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Infor described this year’s Inforum user group meeting as a coming-out party for a large startup company. Such a debut was necessary because Infor had been operating in something of a stealth mode for the past three years: a limited marketing presence, no unified message and a weak, sometimes inconsistent brand identity. It also needed to formally introduce Infor to customers of Lawson, the ERP supplier it acquired last year. The “startup” designation is meant to signal that Infor has been able to render a decade-long consolidation of dozens of smaller companies into one cohesive entity.

I think the current management team has put Infor – particularly the pre-Lawson portion of the portfolio – solidly on the road to viability. This has been no small feat. It’s hard to amalgamate a mix of smaller applications software companies, none with substantial market share. Unlike bringing together a more homogenous set of businesses (say, metal fastener distributors), achieving operating efficiencies has required from Infor a clever dose of pragmatic technology, notably its ION middleware. Infor has had to create a software architecture that makes it easier for both the company and its users to maintain its applications. As well, ION makes it feasible for users of software to upgrade it or migrate to other portfolio applications and to add complementary applications without difficulty.

One of Infor management’s more important objectives for the conference was to get across to users its new strategy, which I covered in an earlier blog. The keynotes on the first day provided the long version of what I expect will be the company’s core message over the next year or so. To persuade its installed base to stay with it, Infor is promising they can keep what they have for as long as they want. Moreover, it will make it easier and less expensive for them to get a broader set of capabilities, such as analytics, performance managementsocial business applications and cloud-based applications designed to meet their specific needs from Infor rather than going to another vendor. None of these products breaks new ground; all are necessary for the company to remain competitive. For new customers, Infor is offering the promise of faster time to value and potentially lower implementation costs in its targeted verticals. I think this is the right message, but it will require frequent repetition and an aggressive marketing effort supported by a solid roster of willing customer references.

Serious challenges remain for Infor in the business environment and in executing the strategy. After a decade of modest, incremental improvements, the overall pace of technology change is accelerating. The software consolidators of the past decade benefited from limited technological evolution as they tried to stitch together their acquisitions. The slowdown extended the useful lives of enterprise applications, especially record-keeping systems such as ERP. Vendors have been able to keep customers paying software maintenance and had time to integrate the pieces of their portfolios. Now this is changing. For example, companies see that cloud computing can be a better choice for deploying software than doing it on-premises, whether functionally, economically or both. Increasing numbers of people are working with mobile devices, larger sets of data and more sophisticated analytics. Customers’ expectations of how to interact with systems are starting to change as vendors tout the “consumerization” of their business software offerings to make them more like the apps available on mobile devices and more appealing to the social media generation of business users. Infor is responding to each of these, including creating positions for Senior Vice Presidents of Cloud and Speed to promote rapid product development and innovation.

In addition, while Infor is now the third-largest enterprise software company, it is competing with a roster of cash-rich titans (notably IBM, Microsoft, Oracle and SAP). Infor’s recent recapitalization put it on stronger financial footing, but it is still highly leveraged. To the extent that it is successful in generating incremental revenue, it will be able to get cash to pay down its debt. Solid revenue growth also would give it the opportunity to raise equity in the public market and de-lever its balance sheet even faster. The downside to this virtuous circle, however, is that to the extent that Infor is unable to generate “escape velocity” revenue growth, it will crimp its competitiveness because of the need to service the debt. For this reason, how well the organization executes is very important.

In my opinion, Infor faces at least four substantial execution challenges in achieving its objectives. The first is to build broad awareness of the benefits of Infor’s approach and the value of its software. One of Infor’s key strengths is its installed base of midsize companies.  These buyers want software that doesn’t require much customization and implementation effort because they have small IT staffs and limited budgets to buy, implement and maintain the software. Infor’s “micro-vertical” applications provide deep functionality built for specific types of businesses. For instance, this means not just the food and beverage vertical but milk producers, brewers or bakers, each with its own business-specific capabilities, units of measure and workflows built into the software.

A second challenge is to identify, define and refine a set of core sales offers that promote cross-sells or up-sells with the most revenue-generating potential. Infor offers a lot of options, but there are endless permutations of what customers can do using ION and individual pieces of Infor’s portfolio. To accelerate clarity of what’s possible and promote sales execution, I think Infor needs to define offers for the needs of specific sets of users. The new mobile and cloud applications utilizing ION are certain to be attention-getters and likely to be among the most quickly adopted, but I don’t expect them to be big earners.

