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Lawson's single focus pays off

The software firm's strategy of hitting middle market companies in specific industries is paying off with a 41 percent increase in revenues.

Lawson Software's strategy of hitting middle market companies in specific industries is paying off.

The Minneapolis-based firm announced this week that revenues for the fiscal year ended May 31, leapt 41 percent from last year to $199 million. Fourth quarter revenues were $65 million, also a 41 percent increase from the like quarter last year. The privately held company did not release profit figures for the year.

Lawson makes software that manages internal corporate business. It offers software for managing financials, human resources, supply chain, procurement, and for measuring performance indicators.

The firm has remained relatively focused on its core markets even in an era when most of the enterprise resource planning system vendors like SAP, PeopleSoft, and Oracle are looking to increase sales opportunities by stretching their software systems to untried areas like sales force automation and customer management.

For now it is working for them, but analysts wonder how long it can last.

"It could prove to be a shortcoming for Lawson," explained Judith Hodges, analyst at International Data Corporation in Framingham, Massachusetts. "I anticipate that in the not too distant future, they will make an announcement for front office integration, either a new product or an alliance with someone."

But Hodges said where Lawson's focus has been of value is in targeting of a few key industries, mainly healthcare, but also retail and services. Its competitors have spread themselves around ten or more industries with the philosophy that there is a niche for anyone that knocks on the door.

"It has been to their greater advantage," Hodges said. "If Lawson spread itself in too many directions at once, it would be a dilution of limited resources. This very targeted strategy is proving to be a successful one for them."

Lawson launched it vertical focus in 1995 by going after the lucrative healthcare industry. According to Lawson, the firm's revenue growth from sales to healthcare companies has been in the triple digits the past few years. From 1998 to 1997, the growth rate was 163 percent to $53 million, nearly a fourth of Lawson's income.

And now Lawson's strategy is to go international. In the past year it has opened two offices in Europe, partnered with a Latin American firm, and is setting its sights on the beleaguered Asian market.

"I am constantly amazed and thrilled at the way the company has grown over the past several years," said Bill Lawson, president, chief executive and founding namesake of Lawson. "But as incredible as that growth is, it's just the tip of the iceberg in light of our plans for continued international expansion. Every decision we make now is from a global perspective, whether it's incorporating multinational business processes or forming strategic alliances. Old-fashioned business sense still says you have to go where your customers are, and will always be there for them."

But Lawson may have a tough time drumming up new business overseas where Germany-based SAP is deeply entrenched among small and midsize companies, Hodges said. Oracle has also had a long-standing international presence. It's a factor that PeopleSoft, which has much deeper pockets than Lawson, has discovered as it has launched its international expansion.

PeopleSoft's revenues from international operations increased by 100 percent to $46.4 million or 14 percent of total revenues for the second quarter of 1998, compared to $23.2 million or 13 percent of total revenues for the same quarter of the prior year. While the growth rate is impressive on the surface, that's compared to SAP's sales of $946 million in Europe during its second quarter, demonstrating that Lawson, PeopleSoft, and any other players trying to break into international markets have a tough fight ahead of them.