PeopleSoft Revamps World for Its Mid-Market "Express" Conquest Part Three: Strengths

Recently "inaugurated" as the No. 2 leading business applications provider after digesting former J.D. Edwards & Company, PeopleSoft, Inc. (NASDAQ: PSFT), has been making decisive moves to deliver a number of new, and refurbished solutions, in a great part by leveraging the recently acquired product portfolio. Although the vendor has acted swiftly on assimilating the former competitor (see PeopleSoft Gathers Manufacturing and SCM Wherewithal), these recent initiatives might show us that the vendor has moved even farther from the digestion stage into a full-blown execution and productivity phase.

Recent announcements that reflect this are

* PeopleSoft World Express, one of the industry's most comprehensive solutions for smaller businesses with annual revenues between $20 million and $100 million (USD), on May 3, at COMMON 2004, the IBM iSeries user conference.

* A new release of PeopleSoft World that included more than 280 new features and enhancements that span the product family's human capital management (HCM), supply chain management (SCM), and financial management (FM) applications, and a new web-based user interface (UI),on March 18 at CeBIT 2004.

* Further extensions of the longstanding partnership with IBM (NYSE: IBM) announced during PeopleSoft 2004 Leadership Summit which expands their global alliance by enabling IBM's expanding SMB reseller channel (see IBM Express-es Its Candid Desire for SMEs) to offer PeopleSoft applications. PeopleSoft on May 18.

For details, see Part One.

The vendor's solutions within enterprise resource planning (ERP), customer relationship management (CRM), supply chain management (SCM), enterprise portals, business intelligence (BI), and supplier relationship management (SRM) functionality provide a wide scope of features, and very few smaller vendors can provide tightly integrated applications of this magnitude under one umbrella. Furthermore, PeopleSoft has one of the strongest product technology in terms of scalability, and support for almost all industry relevant platforms and middleware standards, with Web service standards like XML, simple object access protocol (SOAP) and universal description, discovery, and integration (UDDI) being already embedded within their latest product releases, such as has been the case with the PeopleSoft's AppConnect platform.

Yet, even for the upper mid-market, the pre-configured tier one PeopleSoft Enterprise solutions remain complex applications, and the Internet architecture and new intuitive interfaces can mitigate that only so much. This perception of complexity remains ammunition that the incumbent tier two vendors will continue to exploit in order to hinder bigger brethren's attempt to penetrate their traditional stronghold. Furthermore, not all powerful functionality (e.g., SRM or product lifecycle management [PLM]) would be readily available for many of those pre-configured solutions, which may be a serious drawback when competing against the solid tier two vendors which have long-offered their entire suites without any disparity between solutions for bigger and smaller customers (e.g., Intentia, IFS, QAD , SSA Global, MAPICS or Glovia). The "Accelerated Solutions" or "All-in-One Solutions", while enabling large vendors and their channel to offer a fixed price and fixed time implementation program in a modular way, may sometimes not necessarily offer total extended-ERP functional scope. By the time the customer puts together modules to build a full collaborative enterprise system for a mid-market company, and then adds up the multiple implementation time and cost, all the touted benefits might have been annulled in some instances when incumbent mid-market vendors cover all the bases with their well-entrenched offering.
Thus, it is not difficult to justify the former PeopleSoft's "accelerated" mid-market initiatives to be gradually supplanted by selling the genuine PeopleSoft EntepriseOne product within its native, upper mid-market segment, where it has long successfully given run for the above-mentioned tier two solutions' money. Moreover, tackling the lower market segment has proven to be a much tougher nut to crack for several reasons. The main reason would be that this is the home ground of the likes of Microsoft Business Solutions (MBS) (see Microsoft Keeps on Rounding up Its Business Solutions), the Sage Group, whose US subsidiary is called Best Software, and which has recently acquired Softline and ACCPAC (see Will Sage Group Cement Its SME Leadership with ACCPAC and Softline Acquisitions?). The list does not stop here, given the likes of Exact Software (see Exact Software—Working Diligently Towards the "One Exact" Synergy), or Epicor Software, which has lately had its share of recovery and subsequent acquisitions (see Epicor Conducts Its Own ROI Acquisition Rationale) and which is soon to be merged with another SMB stalwart, Scala. Finally, there are a number of other highly specialized and newcomer smaller companies like SYSPRO, Intuit or NetSuite catering to specific industries for accounting and manufacturing systems, while also building simple homegrown systems to handle functions like CRM or sales force automation (SFA).

The above vendors understand this market and have thus gained the market and mind share, and loyal customers. In addition to product offering, they have long heavily invested in recruiting, motivating, and supporting the value-added resellers (VARs) that service the segment. Thus, trying to sell simplified versions of mySAP Business Suite, PeopleSoft Enterprise/PeopleSoft EnterpriseOne or Oracle E-Business Suite, without a serious re-engineering of these products, has not worked so far in the lower-end of the market.

PeopleSoft Revamps World for Its Mid-Market "Express" Conquest Part Two: Market Impact

Recently "inaugurated" as the No. 2 leading business applications provider after digesting the former J.D. Edwards & Company, PeopleSoft, Inc. (NASDAQ: PSFT), has been making decisive moves to deliver a number of new, and refurbished solutions, in a great part by leveraging its recently acquired product portfolio. Although the vendor has acted swiftly on assimilating its former competitor (see PeopleSoft Gathers Manufacturing and SCM Wherewithal), these recent initiatives might show us that the vendor has moved even farther from the digestion stage and into a full-blown execution and productivity phase.

Recent announcements that reflect this are

* PeopleSoft World Express, one of the industry's most comprehensive solutions for smaller businesses with annual revenues between $20 million and $100 million (USD), on May 3, at COMMON 2004, the IBM iSeries user conference.

* A new release of PeopleSoft World that included more than 280 new features and enhancements that span the product family's human capital management (HCM), supply chain management (SCM), and financial management (FM) applications, and a new web-based user interface (UI),on March 18 at CeBIT 2004.

* Further extensions of the longstanding partnership with IBM (NYSE: IBM) announced during PeopleSoft 2004 Leadership Summit which expands their global alliance by enabling IBM's expanding SMB reseller channel (see IBM Express-es Its Candid Desire for SMEs) to offer PeopleSoft applications. PeopleSoft on May 18.

For details, see Part One.

The importance of the above announcements is multifaceted. First, against the background of SAP having to recently tackle the lower-end of the mid-market by acquiring and then further sprucing up a more suitable and genuine product for the segment, PeopleSoft stands a good chance in the market segment by leveraging a revamped release of a tried-and-true vantage product. (See SAP Tries Another, Bifurcated Tack at a Small Guy and SoftBrands to Institute Fourth Shift for SAP Business One Manufacturing Work-Plan for information on SAP.) To refresh our memory, the original J.D. Edwards WorldSoftware product was launched in 1984, and it has always run only on the IBM eServer iSeries platform (formerly AS/400). It has also since become one of the most stable and widely used ERP applications on the platform, with 3,400 almost religiously loyal customers worldwide, and it was available in 21 supported languages.

However, while the product was both a blessing and a curse for its original owner, the new owner, PeopleSoft seems to have learned from these experiences to its advantage. Namely, throughout the 1990s, the former J.D. Edwards has kept its focus on what was then the breadwinner, the RPG code-based World product. It maintained strong services until its next-generation OneWorld product (currently called PeopleSoft EntepriseOne) was released in the late 1990s. The vendor had thus established itself at that stage through a combination of its reliable product and a strong services organization, which was able to help a tide of enterprises overcome the Y2K compliance issues.
In addition, a former J.D. Edwards' US-focused, mid-market program called Genesis, which aimed at ensuring stability and low support must-haves for the market segment, through a competitively-priced older (and thus market-proven) release of J.D. Edwards' World, had been sold to enterprises with less than $100 million (USD) in annual revenue by distributors that provided local support. However, the program had not fully fulfilled its indisputable promise because of J.D. Edwards' lack of willingness to take a more aggressive stance in building up its distribution channel. PeopleSoft will have to watch carefully in order not to repeat the mistake.

Although J.D. Edwards had avoided the financial turmoil that its traditional AS/400-based competitors experienced in the mid-1990s, when some, like former SSA (now SSA Global) and JBA International (now part of Geac Computers) were fatally wounded, it has still had an Odyssey-like transition from solely IBM iSeries and DB2 platforms to UNIX, Oracle, and Microsoft Windows NT/2000 while keeping most customers committed and arguably content.

Namely, although erstwhile J.D. Edwards had successfully targeted conservative AS/400-oriented enterprises with its mature World product and a well thought-out migration to the next-generation, cross-platform, ERP application OneWorld (i.e., owing to a well-conceived data model consistency, virtual functional parity, and the ability to have the older and next-generation applications coexist), it has nonetheless not been an easy and completely successful feat for many reasons. For one, it has taken several years for former OneWorld to entirely reach the functional parity with its older and more mature sibling, WorldSoftware. Also, because of J.D. Edwards' heritage and market presence, iSeries had initially, and for a long time, been the dominant platform even within the OneWorld constituency. While the Microsoft Windows NT/2000 platform, in particular, has long been capturing an increasing share of the overall OneWorld deals and prospects, still, J.D. Edwards' belated entry to the non-iSeries ERP market hampered its success, since it had not initially been a known force for UNIX, Oracle, and Windows customers.