A third challenge in this chain is that sales execution. Whether it’s inside or outside sales, in each of its traditional areas (ERP, analytics and other software categories across multiple micro-verticals) Infor is now offering a broader, more complex array of purchase offers than before. Training sales people to be able to understand customer requirements and communicate value propositions among all the options will not be easy. Simplifying this with a short menu of predefined offers can make it easier for the sales organization, but it’s just a start.

The fourth issue is demand, which is a function of buyers’ software budgets. Of course, the better Infor is able to articulate and demonstrate the value of its solutions, the easier it will be to close business. Moreover, the company is expanding its presence in rapidly growing countries such as Brazil and China. Yet however compelling Infor’s value proposition may be, other capital or operating budget priorities and spending constraints are likely to be a limiting factor, especially in its core market of midsize companies. This factor to some extent may be beyond Infor’s ability to change.

Infor’s attempt to rationalize and overhaul a sizable portion of the U.S. software business has been a big bet. I’m encouraged by what I saw and heard at Inforum. The real test is whether it will be able to sustain double-digit license revenue growth and its retention rate of existing clients in the mid-90 percent range over the next six to eight quarters. That’s a challenge for any large startup.


Robert Kugel – SVP Research

I recently met with Infor’s management team, led by CEO Charles Phillips. Phillips joined Infor in October 2010 after leaving Oracle, taking several other executives with him, including Duncan Angove, now president of Infor, and Pam Murphy, now the COO. In addition to the changes in the executive suite, Soma Somasundaram, who had been at Infor and its predecessor companies since 1995, became EVP in charge of R&D. A private company, Infor had been keeping a low profile for the past several years, probably because results were nothing to brag about, and I suspect Phillips wanted to wait until there were substantive improvements to point to before fully engaging with analysts. Subsequent to his arrival, Golden Gate Capital, the private equity firm that assembled Infor from dozens of once-independent software companies, acquired ERP vendor Lawson Software in July 2011. Lawson itself had merged with Intentia, a Swedish ERP company in 2005. I estimate pro-forma 2011 revenues for Infor plus Lawson for a full year at $2.7 billion (the company has not published this number). This is only a fraction of 2011 revenues for SAP (about $14.5 billion) and Oracle’s applications ($6.8 billion). Infor reported that organic growth in license revenues was 17 percent, roughly in line with comparable companies, and executives indicated in the meeting that maintenance renewals have improved.

The management team described their strategy and objectives as a departure from the past, but having followed this company for five years, I found that with one exception these sounded very much like the previous management’s.

As before, Infor’s key strategic differentiation is its focus on verticals, which is much deeper in a broader range of industries (machinery, hospitality, automotive original equipment, fashion, food processing and hospitals, to name a handful) than Microsoft, Oracle or SAP can offer without customization and configuration. For companies purchasing the software this means they can spend less to implement and maintain it, a consideration that is particularly important to the midsize organizations that form the largest part of Infor’s installed base. The vertical focus remains a core aspect of the company’s strategy. A second continuing piece of strategy is derived from Infor’s legacy of being cobbled together from many constituent parts. That has made it important to find ways to reduce the cost of maintaining those code bases, to make it easy for existing customers to add functionality from Infor’s other software (such as performance management and analytics) and ultimately to facilitate their migration to a new, rationalized set of applications. This is still the roadmap. Third, evolving technology has elevated the importance of mobility and easier collaboration in executing tasks; this, too, remains a major objective.

What’s new in the go-to-market strategy since the new team took over is that the company is setting its sights more on Global 1000 companies, both at their headquarters and in subsidiaries, especially where vertically specific ERP capabilities are needed. Infor has increased its global accounts team to more than 75 from only four before. I suspect some of this is the result of absorbing Lawson, which had larger customers, but it also reflects the revitalization of some of Infor’s core ERP software components such as Baan, which has large customers around the world. The economics of serving large customers generally are more attractive than for midsize ones, and it’s probably more satisfying for Infor’s executives to flaunt familiar logos on their customer pages. Nevertheless I expect midsize companies and smaller, division-level customers will be Infor’s core market for years to come. Among larger organizations, I expect Infor will be competitive almost exclusively in market niches where it’s specific product functionality provides advantages that Oracle and SAP cannot easily match. Otherwise, these two vendors’ investments in mobile capabilities, cloud-based offerings, in-memory processing, advanced analytics along with the overall richness of their existing applications portfolios gives them a substantial advantage in broad functional requirements required by the market.

