Bring on the Giants Can Lawson Make the Leap
"Minnesota nice'' can coexist with Midwestern moxie. Just ask software company Lawson.
For years, the St. Paul, Minnesota-based business applications vendor was content to produce competent software and limit its sales pitch to small and midsize firms. But with the arrival of chief executive Harry Debes two years ago and a doubling of the company's size through a merger with Sweden-based software firm Intentia International, Lawson has raised its sights and amped up its ambition.
Debes declared that Lawson would become a credible alternative to Oracle and SAP, the business software giants that dominate the large-firm market. And one of his first campaigns in this battle would be the growing, turbulent HR software arena.
Though Lawson's annual revenue for human capital management applications is less than a tenth of leaders SAP and Oracle, Debes and his lieutenants are aggressively pushing to be the field's top vendor. Debes swelled the ranks of his U.S. sales force by some 60 people—or about 33 percent—in part to tout the company's new multimillion-dollar set of HR applications that will launch by year's end.
Lawson's goal to be No. 1 in HR software may be lofty to the point of being laughable, but it comes at an intriguing time in the industry. Oracle's acquisition of PeopleSoft in 2005 and questions surrounding its coming Fusion applications have generated uncertainty in the market, even as smaller vendors are growing quickly on the sales of "talent management'' applications such as performance management software.
Then there's the shift to "software as a service'' delivered via the Internet and the disruptive effect of HR outsourcing, where companies farm out major chunks of their human resource operations and technology. Yet another wild card is the arrival of Workday, the business software firm launched in 2005 by PeopleSoft founder Dave Duffield.
"Customers are looking to have
one or two major software vendors. They really don't want to the integration themselves."
--Christa Degnan Manning,
analyst with AMR Research
"The market is wide open,'' says Jason Averbook, chief executive of consulting firm Knowledge Infusion. "This gives vendors such as Lawson and Workday a new day to compete and change the game.''
In effect, Lawson sees a chance to play the role that PeopleSoft had in the 1990s—the smaller business software player big enough to serve major clients. But that's possible only when Lawson's 3,600 employees show enough attitude to go after those customers, Debes says. When he first arrived in 2005, one of Debes' first priorities was to kick the sales force into high gear and knock on doors that had been conceded to Oracle and SAP. Debes' background includes a stint at business software firm J.D. Edwards, where he routinely had to fight those giants as the smaller kid on the block.
"If you're going to compete with Oracle and SAP, you can't be laid back,'' Debes says. "You have to be competitive.''
Company had 'lost its way'
Lawson was founded in 1975. Over the years, it became known for its medium-sized business clientele, a focus on service-sector customers and its strong position in the health care industry. Earlier this decade, the publicly traded company's growth prospects and viability as an independent software firm became question marks. Oracle and SAP threatened to move down-market into Lawson's traditional turf of midsize organizations. Lawson already faced competition for such dollars from rival Ultimate Software and other vendors.
Meanwhile, Lawson had a bug dilemma. About three years ago, Lawson customer Banner Health needed to install thousands of patches to software problems annually, says Dennis Dahlen, senior vice president of finance at the 27,000-employee, Phoenix-based health care provider. "The quality of the code was just terrible,'' says Dahlen, whose organization began using Lawson software for finance chores in 2002 and later added Lawson HR and supply chain applications. As disturbing to Banner Health was the way the problems persisted as Lawson shuffled the officials in charge of the software quality.
In response to its various challenges, Lawson took dramatic action in 2005. The Lawson board of directors decided both to shake up management and join forces with Intentia, which had struggled financially but offered a complement to Lawson with its European customer base and focus on software for manufacturing, distribution and maintenance tasks. Lawson ponied up $480 million of its stock in the transaction. The joint company boasts 4,000 customers in 40 countries.
Lawson also said Debes would replace then-CEO Jay Coughlan in June 2005. Debes had more than two decades of executive experience in the business software world, including a stint as head of U.S. sales and services at JD Edwards. What he found at Lawson, he says, was a company that didn't quite believe in itself.
