Stability and Functionality for Process and Discrete Manufacturers
Written By: Predrag Jakovljevic
Published On: October 2005
Customer requirements for enterprise applications capabilities have changed dramatically. The demand for remote access application availability through different interfaces and devices has risen. To enable access through Web services, Web browsers, portals, popular desktop applications, mobile phones, and personal digital assistants (PDA), the presentation (client) and back-end (server) business logic needs to be separated. For more information, see Vendors Harness Excel (and Office) to Win the Lower-end of Business Intelligence Market).
For example, a substantial number of existing IBM iSeries-based enterprise resource planning (ERP) users are considering defecting to other platforms that are perceived as more modern. The days of the protracted sole commitment to one platform is leading to the demise of many independent ERP vendors. JBA, MAPICS, Infinium, interBiz, J.D. Edwards, Marcam, and so on and have scooped up and their platform specializations have been incorporated into companies willing to provide broader platform offerings.
This is not to imply, however, that these companies have been amalgamated into larger conglomerates, because of their failure to diversify outside of the iSeries market. Yet, the majority of the remaining and traditionally iSeries-based vendors are either planning or have already begun to emphasize other platforms over the iSeries product and business development. SAP and Oracle (which now includes J.D. Edwards and PeopleSoft) are approaching the platform seeking new opportunity, rather than for strategic purposes.
Infor, a global provider of enterprise business solutions to select, discrete and process manufacturing and distribution industries, recently had an industry analysts and press briefing event in Aventura (outside Fort Lauderdale), Florida (US), where the vendor shared its strategy on how it plans to differentiate from its peer competitors.
Infor had $360 million (USD) revenues in fiscal 2005, which ended on May 31, 2005, and projected revenues for fiscal 2006 (not including any possible acquisition) are nearing $600 million (USD). Infor's strategy, which is along similar lines to Lawson (see the Can Java Perk Legacy Enterprise Resource Planning Systems? Series), has been an evolving development environment for new products and the integration of existing applications and technologies.
To say the least, Infor has been an acquisitive company acquiring sixteen companies since May of 2002, including some both regionally and globally renowned ERP companies. They include (chronologically), SCT Process (see iProcess.sct Enters Golden Gate Opportunity), Brain AG (see How Much Wisdom Will BRAIN Bring to Agilisys?), and Future Three Software (see Examples of How Some Mid-Market Vendors Might Remain Within the Future Three (Dozen)?). infor AG, daly.commerce, Varial Software AG, NxTrend, Aperum Inc., IncoDev Software, Lilly Software Associates (see Lilly Software—Product Enhancements Remain Its Order 'Du Jour'), and Mercia, MAPICS (see Is MAPICS Getting the Magic of PLM?) were also acquired. Paragon Technologies (a former MAPICS' developer partner, for the rights to the crucial technological of the XA ERP product), Intuita Holdings (a UK-based provider of solutions for distribution industries), and most recently Formation Systems (a provider of product lifecycle management [PLM] solutions for process industries) were also successful acquisition targets.
Perhaps the reason Infor, once known as Agilisys, stayed aloof from the analyst community and market observers for some time, is that the company was figuring out and formulating a sound and coherent strategy. Initially, its early strategy appeared to be a series of impulsive, opportunistic acquisitions, seemingly with the idea of merely milking the install base.
However, after the exhaustive explanations of Infor's top management, there seems to be a method to the madness—each individual acquisition (at least lately) has apparently come after a thorough, disciplined, and metric-based evaluation and diligence process. There may even be a logical division between the value driven acquisitions and the growth-driven acquisitions. Infor's first six acquisitions were mainly conducted for their technology assets. The latter acquisitions were for likely to increase Infor's market share.
This is Part One of a two-part note.
Part Two will analyze the Infor model.
The vendor has long realized the conflict between the inexorable market dynamics and customer dynamics. Many enterprise applications are aged and functionally static, whereas corporate IT budgets remain constrained, thus even up to 80 percent of enterprise software vendors are not profitable, and consequently the rampant consolidation of vendors is reducing customer choices. Customers, on the other hand prefer to standardize infrastructure to reduce the costs of maintaining disparate systems. New functionality is required to remain competitive. However, if customers feel uncertain, confusion and delays in the buying decisions can occur. Historically, this forces customers to make buying decisions "trade-offs".
Surviving small niche providers can easily satisfy a customer's' requirements of industry specific, product functionality and industry domain expertise; however, they will hardly satisfy a customer's need to hire financially stable vendors and single-source/one-stop-shop providers with a global reach. Infor has been striving to cover for both these ends of the spectrum, with the bonus of adopting open technology standards, ongoing delivery of future products to meet the market demand, and achieving ever-shorter implementations, and guaranteeing the customer IT investment protection or enhancements. Namely, large vendors like SAP and Oracle, have stated their dedication to a partner network around their preferred proprietary platforms. Yet, they face a number of challenges in executing such a vision, since opening up their software for others to build potentially competitive products will require a major cultural adjustment.
