at Oracle is, how to transform at an even speedier page. How do you really disrupt your business? And I have a whole team that looks across the company and we're constantly evaluating, where are we inefficient? Where, based on customer feedback, but then create the systems that need to be implemented in order to effectively drive it, and then just go out in project management, through the process. And these things added together result in that opportunity where you can look at things and find huge opportunity for revenue growth that might be there. Now, that being said, all of these things take time, so you might have a great growth vehicle and you're suffering from other areas in which your businesses aren't growing as fast. But in every case, whether you're high growth, mid growth or low growth, you can shift the model in a material way if you're constantly looking at that transformation exercise.

The cultures of our customers, in terms of their willingness to look at different things, right? I mean, you go from the standpoint of having lived for 30, 40, 50 years, and nothing was really different. You got up, went to the ballgame on the weekends. You played your golf, et cetera. We really as a society never had a disruption of the level that we've seen. Then all of a sudden you're told, 'Stay at home', right? 'Don't go outside. Don't go to the supermarket,' et cetera, et cetera. And all of a sudden people like, we're gonna, we gotta be flexible here. We gotta start thinking differently. And that's allowed people to kind of change their thought process and be much more open to doing things differently, all the way down to just the most simple things, like my core financials, for instance. Because that's a time in which you have the opportunity to look at things differently. You can sit down and revisit your business processes, and really not only implement a new system, but implement a new way of doing business that will benefit you for the next 20 or 30 years.

Cloud is the great enabler, because when we look back in the previous 40 years as a non-premise business, where you took your upgrades to your core systems every four or five years if you're lucky, sometimes it was oftentimes longer than that. That meant that between those upgrade processes to evaluate new technology, new capabilities, and essentially the flywheel becomes much, much faster in being able to transform your business. So when I look at some of the internal things that we've done, like the accelerated buying experience, which was one of our first undertakings to transform how Oracle does business with our customers, with the idea of being, we've just gotta be easier to do business with, in this new service-based world. That we don't want contracting to last for months on end. We want you to choose the product you want from Oracle, get it, and get it agreed to very quickly. And so empowering our field, giving them the system and tools in order to do that without a lot of delay, was one of our imperatives. But we didn't know what the architecture should look like for that business model immediately. Available to us if we were using on-premise license software.

Yes, I mean it was obviously a very large team effort, but one of the big things we have is a transformation office that helps program manage these disruptive activities.

The tracks have been laid. People have come before this, whatever business that we would be talking about. So, you know, obviously there are early movers to the cloud, and there are later movers on that front. But when a company of Oracle's scale has been able to fully move their applications to the cloud, and, you know, we're a complex business that has to, has software and hardware and multiple product lines, as well as a hardware supply chain, et cetera. I mean, no matter what it is, we sorta face it as a company, and yet the cloud has been this enabler for us. So we see across every one of our industries, in terms of our customer base, that there's none of them that can't take advantage of the cloud. But you have to be willing to make an investment in that, and you have to be ready for that change. There are believers, in terms of how to disrupt their businesses, because they see how they're being attacked around them, and there are others that might be, might be more hesitant to do so, in which case the safest choice is to do nothing. The trouble is, the do nothing approach only lasts for so long.

You know, I think Oracle sits at a very unique place in the technology arena, and that's because we are the only cloud provider that is offering both the applications as well as the infrastructure capabilities. And why is that unique? It's unique because, first off, in the applications arena, we've got an end-to-end set of capabilities so that, will ensure that even the most complex company can run their business in a very digital way. And all of those capabilities, including our Fusion cloud services, all run on our infrastructure, Oracle Cloud Infrastructure, OCI. And OCI has been built with autonomous right in all of our capabilities. But are also deeply embedding autonomous features in it, that will allow the infrastructure to maintain and run itself without human intervention. So across all these capabilities, I think at any business, in any industry, in any part of the world, can find Oracle as a great partner, in which all they need to do is give us their most difficult, most challenging problem, and between these applications and infrastructure cloud capabilities, we can help bring value that will automate their business, accelerate it to a digital world, and enable them to gain much more value than if they did nothing or worked with another vendor. And ultimately, if an Oracle customer walks away and goes, 'Gee, Oracle's aligned and we're at escape velocity, from a business standpoint.'

Appreciate it, thank you for time.