Lawson Software-IPO and Several Acquisitions After Part Three: Market Impact




Market Impact

Although Lawson Software, Inc. (NASDAQ: LWSN) has a long trail of success, throughout 2002 it encountered many simultaneous challenges. Still, after initially chalking up and experiencing hiccups, the vendor seems to be weathering the storm and getting back on track. While it is quite difficult to compete against the likes of SAP, PeopleSoft, and Oracle, it is certainly not impossible, as witnessed in the past (see Lawson Asserts Itself, Draws A Bead On Bigger Players).

In several aspects, Lawson Software could be regarded as an enterprise applications market anomaly. For one, at its peak in fiscal 2002, the company boasted annual revenues of nearly $430 million, but it still has only a slender (less than 10 percent of revenues) presence outside of its US domestic market. Further, it remains a major force in enterprise applications software, yet it does not cater the functionality to manufacturing sectors, and the vastness of its sales are thus derived from just a few service-oriented vertical markets—primarily health care and retail. Lawson Software introduced Web-based, three-tier client/server enterprise software for companies in the mid- to high-end markets (the Fortune 2000 companies). The vendor currently has over 2,000 customers, primarily in the health care, professional services, public sector, financial services and retail markets. It markets and sells its software and services solutions primarily through a direct sales force, augmented by a combination of channel partners and resellers.

Further, founded in 1975 by Bill and Richard Lawson and John Cerullo, and with headquarters in Minneapolis, MN, Lawson Software has experienced over two decades of being sort of a privately held family-run business. No fewer than twenty members of the kinfolk have been employed throughout the organization at some stage, with brothers Bill and Richard at the forefront, who still own the bulk of the company's stock, and who formerly held the titles of CEO and chairman respectively. Ownership, however, has significantly changed, with a professional management lead by the current CEO and president Jay Caughlan taking the helm when the company embarked on an initial stock market listing in 2001, which will be mentioned in more detail later.

As a result, the focus throughout the 1980s and 1990s at Lawson was to keep a tight control over costs and increase revenues and profitability. The turning point for the company came in the mid-1990s when the founders began working with the Chasm Group, a consultancy firm specializing in growth strategies for technology firms, to define a vertical strategy. After decades of conservative expansion and chasing almost every viable lead in the field, Lawson's growth then leapt into the 20 percent to 40 percent range as it first honed its focus on the health care and retail markets, and later, on providing a core set of financial and human resources (HR) management applications to professional services companies, which started in earnest in 2001. At the same time, the company was able to post a long unbroken run of annual net profits.

Lawson has also made forays into the public sector (e.g., state and local governments, K-12 education institutions, public authorities, etc.) and financial service (e.g., banks and insurance providers) markets, by signing on more than 140 public sector customers in the last three years or so. To that end, Lawson serves two of the ten largest (by population) US state governments (or five of the top twenty), and four of the twenty largest city school districts in the US. Lawson's software is in use at more than 1,300 schools with combined enrollment exceeding one million students. New markets that Lawson intends to seriously tackle as well are transportation and distribution, energy and utilities, gaming and entertainment, and publishing.

Being also peculiar on the technology front, although Lawson initially provided custom mainframe software for Burroughs and IBM installations, the company has continually recognized and anticipated new computing trends by broadening its platform support and adding products for the IBM System/38 in 1981, IBM AS/400 (now IBM iSeries) in 1988, UNIX in 1990 and Microsoft Windows NT in 1998. The company fully embraced open systems technology in 1985 by moving all development to a UNIX-based computer-aided software engineering (CASE) tool.

In 1993, Lawson was one of the first software application vendors to shift its market focus by delivering client/server applications. Lawson's cross-platform, open-database, component technology was incorporated into its flagship product, which was formerly called the LAWSON INSIGHT II Business Management System in the 1990s, and lawson.insight in the early 2000s. As a result, Lawson customers can operate on a number of operating systems (such as UNIX, Windows NT, and iSeries), database systems (such as IBM DB2, Microsoft SQL Server, and Oracle) and hardware platforms (such as Hewlett Packard, IBM, Sun Microsystems, and Windows/Intel). Further, customers can access the applications through various end-user devices, including personal computers, wireless devices, and personal digital assistants.