Infor has lately invested a lot of mental effort and physical execution to distinguish its "assembler" strategy from a "consolidator" strategy. In other words, its strategy for acquisitions have been driven by the need for specific vertical requirements for the solution, and has not been a grab for the install base of distressed firms. Infor has been driven by the strategy to provide the "best of both worlds" functionality an domain experience.
The Infor Model
The Infor model revolves around three themes: "Focus, Assemble and Innovate". Infor's focus theme means it will target the essential challenges its existing and prospective customers face in discrete and process manufacturing and distribution segments. As a result, it chooses not to spread itself thin and consequently concede to trade-offs across multiple vertical markets ranging from professional services, telecommunications, banking insurance, health care, to utilities, and media, which is what the mega-vendors tend to do. For example, SAP proudly mentions solutions for well over twenty industries.
Its theme of "Assemble" revolves around the idea of delivering industry-specific solutions, globally, by professionals with deep industry experience. Infor cites over 700 product developers with, on average 8 years of tenure with Infor. It also has 500 professional service resources with, on average, 7 years at Infor. The assembler model begins with existing customers' and future market requirements, and acquisitions are then logically driven by the strategy of providing industry specific enhanced solutions to fill a void and to extend functionality and the benefits to these customers.
Infor's last theme, "Innovate", underlines the belief that the ultimate winner in the market will have to provide the following to the market:
- industry-specific solutions that solve essential problems that others cannot;
- deep domain experience coupled with industry-specific product functionality, which insures successful implementations;
- a fairly integrated suite of industry-specific products that satisfy current customer requirements; and
- an enhanced roadmap for customers' potential and likely long-term needs (for more information, see If Software Is A Commodity—Can You Still Win Some Competitive Advantage?).
As a result of this strategy, Infor has been able to integrate the industry-specific functionality of the products its acquired and leverage the savvy of the people its assembled. They will be showcased in the upcoming Infor .NET "center of excellence", where Infor's team will join the forces of the former Lilly VISUAL and MAPICS SyteLine product development teams. Also, the collective domain knowledge and some of its acquired "best-of-breed" products will be (or have already been) leveraged into the evolutionary so called "Super-Breed" products that will be leveraged across multiple divisions.
Some examples include the SupplyWEB supply replenishment product for automotive suppliers, which has already incorporated the best functionalities from Future Three and Brain (see The Pain and Gain of Integrated EDI. Part Two: Automotive Suppliers Gain). bizLinx, an e-storefront/catalog product is a similar undertaking coming from the Infor Distribution division. VISUAL WMS, a warehousing product will also result from Infor leveraging the assets from the former Lilly. The newly formed Infor SCP division, steming from the SCT Process and Mercia acquisitions, is another such example.
Given that the ongoing merger and acquisition (M&A) strategy should help drive Infor's broader Assembler strategy, there are some key strategic considerations the company must take:
Vertical expansion. Every acquisition has to add to the "vertical" story, and add product depth to a particular industry focus, such as technology "crossover" and cross-selling opportunities, and add scale to current verticals or allow penetration into adjacent markets. Acquisitions must align with the existing vertical focus of process manufacturing (e.g., food and beverage, pharmaceuticals, chemicals, etc.), discrete manufacturing (e.g., automotive, aerospace and defense [A&D], etc.), and wholesale distribution (e.g., building materials supply, industrial supply, etc.)
Geographic expansion. Acquisitions should improve global distribution and open new direct markets or indirect channels, improve competitive position in current geography, and leverage established partner relationships. As possibly the best example, MAPICS has increased the vendor's ability to sell in Asia-Pacific, where it had no previous presence (consequently now with forty-seven direct offices in seventy countries). Further, in the automotive market, customers' needs are still somewhat different in North America and Europe, which is why Infor acquired Future Three for the North American market and Brain for Europe. Accordingly, the Infor Automotive Essentials product suite has since been developed specifically to benefit manufacturers in the global automotive industry. Today, seventeen of the top twenty-five automotive suppliers worldwide apparently use the parts of Infor Automotive Essentials. Thus, the automotive discrete industry is an example of Infor's strategy to combine "best of breed" components into a "super-breed" suite. The same might hold in the future for leveraging and combining the SCT Process (now known as Agilisys) and acquisitions from IncoDev for disparate markets in process manufacturing within the Infor Process division.
Valuation expansion. Acquisitions should also improve Infor's corporate valuation profile in terms of additional scale (such as improved economies of scale), profitable growth (for example, the organic revenue growth must be enhanced while 20 percent or more profit margins should be maintained), or increased cash flow. In some instances Infor will also take out a direct competitor to improve its competitive position. Last but not least, as for technological compatibility, acquisitions of solutions that are based on Java,.NET, or iSeries platforms are preferred.
Thus Infor's acquisition process seems to be well-defined, disciplined, and proven. Infor remains primarily interested in value, and will not overpay. For example, typical acquisitions so far have been three to five times of projected cash flow that the acquired company will contribute. All these tenets of due diligence and Infor's acquisitions track record have allowed Infor to win at new auctions many times before, even though it is not be the highest bidder. All previous sellers are apparently ready to provide glowing references for future prospects.
This concludes Part One of a two-part note.
Part Two will analysis the Infor model.