Of all the ERP vendors, Infor is the only major force that is privately owned and that presents a unique opportunity to think about its products, services and customers in an entirely different way.
When Koch Industries bought Infor, I feared the brand would slowly but inevitably disappear from the ERP landscape. Koch is an industrial conglomerate with interests that span oil, paper, mining and energy, to name just a few. If you live in the USA, your daily life will be touched at some point by a Koch product: whether that’s the napkin you use at breakfast, the glass in your windshield, the fertilizer used to grow food, or the petrol that powers mobility.
Koch is a $125bn revenue behemoth with a diverse portfolio of interests, strong political ties and a track record for plowing its own furrow, often against the tide of social pressure. On face value, I couldn’t see why the acquisition made sense for Infor customers or how the Infor brand would retain its independence inside America’s second largest private company.
At Infor’s NYC headquarters, I spent the day with Jim Hannan, president and chief operating officer at Koch Industries, and Kevin Samuelson, CEO at Infor, to find out what the deal meant for Infor customers.
Consider the four biggest levers in ERP modernization: cloud, industries, implementation and experience. Infor was first to the party on all four of these topics.
Infor the innovator
Infor is a brand that I have long admired. It may not make as much noise as some ERP vendors, its CEO doesn’t have the same swagger as others I could mention and it rarely hits the headlines when signing a new customer. But, ever since I interviewed Charles Phillips on my first assignment for ERP Today, I have been fascinated by a company that has defied an entire industry by doing ERP its own way.
Whether Infor was owned by private equity, considering an IPO or on the brink of being acquired, it has always maintained a unique position – a position that is consistently underscored by taking bold decisions ahead of market convention.
Consider the four biggest levers in ERP modernization: cloud, industries, implementation and experience. Infor was first to the party on all four of these topics when it developed its in-house design agency more than a decade ago, launched micro vertical products in 2010, went all-in on AWS with the first multi-tenant cloud offering in 2015, and developed its 60:30:10 methodology to ease the heartache of ERP projects.
In addition, Infor OS is the most mature of all the application platforms and was the first to embrace a microservices architecture with accompanying data lake and AI-powered analytics baked in. When you look at Infor’s track record of technical firsts, you start to build a picture of a company that consistently innovated ahead of the curve.
When I interviewed Phillips in 2018, he said this: “Our competitors are talking about experience, but we started that conversation with the first integrated design agency. They are talking about cloud, but we built our applications for the cloud rather than retooling on-premise apps. We made a decision not to get into the infrastructure business which means that all of our focus and budget is spent enriching our applications. Infor leverages Amazon’s huge investment in infrastructure services while our competitors are effectively competing against that.”
Given Infor’s history of bucking trends and making big bets before everyone else caught up, maybe the deal with Koch is another example of progressive thinking outside the box and I just need to be schooled-up? Whenever I have interviewed Samuelson in the past, we have always returned to the same nagging question: how do we make ERP better for customers? Maybe he has found the answer in an unlikely partnership.
What is Koch Industries?
From the outside looking in, Koch may appear to be an ageing industrial entity but, in reality, it’s a progressive hotbed of innovation and radical thinking. Since 1961, it has outperformed the S&P 500 by nearly 26 to one. How did it create such dramatic, long-term growth especially when so many other large enterprises failed to adapt to change and ultimately ceased to exist? The answer to its success lies in its Principle Based Management philosophy underpinned by the idea of ‘mutual cycles of benefit’.
Koch’s economy-defying success is rooted in the application of proven principles of human progress. Ideas such as mutual benefit, comparative advantage and creative destruction have provided a platform to innovate and transform on a huge scale, ultimately creating a business that has defined its own version of success.
When you consider its acquisition against this context of disruptive and radical innovation, the move doesn’t seem so obscure.
Its principles predicate an entire business model and are instrumental in shaping the company’s decision making and investments. They also directly influence customer relationships by considering ‘the mutual benefit’ of each engagement through a broad value lens rather than a narrow sales window.