Also Lawson has leapt eagerly onto the intranet and Internet bandwagon, building Web functionality into all its products ahead of most competitors. Its current 8 Series application suites feature fully Web-based user interfaces, while its historical AS/400 user base now accounts for a minor part of revenues, partly because of the early provision of the upgrade path to UNIX. Despite the above praises, the company still faces challenges of either perceived or actual inferior scalability compared to its bigger competitors, which will also be addressed later in more detail.

This is Part Three of a five-part note.

Parts One and Two detailed recent announcements.

Parts Four will continue to discuss the market impact.

Part Five will cover challenges and make user recommendations.

Strengths

To summarize, until very recently, Lawson has cruised as a leader in the mid-to-high end market for financial management, human resources (HR), professional services automation (PSA), e-procurement, and retail distribution applications by continually betting on the following few creeds of success:

  1. Adequately broad footprint
  2. Architectural astuteness
  3. Industry-tailored solutions
  4. Hosting approach


1) Adequately Broad Footprint

Lawson has espoused a comprehensive horizontal non-manufacturing oriented enterprise software suite that automates business processes, enables collaboration among participants in the processes and delivers detailed analyses of the results of the processes. Starting with integrated financial applications and then adding HR and procurement functionality, Lawson's current core business applications provide the traditional ERP platform and functionality for handling financial management, HR management, procurement, and distribution while retail operations and SPO would constitute the front-office functions. These applications, which enable organizations to execute standard business processes in each of the above areas, as well as to provide functionality specific to the industries Lawson targets, include several components in each functional area, which Lawson licenses separately or bundles together as suites designed for its targeted vertical markets.

Most of Lawson's major horizontal product redevelopment work has either been completed or the framework has been established throughout the 1990s. In the mid 1990s, version 7 of the Lawson Insight Business Management System (recently renamed into Lawson ERP suite) was released, which comprised financials, supply chain, and procurement modules, along with integrated workflow technology. In 1999, the company acquired Ijob of Edmond, OK, a maker of Web-based HR software, which automates employee training and benefits tracking. That was the first major acquisition and a harbinger of the slew of acquisitions post IPO in the 2000s. Although the company has long sold an HR product in the US, European users had to wait till the end of the 1990s for a fully integrated module within the product release 8.0, while the Canadian payroll capability happened in 2001. The other hole in an otherwise fully-fledged ERP offering, a manufacturing module, has never been on the agenda. Although the company has built links to other systems, it currently has no major partner in the field and concedes that it has deliberately stayed away from many manufacturing-led deals.

Lawson Financials Suite

As a prominent example of the core suite's component, Lawson Financials Suite aims at giving customers the ability to create and track financial and accounting data across multiple companies, languages, currencies, and books of accounts. These applications provide broad analytical capabilities and integrate the customers' financial management processes with other Lawson core business applications. The financials applications are comprised of several principal components, including the following:

  • General Ledger

  • Project and Activity Accounting, including Billing and Revenue Management

  • Lawson Budgeting & Planning

  • Enterprise Consolidations

  • Asset Management

  • Lease Management

  • Grant Management

  • Multi-Book Ledger

  • Average Daily Balance

  • Accounts Payable

  • Payables Management (it extends the functionality of the Accounts Payable application for high volume invoice matching, as purchase orders and receipts can be matched to invoices for Lawson and non-Lawson applications, and it is integrated with Lawson Procurement,

  • Accounts Receivable

  • Encumbrance Accounting (it provides a rule-based budget allocation solution, enabling an organization to evaluate real time budget information prior to making spending decisions)

  • Cash and Treasury Management (the module is provided through the relationship with XRT)

  • Financial Reporting Self-Service

  • Strategic Ledger (it captures data that would not typically be maintained in an organization's general ledger to measure profitability and business performance in multidimensional detail)

Thus, the product exhibits many features that would either be key differentiators or at least could give the bigger tier 1 offerings a run for their money. These would be the Strategic Ledger module, the ability to segment chart of accounts, the Attributes Matrix, an unlimited hierarchy of accounts, integration with Smart Notification, Enterprise Knowledge Management, the Enterprise Performance Management suite, and the connection to desktop programs and to the Enterprise Reporting module.


