One of the biggest news items so far in 2015 has been the Lexmark acquisition of Kofax, so when Workflow had the chance recently to interview the former CEO of Kofax and now current vice president of Lexmark International and president of Lexmark Enterprise Software, we, of course, jumped at the opportunity. Join me in the SpeakEasy.
What is your current state of mind?
I would describe it as very focused. I’m concentrating on integrating the sales, marketing and go-to-market strategy of Kofax with the legacy Lexmark Enterprise Software Group. There are a number of items that jump out that need to be immediately addressed in order to yield what ought to be some pretty tangible and significant gains without a heavy investment or heavy lifting on our part.
As an example, Lexmark acquired Brainware a number of years ago, ReadSoft last year and then in May of this year, closed on the acquisition of Kofax. All three of these companies had products that were focused on what we refer to as the financial process automation marketplace, sometimes also referred to as accounts payable automation or invoice processing. As a result of the acquisitions, up until recently we had all of those products and sales individuals competing with one another for mindshare and revenue. In effect, we had a situation where we were competing with ourselves. We knew we needed to look at the product portfolio for financial process automation and decide how to strategically go to market as one cohesive entity. While Kofax was focused on that market, we didn’t have the scale or dedicated resources that ReadSoft had in that market, so it made a lot of sense for us to take all of the sales teams that were concentrating on financial process automation and place them with Carl Mergele, who had been the CEO of Brainware before its acquisition. He is now leading a single global sales organization exclusively focused on financial process automation. It’s currently accounts payable automation and invoice processing, but we expect over time this will evolve to address other financial processes such as sales orders flowing into an organization and its ERP system.
The next step was to look at the respective strengths of the various offerings and choose the strongest product for each ERP environment to avoid cannibalizing each other. When we compared the Kofax and the ReadSoft products for the SAP environment, clearly the ReadSoft products came out as having a larger installed base, a larger maintenance revenue stream and a better position in that marketplace. So we would lead with the ReadSoft SAP product. On the other hand, the Kofax product called MarkView had historically been very strong in the Oracle environment. If you compare that to the ReadSoft for Oracle offering, it was exactly the opposite of the SAP situation. Kofax MarkView had the largest installed base and had the largest maintenance revenue stream. As a result of that, we chose MarkView as the go-forward lead product for the Oracle environment.
The third area that needed review concerned the other kinds of ERPs like Dynamics AX, JD Edwards and Infor; which product should we lead with there? We looked at Kofax TotalAgility, which was a relatively new product that Kofax had just introduced and we also looked at Perceptive AP Automation, which incorporated the Brainware product. Perceptive had a much larger installed base, so we chose to go with Perceptive.
That doesn’t mean that we’re taking the ReadSoft product for Oracle or the MarkView product for SAP or TotalAgility off the market; we have an installed base of customers, so we will continue to sell, develop, maintain and support those.
Has it been a challenge in the U.S. to get qualified employees with so many great companies competing for developer talent?
Yes, certainly, not only in development, but also across all functional areas, recruiting the right people with the right talent is the biggest challenge that we always face. Then, it’s successfully onboarding and retaining the talent once we get them because if they are good, they’re also being recruited to go somewhere else. It’s a challenge, but I think it varies greatly by geography and also by the area of development.
You’ve spent the majority of your career in enterprise software — what do you expect to be different now that you are integrating into what we have traditionally thought of as a hardware company?
I wouldn’t necessarily say that I expect things to be that different in terms of what Lexmark Enterprise Software needs to do to be successful. I would say that there are inevitably some challenges taking a software business and having it reside within what has historically been a hardware business. I started learning that a long time ago when I sold Captiva Software Corporation to EMC. Even though we were then part of what they called their enterprise software group, which was a $2 billion a year business that also included Documentum and Legato, they were still a hardware company and everything was driven by the hardware storage sales executives. I do think there are a number of things you have to be careful about in order to be successful. You need to maintain your identity as a software business and stay focused on what’s necessary to be successful as a software business. You have to be aware of and appropriately deal with some of the natural inclinations of the hardware side of the business, which too often wants to bundle the software with the hardware and give the software away for free or at a very deep discount in order to win the hardware business. We’ll have to be careful to manage that properly as we go forward because while it would help them win hardware business, you’re giving away a lot of value. You don’t want to do that. That wouldn’t be good for Lexmark overall.