Then again, most new functional enhancements have since been added to the more technologically promising (in terms of support for multiple platforms and scalability) OneWorld product, which had meanwhile gained a functional edge over World in most areas, especially outside the core ERP scope. However, it still would fall behind in others, including certain financial and accounting modules. Also, J.D. Edwards' growing implementation partner program at the time had targeted the more attractive non-iSeries platforms, whereby the WorldSoftware's user enterprises and partners have thus long been wary of J.D. Edwards' (and, eventually, PeopleSoft's) intentions to indefinitely support the ageing product, given the company's development effort immediately prior to the acquisition had mostly been on extending the OneWorld's footprint (meanwhile once again renamed into J.D. Edwards 5, shortly prior to being acquired by PeopleSoft) and ensuring the upgrade path from World to OneWorld.

In contrast, because of OneWorld's immaturity, there were initially only a few operational installations, while experienced service and support personnel were also limited, as both the internal and external professional services organizations made the slow transition to OneWorld. Thus, many enterprises facing tight Y2K-related deadlines at the time (the late 1990s) had to opt for a coexistence strategy of OneWorld and World, which could work off the same data at the same time. Many enterprises would logically then deploy the most mission-critical, shortest timeframe functions on World and implement OneWorld in non-mission-critical areas. Eventually, most of these problems were solved by the still independent J.D. Edwards. However, the bottom line has since resulted in an attractive J.D. Edwards 5 (now PeopleSoft EntepriseOne) product suite, while the World product has been all but relegated to the status of a "stabilized" product, with a quite disenchanted channel and disconcerted user base (for more details, see J.D. Edwards Finds Its Inner-Self Within Its 5th Incarnation).

Expansion To the SMB Market Worldwide

The above moves are parts of the longstanding partnership that has been further extended on May 18. Namely, in a move to dramatically expand PeopleSoft's reach in the small and mid-size business (SMB) market worldwide, PeopleSoft and IBM (NYSE: IBM) announced during PeopleSoft 2004 Leadership Summit the plans to expand their global alliance by enabling IBM's expanding SMB reseller channel (see IBM Express-es Its Candid Desire for SMEs) to offer PeopleSoft applications. PeopleSoft and IBM pledge to deliver jointly developed, industry-specific hardware and software solutions, and will make specific solution bundles available to resellers.

The new initiative is expected to add hundreds of IBM resellers to PeopleSoft's channel efforts, as the expanded channel relationship will deliver jointly developed, pre-integrated hardware, software and services offerings through regional solution providers. Additional elements will include joint cooperative marketing to drive application software leads to the channel, and a joint advertising campaign to position and promote channel partners and the combined PeopleSoft and IBM solutions in local markets. The two companies also plan to leverage IBM's Small and Medium Business Advantage program to provide sales incentives, marketing tools and resources, training, and demonstration capabilities to the SMB channel partners.

PeopleSoft and IBM also announced an industry-tailored offering for tier two and tier three automotive suppliers that will be delivered through the new channel relationship. This announcement builds on the two vendors' Life Sciences and World Express initiatives announced earlier this year. Namely, the new IBM Automotive Solution offers PeopleSoft EnterpriseOne applications running on the IBM eServer xSeries technology, along with pre-integrated IBM middleware and industry-specific best practices from IBM consulting.

The new solution promises to enable automotive companies to become demand driven, whereas in the past, manufacturers have had to choose between being customer focused or operationally efficient. Demand-Driven Manufacturing, an initiative that has been extensively touted by PeopleSoft during its recent Summit, is the ability to deliver any product, in any configuration, at any quantity to meet customer demand at significantly lower costs to the manufacturer, driving the higher levels of profitability. PeopleSoft claims to be the only enterprise applications vendor to currently deliver a complete demand-driven manufacturing solution—from customer demand to supply chain planning (SCP) to manufacturing planning and production to in-bound supply—all operating in real-time. With its extended IBM alliance, these capabilities should now be within the reach of small and mid-sized businesses around the world.

The strength of this alliance is supported by the remarkable price performance improvements PeopleSoft applications have reportedly achieved running on the new IBM eServer i5 series. Namely, in a real world SMB environment, PeopleSoft EnterpriseOne Rapid Start running on an IBM eServer i520 supported 60 percent more users at 40 percent less cost than the same configuration on previous iSeries boxes. For PeopleSoft World Express, the i520 supported the same number of users for up to 40 percent less hardware cost. Even under demanding conditions, the i5 series with PeopleSoft maintains its high performance levels, given that recent tests running a mixed workload of web serving, collaboration, and PeopleSoft World have demonstrated the ability of the i5 to deliver sub-second response times even at 97 percent system utilization.

The companies also intend to collaborate on a new Linux program that will extend the benefits of these SMB solutions to the open source operating environment, building on the recently announced availability of EnterpriseOne on Linux. IBM and PeopleSoft will conduct a series of enhanced performance characteristic tests across a variety of Linux server configurations, for the IBM eServer xSeries, providing customers with the information they need to guide their Linux application strategies. In addition, IBM and PeopleSoft plan to launch a series of joint promotions and incentives highlighting EnterpriseOne, DB2, WebSphere, and IBM eServer xSeries on Linux, beginning with a joint marketing initiative and concentrating initially on Asia Pacific and Europe

PeopleSoft Revamps World for Its Mid-Market "Express" Conquest Part One: Recent Annoucements

One of the moves took place on May 3, at COMMON 2004, the IBM iSeries user conference, when PeopleSoft announced PeopleSoft World Express, one of the industry's most comprehensive solutions for smaller businesses with annual revenues between $20 million and $100 million (USD). The solution also exhibits vertical focus and is thus available for industrial manufacturers, wholesale distributors, homebuilders, and construction companies. Developed exclusively on the IBM iSeries platform, PeopleSoft World Express builds on twenty years of enterprise applications innovation, strong customer satisfaction, and the reliability of its progenitor—the former J.D. Edwards WorldSoftware (now PeopleSoft World) suite. With this rejuvenated offering, PeopleSoft hopes to be able to deliver a comprehensive solution to an entirely new market segment—one that demands low maintenance solutions and a rapid return on investment (ROI), without sacrificing their need for rich functionality.

To that end, PeopleSoft World Express includes

* The ample suite of PeopleSoft World applications that provides the foundation for somewhat "lighter" PeopleSoft World Express with PeopleSoft World Financials, PeopleSoft World Distribution, PeopleSoft World Manufacturing, PeopleSoft World Human Resources, and PeopleSoft World Project Management.

* The new solution is configured with fifty-one industry-specific business processes, including returning an item to a supplier; performing product costing and item introduction; purchasing an inventory item; managing accounts receivable balances; and so on. These embedded business processes should enable small businesses to implement the solution relatively quickly with a reasonably rapid ROI. As mentioned earlier, the templates are currently tailored for customers in the industrial manufacturing, wholesale distribution, homebuilding, and construction industries. For example, the suite for construction companies includes a job costing process that lets companies define the complex project job, such as the building of a bridge, and then define and track all the costs associated with that job.

* PeopleSoft distributors will provide user training and implementation services for the PeopleSoft World Express solution. The distributors are certified by PeopleSoft and have comprehensive industry knowledge and implementation skills.

* The product runs exclusively on IBM iSeries, one of the world's most reliable and cost-effective business computing platforms.

PeopleSoft World Express will be generally available in North America in the second quarter of 2004, while it is planed to be introduced in countries in Europe and Asia Pacific throughout the next two quarters. In addition to English, the software is currently available in Japanese, French, Italian, Spanish, and German.
The announcement came at the heels of the March 18 announcement at CeBIT 2004, when PeopleSoft announced a new release of PeopleSoft World that included more than 280 new features and enhancements that span the product family's human capital management (HCM), supply chain management (SCM), and financial management (FM) applications, and a new web-based user interface (UI). The announcement marked the first release of PeopleSoft World under the PeopleSoft brand name and underscored the new owner's commitment to PeopleSoft World customers, which have for many years been disconcerted owing to the former owner's treatment of the product as ageing, legacy technology. This new release, PeopleSoft World A7.3 Cumulative Update 15, has been generally available since March 31, 2004, and is available at no cost to PeopleSoft World customers on a current maintenance agreement with PeopleSoft.

Some more notable new features and enhancements to PeopleSoft World include

* New HTML User Interface—PeopleSoft World users, both power and casual users as well as customers and partners, now have anytime, anywhere access to critical business information through an Internet browser. By automating many repetitive navigation tasks found in a data capture-productive, character-based environment, the web-based interface should enable PeopleSoft World users to take advantage of productivity tools like integrated calendars and automated field formatting.

* Manufacturing and Distribution Management—Sales order demand information can now be included throughout the forecasting processes, which should increase supply chain visibility and improve planning and forecast accuracy.

