Lawson Strategy to Cuts Costs

If not a match made in heaven, Lawson Software and its CFO, Rob Schriesheim, are at least a solid fit. To keep its footing in a market dominated by two much larger competitors, the company must have a very strategic orientation. And the finance chief, far from an accounting geek, has spent most of his career at the high end of the strategy spectrum, embroiled in complex restructurings and the analysis of capital-allocation options.

That harmony notwithstanding, taking the CFO chair was not part of the plan when Schriesheim joined the company's board in 2006. Lawson — the third-largest publicly traded vendor of enterprise resource planning systems behind Oracle and SAP, according to Schriesheim — had recently merged with Intentia, a Swedish ERP supplier. The company's board and CEO decided that the newly constituted company needed a different type of CFO than the incumbent, and Schriesheim was charged with finding the replacement.

Before long, though, several board members urged him to take the role himself. They were motivated by observing the strong relationship Schriesheim had quickly developed with the CEO and the two executives' complementary skills. "It wasn't in my business plan at the time, but I did think it was an exciting situation," Schriesheim said during an interview with CFO editors in New York City on November 5. "It was a chance to fundamentally transform the company and a substantial intellectual challenge. There were a lot of strategic and operational issues where I felt I could add value."

Not the least of the challenges was helping to engineer a shift in the Lawson culture to heighten the focus on profit growth. That involved seismic cost-cutting and, on the product side, paying more attention to evolving customer needs rather than "falling in love with" the company's existing technology.

An edited version of the interview follows.

So what's it like competing with Oracle and SAP?
Everyone asks that! They're formidable competitors. We tend to be very selective in the verticals in which we compete. Most software companies go to market in a vertical way, so it's not like that is unique. But we have become very disciplined about how we allocate our financial and human capital among our six key areas. We try to compete on our ground — in verticals in which we have leading positions.

We're the third-largest publicly traded ERP company in the world, but on the other hand we're not that big. We're $760 million in revenue, 4,500 customers, and 3,500 employees. So we have to be very judicious about how we invest, and that's been the whole theme behind how we've transformed the company over the past three years. We've gone from a 3% operating margin to 15%, and from a nickel in earnings per share to 35 cents in EPS. We've actually grown on a constant currency basis in a recessionary environment by being very focused.
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"When I look at businesses, I like to develop an analytical framework that allows me to understand how we should optimally allocate capital."
— Robert Schriesheim, Lawson Software

By "focused," you mean focused on your specific niches?
I wouldn't call them niches, but yes. Here's the interesting thing: two years ago, we derived about 35%–40% of our revenues from five vertical markets — health care, public sector, fashion, food and beverage, and equipment-service management and rental — and one horizontal market, strategic human-capital management. Now it's 65% from those areas. That's important, because the way we've allocated our capital is in markets where we know we can win.

And we've gotten very vertical within those verticals. It's very different selling an ERP system to a hospital than to a fashion manufacturer, but it's also different selling to a jeans manufacturer rather than a sports-footwear manufacturer. An ERP application is a relatively large, complex sale, and you have a lot more credibility if you really understand the issues the customer deals with. We've developed a great deal of intellectual capital in those particular verticals.

How did you arrive at them?
The merger with Intentia created a company of global scale and critical mass. But we found that we were spread too thin. We didn't have a sufficient focus in a targeted number of verticals. So we made an assessment of which verticals we were the strongest in and which had the highest growth prospects over the next three to five years.

One of the areas, equipment-service management and rental, was completely new for us. The customers are large distributors of heavy equipment, like Caterpillar dealerships. Now we have 8 of the 10 largest Caterpillar dealerships in the world as customers. It then becomes much easier to sell to other Caterpillar dealers, as well as Komatsu dealers.

Each one of these environments does business a little bit differently, and that dictates a certain degree of customization in the application. I'm not saying that Oracle and SAP don't do that. Where Lawson does well in competing against them is with companies between $250 million and $3 billion in revenue. About 75% of our customers are in that range, and our software tends to be architected in a fashion that's more suitable for that size customer because it requires less in the way of internal resources to do the implementation.

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