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Summary
Infor recently met with industry analysts in the wake of its merger with Extensity, which made it the eighth-largest software company in the world. The purpose was to outline the combined company’s market and technology strategy. After conducting its own evaluation, Ventana Research believes that Infor is well-positioned to take advantage of its solid market position in manufacturing and midsize companies for both new sales of its expanded software portfolio and further sales into its installed base. For the longer term, we believe the company will need to develop its service-oriented architecture (SOA) technology to facilitate its cross-selling strategy and to be able to migrate many of its diverse users to a code base that is easier and less expensive to maintain. While the go-forward plan for customers in manufacturing and operations was clear to us, the outlook for finance, human capital management and performance management was less so, possibly because the acquisition of Extensity was completed so recently.

Assessment
Infor is the amalgamation of enterprise software vendors that focused on manufacturing (including Baan, MAPICS, Symix and Systems Software), finance and human capital management (Geac/Dun & Bradstreet Software and Infinium), customer relationship management (CRM; E.piphany) and performance management (Comshare). The company states it has about 8,100 employees and 70,000 customers worldwide and annual revenues of about US$2.3 billion. Bringing together so many disparate pieces of software under one roof usually presents both opportunities (mostly on the sales and marketing side) and challenges (mainly in the development organization).

Historically, the parts of the software industry focused on midsize customers and those oriented to manufacturing or distribution had been extremely fragmented and not especially profitable. Given the breadth of its acquisitions, Infor now has sufficient economies of scale to overcome limits that the formerly individual vendors faced, allowing it to generate incremental revenues by cross-selling anything, for example, from warehouse management to performance management software. Fragmentation forced independent vendors to take a scattershot approach to gaining customers, whereas Infor can offer them software targeted to particular needs. Likewise, prospects questioned the small vendors’ viability, which is not an issue with Infor. Since half of the company’s revenues comes from high-margin recurring maintenance, and because to date its sales and marketing approach has been disciplined, it is quite profitable measured on its operating margin excluding amortization of goodwill.

At its conference for analysts, Infor emphasized several points about its situation and intended direction. First, the company contended that it is different from competitors such as Microsoft, Oracle, Sage and SAP. To some extent, we think this is correct. Infor’s current mix of customers and products presents it with a different set of challenges and opportunities. Moreover, management made it clear that its future focus remains midsize companies, particularly in vertical industries where it has a large base of reference customers. However, like Microsoft and Oracle, it is faced with the challenge of managing the transition from a disparate set of applications acquired through acquisitions to a single product line. With such an integration strategy, Infor will not attempt to move its installed base to a unified application soon, although eventually it will need to do this (and the sooner the better). The evolution from disparate code bases to a single product line will be helped by the industry-wide architectural shift to service-oriented architecture (SOA).

A second major topic of Infor’s presentations was its direction for SOA technology. Ideally, SOA enables software companies to break monolithic code structures into pieces, allowing users to assemble them into applications optimized for their particular circumstances. From a user’s perspective, this would make it easier, faster and less costly to implement and maintain the software. Another opportunity offered by SOA is to enable companies to readily adapt software to how they execute processes, rather than having to adapt their operations to the way the software works (or pay more to implement adaptations). Most important from Infor’s point of view, SOA also (in theory at least) is a way for it to weave together various strands of functionality in order to improve its cross-selling opportunities to its customers. Infor is early on in its transition to supporting SOA, but so are its customers; thus, this is a work-in-progress that will need further analysis in 2007. Most organizations using applications from Infor are still challenged to address the basic tenants of data integration for analysis and decision-making needs.

The vendor’s third aim was to explain how it markets such a large array of enterprise applications. Infor admits that there is some overlap in the products it offers, but it has organized its sales and marketing to approach 41 different vertical or horizontal segments with the appropriate selection of them. This finely segmented tactical marketing approach is suited to its targeted verticals, in our view. In some of these segments (such as industrial machinery and automotive parts), the company already has a substantial share of the installed base, and the main opportunities are in cross-selling. This close focus on what users need – and the sales training to support it – is necessary if the company is to make its sales process efficient and effective enough to succeed with the manufacturing segments, in our judgment. Infor’s challenge is combining this tactical approach for core verticals with a parallel but different strategy for selling, marketing and messaging its horizontal applications (performance management and financial software, for example) outside of its targeted verticals. 

Market Impact
The consolidation of a variety of vendors into what is now the eighth-largest software company went largely unmentioned outside of the trade press. We expect, however, it will receive increasing notice over time, especially if Infor becomes a public company. We believe it has strengthened its position in its core market of manufacturing and midsize companies and can enlarge the performance management software market for these companies, which typically have deployed few if any applications of this type. Sales of its customer-facing applications such as CRM also will benefit from cross-selling. We think Infor needs to do this, since SAP is stepping up its efforts to sell to midsize companies in North America, providing more appropriate software than in its earlier, aborted efforts, and because Oracle seems intent on retaining its JD Edwards customer base.

We are less confident how well Infor will fare in more horizontal markets for financials, human capital management and performance management. Our doubts stem partly from the fact that at the time of the briefing it had just completed the merger with Extensity (which included most of the financial and performance management software), and executives did not cover its products and strategy as extensively as they did others in the Infor portfolio. But unless it initiates marketing efforts that result in acquiring new horizontal application customers, Infor’s financial and performance management applications business may lose share to companies such as Business Objects, Cognos and Hyperion, especially in larger companies. While Infor’s size could be a threat to Lawson in the services vertical, it is not clear this will translate into large enough sales to make a difference.

Execution of its SOA strategy will affect Infor in the long term. The company does not have the resources of SAP, which will spend billions of euros to create its broad-based and granular SOA architecture, or Oracle, which has its own SOA approach. Infor plans to apply its resources opportunistically over time to address customer requirements. We expect the company to have initial success selling complementary horizontal and vertical applications into its large installed base, especially among the larger firms, but to penetrate this base significantly will depend on the success of its SOA strategy. In theory, we see Infor’s pragmatic SOA approach as both necessary and appropriate for its market and situation. Execution will determine how successful it turns out to be.

Recommendation
Ventana Research advises companies that fit squarely in Infor’s core vertical strategy to include it in any software evaluation. We also suggest these companies investigate its other software offerings, including performance management, especially as it introduces verticalized versions of these applications. For companies that would have looked at its performance management, customer relationship management, financials and human capital management applications before the merger, we believe nothing has changed to alter these evaluations – except, of course, that they are dealing with a larger and stronger company with a broader suite of products to choose from.