“The overarching principle that drives our customer relationships is mutual benefit,” said Hannan. “You can simplify that and say we’re looking for win-win partnerships that are more than transactional. This is how we view customers in every one of our businesses.”
Koch may be 100 years old and rooted in industrial activities, but it is also an incredibly dynamic and diverse investor in technology. Recently it has made significant investments in battery technologies and, through its Disruptive Technologies (KDT) subsidiary, is at the sharp end of innovation in healthcare, FinTech, cyber security and energy transformation.
Koch still makes most of its money by refining oil, milling paper and other heavy industries, but it is also an investor in more than 50 venture-stage companies that are transforming industries and shaping the future with clean energy, smart and sustainable building materials and artificial intelligence to power cutting-edge healthcare tech.
KDT’s philosophy sets out a bold agenda: ‘the continuous process of iterating, improving and destroying current business models and platforms’. Although Infor is owned by the parent company, not the subsidiary, when you consider its acquisition against this context of disruptive and radical innovation, the move doesn’t seem so obscure after all.
Infor may be in the business of helping its customers adapt to digital commerce, but it also needed its own transformation. Infor and Koch share many common business principles but embedding the Koch methodologies into the fabric of the company has taken some reorganization and realignment.
“A lot of what Kevin has been doing is transformation, in terms of the organization, how we’re thinking about customers and how we improve that experience,” said Hannan. “We’ve had a lot of changes and the team has been adjusted to bring people with different capabilities into different types of roles. Those changes are starting to harden and we are seeing the team gel around the transformation.”
Those changes are already delivering benefits and Samuelson highlighted Koch’s durable outlook as one of the key elements of the partnership, noting the considerable benefits as well as the challenges of shifting to a long-term mindset.
“The things that we can learn from one another continue to multiply,” said Samuelson. “One of the reasons Koch has been so successful in so many different industries is its ability to shift from short-term thinking to long-term thinking and while everyone says they want that, it’s actually a lot harder than you might think.”
I asked if longer-term thinking could come at the expense of rapid innovation, but Samuelson was keen to point out that playing the long game and not being shackled by the quarterly cadence of an earnings call actually means more strategic bets can be placed, often with higher returns.
“I think innovation is actually more pronounced when you’re thinking of long timescales,” he said. “When you’re not so concerned what happens in any individual quarter, you’re more comfortable making big investments that have bigger returns but might take longer to mature. That’s something public companies just aren’t willing to do.”
Infor is now much more aligned across its teams to ensure that customer engagements are predicated on a measurable benefit rather than a sale. “When we start a journey with a customer, the team that’s going to deliver the outcome and maintain the relationship comes together from the beginning, in a way that that they’re accountable across functions are capabilities,” said Hannan. “Not just to sell the product but to also get it installed and get it running.”
When you’re not so concerned what happens in any individual quarter, you’re more comfortable making big investments that have bigger returns.
Infor’s product differentiation
This article focuses on Infor’s ownership structure, its relationship with Koch and how that impacts customers. However, it is important to take a brief look at Infor’s product strategy to see how Koch’s ownership might influence it.
Infor’s products have been centered on industries for 13 years and it developed hundreds of niche components that sat inside broader industry categories. For example, within food and beverages, you would have found solutions that were fine-tuned for bakers, dairy farmers, drinks manufacturers and breweries. That strategy was a first for the industry and gave Infor a unique lens into the inner workings of industries that otherwise had to choose between vanilla solutions from other publishers.
I had always pondered how long Infor would be able to maintain the level of R&D needed to keep hundreds of separate products lines up to date and whether the strategy would be refined to have more focus. Samuelson explained that the strategy had been optimized recently to focus on the verticals where it could make the biggest impacts.
“If you think about our history, it was a mile wide and an inch deep,” he said. “We had a lot of products, but let’s be honest, our future is really on a very small number of industries so we have doubled-down on those.”
