Lawson Software-IPO and Several Acquisitions After Part Two: Retail and Professional Service Initiatives

Event Summary

According to officials of Lawson Software, Inc. (NASDAQ: LWSN), the return of year-over-year license revenue growth was driven by a strong quarter from the health care vertical (for details, see Part One). The company signed 153 deals in the quarter. Of the total licensing activity in the fiscal 2004 first quarter, 58 percent came from new customers and 42 percent from existing customers. During the quarter, the company signed nineteen new customers at an average selling price of $730,000, compared with twenty-three new customers at an average selling price of $333,000 a year ago. The company signed four software licensing agreements valued at more than $1 million. Significant or strategic wins included: Catholic Health Initiatives, Trinity Health, and Sherman Health in the health care vertical, W. S. Badcock in the retail vertical, and Orange County Transportation Authority in the public sector.

The still recovering financial results might indicate that Lawson's vertical focus has not necessarily been an impervious strategy against the economic slowdown and increasing competition. The company has had to trim its workforce a few times, sometimes even by a double-digit percentage, in an effort to cut costs. The most recent took place a few days before the above financial report, when Lawson announced it would cut 82 jobs or 5 percent of its workforce and that it plans to transfer some development work to India, where many competitors have increasingly been finding a cheap labor heaven. The company has lost a fifth of its workforce (down to over 1,500 now) since before its first major round of layoffs in June 2002, when it laid of 110 employees or 5 percent of its erstwhile workforce. The worst layoffs, however, took place in September 2002, when the vendor cut over 230 jobs, or 12 percent of its employees. Still, by reacting to current realities and adjusting its operational plans quickly to support the firm's strategic goals, along with aligning everyone's actions toward those goals, the company has demonstrated impressive management and financial discipline.

Despite the above hardships, Lawson sticks to its focus on selected vertical markets, but going forward the tenets of that focus will likely be more finely tuned. Namely, the vendor has lately accelerated development in part through a number of appetizing acquisitions of its traditional vertical functionality to ensure continued success in its target industries. Taking the corporate performance management (CPM) tune to heart, the company is focusing its product, marketing, and sales efforts on its vertical core strengths, specifically health care, retail, and the professional services industries. This section details the retail and professional services industries.

This is Part Two of a five-part note.

Part One detailed recent announcements including Lawson's health care vertical initiatives.

Parts Three and Four will discuss the market impact.

Part Five will cover challenges and make user recommendations.

Retail Vertical Initiatives

Another vertical segment that has been expanding during the last few years within Lawson's offering and is breathing down the dominant health care segment's neck is retail, with over 350 customers. Lawson's retail customers include five of the top ten US-based retailers, eight of the top twenty apparel retailers, seven of the top twenty-five grocery chains, twenty-three of the top one hundred restaurant chains and twenty of the top one hundred specialty chains. To maintain the momentum, in July, Lawson announced the acquisition of Numbercraft Ltd., a privately held consultancy and provider of sophisticated analytic applications for retailers and consumer packaged goods (CPG) companies. The acquisition should add possibly unique quantitative measurement and analysis capabilities to the Lawson Retail suite. The acquisition of Numbercraft was effective immediately, and terms of the deal were not disclosed. The impact of the acquisition on the company's fiscal 2004 operating results is expected to be immaterial.

Numbercraft, based in Oxford, England, has developed a strong following among leading retailers and consumer goods companies in the UK by using advanced mathematics to help convert large volumes of customer, product, and sales data into actionable information. The company reportedly counts the four largest grocery retailers in the UK and several of the world's largest consumer goods companies among its customers. Lawson plans to continue Numbercraft's successful consulting business for both the global retail and CPG markets. Additionally, Lawson plans to introduce several packaged analytics applications based on Numbercraft's technology, which will supposedly integrate with both Lawson and legacy retail applications. The first two standalone variants of these applications, Store Performance InSight and Advanced Category InSight, are generally available now.

As for the in-house products' delivery, earlier in July, Lawson announced the addition of Lawson Retail Comp Store Metrics Data Mart and Lawson Store Operations to its ever-broadening suite of retail applications. The latest additions were in response to retail executives' struggles to better manage store level profitability and were specifically designed to address the special mission-critical needs of the retail industry. According to Lawson, these two products go to the heart of understanding the financial and operational health of a retail enterprise with automated ordering, forecasting, inventory control, and analysis of vital information to improve net profitability and increase revenues. They also further expand Lawson's Retail solution that encompasses store operations, supply chain, merchandising, human resources, marketing, financials, analytics and distribution.

Lawson Store Operations supports the managers and employees through automated forecasting, advanced replenishment, inventory control and analysis, whereby enabling accurate inventory visibility to anticipate rather than react to fluctuations in inventory levels on the store shelf. Lawson Comp Store Metrics Data Mart also has possibly unique retail functionality and logic built into the analytic engine with business intelligence that automates the comp store reporting and analysis process. Additionally, together with these, Lawson also unveiled Lawson Enterprise Integration, a new, open interface integration application. Lawson Enterprise Integration uses XML APIs (extensible markup language-based application programming interfaces) that should allow Lawson customers to communicate in near real-time between retail operations and other enterprise applications. Within Lawson's own Retail Suite, this integration format connects Lawson's Retail Operations suite to the Enterprise Operations (back-office) set of products.