* Financial Management—New features allow users to fairly quickly respond to organizational changes, streamline balancing and reconciliation with enhanced reporting capabilities, simplify management of fixed assets, and leverage enhancements to the cash basis accounting functionality.

* Human Capital Management (HCM)—The product meets new regulatory requirements for SUI (State Unemployment Insurance) and provides employers with faster, more accurate assessments of employee benefit and accrual amounts.

* Integration with PeopleSoft Enterprise Performance Management (EPM)—New integration between the PeopleSoft Enterprise and PeopleSoft World products consolidates customer data from PeopleSoft World onto PeopleSoft's enterprise warehouse. As a result, PeopleSoft World customers can now leverage the EPM applications with their World data.

Best-of-breed Approach to Finance and Accounting

CODA Group, a finance and systems specialist headquartered in the United Kingdom, offers financial solutions that help companies grapple with international business issues such as language, currency, and compliance. Designed to be an "upgrade friendly system", CODA applications offer open and standards-based reporting tools. CODA's alliance with Microsoft Corp. has allowed it to deliver a range of financial and management accounting systems, and it has made several strategic acquisitions to further strengthen its position as a compliance solution.

Part Three of the Composing Collaborative Financial Applications, CODA series.

Among its recent endeavors, CODA has recently announced new set of financial planning and budgeting products: CODA s-Planning ("s" standing for "standard") and CODA c-Planning ("c" standing for "collaborative"), as well as a range of improved analysis and reporting tools, which will be detailed shortly. Nevertheless, to date, these corporate performance management (CPM) capabilities have targeted mainly existing customers of the CODA transactional systems. These users have focused on financial analytics, budgeting, and planning, either through Microsoft Excel integration within CODA c-Planning and CODA s-Planning, or through a partnership with Cognos for enterprise-level planning and budgeting. CODA's consolidation capabilities have traditionally been limited to the basic ones inherent in Coda-Financials. While these are adequate for simpler enterprises, the vendor has thus far been unable to successfully compete with offerings from specialists such as Hyperion Solutions, Geac (formerly Comshare), Applix, Longview, Outlooksoft, or Cartesis. Yet, the importance of these functionalities has been witnessed by Cognos' acquisition of Adaytum in 2003 and Business Objects' recent acquisition of the specialist SRC. See Financial Reporting, Planning, and Budgeting as Necessary Pieces of EPM for information on the functionality.

Thus, this merger deal should benefit both parties for many reasons. While Simple Concepts should get access to CODA's well developed global distribution channel and benefit from its financial stability, CODA should fill the financial consolidation gaps in its solution. Immediate cross-selling opportunities into CODA's install base will expand further as CODA translates OCRA into more languages. Not to mention, there are opportunities coming from OCRA's prior integration with SAP, Oracle, and other leading enterprise resource planning (ERP) solutions. The acquisition also gives CODA a base for strengthening its direct sales operation and presence in Scandinavia.

The two recent acquisitions came at the heels of CODA's June 2005 launch of a suite of add-on applications that extends the range of planning and budgeting requirements: CODA s-Planning and CODA c-Planning . These could offer more benefits for CODA-Financials users. The suite includes Version 3 of the much talked about CODA-XL application. CODA-XL allows the fairly simple and secure output, manipulation, display, sharing, and input of CODA-Financials data within Microsoft Excel. s-Planning and c-Planning were seen to enable users to carry out a range of day-to-day tasks, such as producing and sharing statutory reports; processing expenses; or even developing and setting financial budgets using CODA-Financials alongside Excel and the other familiar Microsoft Office tools that most organizations probably already have in place. These new products were meant to make CODA-Financials the launch pad for a quicker and easier budget cycle. By combining the functionality and embedded control of CODA with the familiarity and convenience of Microsoft Excel, CODA s-Planning and CODA c-Planning should streamline the seeding, preparation, manipulation, and production of budgets, based on (or update) the user's CODA-Financials data. Moreover, CODA continues to develop its relationship with Cognos, offering the Cognos Enterprise Planning product where clients have wider enterprise requirements. The vendor also uses a mix of partnership and in-house development to address other CPM elements, such as activity-based costing (ABC), strategic planning and scenario analysis, shareholder value measurement, activity monitoring, information distribution, etc.

In addition to the "standard" budgeting and forecasting facilities provided by CODA s-Planning, users have the option to make their entire cycle more coordinated, efficient, and controlled by opting for the "collaborative" add-on of the CODA c-Planning product. This interfaces with the CODA-Control process management solution, adding a facility to publish budgets as CODA-Control web sites and tasks. This will keep all participants informed and aware of the input needed and when it is required. There are also audit trails and document history to support compliance reporting. CODA c-Planning aims to help organizations set financial budgets and collaboratively develop plans, which both reflect top-down business objectives and assess the need to account for bottom-up creativity and realities. For example, it will give budget managers visibility of process bottlenecks, including vacation and sick days of department managers, information on groups waiting for information from subsidiaries, and vice versa. Conversely, many other peer products focus purely on bringing together and reporting the figures in the system, and not on collaborative processes that are key to collecting and verifying the figures in the first place. The application's aggregation features often make the budgeting and planning process quicker, more dependable, and more predictable, giving financial professionals more time to analyze and consider their overall budget before making decisions crucial to the organization's mid-term plans.

Another analytic module worth mentioning is the CODA Collaborative Scorecard, which helps user organizations link corporate goals through group objectives and individual performance. Designed to be deployed to every desktop in the enterprise, the product supports multiple performance management methodologies. Generally speaking, scorecards assist organizations in monitoring their business performance beyond bottom-line results by tracking both financial and non-financial measures, and then reporting them in a graphical user interface (GUI). A key element is the way they cascade corporate goals through the organization, helping managers to set individual objectives, and then aggregate performance results back up through the company structure, so that management can review the contributions made by individuals and groups. This aligns corporate strategy with the activities of individuals within the organization.
Related to the above line of products is CODA Analytic Explorer, which is a business intelligence (BI) tool that allows CODA users to carry out multidimensional browsing across CODA-Mart and any other relational data source. It is a generic, on-line browsing tool with both two-dimensional and multidimensional browsing capabilities built in, and has a separately licensable cube builder that provides extra performance. As finance departments struggle to add value to their businesses, performance management enables them to deliver better decisions more efficiently. However, CPM is not about static plans that sit on the shelf and get dusted off at board meetings, but rather about continuously adjusting to the range of inputs that the business is constantly receiving. To that end, CODA Analytic Explorer provides the ability to investigate exceptions and trends quickly and easily, so that corrective actions can be taken, and forecasts and plans reviewed.

CODA-XL is now in its third release. It provides a two-way bridge between Excel, which is indisputably the most popular spreadsheet, and CODA's enterprise-level financial and CPM products. CODA-XL was launched in 2003 and brings the familiarity of the Excel interface to CODA-Financials. It should provide customers with several benefits, such as reduced training for end users of CODA-Financials during implementation. Other benefits typically include the elimination of transcription errors and file-handling overheads during the transfer of data between CODA-Financials and Excel. Thus, it may prevent the proverbial "islands of information," where local systems containing great value and insight are locked on individuals' desktops and personal computers and cannot be shared across the organization. However, unlike some similar products from competitors, CODA-XL goes beyond exploiting the familiarity of the user interface (UI) and makes use of the success that Excel enjoys as an informal business modeling and planning tool. It provides "What If?" scenario testing with the option of writing back from the spreadsheet to CODA-Financials. For example, the CODA Security Model is fully embedded within CODA-XL, thus ensuring consistent data security. This means that while add-ins to Excel deliver rich CODA functionality accessed directly from the Microsoft Office desktop, they must respect the same CODA security, validation, and business rules. For example, Excel formulas referencing live account balances are stored directly in CODA Database, with all necessary authorizations for users appearing down to the spreadsheet cell level. For more on the advantages and the inherent risks of Excel-based tools, see Vendors Harness Excel (and Office) to Win the Lower-end of Business Intelligence Market.

Within CODA e-Finance (a Web-based version of the product), all reports validated and cross-checked on-line to validate, to eliminate separate, unsecured reporting tables. "Lights out" scheduling and Web document publishing also eliminate manual intervention. In addition, the data manipulation capabilities of Excel mean that management accountants can build and model scenarios that can be tested against real data relatively quickly, which can be very useful for creditor and debtor management, customer profitability analysis, and ad hoc queries. Furthermore, US Security and Exchange Commission (SEC) submissions can be made through Microsoft Word documents with embedded "live" Excel documents that do not have cut and paste, export, and manipulation functions, which can introduce the potential for errors. Non-programmatic, wizard-driven automation of data entry with real time validation direct from Excel (transactions, allocations, masters, budgets, and forecasts) also eliminates open database connectivity (ODBC), direct structured query language (SQL) updates, relational database management systems (RDMBS) logons, etc., which are also points of risk.

