The TSC Streetside Chat: Oracle's Executive Vice President Sandy Sanderson Jr.

After being written off as an also-ran software maker that concentrated on the slowing database market in the mid-1990s, Oracle(ORCL Quote - Cramer on ORCL - Stock Picks) staged one of the more impressive comebacks in recent memory. While making a big bet early that software would eventually be run over the Internet, Oracle forged into the now white-hot business software market, a strategy that has paid off in spades for both its revenue growth and its stock price.

On Jan. 16, the company hosted a "B2B Day" at its Redwood Shores, Calif., campus to introduce new software that helps companies collaborate with suppliers and customers over the Internet, allowing them to operate more efficiently. This software is the cornerstone of Oracle's much-touted 11i e-Business Suite, a collection of complex business-software programs designed to streamline a corporation's business processes.

Specifically, Oracle introduced four new software products. Oracle Supply Chain Exchange helps companies manage the manufacturing process; Transportation Exchange helps simplify the transportation logistics of shipping and receiving products; Product Development Exchange streamlines the process of collaborating with partners; and Exchange Marketplace aids in the planning and design of products.

TSC Senior Writer Joe Bousquin spoke with Edward J. "Sandy" Sanderson Jr., Oracle's executive vice president and the person responsible for its software applications business, about Oracle and its plans.

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Joe Bousquin: Sandy, tell me about your responsibilities at Oracle.

Sandy Sanderson: I probably do four things. First, I'm responsible for all our products' industries. So I have responsibilities for all our customers in automotive, high tech, also process industries like [consumer packaged goods], energy, retail, chemical. I have all those customers. ... Second, I have responsibility for consulting in Oracle. We have about a 13,000-person consulting organization. I'm responsible for that. Third is I have Latin America. I lived in Latin America when I was growing up and always had a passion for that part of the world, and am always amazed at what they're able to do. You know the U.S. sales force at Oracle or any company is always complaining that they want more help, make it easier, and then people down in Latin America just figure out how to make it happen.

And then the last thing is I have responsibility for the B2B initiatives in the company and as a result what you're seeing today. I've been very involved in ... our major exchanges. For example, GlobalNetXchange, RetailersMarketXchange, Covisint are all exchanges within my area of responsibility.

Joe Bousquin: So basically the message that Oracle has really been spreading over the last 18 months, two years now is that as far as [business software] applications are concerned, you really want to be, and see yourselves, as the one-stop shop. Do customers want one-stop shopping?

Sandy Sanderson: Well, I guess two points. We do give companies an alternative. ... They don't have to buy the e-business suite. If they want Internet procurement or advanced planning or sales automation, they can get that from Oracle.

Joe Bousquin: And when you say suite you mean a collection of computer programs. And each unit within that collection of programs performs a different function.

Sandy Sanderson: Exactly. And we're talking about the e-business suite from a functional perspective. We're talking about ERP [enterprise resource planning], so it's included in there. ERP being financials, manufacturing, order management, human resources. And the CRM [customer relationship management], which is marketing, sales and service. And then what we've done in our e-business suite is we've brought all of that together, ERP and CRM, so it's integrated from both a business perspective and a technical perspective, and again it provides you with a single view of the customer no matter what the interaction with the customer is.

We're having real success. Compaq is an example [of a company] that just recently bought our e-business suite. And what companies are seeing is that, regardless of the economic situation ... the competition is still out there, number one. The Internet is out there, and companies are figuring out how to leverage the Internet to drive different-shaded solutions or a competitive advantage in the marketplace. ... And they're also recognizing that they have less money to spend and they need to do it more quickly. So some interesting dynamics have come together that together make the e-business suite a great answer. Because what we've done in the e-business suite is we've built all the integration in there already. "So some interesting dynamics have come together that together make the e-business suite a great answer."

Joe Bousquin: Now, your competition would say that no one company can do it all. It's just too big. Business processes are too complex for one company to have the knowledge set to be able to build all the different specialized applications to serve that enterprise or corporate customer. What makes you guys think you can do it?

Sandy Sanderson: But what would you expect from those guys? When they're sitting there and they have a procurement solution for the indirect side. I mean, what would you expect from them?

Joe Bousquin: Procurement being buying office supplies over the Internet, basically.