Further in the retail sector, Lawson claims to have already provided its customers with a broad set of leading merchandising and back-office applications designed to maximize net margins. Namely, at the beginning of 2003, Lawson announced its Merchandising 2.10 and the addition of Enterprise Knowledge Management for Retail and Portfolio Management for Retail applications to its suite of applications.

The Merchandising 2.10 application aims at increasing the efficiency of all merchandising activities through improved planning, assortment, pricing, promotions, and order and inventory management. It consists of 1) category management/merchandising functionality that includes assortment management, promotion planning, category planning, strategic pricing and performance monitoring, and 2) supply chain functionality that includes replenishment and store logistics. Enterprise Knowledge Management for Retail provides a way to capture, organize and reuse retailers' intellectual assets. It also manages knowledge of daily operating activities by capturing personnel policies, operational procedures, and documentation of other repeatable processes, such as labor-intensive activities associated with store associate hiring and training. Portfolio Management for Retail helps prioritization of IT projects and investments, based on their strategic value to a retailer's business, which should reduce project redundancy and increase the value of existing IT investments.

The above delivery was in great part a result of the July 2002 acquisition of certain assets of Armature Holdings Ltd., a then bankrupt provider of merchandising/category management and supply chain management (SCM) solutions for retailers, consumer goods manufacturers, and wholesalers. The Armature suite had been focused on grocery and hard line retail sectors, specifically those sectors with complex product/item definition and rapid inventory management. The assets acquired included all software applications, related trademarks and technologies for a price in the range of 5 million pounds sterling. Armature's corporate office was in Leeds, UK, and the company had fifty-four employees. The former Armature product suite has been integrated with Lawson Solutions for Retail, and the new solutions have been renamed Lawson Merchandising.

With the Armature acquisition, Lawson has enriched its grocery and hard-line retail expertise like automated three-way invoice matching capabilities, as well as its European foothold through a handful of former Armature clients. With the most recent Numbercraft purchase, moreover, Lawson is adding very sophisticated applications for analyzing customer behavior and retail revenue streams, designed to help retailers address both revenue and margin challenges.

Teaming with Sun Microsystems

Finally, as to refute sporadic claims of its applications' limited scalability, in July 2003 Lawson said it would team up with Sun Microsystems, Inc. to meet the complex demands of large and high-transaction volume retailers. Together, Lawson and Sun pledge to provide scalable, high-performance solutions to the high-transaction volume retail market and enable retailers to pre-test Lawson solutions on Sun systems to solve integration issues, help speed time to deployment and more quickly realize a return on their IT (information technology) investment. Many of Lawson's retail customers manage hundreds of thousands to millions of inventory movement transactions alone that require reliable solutions that drive costs out of their operations and open new profit opportunities. Since the majority of Lawson Retail customers run on the Sun platform, this enhanced relationship should enable Lawson to extend the benefits to existing customers and to new ones. To that end, Lawson and Sun claim they will:

  • Offer highly scalable, high-performance solutions specialized for large and high-transaction volume retailers, including the entire Lawson Retail Enterprise solution, which encompasses Lawson Retail Operations, Enterprise Visibility, and Enterprise Operations suites running on SunFire Enterprise Server and Solaris UNIX platforms.

  • Feature Lawson in Sun's Retail iForce Center, which simulates real retail business environments and customer scenarios. It allows enterprises the opportunity to see how proposed solutions can perform with minimal investment, in a risk-free environment, and using the latest in Lawson and Sun technology and end-to-end computing platforms. Joint customers will also be able to build custom proof-of-concept demonstrations and architectural blueprints tailored to their own IT environment.

  • Roll out a global marketing and sales effort to promote the strengths of their customer value proposition for large and high-transaction volume retail.

Professional Service Automation Initiatives

Although some might regard professional service automation (PSA) as another up-and-coming vertical market, Lawson regards it as a product, rather than a vertical market, called Lawson Service Process Optimization (SPO), which others may also be referring to as project portfolio management. Lawson SPO is being managed as a product, although Lawson still has professional or consulting services as an emerging market vertical along with financial services and other strategic markets.

In any case, regardless of whether it is a market or a product per se, the vendor has been doing combined in-house product delivery, bundled with a number of value-adding partnerships. To that end, in April, Answerthink, Inc., a business and technology consulting firm, and Lawson announced a partnership designed to make it easier for corporate IT organizations to use Lawson's Service Process Optimization (SPO) applications, including Services Automation, Smart Notification, and Portfolio Management, to implement IT best practices from the knowledge base of The Hackett Group (an Answerthink company). As part of the partnership, Answerthink and Lawson announced the development of tools utilizing Answerthink's Business Process Intelligence (BPI) approach that will enable Answerthink consultants to directly correlate Hackett best practices into implementation decisions in Lawson's SPO software.