Recent Summer Acquisition Spree

Compliance is a major issue in the US, particularly as more organizations struggle with the provisions of SOX, but it is also rapidly becoming a key issue in many other countries as legislation is introduced around the world to improve corporate governance. Thus, in August 2005, to further bolster its financial control capabilities, CODA announced an acquisition agreement and partnership with Control Solutions International, a global provider of assurance, risk management, and compliance advisory services. Founded in 1991, Control Solutions was one of the first firms dedicated solely to providing support to internal audit functions and to helping companies realize the benefits of effective internal controls. Control Solutions' services include internal audit outsourcing and co-sourcing, SOX first-year compliance and annual recertification, technology audits and advisory services, quality assurance reviews, enterprise risk assessments, and internal audit start-up services. The firm has reportedly developed close and long-term relationships with a diverse client base of leading companies through flexibility, open communication, and a "value-added" project approach. It has over 800 experienced internal audit professionals and 21 directors in offices around the world.

Under the terms of the agreement, CODA acquired the Sarbanes-Oxley Controls Evaluation Tool (SOCET) product from Control Solutions. SOCET is a Web-based internal controls documentation, evaluation, monitoring, and project management application designed to facilitate SOX compliance, and is currently deployed at a number sites of Control Solutions' major customers. CODA pledges to take on the future development and marketing of the product, whereby existing customers will receive support through the US-based support desk of CODA Financials Inc., part of the company's global support operation. Also as part of the agreement, Control Solutions and CODA will jointly develop additional, comprehensive compliance software products to help customers comply with SOX and other regulations, such as the European Union's Basel II.

Control Solutions has leveraged its breadth and depth of internal audit experience to assist over 250 US-listed companies with SOX readiness and ongoing compliance. After achieving a quick compliance fix , the next challenge for companies is "making SOX stick" , turning the near-impossible project into a practical and sustainable process, where documented processes are transformed into systems that drive the finance function. Accordingly, SOCET adds effective management dashboard reporting to the features of CODA-Control. The combination should bring additional value to existing customers. With the addition of SOCET and the opportunity to capitalize on Control Solutions' SOX expertise, CODA hopes to soon be a one-stop software shop for the whole process compliance cycle.

Future versions of SOCET, now re-branded as CODA-Control Assessor will support compliance with international regulations, since, while Control Solutions will provide the internal controls experience, CODA will provide the software to deliver it. Additionally, CODA-Control currently provides a Web-based platform for defining, rolling out, monitoring, and executing a complete range of financial, human resource (HR), and IT processes, in order to provide the visibility, repeatability, and an audit trail that is required to drive ongoing adherence to a user company's defined compliance procedures. SOCET similarly provides a Web-based environment to facilitate the testing and evaluation of financial, HR, and IT processes by an organization's internal audit team. The tool also provides management information on the status project testing and presents the information in an executive dashboard. As such, CODA's existing compliance application and SOCET are functionally highly complementary. On the technology front, both leverage Microsoft .NET, Internet Information Server (IIS) Web Server, and Structured Query Language (SQL) Server databases.

Control Solutions' deep expertise and experience in running over 250 SOX compliance projects in the US have shaped the design of SOCET. By transferring ownership to CODA, existing users should benefit from both CODA's support infrastructure and ongoing development, while CODA can continue to draw on Control Solutions' domain experience for the product's ongoing design. The roadmap for SOCET shows that the solution will become integrated into the CODA compliance suite (whose footprint will thereby be extended), while retaining its current ability to run as a standalone application. CODA will shortly announce a solution to greatly accelerate the design of controls and thereby provide a more complete solution for designing, implementing, sustaining, and testing the controls for SOX and other existing and emerging compliance initiatives, globally.

At this stage, even without SOCET's additions, CODA-Control delivers a centralized management and document repository. This is a repository web site that pulls together the tasks, people, supporting documentation, and necessary choreography to ensure that the process is completed in a compliant and efficient manner. It will also offer reasonably quick deployment and adoption and will be an easy-to-use implementation of a best practice model for a given financial process. CODA-Control also has a minimal user learning curve that leverages existing Microsoft Office skills and existing back-office applications. The product will also foster consistency throughout the framework to implement preventive controls that ensure repeatability of process completion, and this will be done in a way that promotes continuous process improvement. It will also offer "Command Center" visibility of current process status, percentage of completion, current hold-ups, task assignments, etc., and an entire audit trail of tasks, documents, commentary, etc. These features will be accessible to users and their auditors via an intranet uniform resource locator (URL). However, the product is also an extensible platform that supports automated task completion using Web service interrogation and automated updates of back-office systems. It also associates electronic forms to their related tasks using Microsoft InfoPath, and ccontrols both recurring financials processes (such as period-end closing, internal audit programs, budgeting, planning cycles, etc.) and ad hoc processes (including new hires, new vendors, capital projects etc.). Last but not least, the product also controls business processes such as the opening of new locations, corporate responsibility programs, HR processes, and so on.
In July 2005, CODA announced that it had also acquired Simple Concepts AB, a financial consolidation software specialist for 3.25 million, plus incentive based payments. Simple Concepts' consolidation and treasury system, OCRA, will be made available worldwide as part of the CODA Financial Intelligence suite for all leading enterprise resource planning (ERP) and finance systems. Simple Concepts' offices have become the headquarters of CODA's new Nordic operation and Simple Concepts' office in Tallinn, Estonia is CODA's first directly owned operation in Eastern Europe and the Baltic states, and will continue to be the research and development center for OCRA. As part of the acquisition, CODA has retained the services of both of Simple Concepts' founders; Alar Lange is the managing director of CODA Nordic, while Lars Svensson retains responsibility for the development of OCRA.

The acquisition had apparently been in the works for a while, and when the announcement was made, CODA had already built CODA-Financials to integrate with the acquired product. The product, now branded OCRA: a CODA solution, will immediately be made available in a standalone form, and as an integral part of the CODA Financial Intelligence suite. OCRA will be available with CODA Dream, a product offering for the lower-end of the market. CODA Dream resulted from CODA's early 2003 acquisition of the former SquareSum, and will be made available to customers and prospects in the fourth quarter of 2005 or possibly earlier. OCRA is reportedly the number one consolidation product in Sweden. Over ninety client organizations in Scandinavia use the product as their core consolidation and reporting tool, and CODA has a number of CODA Financials customers who have multinational requirements, which should make OCRA appealing. OCRA has gained a reputation in Europe as being a functionally and technically superior solution, because it is Web-based and uses a powerful workflow (as will be detailed below). It also is only a fraction of the cost to implement when compared to current traditional market leaders which will likely be another incentive for users to adopt the tool.

Consolidation applications handle the process of analyzing, reporting, and reconciling the accounts from across a group of companies into a single "consolidated" group report. Financial analytics software works by consolidating data from disparate systems into one source, giving financial analysts—and, more crucially, decision makers in other departments—a consistent view of performance across the organization. Using simple queries, such as "What were our sales figures in a particular region this quarter?", through a browser or a client-server user interface (UI), managers can get a "single view of the truth" and significantly reduce the amount of time it takes to get the desired financial answers.

Unlike most of its rivals, OCRA delivers this capability via the Internet, and it combines operational financial control with statutory group accounting, and delivers multi-dimensional reporting with a whole range of options, via built-in reporting and analysis through its hybrid multi-dimensional and hierarchical database structure. Also, OCRA is designed around a workflow method with embedded rules, procedures, and techniques used and verified by auditors with years of experience. The product is currently available in English and Swedish, and is being translated into CODA's core languages. Other languages will be delivered according to customer demand.

Joining the Sarbanes-Oxley Bandwagon; Meeting the Needs of Small and Medium Businesses

The need for solutions that can meet compliance regulations has grown. In 2004, finance executives around the world became increasingly sensitive to the need to improve reporting in relation to their corporate governance and regulatory compliance obligations. CODA Group, a United Kingdom-based finance management system specialist responded by launching CODA-Control, a task modeling tool (engine), which helps user companies control and audit business processes, and automate data collection for financial reporting. CODA-Control is one of CODA's recently unveiled collaborative solutions, and aids regulatory compliance, period-end financial closing, and automates financial procedures, thus possibly reducing escalating audit costs and lowering the risks of non-compliance. The product takes the organization's best practice model of a documented financial process and automatically generates a dedicated shared, secure, in-house team web site through which the execution of the entire process is controlled. CODA-Control helps transform the organization's processes into highly repeatable, auditable, and controllable events.

Part Two of the Composing Collaborative Financial Applications, CODA series.

As exemplified by CODA-Control, CODA views Microsoft technology as its primary development platform for its process control applications. This should help organizations manage and improve complex business processes, such as those geared towards enabling compliance with the Sarbanes-Oxley Act (SOX) of 2002 and towards facilitating month-end closing. CODA's decision to design a control application using the Microsoft SharePoint Products and Technologies platform has even been cited as a key factor in some customers' decisions to purchase CODA-Control.

To put this into context, SOX was passed by the US Congress in response to a number of high profile financial scandals, such as those at Enron, Tyco, and WorldCom, with the idea of making corporate accounting procedures more transparent to investors and regulators. Even before these fraudulent scandals, missed earnings announcements were often accompanied by chief executive officers (CFO) stating that financial expectations were not met due to a "lack of visibility" into corporate activities. These CFOs would frequently blame unforeseeable events, such as a key customer canceling a major order unexpectedly, or suppliers ramping up prices due to a shortage of raw materials. Regardless of the reason, CFOs are increasingly being called upon to give more accurate estimates of their earnings potential, and explanations as to why their company failed to meet these estimates.

