Challenges
While
we believe that the strategy of Lawson Software, Inc. (NASDAQ:
LWSN) has been sound, many may wonder why the vendor has experienced recent
troubles. The reasons are multiple. First, it appears that sectors such as health
care, the public sector, and professional services have not been less recession-sensitive
amid the overall market malaise. Second, one should never discount fierce competition
from much larger vendors, like SAP, Oracle,
PeopleSoft, and ever more from SCT Corporation,
Geac, SSA Global, Scala,
Best Software and Microsoft Business Solutions.
Although Lawson might claim to hardly ever face the latter group of vendors,
citing that even if they ever compete, then one or the other side is likely
pursuing the wrong deal, the competition from these players will at least come
from the emerging markets that Lawson plans to tackle. All the above vendors,
while possibly inferior regarding the focus of service industries, will have
influenced some customers' purchase decisions by offering more comprehensive
horizontal product portfolios and by touting a superior global presence and
multinational product capabilities, which are still the hurdles for Lawson to
overcome. One should keep in mind though that in Lawson's largest market, health
care, and in the public sector, Lawson's third largest market, Lawson's customers
are inherently US-specific and will likely remain so. Also, within these target
verticals, Lawson claims that its competitors are not offering significantly
more comprehensive horizontal product portfolios.
Nevertheless, the vendor has yet to show that its strategy and technology can "travel abroad," especially to Europe where it needs to put down some deep roots if it is to fulfill its global ambitions. There is certainly no debate about the company's lack of a significant international presence. A measly portion of its total revenues comes from sales outside of the US—a proportion that has been static for the past several years. This is despite the fact that the company launched its international push over a decade ago with the establishment of a UK presence, and followed that with three other international bases (Canada, France, and the Netherlands) and the appointment of several affiliates in other international locations. Out of a global workforce of some 1,600, Lawson can only point to less than 100 international sales and customer service employees outside of the US. That kind of profile flies in the face of the accepted economics of the packaged software market, where a vendor of Lawson's size would at least have 40 percent of revenues flowing from outside of its domestic market.
On the other hand, it may point out how successful the company has become in the US in the past decade. What is puzzling is why that success has remained local. One explanation might be the fact that the health care sector is not well developed or is legislated differently in the markets outside the US, where Lawson still needs penetration badly. Moreover, less litigation-aggressive European stockholders may not fully appreciate and readily accept some of Lawson's strong products for the North American market such as its Strategic Ledger and EPM suites (though it could then imply that they would not appreciate PeopleSoft or Oracle either). Lawson's more global competitors like SAP that have been in non-US markets longer and offer more generic/horizontal functionality are nevertheless better attuned to these markets. Lawson's vertical focus is great for US health care or dealing with litigation-aggressive stockholders. In Europe, for example, this may not be a value proposition given their different legislation and user requirements.
This
is Part Five of a five-part note.
Parts
One and Two detailed recent announcements.
Parts
Three and Four discussed the market impact.
Competitive Pressure
Further,
many of Lawson's competitors may have an advantage due to their larger customer
bases, greater name recognition, and substantially greater financial, technical,
and marketing resources, in addition to the already discussed greater international
presence. Lawson also competes with numerous other software companies including
Internet software vendors, pure-play PSA (e.g., Evolve, Niku,
Changepoint, etc.) and HR players (ADP, Ceridian,
Kronos, Ultimate Software, etc.), single-industry
software vendors (e.g., Retek, i2 Technologies,
JDA, NSB Retail Systems, etc., in the retail
sector) and those companies that offer a specific solution that directly competes
with a portion of its more comprehensive product offering. Also, the functional
gaps are narrowing by the day, as in the case of teaming up of Infinium
(now part of SSA Global) and McKesson to provide a strong health
care solution). The technology is also becoming commodity, given that almost
all the above competitors now provide web-based solutions and portals as a matter
of course, as seen in Lawson's subdued emphasis on its product architecture
and more on its vertical focus of late.
Thus,
Lawson faces the challenge of continuing to invest in either developing or acquiring
new vertically-astute technologies, while holding back on operating costs. Despite
a cushy cash position of nearly $250 million, Lawson has much less maneuvering
space than its large archrivals. Its install base is still much smaller, which
leaves less room for up- and cross-selling newly developed applications. On
the other hand, it has been proven that acquiring a brand new customer comes
at a much higher cost (often without a profit margin) than by inheriting customers
through acquiring competitors (SSA Global being a recent poster child of profitable
expansion, if not yet PeopleSoft's acquisition of J.D. Edwards).
