Lawson Software: Self-Evidently Thriving on Innovations

Vendor Genesis

Lawson Software provides Web-based, client/server enterprise resource planning (ERP) software for companies in the mid- to high-end markets (the Fortune 2000 companies). Its customers are concentrated in the financial services, healthcare, professional services, public sector, retail, manufacturing, and wholesale distribution industries.

Founded in 1975, and with headquarters in Minneapolis, MN and London, UK, Lawson Software has experienced outstanding (over 35%) growth over the last four years. It is a privately held company and the ninth-ranked ERP vendor with revenues of $270 million in fiscal 1999 and more than 1,800 employees in 20 offices worldwide. Lawson, founded by Bill and Richard Lawson and John Cerullo, 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 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 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 is incorporated into its flagship product --the LAWSON (formerly LAWSON INSIGHT II) Business Management System. The company was one of the first to Web-enable its product in 1996. It commercially deployed Web Self-Service and role-based "Self-Evident Applications" in 1997, and in 1998 delivered a pre-packaged performance measurement product.

In 1999, the company acquired ijob of Edmond, OK, a maker of Web-based HR software, which automates employee training and benefits tracking.

The LAWSON Business Management System is comprised of six integrated process suites. These suites support and facilitate the execution of the following business processes: Human Resources, Financials, Procurement, Supply Chain, Collaborative Commerce, and Enterprise Budgeting.

In addition, Lawson offers Value Management Solutions products including the Analytic Suite and Financial Performance Management. These value-adding solutions bring together real-time financial and non-financial metrics into a picture of organizational performance. The Analytic Suite is integrated into an Enterprise Analytic Warehouse, which gives key decision-makers visibility of the business and financial processes. The Performance Indicator Suite anticipates the most commonly asked a business question for each targeted executive role, then uses OLAP and algorithms to provide the answers and pre-populate the role-based data marts.

The underpinning of Lawson's technologies is its Self-Evident Applications (SEA), the concept of delivering application functionality to light-client, browser-based desktops. The main idea behind the SEA concept is to simplify the use of software so that most people within an organization can use the product, rather than a select few. While conventional client/server applications are forms- or transaction-driven, the Self-Evident Applications are information based, which means that users can view them on dynamic and personalized Web pages, with minimal training requirements.

Another recently released product component, LAWSON Open Component Solutions, allows users to access, view and interact with enterprise information using one of the following technologies: Java, Microsoft Active-X, Lotus Domino, or Javascript/HTML.

Lawson Software serves its worldwide base of more than 2,800 customers through direct sales, support and affiliate locations in North America, South America, Europe, and Africa. The company derives approximately 15% of its revenues outside of the North American market.

We expect Lawson Software to continue to expand on its commitment to assist businesses in cost control and strategic planning. In addition, Lawson will continue to evolve its vertical strategy in the financial services, healthcare, professional services, public sector, retail and wholesale distribution industries and to strengthen its position as a leading provider of Internet/intranet solutions.

Vendor Strengths

  • Lawson has continually invested significant R&D dollars (~18% of total revenue) in order to deliver innovative products, often in advance of much larger competitors. The company was one of the first to Web-enable its product in 1996, commercially deploy Web Self-Service and role-based "Self-Evident Applications" in 1997, and deliver a pre-packaged performance measurement product in 1998. Furthermore, LAWSON Business Management System runs on a broad set of the most popular platforms and databases.

  • Lawson has demonstrated very tight industry focus (LAWSON is regarded as one of the Top 3 ERP systems for Healthcare, Retail, and Professional Industries). Being privately held and independent of Wall Street pressures has allowed the company to direct its investments for developing its desired core competencies (e.g., over 200 employees, a number unrivaled by much larger ERP players, are dedicated to developing the product for the healthcare industry).
  • Lawson has displayed a focus on product quality and customer satisfaction in its mission statement: 'to get one client (at a time) and keep it forever'. The company achieved an enviable customer retention rate of 96% (its very first customer from 25 years ago is still on its customers' list). Lawson is generally competitive in speed of implementation, total cost of ownership (TCO), and user interface functionality (the "Drill Around" tool for cross-applications data access, and role-based "Self-Evident Applications" on the Web).

