New details on Infor's Lawson acquisition

Confirming the rumors swirling for the past several weeks, Infor today announced that it is acquiring Lawson Software. (Technically, it is an affiliate of Infor's owner, Golden Gate Capital, doing the acquisition, but the practical outcome is that Lawson and Infor will now be one company.)

I received a quick phone briefing on the news from Duncan Angove, Infor's President of Products, Marketing and Support. Duncan himself is new with Infor as of last December, part of the new management team brought in from Oracle by CEO Charles Phillips.

The press release announcing the acquisition provides the primary talking points. But I wanted to get more details behind the announcement. Here's what I learned.

Product strategy

The acquisition is being driven by the top line (i.e. increasing revenues) and by the desire to create a "third-choice" for the top tier of enterprise buyers (i.e. someone other than SAP and Oracle) by delivering a strong offering for key industries. For example, Infor is interested not just in process manufacturing or "food and beverage," but "bakeries" and other sub-verticals. It intends to offer functionality that takes into account how bread dough rises at certain altitudes, or how long it takes an oven to reach its desired temperature, for example.

According to Duncan, there is little overlap between products of the two firms and they complement each other well. For example, Lawson has very strong presence in healthcare, and Infor does not have healthcare-specific offerings today. But Infor does have a strong asset management product, which is of great interest in hospitals, which must manage detailed information on medical device equipment. Infor sees the integration of Lawson's healthcare systems with Infor's EAM offering as an attractive offering.

Likewise, healthcare providers today face constraints due to the shortage of skilled nurses, and managing the productivity of nursing staff is a key driver of success. Lawson has strong human capital management (HCM) offerings for healthcare, which Infor intends to integrate with its own time-and-attendance and workforce scheduling applications (from its Workbrain acquisition), again, offering a more powerful solution.

On the Lawson M3 (formerly, Intentia) side, Infor sees strong synergies with its other manufacturing offerings, specifically with its product lifecycle management and supply chain products which many consider as best-of-breed.

Technology strategy

Here's where things get even more interesting. I wanted to find out how Infor viewed Lawson's M3 technology, which is 100% Java-based, in light of Infor's decision last year to standardize as much as possible on Microsoft.

Well, as it turns out, with the new management team in place, Infor has un-done its decision to standardize on Microsoft for key elements of its technology stack. Infor now prefers to stay "open" on the technology side. It will continue to leverage Microsoft Sharepoint but will leverage open source components for some elements of middleware, such as the Apache web server, OASIS standards for document exchange, and open source reporting tools. The technology stack will vary by product (e.g. Syteline will continue to be 100% Microsoft), but newly developed complementary products will not standardize on Microsoft SQL Server, for example, as had been Infor's statement of direction earlier.

As far as cloud deployments, Infor will continue to leverage the co-location data center services of Savvis and does not see a conflict with Lawson's strategy to host instances of its systems on Amazon's cloud. Infor currently uses Amazon's cloud to handle peak workload requirements, so it is not unfamiliar with Amazon's services.

Interestingly, Infor claims that the Infor/Lawson combination will have over 1 million users "in the cloud." The bulk of these will comprise Infor's current cloud-based users of its asset management and expense management systems, as well users of Enwise, a SaaS provider of HR service delivery and workforce communication solutions, which Lawson itself acquired in December 2010.

Impact on Lawson customers and employees

As with any software industry merger or acquisition, the primary concern is what the impact will be on customers, who have made large investments in Lawson software, and employees, who have invested their careers in Lawson. Concerning customers, Duncan maintains that, if Lawson was going to be acquired, Infor is the best place for its customers. It has committed not only to maintain current development efforts, but to expand them, with some of the 400 software developers it recently announced it was hiring. Lawson customers should see increased levels of investment with Lawson products, not lower.

Concerning Lawson's people, there is little doubt that there will be "efficiencies" (read: layoffs) in back office functions, but no plan to conduct layoffs among software developers. Infor sees no need to consolidate or push development offshore as a way of improving margins.

As in most cases like this, we'll have to wait to see what the real impact is on Lawson customers and employees.