The
fact is that Lawson has acquired only a handful of new customers and the intellectual
property of a few innovative start-up vendors. Thus, the up- and cross-selling
to existing customers will require a vigorous job of creating the need awareness,
and a subsequent demand for these products. For example, the Apexion
solution that addresses logistical and regulatory issues pertinent to tracking
surgical devices is impressive, but how many hospitals are even been aware of
the solution? A mitigating factor, though, could be the fact that a large portion
of them are already using Lawson Procurement for materials management so that
there is a relationship with Lawson already in place.
Still,
Lawson has no choice but to keep its foes on their toes through an ongoing one-upmanship
game. For example, the analytics software has often failed to live up to the
publicity, since it has been complex to set up and run, it remains too generic
and does not address the needs of users in particular vertical sectors. To that
end, Numbercraft's software is closely tailored to specific
niches like retail and fast moving consumer goods (FMCG). Underpinning the software
is a number of algorithms within three separate components, which will likely
be renamed under Lawson: 1) Purchase Analyzer, which examines
the efficiency of cross-selling activities; 2) Seville, which
is aimed at FMCG companies that need to plan, manage, and measure the impact
of their sales and marketing activities; and 3) Cairo, a product
that helps analyze and discern why customers change their purchasing behavior.
However,
the Numbercraft acquisition also brings competition from a number of other similar
astute start-ups, like ProfitLogic or Knowledge Extraction
Engines (KXEN), and from well-established BI vendors such as Business
Objects and SAS Institute. However, Lawson has no
other option but to pursue further acquisitions in order to fill any outstanding
vertical fringe gaps, such as administration systems for the public sector or
proposals automation for certain project-oriented segments within the PSA sector
(which has been delivered by another ERP/PSA competitor Deltek Systems).
Although Lawson continues to invest significantly in R&D to deliver innovative products and initiatives concurrently and sometimes in advance of much larger competitors, its recent decision to move a portion of its non-strategic R&D offshore indicates the cutthroat competition, given that most of Lawson's ERP competitors are already engaging in certain levels of offshore development outsourcing. While the benefits of cost savings and localization cannot be debated, the lower cost can often be an enemy to innovation and expert matter knowledge, which can in turn result with lower quality. Thus, most R&D, and especially critical R&D, will remain in the US.
CRM Strategy
Further,
while Lawson's deliberate decision to not offer a manufacturing product suite
has been known, the company's CRM strategy has been less than clear-cut. The
vendor departed from its plans to develop the CRM functionality in house in
2000, and has partnered with Siebel Systems instead (see Lawson
Software's CRM and ASP Moves - Wise, Bold, Injudicious, Enforced, or Something
Else?). The partnership has however had only a limited success in the financial
institutions sector, like in the case of the failed alliance between J.D. Edwards
(now part of PeopleSoft) and Siebel. The reasons for the failure of that alliance
were be the system modifications and price tag, which were too extensive in
handling the needs of other verticals that often do not require a product-oriented
CRM system per se. Indeed, Lawson confirms it ended its reseller agreement with
Siebel because its customers, given the verticals they play in, were not demanding
a CRM solution from Lawson. An exception would be professional services, where
Lawson's Service Process Optimization solution already offers strong native
CRM functionality. Also, the service automation is a vertical where opportunity
management remains the focal CRM need and where the alliance with Interface
Software will often play its role. Still, while claims are true that the ERP
and CRM decisions are often made separately, vendors like SAP, Oracle, and PeopleSoft
will beg to differ. This may result in a number of lost opportunities in the
future, since certain customers prefer more complete native solutions from a
single vendor.
System Integration Partnerships
s
Lawson markets and sells its software and services solutions through a combination of a direct sales force, channel partners, and resellers. In addition to the direct sales teams, Lawson enters into strategic alliances with systems integrators and resellers to benefit from the partners' resources, expertise, and customer base. However, Lawson had been somewhat remiss to cultivate strategic relationships with system integrators that have also demonstrated vertical expertise. Integrators need templates, specific expertise, and other intellectual property furnished by the vendor, otherwise they will end up overly customizing the solution, which defies the purpose of an integrated approach in the first place. Lawson has recently made a point of concentrating its internal sales efforts on its traditional vertical markets and to additionally rely on partners to address and develop particular industry needs, which thereby expand its functionality footprint as well.
