Commentary
10/26/2010
06:13 AM
Bob Evans
Bob Evans
Commentary

Global CIO: Can Charles Phillips Grow Infor While Avoiding Oracle & SAP?

The Oracle ex-president's new company has $2 billion in revenue and 70,000 customers—and suddenly a much higher profile within SAP and Oracle.



Now that Infor has hired former Oracle president Charles Phillips and decided to stop being the only $2-billion enterprise-software company that no one's ever heard of, it's a good thing that Phillips is a graduate of the United States Air Force Academy and a former captain in the United States Marines, as well as a veteran of the bare-knuckle brawling that takes place in the enterprise-software market.

And it's also a good thing that Infor chairman Jim Schaper, who turned over his CEO role to Phillips, was a national champion back in his days with the University of South Carolina's track team, in addition to being the passionate leader behind Infor's astonishing level of growth since it was formed in 2002.

Because for all of their protestations to the contrary, Infor has, by hiring Phillips, embarked on a path that will surely lead to intense and more-frequent direct competition with Oracle and SAP. Schaper and Phillips might wish that were not the case, but to achieve the ambitious growth plans the two have laid out, those marketplace confrontations with market leaders SAP and Oracle are inevitable.

So the big question is, is the privately held and 8-1/2-year-old Infor up to the challenge? Can it continue to grow and expand and roll out powerful new products and maintain excellent customer-renewal rates while also moving into new markets where SAP and Oracle are also on the prowl?

But beyond that, let's put that pressing issue of competition off to the side for a moment and consider: while there are lots of 8-1/2-year-old enterprise software companies around, there are almost certainly no other companies of that age with the following set of extremely impressive achievements:

--70,000 customers in 125 countries

--a record of profitable growth without the entanglements of impatient venture capitalists

--90%+ customer-renewal rates

--vast experience in M&A: Infor has acquired and integrated 70 software companies

--and an advanced generation of new products set to arrive in January 2011.

In a phone interview Monday, Phillips said, "I really feel like I've found a diamond in the rough here—the barriers to entry in this business are so incredibly high that I believe it usually takes 10 years to build a viable enterprise-applications company.

"It typically takes the first five years to understand the customers' requirements, and then the next five to get the software right.

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"But in less than 10 years, Infor has achieved all that—they're there. And they got it done by doing things, not by talking about it," said Phillips.

And by winning the loyalty of customers:

"When Jim and I started to talk, one of the first things that I looked at was customer renewals for support contracts, and I saw that it was over 90%, so clearly Infor's been keeping its customers very happy.

"On top of that, what also makes this a very unusual opportunity is that Infor's got a lot of experience in acquisitions, and that's important because there's no doubt that this industry is consolidating, and so they don't have any steep learning curve—there's no big cultural shock to the system about acquisitions," he said.

Schaper, whose enthusiasm over the phone was palpable in describing Phillips, gushed that the former Oracle and Morgan Stanley executive "isn't the right guy for the job—he's the perfect guy for the job."

Schaper said that among Phillips' many qualifications, two in particular stood out during the six weeks of discussions the two men had about the company, the market, the customers, the competition, and the opportunity.

"First was his long track record of identifying and completing acquisitions—while we've done a pretty good job of that here ourselves, Charles will take it to the next level," Schaper said.

"But even more important to me and the board is an attribute that can go overlooked: in the time we've spent together over the last 6 weeks, which is vast, I've seen that Charles has a better grasp of how enterprise technology can drive business value for customers than just about anyone I've come across," he said. "With his vast understanding of what technology innovation can mean to businesses, it was just a no-brainer for us."

And so, with Infor set to release a sweeping range of new products and upgrades in January, Schaper said he's particularly excited about Phillips' ability to "help us take our new products and position them properly and drive them aggressively in the industry."

But as those new products come out, and as Schaper and Phillips "position them properly and drive them aggressively," it's a simple fact of life in this business that such moves will turn Infor from a fuzzy blip on the outer edges of the radars of Oracle and SAP into a clearly defined and highly resonant ping moving ever-closer to the center of their territories.

Forrester Research VP of enterprise applications Paul Hamerman offered this perspective on Phillips and Infor in an email exchange on Monday:

"Having Phillips on board doesn't change the competitive picture in the short term," Hamerman wrote. "It is about the products. Currently, Infor is not competitive with SAP and Oracle in enterprise-class financials and HR, for example. Its strength is in manufacturing ERP, mostly for the midmarket."

(Pssst: did you catch that key word, "currently"?)

Hamerman then outlined how Infor can try to avoid head-to-head competition with the big guys:

"Infor's best strategy is a path of least resistance—in other words, avoid head-to-head competition with them," Hamerman wrote. "This is easier to do with Oracle, where Infor can go further down-market and into manufacturing verticals where Oracle is not as strong, and also where the Microsoft platform is preferred. Infor competes more directly with SAP in manufacturing in the midmarket."

In talking with Schaper and Phillips, it was completely clear that they see the new competitive challenges that their accelerated growth strategy will create, and are aware of the power Oracle and SAP can wield. At the same time, though, both Schaper and Phillips were pretty feisty in citing Infor's native expertise in the midmarket and its track record of achievement there as assets that they alone will bring to the fight.

"I think you have to look at the midmarket in a holistic view—if you're entering the midmarket, it's either in your DNA or it's not," Schaper said. "You've got to focus on multiple deployment models, ease of doing business, and having a distribution model that can cover the midmarket from a profitable perspective.

"And as we continue to see some of the big vendors moving down-market, the bottom line is that in this industry, with the cycles we've gone through of good times and not-so-good, I've never seen a company whose base is at the low end effectively move up to the high end, nor have I seen a company at the top end successfully move down," he said.

"Neither of us underestimate our competitors, but if we're not the leader in the midmarket, we're certain one of them. And that's a very hard position to claim if your company is not specifically built to do that, and a lot of our new-product innovation coming in January will address that further as well."

Phillips echoed Schaper's perspective, saying that for a company like Infor, a deal in the range of $2 million to $4 million "is very large for us, but for enterprise sales reps at the big companies, that's too small to even get their attention."

"It's very hard for a company built to operate at the high end of the market to chase the kind of deals that are typical for us, which is often in the range of $300,000 to $500,000," Phillips said.

"Believe me," he said with a laugh, "I've tried in my past career to make those high-end enterprise reps change their outlook, but it's really tough.

"In the end, it's not surprising to find that if you're good at building Peterbilt trucks, you're not also going to be good at making Cooper Minis—they're two very different markets."

Indeed they are. But those differences aside, if there's growth to be had in the midmarket, then Oracle and SAP, not to mention Microsoft, are going to be there as well.

For customers, this all should shape up to be a nice advantage: more competition, more choices, and better options.

For Infor, it's going to be a battle—but that'll hardly be the first one Schaper and Phillips have faced. Their key challenges will be whether they can exert enough influence in the market to force the big companies to have to play by Infor's rules, and whether Infor can identify and acquire innovative new players in critical markets before Oracle and SAP snap them up.

Because here's what Phillips says is at stake: "The size of Infor's installed customer base is much larger than I thought it would be, and I've always believed that customers are like beachfront property: there's only a finite supply."

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GlobalCIO Bob Evans is senior VP and director of InformationWeek's Global CIO unit.

To find out more about Bob Evans, please visit his page.

For more Global CIO perspectives, check out Global CIO,
or write to Bob at [email protected].

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