Although the SOX law included a number of new mandates, two sections in particular have had clear implications for corporate information systems. Section 404 (Management Assessment of Internal Controls) requires management to assess, on a yearly basis, the effectiveness of its own internal controls and procedures for financial reporting. Section 409 (Real Time Disclosure) requires companies to disclose material changes in their financial condition or operations on a rapid and current basis. These two sections have prompted many predictions regarding how much must be spent on information technology (IT) in order to meet compliance needs (albeit, this may be at the cost of stalled projects in other areas that are now considered lower priority). Section 404 requires audits of internal controls, and has caused executives to reexamine, and possibly replace, operational systems that are not well integrated with financial systems. For example, an accounts payable (AP) system that does not systematically match purchase orders and receipts to vendor invoices, before the payment is made, might be vulnerable to fraud. Such a system may also be vulnerable to abuse by someone who creates fictitious employees and suppliers and then pockets the money. In addition, an invoicing system that is not integrated with shipping might allow a manager to improperly recognize revenue that was not yet earned.

Section 409 seems to call for a more transparent and integrated financial reporting system than many companies have. For example, companies that work on a ten day financial closing period seem to be at risk for non-compliance with real time disclosure, which currently demands the disclosure of material events within forty-eight hours. The problem is particularly acute for firms with multiple operating units and decentralized systems, because, in recent years, many enterprises have grown both organically and through acquisitions. As a result, accurately reporting on these business units requires a significant number of "manual" accounting processes and adjustments. Such companies will either need to adopt a common financial reporting system, perhaps by integrating multiple systems with a financial reporting layer at the corporate level, or by implementing a corporate performance management (CPM) solution to provide near real time analytics.

In any case, the requirements of SOX increase the amount of required manual processing, which, in turn, significantly increases the cost of compliance. The ongoing cost of testing manual financial controls to ensure SOX compliance, and the ongoing compliance risks associated with those controls are forcing companies to move towards financial systems that not only record transactions, but also manage the entire SOX 404 compliance process. Early adopters of SOX-compliance have reportedly learned some hard lessons by using SOX programs that highlight manual, paper-based processes. Such processes are very costly to audit as commpared to automated processes, and it is quite time-consuming to reconcile and correct errors. Such systems are also at higher risk for human errors and omissions.
In light of this, small or medium business faces a daunting task. It is no longer enough for a company to develop a strong business plan, have a breakthrough product or service, and build strong and effective distribution channels. The complexities of today's business world have created new risks, with a myriad of regulations and complex reporting requirements that can overwhelm a lean and focused organization, regardless of its size. The logical question is how a smaller organization, with limited resources, is supposed to cope with all of this, and, even more importantly, how it will stay abreast of the additional changes that are on the way. For instance, under existing (and soon to be outdated) accounting rules, a company might value its inventories at historic cost. For example, an electronics goods vendor might value unsold, months-old DVDs at the amount they could have been sold upon their initial release. However, under the forthcoming proposed International Accounting Standard (IAS-2), a company has to give an up-to-date net realizable value (NRV). In other words, it must give an accurate estimate of the products' market value at the time the report is published, with the idea that all corporate assets must be valued at their fair value, rather than at their problematic historic cost. Companies will also need to account for the cost of all employee compensation plans. In particular, this means that the cost of stock option plans or any shortfall in company pension funds must be recorded in the accounts.

Given the magnitude of tracking these types of nuanced accounts, the only sensible answer is to use technology, since many tools have been developed that can greatly simplify the process. Indeed, new versions of compliance software represent big improvements over earlier incarnations. Certainly, in addition to CODA-Control, recent releases from Axentis, ACL Services, Certus, Oversight Technology, Hummingbird, OpenPages, Virsa Systems, Precision Consulting, and Approva reflect a more realistic understanding of the compliance burdens. Some of these solutions compare a company's current controls to compliance "best practices", offering solutions on how to shore up weaknesses and better segregate duties. For example, the software can govern who has clearance to write checks to vendors, to pay employees, or to add revenue in a given quarter. Such software can also enforce the rules by, for example, alerting compliance watchdogs if an unauthorized person attempts to make changes, and can thus act as a mechanism to prevent fraud. Other solutions can help managers document policies and procedures, create electronic archives of those policies, or flag internal transactions that look suspicious.

Investment in CODA-Control-like financial systems might provide a cost-efficient solution that would allow business managers to focus more time on operations and less on compliance. Further, these systems might allow user enterprises to streamline the integration of new divisions into their financial systems and processes, ensuring that the business processes of the acquired units are SOX 404 compliant. Nonetheless, before they can benefit from this technology, small business managers must select the right tools. For more on the critical attributes of SOX tool sets, as well as a discussion on how to use them effectively to maximize payback on the investment of time and money, see Attributes of Sarbanes-Oxley Tool Sets.

Many SOX-compliant businesses will likely still spend many thousands of labor hours and millions of dollars in documenting their accounting processes. In addition, many companies will continue to incur significant annual audit fees for the ongoing testing of manual processes. CODA-Control might come in handy as a practical and affordable solution to this problem for medium to large companies, since CODA can transform manual processes into visible, repeatable, controllable, and auditable events. In other words, it might make auditing simpler, quicker, and cheaper, and thereby change CFOs and controllers back from being slaves to SOX to being masters of finance. In particular, the automation and centralization of manual processes should reduce both the risk and the associated costs of audits because the required checks and balances should be enforced by the system. In addition, processes in remote locations can be tested centrally, re-keying errors are eliminated (and reconciliation effort is thus reduced), and authorizations can be captured electronically and viewed on-line, because one can implement preventive controls to preempt errors before they occur. While there is no panacea for ensuring adherence to documented best practices, automated process management, such as the CODA-Control solution, still seems to be an essential part of first two years or so of any SOX compliance program.

The CODA-Control solution is available to all organizations, particularly those subject to SOX-compliance, and is independent of a company's financial accounting system. A Microsoft SharePoint web site powered by CODA can deliver tasks, forms, attachment, documents, etc. to business units' diverse transactional systems, and even include all necessary language translations. CODA expects demand for the solution to be extremely high in 2005 and 2006, and has specialist implementation resources available to support organizations worldwide. Still, while such software can help, it is not going to completely automate compliance, which will continue to be a huge manual effort, as there is no substitute for a manager's understanding of the business when it comes to assessing, designing, and implementing proper internal controls.

Composing Collaborative Financial Applications

Founded in 1979, and headquartered in the United Kingdom, CODA Group is a finance management systems specialist, and part of the publicly traded CODASciSys plc. group (AIM: CSY). After a series of changes which began in the late 1990s when it was first acquired and then divested by former Baan to Science Systems, and then in early 2000, CODA changed its name to CODASciSys. (See Baan Posts $236 Million Loss and Sells Off Coda for Nearly $40M Less Than It Paid). The group offers a broad suite of products and services designed to meet the needs of financial and accounting departments. Its offerings range from financial, accounting, and procurement systems linked to a complementary suite of applications that support finance, reporting, and analytic processes across the organization, through to planning, budgeting, consolidation, reporting, and analytics. It also encompasses process control and compliance management. Its traditional transactional systems are applications that optimize accounting, procurement, asset management, and e-commerce across (and beyond) the entire, often distributed, user enterprise.

Lately, the vendor has expanded into a range of integrated business intelligence (BI), planning, forecasting, and consolidation analytic tools to deliver a more complete, near real time picture of the user organization's finances, performance, and opportunities. Among these complementary applications, which will explained in more detail in this article series, is a range of new collaborative applications that will streamline and automate key business processes, such as regulatory compliance, financial period-end close, and corporate responsibility programs.

Currently CODA employs more than 550 people around the world and delivers global sales, service, and support through its own offices in 11 countries. It has a carefully selected network of partners in a further 17 countries to provide implementation services, training, and support for over 2,500 customers in over 100 countries. Of its total number of employees, about 170 are in research and development (R&D), 60 in support (with 15 based in the US), and 110 in consulting. Its worldwide customer base includes medium and large user organizations found across many industry sectors, such as insurance, shipping, transportation and logistics, retail, banking and finance, professional services, and the public sector. While retail is one of the stronger sectors for CODA in the UK, transportation and shipping and financial services companies are the frequent users in North America.