My take

Infor's strategy to focus on specific industries, and sub-industries is a good one. It is quite similar to what Microsoft put forth in its Convergence conference for its Dynamics line of enterprise software products. The world has enough "broad spectrum" software that addresses a whole host of needs that no one company has, and thus carries a lot of unnecessary code, features, and configuration choices. Focusing on the differentiating requirements of specific industries (e.g. bakeries, breweries) is a better choice.

On the other hand, I think Infor's ambition to become a "third-choice" to SAP and Oracle might be a bit premature. In its ERP offerings, Infor is still a large collection of independently developed and maintained products. Lawson just adds two more (S3 and M3) to the portfolio. Nevertheless, there are enormous opportunities for Infor to establish itself as a strong contender in specific industries, short of being a "broad spectrum" provider like SAP and Oracle. There are also opportunities for Infor to position certain of its offerings in a two-tier configuration, with SAP or Oracle running for corporate or shared-services, with Infor offerings running at the plant or local office level. I would like to see Infor develop and promote out-of-the-box connectors with SAP and Oracle financials and shared services, such as order processing. That would strengthen its credibility further and would be quite attractive for many global organizations, which already are running Infor products in some of their locations.

Finally, the technology shift away from Microsoft, while understandable, represents the second or third major change in strategy over the past two or three years. Infor needs to make its technology strategy explicit and assure customers and partners that it plans to stick with it for the long run.

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What’s new with Microsoft Dynamics AX 2012

Microsoft held its Convergence conference in Atlanta last week, and one of the big items on the agenda was the scheduled general availability this August for Dynamics AX 2012 (formerly known as Axapta). There are several areas in which this new version of AX is a real advance for Microsoft, positioning AX up-market more and more as a viable alternative to SAP and Oracle for many customers.

First, let’s see some areas where Microsoft is moving the ball forward with AX.

Microsoft Dynamics AX as an ISV platform

With this new release, Microsoft is positioning AX as more than just another ERP offering. It is now pushing AX as a platform for other independent software vendors (ISVs) and business partners to build out narrow industry-specific solutions. AX currently has strong functionality for manufacturing, public sector (in four countries currently), service industries, distribution, and retail (coming soon).

Of course, many other ERP vendors target specific industries. But Microsoft is going beyond this level of focus. It has a major effort underway to recruit ISVs and business partners to extend this industry-specific AX functionality with more narrow solutions to target certain sub-industries.

For example, Microsoft has already signed up Lexis Nexis to build its legal firm solutions on top of native AX functionality for professional services. Likewise, Aldata is providing fashion and apparel industry functionality on top of AX’s retail industry solution. In another example, Microsoft recently purchased intellectual property from Tyler Technologies for the public sector and rolled it into the AX core. Now Tyler is building solutions for the government and government contracting sectors on top of AX.

Few ERP vendors are moving as aggressively to position their products as a platform for other ISVs. Smaller ISVs often do not have the resources to keep their products up-to-date with the latest technologies. By building on top of AX, they can focus their efforts not the part that really counts--the industry-specific part--instead of modernizing legacy code or reinventing the wheel with another general ledger. In one-on-one analyst briefings, Microsoft executives tossed out approximate numbers of ISVs currently in discussion about following the example of Lexis Nexis, Aldata, and Tyler Technologies—if half this number commit to AX as a platform, it will be truly impressive.

International support

There are also improvements for global implementations. Dynamics currently has development centers in Brazil, Russia, India, and China (the so-called BRIC nations). It is rolling in localizations for these countries and others into the core product, which greatly improves its global support. AX traditionally has relied upon local partners to provide customizations, which may still be appropriate in some localities. But too many partner localizations sitting on top of one another can be cumbersome. So, Microsoft’s approach makes a lot of sense to take on more of these international requirements in the core product.

Expanded functionality

In terms of new functionality, there is much to like, with new core ERP features and functions for supplier relationship management and case management, a new constraint-based product configurator, public-fund accounting, project quotation and budget control for service businesses, better multi-entity capabilities, and embedded business intelligence and reporting. There is also a new role-based user interface, and enhanced interoperability with familiar Microsoft tools such as Word, Excel, Outlook, and Sharepoint.

