Jim Schaper, the chairman and CEO of Infor Global Solutions, likes to talk about the beach house he is building on the Georgia coast. Some day, Schaper says, he'll retire there and study the tide while recalling his 30-plus years of managing technology companies.
But for Schaper, that day is still a long way off. The high-energy, 53-year-old former college track star has big plans for his $2.2 billion, privately owned company. Within the next two years, Schaper says, he wants to build Infor to between $3 billion and $3.5 billion in annual revenues. And, by the time he retires, he expects Infor to be a growing, publicly traded company with annual revenues upwards of $4 billion.
Don't bet against him. In the past four years, mainly by acquiring a string of 19 software companies mostly serving mid-market manufacturing customers, Schaper has helped Infor grow from a $35 million, little-known vendor of process manufacturing systems into the world's third-largest supplier of enterprise software, trailing only SAP and Oracle. With the financial help of private equity firm Golden Gate Capital, Infor has swallowed a series of successively larger software vendors, culminating in its recently concluded $1.6 billion purchase of SSA Global. Over the past three years, Infor's customer base has grown from 2,000 to 70,000.
And, Schaper says, Infor's unprecedented growth-through-consolidation drive is far from over. Besides continuing to make acquisitions in key manufacturing-related product segments, he says, Infor is likely next to expand through acquisition into the retail software space.
"Buckle up and stay tuned," Schaper vows. "You ain't seen nothing yet."
No Rationalization
But what do Schaper's big growth plans mean for manufacturing companies who find that the ERP applications and others they've invested in and rely on are now under the expanding Infor umbrella? Specifically, will Infor prove willing and able to continue enhancing and supporting all of the products in its rapidly growing portfolio? Or will Infor, like some of its enterprise software competitors, begin to steer customers toward a future in which current products are consolidated and running on a single, common code base?
Infor's success in reaching Schaper's long-term goals rests on the answers to these questions, experts say. The company's strategy, not surprisingly, is built on retaining the customers it has brought in, often at a high price, through acquisition — and convincing them to renew maintenance and support contracts and to buy new software solutions from Infor.
"Infor needs to retain customers by continuing to invest in existing products," says Judy Sweeney, a senior vice president at AMR Research. "But, the level of resources they'll have to invest going forward is very dependent on maintenance and new add-on sales. As long as they have a healthy maintenance revenue stream coming from the installed base, they can sustain development dollars. But it all depends on keeping current customers happy."
Schaper says Infor's intention is to continue to support and enhance all of its existing products as long as they remain viable in the market. Infor, he says, has no plan to rationalize or consolidate its current products.
"We're not going to rationalize our products and put them on one platform," said Schaper in a recent interview with Managing Automation. "It's not in the best interest of our customers. And, quite frankly, it's not what they want. It would be, over time, a less expensive business model for us. But... regardless of the economics involved, on a long-term basis, it would not be in our best interest. We have every intention of continuing to support the major product lines through long-term development efforts, as well as provide them integration capabilities with our applications as well as third-party applications through SOA [service-oriented architecture]."
His commitment to "major product lines," Schaper says, means the company reserves the right to de-emphasize products that no longer maintain a critical mass of customer support. But that hasn't happened yet.
"We have not reached a point where we have a product line for a subset of customers that has a density level that [makes it] no longer a viable part of our business," Schaper says. "And we don't anticipate any of those, either."
Schaper's words are sweet music to recently assimilated manufacturing customers like Jim Mullin, IT manager at CPAC Inc., a manufacturer of home cleaning products and a user of the Syteline ERP suite from Mapics, which was acquired by Infor in April 2005. "I like the message that Infor will continue to support the product," Mullin says. In the 21 months since Infor acquired Mapics, Mullin says, he has seen support and product enhancement levels remain high. "I have seen no evidence that our experience is going to change dramatically."
A Developing Cost
Still, Infor's strategy will come with a high price tag. Besides bringing thousands of new customers, the acquisition spree has brought scores of new products, in which Infor must now invest. And it's not just new application functionality that must be developed. Infor must also build a new SOA platform with which it can create integrations between its newly acquired products.