CODA Financials, Inc., located in Manchester, New Hampshire (US) is one part of the CODA Group. Present in the US and Canada since 1988, CODA Financials has a rich history of helping finance departments solve complex problems where issues of scale or high transactional volumes, reliability, and performance are of primary importance. While many may not have heard of CODA itself, many have heard of some of the global, blue chip organizations that are using CODA products and services to support their business. CODA has more than 250 customers in the US and Canada, including Booz-Allen & Hamilton, Maher Terminals, Texas Pacific Group, Lin TV, Pan-American Life Insurance, and Reno Depot, that have delegated their financial intelligence requirements to CODA. Globally, and across some industry sectors, clients include IKEA in retail, AMBAC Assurance Corporation in the financial services, Central Ohio Transit Authority (COTA) in transportation and logistics, and the Fashion Institute of Design and Merchandising in education.
A key attribute of CODA's offerings is its "multi" features. It can handle multiple companies, multiple currencies, multiple languages, and multiple charts of accounts in a single product's instance or database. Thus, its single or "unified" ledger architecture, which processes and holds the user company's financial data in a single ledger and in real time, eliminates traditionally lengthy and tardy batch updates between sub-ledgers. Consequently, a near real time financial position is always maintained, and the entire general ledger (GL) should always be balanced. Additionally, the Multiple Dimensional "Flexchart" capability supports up to eight variable length account code segments, which enable revenue and expense tracking at a highly detailed level. The Hierarchies and Account Groups features add virtually unlimited account "roll-ups" to meet inquiry, reporting, and drilldown needs.

Additionally, the complementary CODA analysis and collaborative solutions have been designed to integrate seamlessly both with CODA applications and other leading operational systems to capitalize on customers' existing information technology (IT) investments. Increasingly, CODA solutions are also being used to address the complex requirements of companies that need to intelligently share information with business partners, customers, and suppliers. Furthermore, "upgrade friendly" interfaces underline the vendor's technical vision for integration. For instance, CODA's application programming interfaces (API) "de-couple" the source and feeder applications, thereby enabling system upgrades without having to reengineer interfaces. Application-driven form and report customizations are preserved during upgrades.

Last but not least, the open and standards-based product architecture supports multiple platforms, third party reporting tools, secure Microsoft Office integration, and extensible markup language (XML) and Web services integration. Earlier in 2005, Microsoft Corp. and CODA announced a multiyear alliance intended to enable CODA to deliver a range of financial accounting, management, analysis, and control solutions that take advantage of the Microsoft platform. In addition to CODA's existing line of financial management products for the Microsoft platform, versions of the company's next generation of analysis and process control solutions—including CODA-Analytics and CODA-Intelligence for corporate performance management (CPM), and CODA-Control for compliant process management—will be built using Microsoft technology. Among these are the Microsoft .NET Framework, Structured Query Language (SQL) Server 2005 Integration Services and Analysis Services, Microsoft Office System, Windows Server 2003, and SharePoint Portal products and technologies. CODA maintains that the alliance should help it deliver solutions that will allow enterprises to analyze, control, and exploit changing business dynamics and realize greater value from their financial systems investments. By building on the Microsoft platform, CODA pledges to deliver greater customer value with solutions that are even easier to use, deploy, and maintain, and will help reduce ownership and integration costs.

The alliance between CODA and Microsoft builds on the late 2004 announcement that highlighted CODA's support for the new Microsoft Development Center in Denmark. CODA was the first Microsoft independent software vendor (ISV) partner to take advantage of the center to design, develop, and improve solutions that use the latest advancements to the Microsoft platform. The resulting system architecture designs now include a number of new technologies that aim to helping performance and customer usability, as well as to accelerate CODA's time-to-market with its new application architecture. The new technologies include

* Information Bridge Framework (IBF). Allows data from line of business (LOB) systems (such as CODA�Financials) to be "brought to life" inside the Microsoft Office Suite and related systems that use MS Office technology (such as CODA Collaborative Control and CODA XL)

* Microsoft BizTalk Server 2004. Microsoft engineers reportedly helped the CODA team understand the tight integration of BizTalk into CODA applications, facilitating complex hub-and-spoke back-end business integrations.

There is also an apparent commitment to Microsoft technologies; for example, analytics solutions like Analytic Explorer and CODA Intelligence will exploit SQL Server 2005 integration services, analysis services, and reporting services, while process automation and modeling solutions like CODA-Control will exploit latest Microsoft Office technologies. However, other CODA transactional solutions for financial management support many other platforms and configurations, including OpenVMS (Virtual Memory System), IBM iSeries (AS/400), UNIX, open source, client/server, Web technologies, and Web services (without imposing the choice between client/server and Web-based configurations on the customer). On the application server side, with the choice of the Microsoft SQL Server, Oracle, IBM DB2/400, or Sybase database platforms and the choice of Windows Server, UNIX (HP UX, Sun Solaris, and IBM AIX versions), and IBM iSeries operating systems (OS), application services provide and enforce business rules, security, and validation. The application server includes a single point of maintenance for users, roles, business rules, account validation, reporting roll-up structures, master file details, document posting rules, inquiry templates, pay, matching, etc. The system features a scalable financial engine that can accommodate between tens and thousands of concurrent connections with a farm enabled Web server.

On the other hand, by leveraging extensible markup language (XML) and transmission control protocol/Internet protocol (TCP/IP), Web servers (which can be eithher the open source Apache on UNIX/IBM iSeries/Linux or Microsoft Internet Information Server [IIS] on Windows) enable a scalable delivery of CODA functionality to a Web browser and to Web service-enabled user interfaces (UI), and also serve as gateways for integration. They enable location independent, tailored, intuitive user operation. Form modifications are stored as separate XML documents, and thus become "upgrade friendly" as customizations are preserved during future upgrades. In addition, the use of hypertext markup language (HTML) over HyperText Transfer Protocol (HTTP)/ Secure HTTP (S-HTTP) enables multi-window, browser-based access to complete CODA functionality, as well as centralized configuration, rollout of the user's desktop environment, and a zero-client footprint installed across a secure intranet connection. Moreover, CODA-Portal provides a common platform to view both live CODA data and non-CODA data published as Web documents.

The Challenges of the Lawson-Intentia Merger

The new management team for the company resulting from the merger of Lawson Software, Inc. (NASDAQ: LWSN) with Intentia International AB (XSSE: INT B) will have its work cut out for it. Both companies serve different markets, which will hopefully extend, not cannibalize each other's client base, but combining two companies with financial and revenue growth issues is not exactly a recipe for success. Although recent quarters for both companies have shown license revenue increases and profitability, neither Lawson nor Intentia have been stellar in terms of their financial performance lately. Despite this recent increase, overall Lawson has been experiencing declining license revenue (down nearly 20 percent since 2002) and has been keeping some appearances of profits mainly by cutting costs. Now that revenues are increasing, this cost cutting and revenue management strategy may provide further opportunity. Intentia, on the other hand has been on a losing streak for years, with its last profitable full fiscal year was 1998. Intentia's financial situation has at least played in Lawson's favor to acquire Intentia's assets at a good price—about 1.2 times its revenue, and become somewhat a bigger partner in what has been touted as the "merger of equals". For details on the merger announcement, see "New" Lawson Software's Transatlantic Extended-ERP Intentions.

Part Four of the "New" Lawson Software's Transatlantic Extended-ERP Intentions series.

This merger is not a mere consolidation of a smaller and struggling vendor by a bigger and more viable one. The intention is to grow a company that remains profitable on both sides. But it is questionable whether the existing Intentia and Lawson sales and service organization can sell and support each other's products. While having little overlapping functionality in the product lines is favorable, the downside is that the products serve quite different industries and different geographical markets, meaning the "common denominator" of post-integration cost-cutting synergies and cross-selling opportunities is low. Cross-selling brings the challenge of preparing Lawson's North American channel to sell in unfamiliar manufacturing, maintenance, and distribution industries. Currently, there are only a few seasoned Intentia implementers in the region nowadays and, vice versa, in terms of Intentia's European and Asia-Pacific channel that has been selling to the service and non-manufacturing industries. One should also not neglect the possible brand confusion in many markets either. For example, the Lawson brand will hardly ever resonate with prospective users in many manufacturing segments, even in North America, let alone elsewhere.

Executives of both merging parties have pledged to participate equally in managing the new combined Lawson and are committed to developing and supporting both vendors' current products through 2010. However, although this should comfort existing customers that their investments are not endangered, it limits "new" Lawson's opportunity to achieve significant near-term cost savings through customarily more forceful rationalization to bolster its near-term financial health. Quite the contrary, this will require investments in both complementary product lines that will need to be evolved and supported in the short-to-mid term, in order to eventually take advantage of any up-sell or cross-sell opportunities until a more unified next-generation product can be delivered. At the same time, the new entity will have to carefully blend the differing corporate cultures of merging parties, both of which have traditionally been proud of their product, with resulting in a "not invented here" attitude.

Further, even at the technology front, where the two vendors have the most in common, they will still have to resolve separately launched initiatives to create a unified next-generation set of software oriented architecture-based products (SOA). For example, while Intentia has rewritten its product in Java, Lawson still has a proprietary fourth generation language (4GL) in the business logic layer of its three-tier architecture. This proprietary 4GL defines business logic with a computer aided software engineering (CASE) tool that generates a COBOL executable. Going forward, Lawson plans to use Java, or rather a highly intuitive 5GL named Lawson Pattern Language (LPL) that would generate Java code, rather than the 4GL, while the presentation layer already uses extensible markup language (XML). The recently unveiled Landmark project, however, has great potential, but is still unproven and needs to be rationalized with development efforts at Intentia. For more information of the "New" Lawson's technology blueprint, see A New Platform to Battle Software Bloat?.
One can point out the success of similar mergers between Epicor and Scala or SSA Global and Infinium, but the major difference is that these respective vendors had more in common. They had a greater critical mass for synergies than Lawson and Intentia, and moreover, the acquiring vendors, Epicor and SSA Global had already "turned the corner" financially before their mergers. Although some might argue that Lawson and Intentia have also had a turnaround, Lawson will be caught between "the hammer and anvil" in an environment where everyone is concerned with the financial health of the software vendors. They have had to continue their cost containment efforts while enhancing both current product lines, developing the next-generation ones, growing top-line revenue, and increasing brand recognition.