From the first day keynote, it was clear that Dynamics AX has its share of whiz-bang features, thanks to its ability to leverage innovations coming from other parts of Microsoft. For example, Microsoft's Lachlan Cash showed a prototype the new AX visual Kanban display, manipulated by means of the user’s body motion, using Microsoft Kinect, which is technology used in Microsoft’s Xbox gaming console (see photo). Cash pointed out that such an application would be ideal in a down-and-dirty manufacturing plant, where it might not be advisable to have users touching a keyboard and mouse.

There is much more, too much to list here. A "what's new" fact sheet is available that outlines all the enhancements of this new release and is worth a careful read.

Cloud deployment options

During the conference, many observers headlined their reports, in effect, that Microsoft is “moving its Dynamics line to the cloud.” However, the reality is that Microsoft is moving AX to the cloud in stages. At present, prospects can have their AX systems hosted in partner data centers. When the 2012 version is released in August, it will be continue to be available as a hosted solution in partner data centers, with hosting in Microsoft's Azure cloud available with the next major version after AX 2012.

Although options for cloud-based deployment with the AX 2012 version are currently limited to hosting in partner data centers, this should be sufficient for most customers. As pointed out in the analyst briefings, customers today tend to be conservative in moving their core ERP functions such as financial applications off-premise, although they may be interested cloud deployment for selected functions, such as CRM, time and expense reporting, and applications that support the mobile workforce. As Microsoft and its ISV partners build out complementary products on Azure, all customers will benefit, whether they have AX hosted on Azure or continue with on-premise deployment. So, Microsoft still has time to build out its cloud deployment options.

Where does AX fit?

Considering all of the above, Microsoft Dynamics AX is a strong candidate for organizations in the mid-tier and above, especially for those with the following characteristics:

1. Organizations in sectors targeted by AX, specifically manufacturing, distribution, retail, public sector, and services. These are major industry groups covering a broad swath of business types.
   
   
2. Organizations that have standardized or want to standardize on Microsoft's technology stack, such as Windows Server and MS SQL Server.
   
   
3. Organizations where users want to leverage their familiarity Microsoft's end-user productivity tools, such as Microsoft Office, Exchange/Outlook, and Sharepoint.
   
   
4. Organizations needing an ERP system that can scale globally to multiple international locations without incurring the overhead and expense of an SAP or Oracle.
   
   
5. Or, conversely, organizations that have SAP or Oracle running for centralized functions such as financials and HR, but desire a lower-cost, small footprint solution for local operations or satellite offices/plants—the so-called “two-tier” strategy.

Finally, organizations running multiple legacy systems that want to consolidate to a single modern platform are well advised to short-list Dynamics AX. Its backing by Microsoft in many cases will be enough to warrant AX a closer look. With the enterprise software industry undergoing consolidation over the past decade, Microsoft’s continued investment in AX gives customers and prospects the assurance that AX is not at risk for being acquired and orphaned.

A practical way forward

The enhancements introduced in Dynamics AX 2012 are not revolutionary, but rather reflect the continued evolution of a product that has become the centerpiece of Microsoft’s ERP strategy.

Microsoft’s promotion of AX as a platform is an interesting product strategy, enabling ISVs and business partners to build out more focused industry solutions (the so-called “last mile” of the solution). This approach blends well with Microsoft’s partner strategy, allowing partners to find new ways to make money while increasing the attractiveness of AX as a niche solution in a variety of sub-industries. As more and more prospects choose cloud-based solutions, traditional sources of partner revenue (e.g. hardware sales, networking, etc.) will dry up, and partners will need to provide more of a value-add. Industry-specialization is their ticket.

Microsoft is also moving in the right direction in strengthening AX for multinational organizations. Microsoft’s efforts now make AX a real alternative to SAP and Oracle, either as a complete replacement or as part of a two-tier deployment, with SAP or Oracle operating at headquarters and AX running in satellite locations. For those uncomfortable with a de-facto duopoly at the top end of enterprise ERP, the emergence of Microsoft Dynamics AX as a viable option is a welcome development.

Update, May 18: corrected timing of hosting options for AX 2012.

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