Sandy Sanderson: Exactly. ... Ariba's (ARBA Quote - Cramer on ARBA - Stock Picks) an example. Their claim to fame right now is around procurement and indirect products. ... We have 3,000 developers. ... In some cases in our development area, probably for ERP we have more people developing products than some of these companies have in their total company. ... We have customer advisory groups that advise us. We work very closely with companies like GE (GE Quote - Cramer on GE - Stock Picks), Motorola (MOT Quote - Cramer on MOT - Stock Picks) and others to gain input from them about what they want to see in their product.

Actually, these exchanges are great examples of how we work very closely. You see that at GlobalNetXchage, which is really made up of Sears(S Quote - Cramer on S - Stock Picks), Carrefour, J. Sainsbury, Kroger (KR Quote - Cramer on KR - Stock Picks), companies like that. And we're working directly with them and you heard them today say it's been a great opportunity to influence the direction of Oracle's products. ...

Third, we've implemented those solutions within Oracle. ... So in the bottom line, the fact that we've got integration already built in, really is a way to save tremendous costs and get the value out of this much more quickly.

Joe Bousquin: You have the 3,000 [software] developers and Oracle is obviously a major force within software. You guys can develop these things and, obviously, the marketplace is pretty confident that you can, given your stock's performance. But does that in some ways make Oracle a jack of all trades but a master of none?

Sandy Sanderson: No, I don't know why you would conclude that a jack of all trades is a master of none. We are world class in supply chain. We are world class in customer interaction center, just to give you a couple of examples. I think we're pretty world class in all of them. But just by the sheer fact that we're in the entire e-business suite, we're addressing the client's entire business system or value chain. Joe, when you think about the competition, there's naturally going to be somebody, some company that focuses on a particular area that might do something better than us. And if that customer needs only that solution, and that very precise point solution area, integration is not a big deal, and time's not a big deal and that kind of thing, then they ought to consider that company. But if they're really looking for an integrated solution, they can literally outsource integration to Oracle, and it already comes with the package and it doesn't cost them what it would if they had to do their own integration because that integration was built into our product, the cost of that gets spread over a lot of clients. So it's a marginal cost to them.

We bring a different solution to the marketplace. That's why I use the Jack Welch portfolio management approach. You know we're going to be No. 1 or No. 2 [in each market]. And frankly, in some areas where we are No. 1, it could happen a year from now, we fall back to No. 2. But in another area where we're No. 2 because of the energy and focus we've put into it, we'll be No. 1. But in the end what we've done is change the game because we've made the competition around the e-business suite and not just that point solution. "We have a pretty strong presence out there in our competitors, you know, Oracle alumni."

Joe Bousquin: I saw an article this morning where [Ariba CEO] Keith Krach was talking about procurement, and I think the question was who was Ariba seeing out there as competition. Was it seeing Oracle? And Keith Krach said that since [former Oracle president] Ray Lane departed [in June], you guys had, quote "vaporized."

Sandy Sanderson: (Laughing) I would respond by saying 66% application growth in Q2 and I would respond by saying 55% or 50% application growth for the year. ... You know people are going to say whatever they want, but that in a company like Oracle, we have a pretty strong presence out there in our competitors, you know, Oracle alumni. And so we have been an academy to some degree, but I think it's a real tribute to the talent that we have in the company. You look at the people who report to Larry and the average tenure is 10 years. You go to the next level below that, so I report to Larry, look at the people who report to me, and you look across the company and the average tenure of those people is nine years.

Joe Bousquin: How long have you been here?

Sandy Sanderson: I've been here six [years], so I'm a junior guy. ...

Joe Bousquin: (Laughing) That's not what they told me when they set up the interview.

Sandy Sanderson: (Laughing) So you know, people are going to latch on to what they think the story is. Is that the debate that we want to have, that since an individual left, a company has vaporized in a particular area? Or do you talk about what the product is and what the real story is? I think the real story is we've got over 700 implementations, customers out there, and Internet procurement. I think that's more substantial than Ariba's got and we're demonstrating 66% growth across all our applications.

Joe Bousquin: So obviously Oracle is bigger than just one person. It's bigger than Larry Ellison. But one, Ray Lane left this summer and then when Gary Bloom left just a couple of months ago, people did start talking about, "Wow, is Larry going to drive out all the top people and then run the business by himself?" And you know, Wall Street wasn't happy with that. So in a lot of ways, Larry himself was damned if he did and damned if he didn't. Because before, he wasn't engaged enough and now he's hands-on and day-to-day and meddling with the company and the executives. ... From your point of view, what is it like to work for Larry Ellison?