To that end, the new management team will need to score some early wins to demonstrate the synergy of the deal. The primary goal will be to quickly develop the necessary integration to push Lawson financial and human resources (HR) applications into Intentia's installed base and Intentia's manufacturing and maintenance modules into Lawson's.

The management teams at Lawson and Intentia certainly understand the efforts ahead, and they both have experience in dealing with revitalizing stalled software companies. Bertrand Sciard, the president and chief executive officer (CEO) of Intentia, who will become the chief operating officer (COO) of the new company, and Romesh Wadhwani, who will serve as one of the co-chairs, have seemingly paved the way for "new" Lawson if one is to judge their record at Intentia so far. They have reduced the number of targeted markets, reduced costs, and emphasized license revenue growth. Likewise, Harry Debes the former president and CEO of Lawson, and the new management team will first return to their core competencies, and allocate their resources to a few existing markets and products where Lawson has traditionally been strong. Once the acquisition is finalized, the vendor hopes to have organic growth in its traditional strongholds of health care, retail, government, and financial services, while gaining new traction in areas in which Intentia has been strong. Another part of the plan is to add a new sales force in 2006 to handle the renewed focus.

Like Infor, both Lawson and Intentia have adopted a strategy that is highly focused on specific industries, which is possibly the only way to compete these days against the "two-horse race" between SAP and Oracle, particularly in the top tier. If these notable challenges can be overcome, the new Lawson will have a chance to stake a leadership position in the upper mid-market, enterprise resource planning (ERP) segment, and give customers in those industries another viable choice. But to that end, it must crisply define its target markets, create more viable leads, provide its people with appropriate sales and product training, ensure that they are properly resourced to cover the territory and offer its clients a complete solution to their needs—a full vertical-specific software suite complemented by Lawson consulting services.

Lawson admits that its solutions are less vertical than they could be, particularly when compared to Intentia's. Namely, the number of customers in certain industries have been the result of circumstance rather than the vendor's deliberate and orchestrated effort to deliver a perfect-fit solution. The vendor offers primarily horizontal solutions (HR, financials, and procurement) with a few vertical-point solutions that extend its offerings. Lawson might have a more complete solution in the retail sector, but that is more an exception, not a general rule. Regardless, in each of its target verticals there is still a lot of opportunity that the vendor does not currently address. Yet, in order to be an effective vertical-solutions company, it must offer its clients the mission-critical, vertical-specific applications they need in addition to the back-office ERP solutions it provides today. Thus, there is both a challenge and an opportunity to fix this and thereby grow the footprint and revenue with each client.
This brings us to the opportunity for new Lawson to enter into more strategic alliances with systems integrators (SIS), consultants, and resellers to benefit from the partners' resources, expertise and customer base. Traditionally, both Lawson and Intentia have been remiss to cultivate strategic relationships with system integrators that have also demonstrated vertical expertise. Yet, the main cause of Intentia's protracted losses is that more than half of its revenue traditionally comes from professional services by Intentia's well remunerated (and perhaps spoiled, by US workplace standards) staffers. The gross margin on these services has been around 10 percent, which is way too low to sustain the cost of new product development.

Also, integrators need templates, specific expertise, and other intellectual property furnished by the vendor, otherwise they will end up over customizing the solution, which defies the purpose of an integrated approach in the first place. Intentia and Lawson have only recently made a point of concentrating their internal sales efforts on their traditional vertical markets and to rely on partners to address and develop particular industry needs, thereby expanding its functionality footprint.

Additionally, while Lawson and Intentia have long provided professional services to ensure high customer satisfaction ("to get one client at a time and keep it forever"), the relatively recent announcements of vertically focused system implementation partnerships, with, for example, CSC and Capgemini for the health care industry, and with Answerthink and Deloitte for the service automation sector, should 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, partnerships with renowned middleware and enterprise application integration (EAI), infrastructure and applications management vendors including IBM, WebMethods, Sun, BEA Systems, will provide Lawson with toolkits that are readily available for making deeper functional adjustments and customizations. They will also allow for better scalability, security, and load balancing and overall, it will contribute to areas where the company has traditionally trailed the bigger competitors. Other strategic relationships should also allow Lawson to expand its product functionality through the offering of services that are not its core competency, such as BSI TaxFactory for state and local tax data.

The size and scale of future engagements could, on the other hand, be more attractive to the consulting and system integration (SI) giants to bring real value to Lawson. When integrators participated in the past, they all too often acted like "ambulance chasers", showing up at the last minute when a deal had already been decided, asking to be introduced to the account and often getting in the way of the Lawson' relationship with the customer. Only when a services partner is actively campaigning for Lawson to win the deal and is working with its services management team to share the work in an equitable manner, will it deliver value.

Lawson and Intentia will therefore have to put lots of thought and effort to select the most appropriate partnerships for each ttargeted vertical sector as to avoid internal competition; to further focus these partnership; and to reach the critical mass of trained professionals for the industry sector. When it comes to staff augmentation, the current 15 percent or less margins the two vendors have been getting from third-party service providers remains unacceptably low. For this kind of work, they will likely further explore offshore resources to get at a better price for the clients and a better margin for new Lawson. At present IBM and Symphony have offshore relationships with Intentia and Lawson has an offshore relationship with Xansa, and going forward they will explore both of these offerings as well as others, including having its own offshore operation.
Further, while "old" Lawson's deliberate decision not to offer a manufacturing product suite has been known, the company's CRM strategy has been less clear-cut. The vendor departed from its plans to develop CRM functionality in house in 2000, and partnered with Siebel instead (see Lawson Software's CRM and ASP Moves— Wise, Bold, Injudicious, Enforced, or Something Else?).

The partnership has, however, had only limited success in the financial institutions sector, and the reasons thereof would be too extensive system modifications and price tag to handle the needs of other verticals, which often do not require a product-oriented, customer relationship management (CRM) system per se either. Indeed, Lawson confirms to have ended its reseller agreement with Siebel because its customers, given the verticals they play in, were reportedly not demanding a CRM solution from Lawson.

An exception is professional services, where Lawson's Service Process Optimization (SPO) solution already offers strong native CRM functionality. Also, service automation is a vertical where opportunity management remains the main CRM need and where the alliance with Interface Software will play its role (see Interface Software Expands Its CRM Functionality).

Still, while there is also the truth in the claims that the ERP and the CRM decisions are often made separately, vendors like SAP, Oracle, or SSA Global 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. Time will only tell whether Intentia's adequate CRM functionality for manufacturers will be enough of a jump start for Lawson's missing order entry and management capabilities for disparate industries. In any case, the CRM strategy remains muddled at this stage.

Increased momentum in top-line revenue and improved market perception and awareness are needed for Lawson to remain competitive in a rapidly consolidating market, since any instability and uncertainty during the impending integration process could lead to a further drop in new license sales (although license revenues are currently increasing) and vulnerability to many remaining predators in the market. Still, since both vendors' performances and global recognitions have been suboptimal lately (especially due to the uncertainty caused by constant acquisitions and mergers), they may not have much left to lose, and this merger is certainly worth a shot.

Market Impact of Lawson-Intentia Merger

While we do not indulge in speculating who is likely to merge with whom in the highly tectonic enterprise applications market, we have to admit that the merger of Lawson Software, Inc. (NASDAQ: LWSN) with Intentia International AB (XSSE: INT B) had not crossed our mind before it actually happened. (For details on the merger announcement, see "New" Lawson Software's Transatlantic Extended-ERP Intentions).

The move was quite a surprise, since both Lawson and Intentia, which have hardly competed directly, and had undergone major restructurings, put their product technological roadmaps on similar courses, and resisted many attempts to be acquired, and they even repeatedly professed interest in acquiring and assimilating smaller direct competitors. There were rumors of Lawson being acquired by Oracle or merging with its former customer relationship management (CRM) partner Siebel Systems, and of Intentia merging with another struggling Swedish peer, IFS (see IFS Continues Its Reinvention through Pruning). Also there were suggestions of Intentia merging with a recovering Geac or being acquired by SSA Global.

There were other indications that deflected any indication of an Intentia-Lawson merger, such as Intentia's recently lost bid for MAPICS, which instead was awarded to Infor Global Solutions. Moreover, as mentioned in Intentia Prepares for Merger with Lawson, Intentia has been revamping its sales channel strategy, and, prior to the Lawson announcement, Intentia had not been secretive about the fact that it earmarked some of the $85 million (USD) raised from investors for acquisitions. This further obscured any indication of a merger between the two companies.