Lawson Human Resources Suite

Further, Lawson Human Resources Suite is integrated with the financials applications to automatically update the financial reporting functions for changes in employment and payroll. The HR applications are comprised of several principal components, including the following:

  • Benefits Administration

  • Payroll

  • Absence Management

  • Personnel Administration (it tracks workforce data including current employees, open positions and job history, education, and other employee information; administers employee training, orientation, and re-certification programs; and manages employee health and safety records for compliance with health and safety policies)

  • Workforce Analytics

  • Employee and Manager Self-Service

  • e-Recruiting

Like its financial management counterpart, the product exhibits many features that would either be key differentiators or at least could give the bigger Tier 1 offerings a decent challenge, particularly the Workforce Analytics, E-Recruiting, Career Management modules and a strong transaction processing system.

Supply Chain Management

While Lawson does not have a full-fledged supply chain management (SCM) offering in terms of planning and execution part and parcel modules, it features strong requisitions and procurement capabilities for its industries of focus. Through the Armature and Numbercraft acquisitions (For details see Part Two), the vendor has further bolstered the merchandizing part of the equations that matches the leading retail point solutions, and that traditional ERP vendors that are targeting the retail sector are yet to deliver. Procurement is also Lawson's lead product for the health care industry, which relies on Lawson to help manage shrinking margins. Lawson delivers pre-built integration to more than forty health care vendors and the ability to easily integrate with additional suppliers. With the Apexion acquisition, Lawson should now even be able to track the flow of materials into the operating room.

Thus, Lawson Procurement Suite aims at automating and streamlining the operational and administrative procurement process, promote adherence to purchasing policies, assist businesses in negotiating pricing for supplies, lower materials and services costs, and improve inventory practices. These applications are comprised of several principal components, including the following:

  • Requisitions

  • Purchase Order

  • Inventory Control (with a support for use of wireless handheld devices for data collection)

  • Requisitions Self-Service

  • Vendor Self-Service

  • Vendor Portal

  • e-Procurement (it provides purchasing management services with automated requisitioning, approval, receiving, reconciliation, invoice payment, and posting to a user's general ledger, while integrating with Web-based exchanges, suppliers, and manufacturers)

Lawson's solutions also facilitate collaboration among customers, partners, suppliers, and employees. As an example, within its e-Procurement module, workflow and business processes can include outside suppliers and business entities for different steps in order approval. The application is Web deployable, making the functionality remotely accessible.

Lawson Distribution Suite provides sell-side order management, warehouse fulfillment, customer invoicing, and accounts receivable in an integrated solution. The distribution applications are comprised of several principal components, including the following:

  • Order Entry

  • Work Order (it manages the fulfillment of orders that require assembly, providing scheduling, order component, and cost adjustment capabilities)

  • Warehouse Management

  • Sales Analysis

  • Billing, Franchise Management (it is an integrated franchiser-to-franchisee solution that manages contracts, loans and royalties for the franchisees)

  • Customer Self-Service

Lawson Retail Operations Suite

Last but not least, Lawson Retail Operations Suite solutions are built for high-volume retail enterprises and encompass a range of activities, including the management of item information, category planning and review, assortment, pricing, promotions, warehouse replenishment, multi-channel ordering, store replenishment, forecasting and order determination. The principal components of the retail operations applications include the following:

  • Merchandising—assists category managers in the management, definition, planning, promotions, pricing and reviewing of product categories.

  • Lawson Library—serves as a data management hub for all of a retail customer's systems, including back office, merchandising, warehouse replenishment, distribution and even non-Lawson applications.

  • Supply Chain—provides an automated system for warehouse management and replenishment, as well as centralized control of multi-channel ordering.

  • Store Operations—extends the Lawson Supply Chain to each of a customer's retail location and contains a number of components to simplify and automate forecasting, replenishment, inventory control and analysis.

In addition, Lawson provides an underlying integrated platform that enables proactive notifications, transaction subscriptions, "In Context" knowledge management (KM) and collaboration, random sampling and transaction monitoring, and automated workflow and approvals. This is in tune with Lawson's recently minted mission statement of "focusing on services organizations and delivering deep vertical functionality, so that customers can achieve workforce optimization resulting in superior service to their customers and in competitive advantage."