Lawson had "kind of lost its way,'' Debes says. "The first thing I think it had lost over the past couple of years was its self-confidence.''
Debes felt the firm's products were solid enough to serve Fortune 500 companies, but was surprised to learn that Lawson often didn't pitch its wares to big organizations. Part of the issue, he says, was a cultural politeness that those from Lawson's home state sum up in the phrase "Minnesota nice.''
An outsider who was born in Germany and carries an Australian passport, Debes talked up assertiveness at the all-staff meeting his first day on the job. "I told them, 'As of today, irrespective of your position, everybody's in sales,' '' Debes recalls.
Employees quickly embraced a more aggressive posture, he says. One sign of the progress was Lawson signing retailing granddaddy Wal-Mart as an HR software customer a few months after Debes' arrival.
In addition, Lawson has made solid progress on its bug problem, Dahlen says. He says the company was addressing the faulty-code issues before Debes arrived, but the new CEO has helped push a higher standard of software quality.
Soon after Debes joined the company, Lawson also homed in on HR software. HR application spending experienced double-digit growth in 2004, and strong demand for the software was expected to continue as firms worried about a possible talent shortage. Research firm AMR Research calls "human capital management'' software the fastest-growing segment of the business applications market, with revenue expected to grow 11 percent annually between 2006 and 2011 to $10.6 billion.
"I've seen a pretty significant change. The prior management team sometimes had a hard time visualizing the next level for Lawson."
--Dennis Dahlen, senior vice president of finance, Banner Health
HR software also is a market in the midst of change. The rise of HR outsourcing is removing some of the software decision-making from companies and placing it in the hands of outsourcing service providers such as ADP and Convergys. Meanwhile, a host of smaller software vendors have been growing quickly by concentrating on talent management applications that help with tasks such as recruiting, employee development and performance appraisals.
Much of the upstarts' business has come in the form of "software as a service'' deals, where companies access applications through the Internet and pay monthly user fees. This approach is touted as reducing technology headaches and lowering upfront costs compared with the traditional tactic of paying for "perpetual'' licenses and installing software on company computers.
Also, in early 2005 Oracle announced plans to integrate various product lines in a grand effort dubbed Project Fusion. Although Oracle later pledged it would continue to advance its individual PeopleSoft products and other offerings, Fusion at least initially prompted questions about forced upgrades and what ultimately would be included in the blended software.
To take advantage of this market upheaval, Lawson has spent nearly two years building a new set of HR applications that will be offered only through the software-as-a-service model. The effort has been Lawson's single largest investment during the past 24 months. Due out later this year, the software is designed to tackle areas including global HR, talent acquisition, performance management and compensation.
Larry Dunivan, Lawson's vice president for global human capital management, portrays the forthcoming global HR application as much more than a geographically capable "human resource management system''—the phrase given to software that tracks basic employee records such as name, title and contact information.
Instead, Dunivan frames it as an HRMS built for the modern corporation. He says it is designed to allow flexibility in describing organizational structure, jobs and work assignments, and supervisors. Effectively, it is intended to help companies set up the ad-hoc projects common today and better run a "matrixed'' organization, where employees may have more than one manager.
"We see a jugular vein and we're going to invest and go after it."
--Dean Hager, senior vice president of product management, Lawson Software
At Lawson's customer conference in San Diego earlier this year, Dunivan described the coming set of applications as a "best of suite'' approach to talent management. That term riffs on the phrase "best of breed,'' which is used by vendors specializing in just one or a few talent management products. Dunivan says the new Lawson applications will be easy to adopt because they are coming from one vendor and are tightly integrated.
Connecting applications such as performance management and compensation is seen as valuable because the tasks can be done more efficiently and firms can better mine their data to discover trends such as what portion of bonus money tends to go to the companies' top performers.
Lawson's stated aim of becoming No. 1 in the market stems at least in part from a sense that the big dogs are vulnerable in talent management. Both SAP and Oracle offer a wide range of talent management products and tout the integration of those tools. But experts in the field say neither giant is on the cutting edge generally when it comes to talent management.