Yet ironically, the similar, concurrent, and respective moves of the two merging parties to execute a company turnaround are exactly what might produce some method to the madness of Intentia-Lawson merger. Their union somewhat resembles a personal relationship where opposites attract, and while their coupling may not have been love at first sight, it might still become a successful marriage of convenience.

The force-joining deal might bring about a much needed, stronger statement for the market, and reverse Lawson's and Intentia's negative momentum, where both companies struggled in the frenzied and rapidly consolidating enterprise applications market. Intentia is hoping that Lawson's domestic brand recognition, in addition to Intentia's renewed vertical focus, and Java technology, will propel it to a greater success in the US market. Intentia entered the US market in the mid-1990s, but has not really racked up any large scale customer wins . Currently it only has about 200 customers that mostly within the fashion and apparel sector. Intentia's Americas business has, in the past, been an admittedly small investment, accounting for just roughly 5 percent of sales.

The issue, however, for Intentia has thus long been whether prospective multinational user enterprises will buy the idea of its future-proof Java technology, when it remains apparently a niche player with little to offer�apart from some references�outside Europe and Scandinavia. The "big few", companies of such stature as SAP, Oracle (now with PeopleSoft and J.D. Edwards), SSA Global (now with Baan, Marcam, Ironside, EXE Technologies, Infinium, Arzoon, etc.), Infor (now including MAPICS, Lilly, Mercia, NX Trend, SCT Process, etc.),and Sage are bound to look better. As will Microsoft Business Systems (MBS), which is at the lower-end market, but is working its way up.
The same can be said for Lawson, which has long competed successfully against the likes of SAP, former PeopleSoft, and Oracle, (see Lawson Asserts Itself, Draws a Bead on Bigger Players). Yet lately, it has been an uphill battle, especially since Oracle's protracted attempt to acquire PeopleSoft, resulted in much uncertainty in the market.

Additionally, Lawson's recent financial results were not too impressive. Increases in its profits were due to cost-cutting measures, and could be regarded as mere smokescreen for seriously slumping new license revenues. This possibly indicates that Lawson's vertical focus has not necessarily been an impervious strategy during the economic slowdown and an increasing competition.

Based on the most recent restructuring, which was undertaken in the first quarter 2005, the company managed to show $5.3 million (USD) in profit, due mostly to cost containment, with some additional improvements in services margins and a reduction in days sales outstanding (DSO). Yet, revenue has been stubbornly declining, down to $335 million (USD) in fiscal 2005 from $354 million (USD) a year before. Of this, the biggest concern was the steep drop in license revenue, which was down to $58 million (USD) in 2005 from $92 million (USD) a year earlier. On a more positive note, Lawson has maintained a strong balance sheet and a strong cash position; however, license revenues were still weak prior to the most recent quarter (the first quarter fiscal of 2006, ending August, 2005). However, the new chief executive officer's (CEO) focus on sales, caused license revenues to rise 40 percent. Still, the current quarter has not the best for license revenues, but it beats Lawson's license revenues for each of the quarters in the last fiscal year. In addition, it raised the outlook for the second fiscal quarter of 2006.

Nonetheless, the company had to trim its workforce a few times since going public in 2001, sometimes even by a double-digit percentage, in an effort to cut costs. This, combined with transferring some development work to India, where many peer companies, including Intentia, have found a cheaper labor. Lawson has lost a fifth of its workforce (down to over 1,500 now) since before its first major round of layoffs in June 2002, when it laid off 110 employees or 5 percent of its erstwhile workforce. The worst layoffs, however, took place in September 2002, when the vendor cut over 230 jobs, or 12 percent of its employees (see Lawson Software-IPO and Several Acquisitions After). Still, by reacting to current realities and adjusting its operational plans quickly to support the firm's strategic goals, along with aligning everyone's actions toward those goals, Lawson has at least demonstrated impressive management and financial discipline. One should note, however, that the CEO of Lawson, Harry Debes is investing in a new sales force, as the vendor has been attracting experienced sales expertise to increase its reach.

Somewhat resembling Intentia in some regard, "old" (or still current) Lawson Software could be regarded as an enterprise applications market anomaly. For one, the company, at its peak in fiscal 2002 boasted annual revenues of nearly $430 million (USD), but it has only a slim presence of less than 10 percent of revenues outside of its US domestic market. Further, it remains a major force in enterprise applications software, yet it does not cater the functionality for the manufacturing sectors, and the vastness of its sales are thus derived from just a few service-oriented vertical markets—primarily health care and retail.

Lawson has also made forays into the public sector, including US state and local governments, kindergarten to grade twelve (K-12) education institutions, public authorities, etc. It has also entered the financial service market, which includes banks and insurance providers. It has signed more than 140 public sector customers in the last three years or so. To that end, currently with over 2,000 customers in total, Lawson serves 2 of the 10 largest (by population) US state governments (or five of the top 20), and 4 of the 20 largest city school districts in the US. Lawson's software is in use at more than 1,300 schools with combined enrollments exceeding one million students. New markets that Lawson intends to seriously tackle include transportation and distribution, energy and utilities, gaming and entertainment, and publishing.

The irony might be that Lawson's and Intentia's similarities will bode well for the merger's success. However, a protracted regional/niche nature, focus on the functional and technical prowess of products rather than using a concurrent approach of savvy marketing and brand recognition creation, along with a lack of strategic product and systems integration partnerships due to the negative "not invented here" corporate cultures, will remain impediments unless promptly tackled and solved. For that reason, Lawson's recently espoused a 1,000 Days Customer Manifesto initiative. It is designed to nurture a loyal and happy client base in a market where there is little brand loyalty. Not only is the Manifesto designed to help drive additional revenue from loyal accounts, but it will foster a larger base of reference accounts, which will hopefully help win new clients. However, it has apparently been insufficient to overcome the clout of Lawson's more viable competitors. To make further headway, Lawson has partnered with IBM. Lawson believes this will increase its eco-system. This, combined with its increased size, new Lawson will hopefully attract new partners. Although its too early to tell for sure, the recent quarter might indicate that the value proposition is beginning to win with clients too.
The Lawson/Intentia merger, whether a virtue of necessity or a truly a bold initiative, is their joint proposition to re-energize their fight for market share. Alone, neither would have sufficient clout nor momentum. They have stated that they intend to focus on the enterprise resource planning (ERP) mid-market. As a result, both vendors should, at least on paper, double their individual sizes through this merger, dramatically expand their global reach, and leapfrog, revenue-wise, over revered competitors such as SSA Global, MBS, Infor, and Geac. One should never underestimate how important size and a global presence can be in a boardroom presentation before the selection committees when opponents are giants like SAP or Oracle.

The minimal geographic and industry overlap should present some cross-selling opportunities on a global scale. For example, Lawson should bring analytics, enterprise process management (EPM) and business intelligence (BI) to Intentia's base (although Intentia has been leveraging its partnership with Cognos to address this group). On the other hand, Intentia brings strong enterprise asset management (EAM), product service and manufacturing capabilities to Lawson customers, such as health care (to asset-rich hospitals) to complement Lawson's procurement and material management capabilities. Intentia's EAM and maintenance, repair and overhaul (MRO) capabilities might come in handy for Lawson to finally get a foothold into the utilities segment, where it has been unable to make a dent with only strong financial and human resources (HR) capabilities.

Likewise, there might be a synergy in the retail sector, where Intentia could certainly contribute with its solutions for fashion and consumer packaged goods (CPG) manufacturers and distributors. Lawson could take it from there to cover the retailers' functionality (there might also be some synergies between combining capabilities of the Intentia food and beverage with Lawson's grocery solutions). Also, given that the Symphony Group also owns the GERS Retail product, look for some possible mutual product developments in the future, especially in light of Oracle's intention to enter the retail sector as seen with its recent acquisitions of Retek and ProfitLogic. SAP has also responded in kind by acquiring Triversity.

Surely there is some inevitable overlap in the realms of financials, HR (where Lawson has far stronger capabilities), and procurement (where Intentia excels). However, it is likely that Lawson's upcoming blueprint for Landmark service oriented architecture (SOA), and Intentia's Java code base will eventually enable both companies to mix and match the best of each other's product offerings. In addition, both firms are already committed to IBM's technology stack. They will leverage WebSphere portal server, WebSphere application server, and WebSphere business integrator. For the time being, Intentia and Lawson applications and clients will remain on separate tracks.

Lawson is also staking its claim on the upper mid-market sweet spot, where companies with more than $250 million (USD) and less than $1 billion (USD) in revenues are situated. Lawson cites that over 70 percent of Oracle's and SAP's sales have to companies outside of this rrange, making more than $1 billion (USD) in annual revenues. Also over 70 percent of MBS' and Sage's sales have been to companies with less than $250 million (USD) in revenues. By contrast, Lawson and Intentia combined, will get 75 percent of their sales from companies in the middle ground; however, SAP and Oracle are trying to reach this market. Additionally, Microsoft and Sage are trying enter this market, as are companies like SSA Global, International Business Systems (IBS), Infor, Geac, QAD, IFS, Epicor, Glovia.