Oracle CEO Hurd Hammers On Economic Themes

NEW YORK—Oracle CEO Mark Hurd repeatedly drove home the point that global economic conditions and financial returns are making it increasingly difficult for chief executives to drive revenue growth through innovation. Unless, that is, they use cloud computing to free up IT budgets, he argued during a keynote presentation during the Oracle CloudWorld New York conference Wednesday.

Indeed, the stock market has reacted violently to recent economic news—most recently, estimates that economic growth in China, the world’s second-largest economy and a driver of the global economy, has slowed to a 25-year low, the BBC reported Tuesday. The International Monetary Fund said that China's economy grew by 6.9% in 2015, compared with 7.3% a year earlier. The IMF also predicted that the world economy will grow 3.4%, down from an October forecast of 3.6%.

Hurd noted that while corporate profits among members of the S&P 500 have risen approximately 5% since 2008, revenues have grown by around just 1%. Thus, the inescapable conclusion is that companies are raising profits by cutting down on expenses.

Cloud computing, perhaps the unlikeliest of economic superheroes, comes into play because it allows companies to shift a significant chunk of their IT spending away from things like maintaining hardware and software used to develop and test new applications, and put it toward creative technology projects, such as creating a new mobile app for customers.

That shift toward innovation is desperately needed, according to Hurd, because 80% of overall IT spending is on such maintenance. “The percent spent on innovation is de minimis,” he said. Companies that don’t switch to the cloud, therefore, will be at a competitive disadvantage to those companies that do shift their cost structures to allow for more innovation.

Hurd further noted that testing and development represents about 30% of global enterprise IT spending today, and that most of that is wasted on routine tasks, like setting up a server for a developer to use. If that type of spending alone shifted to the cloud, he estimated, corporations would save $300 billion in aggregate costs, freeing more money for innovation-seeking. “There is no reason for that not to be in the cloud,” Hurd said. “All of it will move to the cloud.”

Cloud computing also inherently provides its customers with more innovative features more quickly than companies can offer using their own developers. For example, Oracle has some 2,000 programmers developing features for Oracle HCM cloud. “You can’t compete with your competitor who has that army behind them,” Hurd said.

Companies that embrace the cloud subscription model shift the cost of owning data centers, hardware, databases, and application development to cloud providers like Oracle. “We do virtually all the work. The assets move to us. The innovation engine is with us,” Hurd said.

Whether it’s better mobile apps for salespeople in the field or better customer-facing apps, that kind of innovation from cloud providers is an increasingly important way for companies to differentiate themselves to a consumer segment that will represent 50% of the economy in just four years: millennials. “The pressures to modernize are significant,” Hurd said.

Returning to the macroeconomic theme he sounded earlier, Hurd noted that the pressure on CEOs to cut costs “is extreme.” But CEOs are under equal pressure to drive growth quickly. The average tenure of a US CEO is around 4.5 years, which means they don’t have a lot of time to prove their mettle. “There are very few times when you can take out costs and increase innovation at the same time,” he said. Cloud computing represents a “generational opportunity to get more innovation at a lower cost, and to do it more simply.”

Of course, nothing is done well in a silo, which is why Hurd insisted that the breadth of Oracle’s cloud portfolio makes it best positioned to help companies. The hundreds of applications that companies have must work in tandem so that employees and managers can get timely and accurate information about their business. “Each [application] has to be best of breed, but it has to be a suite,” Hurd noted.

That is why Hurd predicted that by 2025, 80% of the cloud applications market will be in the hands of just two cloud providers—and that Oracle will be one of them.

For CEOs of today, the question is whether they will have their seats long enough to show significant growth. “You can’t thrive unless you survive,” Hurd said. “You don’t have a lot of time to change things.”

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