Lawson believes a key concept for workforce centric organizations and a new way to do business with and amongst your employees, customers, and vendors lies in:

  1. Contextual collaboration (i.e., discussion and knowledge are centered around business points, and integrated and designed for most effective use and leverage, while comprehensive knowledge of business point is constantly maintained)

  2. Knowledge capture and leverage (i.e., the users should capture structured and unstructured data as a natural part of doing their work, while the system should provide secured sharing of knowledge to ensure a continuum of service, and both actions will increase the organization's "IQ" by evolving the knowledge rather than re-creating it)

  3. Both structured and unstructured data are captured (i.e., the system collects documents, e-mails, transactions, multimedia files, etc. It then maintains a highly searchable repository for quick and fast access to information and automatically tags all documents for future keyword searches).

Lawson Enterprise Performance Management (EPM)

With an important note that Lawson Budgeting & Planning should represent a very significant addition to this suite when it is released, the current Lawson Enterprise Performance Management (EPM) suite tracks over 200 pre-configured business metrics, including industry-specific metrics that enable users to view and analyze key operational performance measurements and use graphical, user interfaces to navigate through relevant information stored in the customer's transactional system. As described above, Lawson EPM aims at enabling advanced financial and operational reporting, event driven notifications, transaction monitoring and random sampling, and proactive business intelligence (BI). It is a suite of role-based, pre-built reporting options and analytical tools to report, analyze, and examine key metrics from both Lawson and non-Lawson sources.

This is the evolution of what Lawson offered in the 1990s as former Value Management Solutions products including the Analytic Suite and Financial Performance Management. These value-adding solutions brought together real-time financial and non-financial metrics into a picture of organizational performance. The Analytic Suite was integrated into an Enterprise Analytic Warehouse, which gave key decision-makers visibility of the business and financial processes. The former Performance Indicator Suite would anticipate the most commonly asked business questions for each targeted executive role, then uses online analytical processing (OLAP) and algorithms to provide the answers and pre-populate the role-based data marts.

Key products of today's Lawson EPM suite, some of which have already been mentioned earlier, include:

  • Workforce Analytics

  • Strategic Ledger

  • Enterprise Reporting (leveraging both Lawson Reports and Crystal Decisions' Crystal Reports and Crystal Enterprise report creating and distribution capabilities)

  • Scorecard—it uses OLAP to provide analytical vertical and business process performance measurements, and customized tools for company-wide balanced scorecard initiatives, allowing collaboration among employees that are viewing and analyzing the same data. Lawson Scorecard provides context to analysis by combining key metrics with relevant information from any other source. Visual signals such as traffic lighting, graphs, and key performance indicators (KPIs) help managers identify and take action on emerging issues and exceptions.

  • Data Marts—a full set of pre-packaged performance measures for Lawson Financials, Human Resources, Procurement, and Distribution suites, leveraging both Hyperion Essbase and Microsoft OLAP servers.

  • Analytic Architect—features predefined dimensions to create subject-specific data marts from relevant financial, transactional and operational data from employees, customers, internal processes and financial systems, which eliminate the need to define and program custom data marts.

  • Smart Notification—monitors data, filters out noise and delivers important information to users, which allows them to act quickly and intelligently to optimize organizational performance. In April 2002, Lawson acquired Keyola, a small Florida-based company, whose main product was Smart Notification, a BI-like tool that pushes information to users based on preconfigured rules. Initially sold as a stand-alone product, Smart Notification has meanwhile become integrated as a standard feature in all Lawson products. It enhances the capabilities of Lawson's applications to automatically deliver event-driven notifications across an organization's enterprise and instantly push key information to the right people.

Lawson Smart Notification, the configurable, collaborative solution delivers information that is user defined and can be received via personal digital assistant (PDA), e-mail, voice, text messages and wireless devices. Smart Notification should empower users by automatically sending them information important to their work, and by letting users define what information they want and how they want it delivered. Like an instant manager product, it offers rich content and actionable information to help Lawson's customers make better decisions faster. Its strength is in more than just pushing a simple line item and without the ability to query and report on that information. Rather, Smart Notification enables users to launch an application from an e-mail by providing a hyperlink to an OLAP cube and ability to use real time data. While most BI tools make several queries to a pre-staged data source to obtain information for the requested report, despite the data often being more than a week old. Once the report is in hand, the user still has to sift through it to glean anything significant such as a large drop in sales. Even then additional reports need to be run in order to discover which product line is responsible. Conversely, Smart Notification is designed to get to this last stage in one click.

This concludes Part Three of a five-part note.

Parts One and Two detailed recent announcements.

Parts Four will continue to discuss the market impact.

Part Five will cover challenges and make user recommendations.

 
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