"We see a jugular vein and we're going to invest and go after it,'' Dean Hager, Lawson senior vice president of product management, told analysts and reporters in San Diego.
They've got a long way to go. In 2006, Lawson raked in $112 million in HR application revenue and accounted for 2 percent of the total market, according to AMR Research. Top-ranking SAP took in $1.54 billion and Oracle was just a hair's breadth behind, at $1.53 billion. Each of the titans accounted for 24 percent of the market.
What's more, Oracle and SAP both grew faster last year than Lawson, whose 8 percent growth rate was just half that of the HR software market overall.
Lawson is betting those numbers will change dramatically with the release of its new HR applications. But those products won't come in a vacuum. Oracle and SAP continue to upgrade their product lines, and Fusion applications are on the horizon. A number of the talent management specialists, such as SumTotal Systems and Authoria, sell multiple talent management products.
"You don't get many chances in your life to do it all over again."
--Larry Dunivan, vice president for global human capital management, Lawson Software
Then there's Work day, which started selling HR software last year. Just as Lawson aims to wear the PeopleSoft mantle, PeopleSoft's charismatic founder, Dave Duffield, plans to repeat his own history. Workday says its software is easier to use, change and integrate compared with traditional software from vendors such as Oracle and SAP. The company's initial target is the midmarket that Lawson has long served.
The annual HR Technology Conference & Expo this week in Chicago will provide an intriguing showdown among Oracle, Lawson and Workday. At a session dubbed "The First HCM Battle,'' Oracle executive Gretchen Alarcon will demonstrate HR software from her firm, as will Dunivan and Duffield.
Christa Degnan Manning, an analyst with AMR Research, says Lawson's large customer base gives it an important edge over Workday. Those clients will be eager to buy Lawson's new suite of HR tools, she says, in part to keep their stables of technology providers small.
"Customers are looking to have one or two major software vendors,'' Degnan Manning says. "They really don't want to do the integration themselves.''
She says the new Lawson HR products also will be attractive to Lawson customers because they will allow firms to replace manual processes and adopt new, more sophisticated HR procedures.
On the other hand, she says, Lawson will find it hard to dislodge Oracle and SAP—sometimes called enterprise resource planning vendors, or ERPs. "We don't expect companies that have high investments in other ERPs to scrap what they've already had just because Lawson is releasing a strong HCM suite,'' she says.
Knowledge Infusion's Averbook has a bullish outlook on Lawson. He says the company has always had a solid product suite and that the addition of new talent management products in the upcoming year "will fill in most gaps and make them a very formidable competitor to all HCM vendors.''
Banner Health's Dahlen hasn't heard much about the coming Lawson HR applications, but he's eager to see them. In particular, Dahlen is intrigued by the prospect that the new software will lead to a more comprehensive electronic employee record and eliminate paper-based processes when it comes to performance reviews and pay adjustments.
Dahlen says Debes has brought Lawson a more practical yet forward-thinking mind-set. "I've seen a pretty significant change,'' Dahlen says. "The prior management team sometimes had a hard time visualizing the next level for Lawson.''
For Debes, Lawson's next level means a kind of parity with the Goliaths of the business software world, even though Oracle and SAP both employ thousands more employees and dwarf Lawson in revenue. The key is having the goods and selling them smartly, Debes insists. "It's one salesperson against another salesperson. It's not the SAP organization against the Lawson organization.''
Still, customers may care about the Lawson organization—and its new identity. Will the Minnesota company drop its niceness altogether? That doesn't seem likely. At the San Diego conference, for example, Debes conceded that Lawson did not have a perfect track record in customer support. He also brought onstage some SeaWorld penguins—mascots of the cute rather than the cutthroat.
Lawson may not be as unassuming as it was in the past, but to Debes, it's still one of the good guys. "As Oracle and SAP make a lot of noise about coming into our space, guess what? We're coming into their space,'' he says. "We're David and we're putting a rock in our slingshot.''
Workforce Management, October 8, 2007, p. 1, 26-36 -- Subscribe Now!