Additionally,
while Lawson has long provided professional services as it strives to ensure
high customer satisfaction (to get one client at a time and keep it forever'),
the recent announcements of vertically focused system implementation partnerships
(e.g., with CSC and Cap Gemini Ernst & Young for
the health care industry, and with Answerthink and Deloitte
& Touche for the service automation sector) should additionally bode
well for the company's continued market success. These partnerships might be
the sign that Lawson has begun to address its system integration partnerships
as strategic rather than opportunistic. Also, the partnerships with renowned
middleware/EAI, infrastructure and applications management vendors (e.g., IBM,
WebMethods, Sun Microsystems, BEA
Systems) will provide Lawson with readily available toolkits for making
deeper functional adjustments and customizations as well as the better scalability,
security and load balancing, where the company has traditionally trailed the
bigger competitors. Other strategic relationships also allow Lawson to expand
the product functionality through the offering of services that are not its
core competency, such as BSI TaxFactory for state and local
tax data.
Identity Crisis
Lawson has also sometimes been plagued by a sort of identity crisis. True, it is sometimes a favorable factor that Lawson has been perceived as a mid-market provider, which allays the perception of complexity associated with tier 1 solutions, but its offering is able to cater to the needs of larger organizations as well. However, the other side of the medal is the perception or even the fact of limited scalability and other perks that come with the large vendors' solutions. In the business logic layer of its three-tier architecture, Lawson has a proprietary 4GL (fourth generation language) to define business logic with a CASE tool that generates a COBOL executable. Lawson plans to use Java instead of the 4GL going forward, while the presentation layer already uses XML.
Further,
Lawson Application Server still has limited native transaction processing, while
for more robust transaction handling the customer can implement products like
BEA Tuxedo or Microsoft Transaction Server
(MTS). Also, the Lawson product does not scale well without add-on
software. As for load balancing, it can only be done statically within the product
(client talks to one specific application server based on the configuration
file), while dynamic load balancing must be handled via the products like BEA
Tuxedo. Still, the above shortcomings of the past have been vigorously tackled
through partnerships with the technology heavyweights like Sun and IBM.
User Recommendations
Lawson solutions are becoming ever more mature and scalable, and will continue to be incrementally enhanced. Evaluate Lawson if you are a mid-market and low-end tier 1 company (up to $2B in revenue) within the following service industries: financial services, health care, professional services, public sector, and retail organizations considering business applications (both Web-based and client/server network dependent). However, your company will also benefit from considering competitive offerings.
Conversely, you may want to check Lawson's willingness to develop, on the fly, a solution for your industry that is currently outside of its narrow focus but that it might target in the future (e.g., utilities). Lawson is willing to consider developing a product where there might be a synergistic partnership in the offing, with you benefiting with a favorably priced deal, while Lawson gets a foothold into a new industry.
Existing
Closedloop, Numbercraft, and Apexion customers looking to expand
beyond their point solutions into ERP/supply chain should consider evaluating
appropriate Lawson products. Conversely, Lawson users with a need for a strong
financial spending, planning, budgeting, consolidation, and merchandizing products
should consider the newly acquired solutions as high-priority contenders; although
it goes without saying that users should question the level of integration between
the products. Still, Lawson's existing relationships with BI vendors like Hyperion
may become strained because of inevitable functional overlaps, and the users
of these applications should clarify their options with Lawson's management.
Enterprises seeking a Web-based solution and out-of-box functionality that require only basic modifications or no reengineering effort at all may benefit from evaluating Lawson's ASP offering. Since any company planning to engage in e-business will want to have at least a basic financials or HR/payroll package and will need other components of an ERP suite afterwards, the easy deployability and integration promised by Lawson is a compelling reason to consider it as part of any e-business initiative within the above industries.
Still, although Lawson is generally competitive in implementation speed, total cost of ownership (TCO), and intuitive user interface functionality (the "Drill Around" tool for cross-application data access, and role-based "Self-Service Applications" on the Web), be aware of the fact that it is nonetheless an intricate product to implement with the key success factors that are applicable to all other major ERP products. These are often of a human nature. A robust, industry-focused product can help only so much without genuine users buy-in. A well-executed vertical offer needs to show a combination of partnerships with other software vendors, system integrators/consultants, and with industry-specific templates that reflect a deep understanding of the particular industry's idiosyncrasies.
As seen earlier, Lawson products are built upon proprietary, as well as industry-standard components. Over time, as industry standards evolve, the vendor will be required to redesign products to incorporate new industry standards. Thus, the users of older product versions should also approach Lawson and inquire about the required effort to upgrade to a new product that is browser-based, provides connectivity to wireless devices, is 100 percent Java-based, and has XML-enabled interfaces, as only some of the new major enhancements.