"The idea that Infor can continue to support and develop extensions for every single product line that it now has is hard to believe," says AMR's Sweeney.
Schaper acknowledges that Infor's strategy will bring it higher development costs than many of its competitors. But, he says, "We're comfortable that we are investing a disproportionately high amount of our revenue back into ongoing and long-term development support of the products we have."
How can Schaper be comfortable with that situation? Because, he says, Infor has been structured from the ground up to profitably deliver enterprise software products and services to mid-market manufacturers and divisions of large enterprises.
"We built this business differently than Oracle and SAP have built their businesses," Schaper says. "The way we structured the company facilitates a cost structure that allows the company to be very profitable... while serving a market that has traditionally been under-penetrated and underserved because it has been the most expensive market to go after."
There are four key elements of that design. First, Schaper says, unlike Oracle and SAP, which rely heavily on system integrator partners, Infor provides most implementation services itself. That means that as Infor's product portfolio and customer base grow, so does its revenue from services.
Second, Infor focuses intently on customer retention rates, which, Schaper says, average 95%. That drives both services and maintenance revenues.
In addition, he says, Infor's software distribution model is more efficient. Unlike Oracle and SAP, which primarily use expensive direct sales forces to sell to large enterprise accounts, Infor employs a hybrid distribution approach that includes both direct sales and dedicated partners selling into global geographies where Infor does not need or want to invest.
Finally, Schaper claims, Infor simply runs a leaner ship. While the company won't reveal how many positions it has eliminated following various acquisitions, Schaper says, "We very aggressively consolidate those parts of the company that don't touch the customer."
And Infor economizes in other areas, too. The company spends little on marketing. Since it is private, it doesn't need to invest in the reporting apparatus that public companies must have. And, where it makes sense, Infor has consolidated product development groups. The company, for example, has brought together development teams supporting products that run on the same platform such as its LX and XA lines for IBM's iSeries.
"You don't need to invest twice in the same types of applications and extensions for the iSeries," Schaper notes.
The results, he says, have been encouraging. When Infor bought Mapics 21 months ago, the maker of ERP software for discrete manufacturers was experiencing slightly declining revenues, and its iSeries-related revenues were eroding. A year later, following the addition of quality management and lean functionality to the Mapics XA suite, Infor saw 5%-6% growth in the iSeries-based Mapics products and growth of 20%-25% in the Mapics Syteline products, which run on Microsoft's .NET platform. Infor has seen similar improvement in license revenues and profit margins on the enterprise asset management products that it acquired when it bought Datastream Systems Inc. last March.
Mapping the Products
But keeping a handle on costs and funding hefty development commitments aren't the only challenges Schaper faces. With a burgeoning roster of products — some of which address similar markets — Infor must clearly spell out which products it will emphasize for which vertical markets and how it will begin to integrate various products now under its control.
"They have multiple products that target discrete and process manufacturers," says AMR's Sweeney. "Infor's product strategy is definitely more confusing than SSA's was."
Infor officials say the company has been studying the strengths and customer bases for each of its ERP products and has begun to publish statements of direction about which products it will target at each manufacturing vertical sector and customer size profile.
"We have looked at all of our solution assets and at which solutions are best suited for which industries," says Mike Frichol, Infor's vice president for global industry and product marketing. "We are also looking at the complexity of business processes and the number of sites at a given company."
So far, for example, Infor has concluded that the LX product line is best suited for manufacturing companies in pharmaceuticals, biotech, chemicals, beverage, and CPG verticals. The LN product line — also acquired from SSA and based on the Baan ERP suite — will be targeted at larger industrial manufacturers with multiple sites and more complex business processes, Frichol says. And the Syteline product will be sold to smaller, multi-site companies in those verticals.
Infor will continue to refine specific product positioning going forward, Frichol says.
Infor's integration strategy is also a work in progress. In the summer of 2005, company officials described a plan — dubbed Corestone — which would provide a common set of technologies that would ultimately make integration of the company's various applications easier. Corestone was to include a common user interface, navigation methods, and messaging standards, and it was to have been largely rolled out by the end of 2006.