Sandy Sanderson: Most the time it's fun. I've never seen a guy that can handle the breadth of issues, the depth of those issues in running a business, and then understanding what the relationships are, the different pieces together and what that means for our customer and what that means for Oracle. I mean, he really is phenomenal in that regard. He has an incredible, intuitive problem-solving capability. ... When he looks at issues and where he lands on the answer invariably is right.

You know there's just been enough times that he's demonstrated that he was doing the right thing. Couple of data points, one again was back in 1995. Windows 95 comes out. It's all about client server, it's all about the workstation, and we made the decision that we were going to go Internet. ... You know Larry came out with the network computer. I don't even remember what year that was now. I'm embarrassed. I should know. And people thought this was crazy. But now if you look at your phone, you know I could check stock quotes on my phone. I've got my Blackberry pager. ...

This is not Windows. This isn't Windows CE. The operating system is irrelevant. So he called that right as well. He's a guy who has the tremendous capability of taking all the different aspects of a problem and really thinking about what the solution is, and thinking about the solution in ways different than other people. OK, that's one thing. And it's a wonderful experience to be around that. Along with that comes the very demanding CEO of a company.

Joe Bousquin: The times when it isn't fun, does he ever get in your hair just a little bit too much for your taste?

Sandy Sanderson: What I've found is that when you have discussions with Larry and he's got a pretty strong opinion, that can be challenging if your view differs from his. ... Obviously you need to understand his perspective and think about what he's telling you because he just might be right, which is typically the case when he's dealing with an issue. But also I've found that when you come back with a logical argument, Larry listens. ... I can't think of a time where I said, "This is crazy." I mean, the guy's a talented leader of the company.

As far as the management of the company goes, in this business you're going to experience change. And sometimes that change can be disruptive. But I don't think that in the end anybody was overly surprised within the company about the kind of departures that we've had recently. Larry's been very engaged with the company. I can tell you that over the last year, my job hasn't changed. [There was no] confusion around my job when either one of those guys left; in fact, if anything, it became clearer. Also, people at my level and my contemporaries in the company, it often means more responsibility for them. "Our pipelines are strong, we're well-positioned from a products perspective, and so it's all about execution."

Joe Bousquin: And have you taken on more responsibility?

Sandy Sanderson: Yes, for example, I took on the products responsibility, which was one of Ray's primary focuses when he was here.

Joe Bousquin: Let's get back to talking about applications, which fits into what we saw today. First off, you talk about competing with the point solutions [specialized software companies] guys. Well, today you're firing a shot across I2's (ITWO Quote - Cramer on ITWO - Stock Picks) bow with supply chain software, you're firing a shot across Descartes Group's(DSGX Quote - Cramer on DSGX - Stock Picks) bow with transportation software, you're firing a shot across Agile's (AGIL Quote - Cramer on AGIL - Stock Picks) bow with collaboration software.

Sandy Sanderson: And Ariba. And E.piphany (EPNY Quote - Cramer on EPNY - Stock Picks).

Joe Bousquin: So you're basically saying, "Here world, take us on or we're going to take you on."

Sandy Sanderson: That's certainly one way to view it. I think what we're really saying is that we're taking on our customers. ... And what do our customers want? Customers need solutions at Internet speed, they need robust solutions from a business perspective that not operate only within a firewall within that enterprise, but collaboratively with their suppliers and their customers. That's what we focus on. We've gone after what we think is important to the customer; by doing that, obviously you take on certain challenges. ... But we've demonstrated for 21 years now, I think it is, pretty strong financial performance and we think we're well-positioned. ... Clearly, in my time, I've never seen us better positioned as a company. [Editor's note: Ellison founded Oracle in 1977.]

Joe Bousquin: By some analysts' estimates, as far as applications growth goes, you were talking earlier about 66%, which pleased many of the analysts on Wall Street. But there's still some discussion out there that in order to make the numbers for the year, you guys will have to do a billion dollars in applications sales in the [fiscal] fourth quarter [which ends in May]. Now, Oracle's quarters are, or its year is, back-end loaded, in that most of your business does come in the fourth quarter.

Sandy Sanderson: I wouldn't say most, but a good portion of it is.

Joe Bousquin: Can you make those numbers on the applications sales this year?

Sandy Sanderson: You know, it's a big hill to climb. Every year we climb that hill. I expect we'll do it again. Our pipelines are strong, we're well-positioned from a products perspective, and so it's all about execution. We've got stability and maturity in the management team, people running the businesses. You look at the people running the business, we've all been in place for quite a while and we expect to execute. So the fourth quarter will be a challenge, but every fourth quarter's a challenge.