  • While we cannot disclose more detailed financial data because it is a privately held company, we can state that Lawson Software has been a viable company and has exhibited a very strong long-term financial track record.

Vendor Challenges

  • Lawson currently does not offer a manufacturing product suite, although approximately 19% of its customers are manufacturing companies. This may result in a number of lost opportunities in the future, since certain customers prefer more complete solutions from a single vendor. Moreover, the company has only recently released its first CRM modules and plans to develop the remaining CRM functionality in house. We consider this at least 12 months late-to-market.

  • Lawson has achieved very low brand awareness and has an undeveloped channel outside of the North American market. This is further aggravated by the fact that the healthcare sector is not well developed in those markets. Moreover, less litigation-aggressive European stockholders may not fully appreciate and readily accept its Strategic Ledger and Financial Performance Management suites.
  • Remaining privately held deprives the company of the significant capitalization for marketing, R&D, and acquisitions, available to its publicly traded competitors. Furthermore, more conservative CFOs will cast a wary eye on Lawson's immunity from financial statement disclosure, given that corporate viability increasingly gains in importance for software selection procedures.

Vendor Predictions

  • Despite a highly competitive environment, we predict that Lawson Software will reach $500 million in revenues within the next 3 years (65% probability), based on its expertise and stronghold in relatively untapped industries (See Vendor Strengths).

  • Due to increasing competition from larger vendors with significant resources, we believe that the company will have to decide to go public within the next 12 months (75% probability). Failing to do so will put Lawson behind at least two other vendors in healthcare and retail markets respectively by 2003 (70% probability).

  • Within the next 3 years, 25% of total Lawson revenues will come from outside of the North American market (60% probability). During the same time, more than 40% of its total revenue will come from license revenue (60% probability).

  • We believe that, within the next three years, the Company will have to either acquire (35% probability) or partner with (40% probability) a vendor whose products would significantly enhance its manufacturing capabilities. The potential candidates could be Symix Systems, SSA, or QAD. The least likely scenario (25% probability) is that Lawson will develop the product internally.

Vendor Recommendations

  • Lawson should put the wheels into motion to becoming a publicly traded company without any further delay. The company is by far the largest privately held ERP vendor, and we believe that the independence of Wall Street volatility has played its purpose.

  • Lawson should further penetrate the Small-to-Medium Enterprises (SME) market segment in the following ways:

    Expand business in its existing customer base, by upgrading older versions of software and by offering new extended ERP modules and enterprise applications.

    Further expand its global presence, both by opening new offices and developing new affiliate partnerships. Lawson should capitalize on its alliance with IBM and seek licenses from native sources in markets outside of North America.

    Deliver more new, focused and pre-configured vertical solutions, and offer application outsourcing to make Lawson attractive to smaller, resource constrained smaller enterprises.

  • Remain committed to new product features and the introduction of additional enhancements (See Vendor Challenges) and to enhancing offerings for manufacturing, possibly through strategic product alliances with competitors. While we respect the company's intent to deliver a fully integrated in-house developed CRM product suite, we believe that the company should seriously consider an appropriate partnership or acquisition, in order to preempt significant product release delays. The example of SAP resorting to that route is a case in point.

User Recommendations

  • We generally recommend including Lawson in a long list of an enterprise application selection to mid-market and low end tier 1 companies (with $100M-$2B in revenue), based on a very deep understanding of customers' needs within the following industries: Financial Services; Healthcare; Professional Services; Public Sector; Retail; Wholesale Distribution; and Publishing.

  • Organizations seeking a Web-based solution and out-of-box functionality with little or no re-engineering effort may wish to evaluate Lawson.

  • Lawson should be included on a short list in any selection within the following industries: Healthcare, Retail, and Professional Services Industries.

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