Lawson Software Means Business With PSA and IPO

Lawson Software Means Business With PSA and IPO
P.J. Jakovljevic - July 31, 2001

Event Summary

On June 29, Lawson Software, a provider of Internet-enabled business applications for service industries, announced that it had signed a definitive agreement to acquire Account4, Inc., a provider of Web-based Professional Services Automation (PSA) software. Through this acquisition, Lawson hopes to expand its software solution for professional service organizations and professional service divisions. While the terms of the deal were not disclosed, the acquisition was completed on July 16.

"This acquisition supports Lawson's strategy to acquire businesses with technologies and products that enhance and expand our current offerings," said Jay Coughlan, president and CEO of Lawson Software. "This is a good strategic fit. Account4's open, Web-based solution is compatible with our architecture, and it addresses the critical business needs of professional service organizations and professional service divisions, a target vertical market for us."

The acquisition should enable Lawson to offer more automated functions to professional service organizations, including forecasting and planning, scheduling and assignments, skills and resource management, time and expense reporting, project management and invoicing functions. The solution will reportedly be available as a comprehensive and integrated product suite, or in component parts. The acquisition coincides with the July 9 PeopleSoft launch of PeopleSoft Accelerated Enterprise Service Automation (ESA), the Internet-based solution designed specifically for mid-market service organizations. Included in the fixed-price solution, PeopleSoft Accelerated ESA includes PeopleSoft's Human Resources Management Systems (HRMS) and PeopleSoft's Contract, Expense, Financial, Project and Resource Management modules; implementation services provided by PeopleSoft Consulting or PeopleSoft Consulting Alliance Partners; and technical and end user training provided by PeopleSoft University.

The acquisition also comes only over a week after Lawson Software, which has remained private for more than a quarter of a century, filed to go public against the tide of tech companies that have pulled their Initial Public Offerings (IPOs) because of sour market conditions. The market has seen about 120 businesses pull their IPOs since the start of the year, according to According to its Securities and Exchange Commission (SEC) filing, Lawson expects to raise $200m for general corporate purposes, capital expenditures, debt repayment and possible acquisitions. Lehman Brothers, JP Morgan, US Bancorp Piper Jaffray and Fidelity Capital Markets will handle the IPO.

Lawson's total revenues in the fiscal year ended May 31, 2000 grew to $312.9 million from $264.5 million in 1999. In fiscal 2000 it reported a net loss of $3.3 million, mainly because of nonrecurring charges from issuing warrants to a technology partner and the repurchase of stock options from a former employee. Lawson received a $40m first round of funding from TA Associates and St. Paul Venture Capital in May. Lawson did not disclose how many shares it plans to sell or the price range. That information will come later in another filing. Also, a date for Lawson's debut has not been set yet, but the company has applied for a NASDAQ listing under the symbol "LWSN".

Market Impact

Lawson continues its 'arms race' with the likes of PeopleSoft. As in the case of CRM, SCM or e-procurement opportunities, the major applications vendors have also acted on the opportunity to encroach into the PSA space. However, contrary to other ERP adjacent areas, the PSA market is still evolving, with fragmented offerings and with product leaders that are not that financially sound either. As a matter of fact, a vast majority of pure PSA vendors are start-up weaklings.

Also, a few recent vendor announcements in the PSA market have indicated further morphing and expansion of the scope of PSA. Several vendors have even tried to distance themselves from the acronym, migrating to new catchy names (e.g., Service Process Optimization or Strategic Workforce Optimization) that should indicate a deeper (e.g., with optimization logic similar to SCM software that should enable allocation of people to projects based on multiple criteria such as utilization, profit, revenue, customer satisfaction, or employee preference) or broader (e.g., to include all business processes linked to knowledge workers working in corporate IT departments, professional services organizations, and/or R&D operations) framework for services delivery.

We believe the future will bring similar moves as well as news of other ERP vendors tackling the PSA space. As PSA software integrates and automates core processes related to business development, service delivery and administration for any organization that generates revenue through billable hours, the need for it is apparent particularly in these days of economic downturn when all major consulting outlets are forced to justify the utilization of every individual consultant.

In addition to supporting organizations that generate revenue through billable hours, PSA software also benefits corporate IT and other internal service departments that track time for internal charge-back purposes. Recently, there has been awareness within corporate management of a need to regard their IT departments as if they were internal professional service organizations that should compete with external counterparts based on service delivery, expectation levels and cost.

A number of ERP vendors, particularly those with strong native HR modules and ASP offerings have already intruded the PSA space. The early adopters' feedback has been that ERP vendors offer competitive functionality pertinent to workforce planning, project execution and cost and revenue management, resource scheduling and time & expense reporting, while they are not very natively strong in, contract bidding functionality compared to pure PSA players. Beside Lawson and PeopleSoft, we were aware of the following vendors' endeavors in the area: SAP, Oracle, J.D. Edwards, Epicor, Microsoft Great Plains/Solomon, to name some.

