PeopleSoft's Turnaround

When Craig Conway took over as president and COO at PeopleSoft Inc. in May 1999, the software firm was in the midst of a yearlong slide. Customers' minds and money were focused on Y2K preparation, and ERP software was slumping. Three months earlier, the company had laid off 430 employees. Annual staff turnover had jumped from 11% to 25%. Founder and chairman Dave Duffield had announced plans to retire. As the new man at the helm, Conway, 46, immediately shifted course, tightened the rigging, and generally made things more shipshape. He created a sense of urgency about the bottom line, putting limits on spending and streamlining the budget process. He launched semi-annual performance reviews and established a plan to cull the bottom 10% of performers from the workforce. He stepped up the pace and spending on new products, resulting in the release of the company's current software product, Version 8, a year ago. The proof is in the numbers. After losing $178 million in 1999, PeopleSoft has been restored to profitability, earning $146 million last year and posting net income of $83 million for the first six months of 2001. Conway's most significant contribution, some say, has been his effect on the company's culture. Under Duffield, the company's innovative but folksy founding CEO, people brought their dogs to work. Many wore shorts and t-shirts to the office and ate free breakfasts on the company. Under Conway, it's de rigueur to wear suits. The freebie meals are gone, as are the canine guests. While Duffield -- who founded the company in 1987 -- fostered a homey atmosphere, the youthful, driven Conway epitomizes intensity. "This was a successful, confident, fun-loving teenage company three or four years ago," says Conway, now president and CEO. "But the management team and processes could never scale beyond that point. I brought operational skill and experience in how to scale up to a multi-billion-dollar company." Before joining PeopleSoft, Conway shepherded a turnaround at One-Touch Systems, an interactive broadcast network that was later sold to Hughes Network Systems. He also had worked at other software firms, including an eight-year stint at Oracle Corp., where he was executive vice president of marketing. Given that Oracle's marketing team then was considered among the best in the software world, Conway's experience looked all the more impressive to industry watchers. He needed it. In the manufacturing area in particular, Conway had his work cut out. Software analysts viewed Pleasanton, Calif.-based PeopleSoft, which started out with human resources and later expanded into accounting software, as a back-door entrant into the manufacturing market. "PeopleSoft will probably never lead with the manufacturing functionality it offers to its target markets . . ." wrote AMR Research analyst Rod Johnson in a report on PeopleSoft in May 2000. "Many people questioned PeopleSoft's long-term commitment to the development [of its manufacturing package] and investment necessary to challenge its functionally rich competitors." But that may be changing. Mike Frandsen, PeopleSoft's general manager of supply-chain management, says the company now has some 1,350 customers using its materials management module, while about 250 companies are using its manufacturing application. One manufacturer using PeopleSoft applications is Cybex International, a division of UM Holdings, which builds exercise equipment such as stationary bicycles and treadmills. Cybex, which has been using PeopleSoft's supply-chain management and accounting packages since mid-1999, has reaped significant benefits as a result. "The software's configurator simplified our product ordering process," says Brian Lyman, manager of business systems at the Medway, Mass., firm. "The planning engine has made a huge difference in visibility for our planners." To be sure, as with many other ERP software companies, PeopleSoft has had its share of installations that went south. One was at W.L. Gore, the maker of Gore-Tex products, which sued PeopleSoft and a consulting firm over a bungled installation of a software package that was supposed to integrate personnel, benefits and payroll. In court documents W.L. Gore alleged the use of incompetent consultants, leaving the manufacturer "with a system that was in shambles," and a personnel department that was "in chaos." The consultants who installed the system plugged in phony employee names such as Donald Duck to test the software. But when the system went live, the fictional names couldn't be purged, W.L. Gore's attorney said. Thus, W.L. Gore was printing out paychecks for "employees" with names such as Donald Duck. W.L. Gore later hired additional consultants, who, at a cost of hundreds of thousands of dollars more, were able to fix the system. Conway attributed the debacle to poor installation, adding that the troubles were not the fault of the software package. At Cleveland State University in Cleveland, a student registration crisis ensued in 1998-99 as a result of a PeopleSoft implementation. Thousands of students who were unable to get their financial aid checks-or who received aid in the wrong amount-found themselves facing removal from the university because the school's computer system assumed they were in nonpayment of tuition. Other Midwest universities installing the software incurred woes of their own, and a group of seven Big Ten schools wrote a joint letter to PeopleSoft complaining about sloppy programming and inadequate testing. Conway believes the company has put these troubles in the rearview mirror. He points to the rapid adoption of Version 8. "We're signing up 150 new customers each quarter," Conway boasts. "If you're looking for the single most important factor in our turnaround, I'd say it was the product." About 1,500 customers are installing the completely Web-based Version 8, including more than 200 who are live with at least one module, and about 150 that plan to run their entire operation on it. PeopleSoft's customer relationship management software, a new offering, has Conway especially bullish. The company purchased Vantive, a CRM software firm, for $600 million about two years ago. And while it hasn't chalked up huge gains in the CRM race yet, PeopleSoft is making headway. "We enlarged the Vantive package's functionality, and within the first 60 days of launching the product last June, our pipeline of deals quintupled," Conway says. PeopleSoft by the Numbers (in millions of dollars)