Overall this management team strikes me as more effective in molding a consolidated organization, achieving sales growth and expanding profit margins. The high-level goals may be largely the same as before, but the probability of achieving them has increased because of a more disciplined approach to operations. For example, the professional services organization has implemented a series of measures to increase accountability for running profitable operations, and the corporation is now running on a single general ledger instance rather than dozens. For me as a finance analyst, the latter is especially telling, since I’ve found that a failure to rationalize administrative operations and systems after a series of acquisitions is often a sign of deeper issues in management effectiveness. As well, the consolidation of accounting functions has led to considerable savings, which management has redirected to product development.

The company recently released Infor10, a set of industry-specific suites that incorporates common application elements such as reporting, localization and business rules. Infor10 Workspace brings together data from multiple applications and sources so people can get all the information they need to do their jobs immediately. The new release incorporates ION, middleware that’s designed to be easier and more economical to implement, which midsize companies need (it’s not unattractive for larger ones, either). ION makes it easier to get multiple applications to work together to execute end-to-end processes, whether the software is on-premises, in the cloud or in a mixed environment. Being able to support mixed deployments is increasingly important. Although a large majority of companies continue to prefer to deploy their core ERP systems on-premises, almost all expense management and a majority of human capital management software deployments are in the cloud.

Infor has begun to partner to expand its ability to deliver applications in the cloud. Last September, Infor announced InForce, three applications to be built on’s platform. InForce Everywhere enables users to work with information from Infor ERP applications, such as transactions and customer data. In future releases, InForce Order Management will offer quote, order and proposal management capabilities, and InForce Marketing will provide marketing automation capabilities, linking Salesforce to Infor CRM (the evolved version of Epiphany Software).

Phillips said that product development is his focus, which at this stage of Infor’s development is strategically correct. Solidifying the technical underpinnings of the application suites has been a long, difficult process, and there’s still work to be done. Yet there’s a great deal of potential for innovation using Infor’s considerable roster of applications. Its Hospitality Solutions, which I reviewed last year, is in a market where corporations can find value in integrating advanced consumer-focused capabilities with run-the-business software (such as systems for reservations, property management and back-office operations). The company has already integrated Epiphany’s marketing into Hospitality, but there’s considerable scope to broaden the capabilities of the offering. As an example, executives cited the ability to bring together publicly available information from social media to provide information about soon-to-arrive guests, which can help hotels more closely match their preferences.

I asked Phillips what would be the company’s top three sources of incremental revenue would be over the next several years, but he didn’t give me a clear answer. Here’s my guess: The first source is sales of existing portfolio products into the installed base, the second is sales of software to new accounts (mainly in emerging markets as well as displacing vendors such as Epicor, Microsoft and QAD in developed ones), and the third is sales of new products, either acquired or internally developed. Although the financial and manufacturing software markets are mature in the developed parts of the world, I believe there is considerable demand in them for complementary software. Moreover, as technology drives down the cost of deploying and maintaining these systems, vendors have the opportunity to capture a large portion of these savings by offering an expanded set of capabilities (and value) to their customers.

In recent years Infor has been quiet while dealing with a challenging economy, less-than-stellar results and straightening out the company’s management. That noted, although Infor appears to be in better hands, the proof of this will have to be demonstrated in sales growth and customer additions in the upcoming years in a mature and crowded market. Moreover, adding to the challenge, the market will demand further development of cloud and mobile capabilities as well as ongoing enhancements in usability and maintainability at a faster pace than what was acceptable over the past decade. I also believe Lawson, with its focus on people-intensive businesses will be increasingly vulnerable to encroachment from Workday as the latter enhances the financial management elements of its cloud-based offering.

From my perspective, Infor has been “the biggest software company you never heard of” because it’s privately held and because it has been challenged to manage the transition from existing multiple brands. I don’t expect Infor to go public any time soon, but I do expect it to become a more well recognized force in the software industry.


Robert Kugel CFA – SVP of Research

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