While Lawson and PeopleSoft have the advantage of an early market entry and recent PSA product enhancements both in-house and through acquisitions and alliances, they will still face tough competition from a number of the native PSA players like Niku Corporation, Evolve, Novient, Portera and Business Engine that have already created market visibility. The scenario is somewhat similar to the CRM, SCM or e-procurement markets: pure PSA players will emphasize their relevant product completeness and depth with the appropriate price tag, their expertise in handling unstructured data, and will spread the FUD (Fear, Uncertainty, and Doubt) about immature ERP/PSA offerings and the danger of buying irrelevant modules in an ERP/PSA bundle. On the other hand, ERP vendors will try to sell their holistic, back-office integrated paradigm, which does not require any applications interfacing or integrating.

PeopleSoft and Lawson seem to have realized that merely extending their Web-enabled self-service HR applications as PSA would not suffice. To that end, in addition to recently beefing up its product offerings through internal R&D, acquisitions and product alliances (see PeopleSoft: Giving Fervent Hope To The Market And Jitters To The Competition) PeopleSoft and eRoom Technology Inc. have recently teamed up to integrate PeopleSoft Enterprise Service Automation (ESA) with the eRoom Digital Workplace platform, creating a collaborative workplace for service organizations. eRoom's Digital Workplace extends the functionality of PeopleSoft ESA by providing a central online meeting place and repository for project information, including proposals, project plans, milestones and budgets.

The eRoom solution enables employees, customers, suppliers and partners to share ideas, review schedules and assignments, resolve issues and make real-time decisions. That should render PeopleSoft ESA rather competitive, although it has already experienced impressive growth in the first six months it was on the market. Since general availability of PeopleSoft ESA in September 2000, more than 75 customers have reportedly licensed the ESA solution. PeopleSoft claims to have increased its ESA customer base by 200% with more than 23% of those customers listed among the Fortune 250.

By gobbling up the PSA expert vendor and embedding it into it product suite, Lawson might have its true counter value proposition some time in the future. The addition of Account4 should provide current and potential customers the facility to fine-tune their service delivery process. The move might also illustrate Lawson's need of going public now. The reasons for doing it during current IPO-adverse times might indicate the need for more capital and the management's confidence in its business model. While being privately held and independent of Wall Street volatility has allowed the company to direct its investments for development of its desired core competencies, going public is necessary in order to keep up with huge R&D investments its bigger competitors can garner without the need to turn to confidence depleted venture capitalists and also in order to retain the workforce by offering them the stock options.

User Recommendations

Professional service organizations and organizations with hefty IT staff are advised to familiarize themselves with the offerings of all relevant players. While the clear-cut PSA functionality scope is still a moving target, one should look for the following common functions: business development, opportunity management, qualification management, resource scheduling, time and expense reporting, delivery management, knowledge management, and analytics/business intelligence. From the technical standpoint, the solution should be flexible enough to accommodate both mobile and stationed users; in addition to this, both groups will typically be divided into users who need access to the bulk of the application, and those who enter more narrowly defined data. At this stage, there are only a handful of vertical solutions and ready-made interfaces to third-party systems like airlines, hotels, and credit card companies.

Although this is an evolving area with not much implementation experience accumulated so far, users should be aware of similarities and differences between PSA and ERP. PSA products are much smaller and simpler in scope than their ERP equivalents. Also, most PSA systems lack a built-in suite of development tools; therefore we expect much less room for complex customizations with source code change. However, the flexibility to tailor the system on the fly without code change ramifications remains crucial. Moreover, the "legacy systems" that PSA replaces often either do not exist or are manual practices; therefore we expect minimal data conversion. All the afore-mentioned suggests that PSA implementations should be much shorter and generally less traumatic than ERP.

On the other hand, professional service organizations tend to have an unstructured work style that would challenge any organized approach to project management. Professional service managers can typically commit much less time than their counterparts in manufacturing. These managers are the people who would be "key users" on an ERP implementation, who would attend frequent working sessions in a project war room, and in many cases even work full-time on the implementation.

In PSA implementations, client managers will likely serve only as sources of information and validation, but not as full-time team members. Therefore we anticipate PSA projects should have more of a turnkey approach. To that end, look for exceptionally strong reporting capabilities and end-user training within the product offerings.

Existing Lawson customers should evaluate the Account4 platform as a way to add value to their existing PSA applications bearing in mind the impending integration effort now or waiting for generally available integrated solution by Lawson. Professional service companies considering new solutions PSA should place Lawson on their list. These companies should consider the added functionality from this acquisition for an addition to their requirements list. Some professional service companies might find this combination as one holding significant value in terms of both cost savings and increased efficiency. Additionally, enterprises seeking a Web-based solution and out-of-box functionality with little or no re-engineering effort may benefit from evaluating Lawson's ASP offering.

More comprehensive recommendations for both current and potential Lawson users can be found in Lawson Software Expands Vertically As Well and Lawson Software: Self-Evidently Thriving on Innovations.

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