The Hackett Group is the world leader in global benchmarking and best practice research, offering guidance backed by quantitative research into best practices at nearly 2,000 client organizations, including 97 percent of the Dow Jones Industrials. The partnership announcement was an extension of a strong existing relationship between the two companies, given Answerthink has been an active Lawson partner for the past three years and has extensive experience implementing Lawson solutions. Answerthink's BPI knowledge base already includes tools enabling consultants to integrate Hackett best practices in HR, finance, payroll, and other areas as part of their Lawson implementations. As a key element of this approach Answerthink has created an extensive repository of tools that enable its consultants to integrate specific Hackett best practices as they implement individual business applications. These application-specific tools include implementation and configuration guides, current state questionnaires, process flows, and fit/gap requirements matrices. The BPI tools have been customized to address individual vendors' application suites, Lawson being one.

At about the same time and along similar lines, Lawson and Deloitte & Touche LLP announced a joint initiative designed to help CIOs assess the business value of their IT investments and align resources with their organization's strategic business goals. The initiative will supposedly offer CIOs a formal assessment process to analyze their organization's IT operations, project portfolio, budget and resource allocation. Deloitte & Touche's recently formed CIO Advisory Services practice area would perform the IT value management assessment using a framework to assess an IT organization across several factors from alignment with the enterprise to portfolio analysis. This approach could greatly assist CIOs in beginning to accurately measure the value of IT to the enterprise. To that end, Lawson's SPO applications, including Services Automation and Portfolio Management, will frequently be used in providing this analysis. Namely, Lawson Services Automation should help IT organizations determine whether IT investments are aligned with their organizations' business objectives. It can also help to automate, organize, and manage projects, resources, utilization, time and costs. Lawson Portfolio Management can track all projects, investments, and assets to help prioritize and rank initiatives that will deliver the greatest return on investment. It also helps IT organizations identify ways to manage budget reductions, and is integrated with applications like Lawson Work Request and Enterprise Performance Management.

The goal of the assessment is to provide CIOs with information that will enable them to transition their IT organization to a more strategic role in creating enterprise value. Specifically, the assessment could allow IT organizations to focus on IT strategy and financial management, communicate the value of IT operations and provide IT performance visibility to senior management. Upon completion of the diagnostic assessment, Deloitte & Touche could then assist with the implementation of Lawson's SPO products by providing the necessary integration, process, and change management consulting services.

Lawson's SPO applications aim at helping IT departments manage the full life cycle of IT activities by providing functionality in six key areas: 1) portfolio/performance management; 2) demand management; 3) project management; 4) resource management; 5) financial management; and 6) time and expense (T&E) management. The above consulting alliance deals follow on the heels of the February announcement that Lawson had shipped version 5.1 of its Services Automation application suite, whereby the enhanced offering introduced a new application called Portfolio Management. Services Automation 5.1 also significantly enhances applications for time and expense reporting and work request management.

Lawson Time and Expense is a customer-configurable Web application with support for multiple currencies, corporate credit card integration, and customer-defined approval process. It comes fully integrated with Lawson Smart Notification to encourage prompt entering of employee time and expense information. Lawson Time and Expense is available in English and French and includes other multinational features such as support for the definition and use of international tax, such as value-added tax and GST. It supports international calendars and work requirements by allowing the definition of time and expense policies and procedures for multiple countries. Lawson Work Request 5.1 makes it faster and easier to enter service and project-related requests. In particular, smaller work requests can be handled more efficiently with the latest version, thanks to a minimal approval process and straightforward assignment processing.

Alliance with Interface Software

Finally, as to round up its PSO offering, Lawson formed another new strategic alliance at the end of 2002. Under the terms of the agreement, Lawson and Interface Software, makers of InterAction, a CRM solution for professional services, will co-market their products. Professional services organizations trade exclusively in intellectual capital, since rather than focusing on the manufacture, sale and distribution of physical products, services organizations sell their knowledge and domain expertise. Thus, they require different tools to manage the business development process and to differentiate themselves from their competition (see Professional Services Are Catching-up With CRM).

To that end, Lawson's SPO solution helps to address these needs with its Opportunity Management module through the capture and reuse of prior work, matching the skills and experiences of a firm's workforce to the engagement's requirements, managing the services pipeline and providing service revenue forecasting. Once engaged, Lawson's SPO solution helps enable services firms to effectively collaborate and manage the service delivery process with its clients building client loyalty and strategic relationships that increase the likelihood for additional business opportunities.

InterAction supports services organizations' strategic growth and client retention initiatives by aggregating, managing and delivering to professionals the relationship intelligence they need to uncover new business opportunities, cross-sell services, bolster client loyalty, and enhance client service. Relationship Intelligence is a firm-wide asset that reveals the unique and complex connections between people, companies, relationships, experience, and expertise. Thus, through this alliance, Interface Software and Lawson have recognized the complementary nature of their solutions and have been working together to co-market their products to professional services organizations.

This concludes Part Two of a five-part note.

Part One detailed recent announcements including Lawson's health care vertical initiatives.

Parts Three and Four will discuss the market impact.

Part Five will cover challenges and make user recommendations.

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