Now, Frichol says, Infor is extending the Corestone concept with something the company is calling Infor Open SOA. Whereas Corestone was a set of standard software development guidelines for Infor developers, Frichol says, Infor Open SOA will provide a services-oriented foundation for all Infor products that will make it easier for the company to integrate applications and will make it possible for customers to upgrade and extend existing systems in a modular fashion.
Already, Infor has begun to provide links between recently acquired applications. The company, for example, has built integrations between its Epiphany CRM system and ERP LN; between LN and LX and the Warehouse Management 4000 system; and between the Datastream 7i EAM system and Infor ERP Adage. Infor Open SOA, Frichol says, will enable Infor to go further, building composite applications that enable end-to-end business processes that span various Infor systems.
From a technology point of view, Infor Open SOA is not unlike Oracle's Fusion Middleware and SAP's NetWeaver/ESA strategy. Infor, Frichol says, will define and expose services from its existing applications and provide SOA-based middleware such as a services repository and enterprise service bus that will allow Infor and its customers to integrate and extend functionality using those services.
While Infor has yet to finalize all elements of Infor Open SOA, Frichol says the company will build its own services repository and will use the Sonic ESB developed by partner company Progress Software.
As of press time, Infor had yet to decide on the sources of other Infor Open SOA middleware components. One thing seems likely, however: Microsoft and .NET technologies will play key roles. Prior to the acquisition by Infor, SSA had centered its SOA strategy around IBM's WebSphere technology, while Infor had aligned with .NET. Infor will continue to support IBM middleware such as the DB2 database on the Infor products that currently use it, company officials say. But Microsoft will be Infor's strategic middleware partner.
"I do not see [IBM] as a strategic partner around components that we need to build our SOA strategy because they do not have solutions that fit our model and what our customers want," Schaper says. "Their components around SOA are, we believe, too expensive. And they eat too many internal customer resources. We believe we have found other, more suited components of our SOA strategy from others." Schaper says IBM will remain an Infor partner in connection with its iSeries and mainframe platforms.
Bringing It All Together
While the technology underlying Infor's SOA strategy will be similar to that of SAP and Oracle, the delivery will be worlds apart. Rather than position its SOA middleware as discrete products for which customers pay extra — as both SAP and Oracle do — Infor will include its SOA elements as integral components of its applications.
"Customers don't have to buy our SOA," Frichol says. "It will be embedded into the core functionality of the systems."
Infor has already begun to incorporate SOA design principles and technologies into some products, including XA. That process, Frichol says, will continue "for several years."
Customers like CPAC's Mullin say they're encouraged that Infor is beginning to articulate a solid and non-disruptive SOA strategy and that the company is promising ongoing support for existing products.
Some customers, however, say they'll withhold judgment until they see whether Infor's actions live up to Schaper's words.
"They're saying the right things about continuing support for the products that are out there now and that they are not going to sunset support on those products," says Dick Powell, senior vice president for IT and e-business at welding tool manufacturer ESAB Welding and Cutting Products, which is currently running older versions of the former SSA BPCS ERP system. "But we really want to see Infor push integration between SSA and Infor products."
Specifically, Powell says, ESAB wants to see Infor's financial consolidation and reporting tools integrated with SSA platforms like BPCS and Baan.
Other customers say they'll feel better about Infor as a vendor and a partner if the company corrects the field support problems that cropped up under SSA. "SSA had started to outsource their support, and that hasn't helped," says Ken Titel, director of systems development at Hayward Industries Inc., which uses ERP, warehouse management, transportation, and financial applications from SSA, now Infor. Titel, who says Hayward is currently in the market for a human resource management suite, says, "We're withholding judgment on Infor until we see how they handle the support issue."
Schaper says he has heard from other former SSA customers who are dissatisfied with SSA's decision to shift some support operations to its subsidiary in India. He says Infor plans to end the practice.
"There is a place for outsourcing, but it is not in end-user support," Schaper says.
Still, Schaper acknowledges, many users of products that have been recently acquired by Infor can be expected to sit back and wait to see if the vendor lives up to its promises.
"A lot of them are saying, 'Let's wait and see what these guys are all about,'" Schaper says. "'Let's wait and see if they deliver on what they're committing to.'"
Schaper just hopes they don't wait too long.