Today, Infor focuses on three main category verticals: discrete manufacturing, process manufacturing/distribution and services. Within those categories there are products that are optimized for automotive, aerospace and defense, high-tech, industrial manufacturing, distribution, retail and fashion, food and beverage and healthcare.
The strategy is already paying dividends with Samuelson keen to highlight the shift in its revenue split, with a much bigger focus on new customer wins. “We’re winning a lot of new customers in the industries that we are strong in,” he said. “New business is growing in the mid 30 percent range and it’s slightly ahead of our cloud upgrades. It’s become a much bigger growth engine for us than it was before and that’s a function of the strategy we have put in place. By focusing on a few industries, the most compelling products and putting all the wood behind the arrow in those areas, we are starting to see real growth across the board.”
If you think about our history, it was a mile wide and an inch deep. We had a lot of products but our future is really on a very small number of industries.
Why does all this make sense?
Infor and Koch’s partnership has created a new paradigm in the ERP industry – one that is long overdue and has the potential to transform how ERP companies sell and deliver their services. Infor may be lagging behind some of its competitors in terms of scale but what it lacks in size it more than makes up for through differentiation. Its CEO has been on a mission to make ERP more palatable for as long as I have known him and in Koch, he has the backing to place big bets to achieve that.
From a customer’s point of view, who do you want to be in business with? A vendor that is beholden to activist shareholder pressure and releases products and services to satisfy the markets? Or, one that takes a long-term view of each customer engagement and has a 100-year history of placing mutual benefit at the heart of their business?
This all leads back to the question that Samuelson and I have often pondered: how can we do this better? As Hannan eloquently notes, “Very few people finish an ERP install and say, ‘that was awesome, let’s do it again’. That’s why I believe there is such a good opportunity to get to a point where customers see Infor’s approach as different.” This desire to ameliorate the pain of implementations and create an ERP brand that is regarded as ‘different’ is a lynchpin of the Infor strategy. Adopting Koch’s philosophies and infusing them into a focused and innovative product, delivered by an organization that takes accountability for the lifecycle of the solution could provide the formula for a truly differentiated ERP offering.
“What makes us quite unique is we also have a very large services business,” said Samuelson. “If you truly believe that you want the best outcome for customers, taking accountability through the process is really important, and I think that’s pretty different with Infor and the rest of the industry.”
The concept of being different is something that Infor has grown comfortable with over a decade of bringing firsts to a market that has consistently churned out anything but differentiation for decades. For 50 years, the ERP industry has operated with an unwritten hierarchy that places vendors first, implementation partners second, and customers last. That’s how the industry works and there is no getting away from it. Genuine satisfaction rates for ERP customers are lower than virtually any other industry. And I use the word ‘genuine’ because even disgruntled ERP customers are often prevented from expressing their views due to draconian legal agreements.
Across the industry, the experience most ERP customers endure is woeful and projects remain expensive, time consuming and troublesome. Infor has always been a leader in trying to find ways to improve the ERP experience, but as Samuelson noted, small changes to a broken system don’t move the needle nearly enough. “If you’re in an industry where going from lousy to not bad is groundbreaking, that’s a great opportunity if you can come along and do things really differently,” he said.
The partnership between Koch and Infor has the potential to catalyze the type of change that many ERP customers have been looking for. A long-term partnership with mutual benefit at the core and a vendor committed to each stage of the ERP journey, from sale, to implementation and beyond.
I asked at the start of this article, what does a paper company know about ERP? Perhaps the question should have been, what can an ERP vendor learn from a paper company? Infor has always been an innovator and demonstrated true differentiation in a market where that is a scarce commodity. In Koch it has found a parent that understands its customer base and will continue to foster innovation by encouraging experimentation and radical thinking.
I started my journey to NYC skeptical that a marriage between Koch and Infor could work. I left believing that every ERP vendor would benefit from taking a leaf out of Hannan’s playbook.
You can listen to interview highlights here.