The second area of concern is that software companies tend to be a little more agile and typically have a more dynamic culture. They are often more tolerant of diversity in the organization and of opinion, discussion and debate. Many of the hardware companies have been around for 20 or more years and they can be more conservative as organizations and sometimes a bit “old school.” I think we have to be sensitive to that and attempt to bring everyone to a more contemporary position. Lexmark has shown a lot of vision and pioneering effort in moving into the software and solutions business and has done that in an open-minded, supportive and productive manner.
Where do you see the best opportunities for growth?
As a combined organization, we have a very strong presence in certain verticals or application areas. For example, in financial process automation, we are the market leader with a dominant market share. We need to leverage that to win more business and also command optimal pricing. In the education, healthcare, government, banking and insurance verticals, which would include the payer side of the healthcare marketplace, we have a very strong presence and strong product offerings. We can use the scale, presence, customer base, references and market share that we have across all of those verticals in order to grow a little faster than the rest of the market and take market share away from our competitors.
The hardware business has become what some would describe as commoditized. The managed print services market has matured and is becoming more and more price competitive. These companies, therefore, need to extend into the software and solutions space to stay relevant and provide higher value to their customer base, which is exactly what’s happening.
Kofax and Lexmark already have a lot of alignment, not only in terms of the markets that we serve, but also the types of applications and solutions that we provide as well as the structure of our sales organizations.
Let’s talk about the stated “one company under one brand approach” — you did mention that it was important to keep the identity of the software side on some level, so how do you see this progressing? Is Kofax going to continue to be branded as Kofax or is there an evolution?
The Kofax brand will persist for some period of time, but principally in conjunction with product naming as it has a lot of brand awareness, as do the ReadSoft and Perceptive products. Perceptive ECM, Kofax Capture, ReadSoft Process Director and other products will continue to retain their names, but from an overall branding of the business, we are all part of Lexmark today. It’s the only thing that makes sense because we need to get everybody mentally out of the past and into the exciting future of Lexmark in order to have everyone pulling in the same direction and executing together.
What kind of synergies do you see with the Perceptive product and Kofax offerings?
In addition to the financial process automation solutions analysis, we’ve also started a broader analysis of the large portfolio of products that we have today and what we’re going to emphasize and invest in for the future. We need to look at how we are going to pull those products together into a single platform, so that we can provide everything from multi-channel capture to enterprise content management and everything in between —business process management, dynamic case management, analytics, search, mobile capabilities and market-specific capabilities such as vendor-neutral archiving. A single platform will provide a much higher value solution for our customers. It’s underway, but it’s a pretty significant undertaking. It’s going to take a while to completely sort all the elements out and then bring them together into a single platform.
Do you see some products already dovetailing together?
Yes, the ECM capabilities that Perceptive had are good and they have a large installed base. They’ve been very successful. They’ve also been successful selling it in conjunction with some of the line of business or point solutions that they provide; when you put line of business or point solutions in place, customers often want a temporary or a dedicated repository just for that application. They’ve been successful in bundling the ECM with some of the financial process automation solutions that they’ve built for the healthcare and education verticals. We’re certainly going to attempt to do that in some of the other markets that Kofax served, such as banking and insurance. There are also a number of other areas where we will be taking the best of the whole portfolio that we have and pulling it together into a single platform.
What unique qualities, skills or experiences do you have that you think will be helpful in your new position?
At Captiva, we grew organically as well as through acquisitions. We affected a lot of strategic change in the business. In the process of completing those acquisitions, we rationalized the product lines, sent some of the work off-shore and did a number of very complicated financial transactions. In the last several years at Kofax, we did exactly the same thing. We affected so much change in that business that we completely reinvented it. My success has been based on my ability to assemble a team that is action-oriented and particularly adept at executing strategic change in the business. I think that’s why we were asked to form much of the Lexmark Enterprise Software leadership team — despite all the success that Lexmark had in moving into the solutions and software business, they knew they needed to accelerate that pace and concluded that we were the right people to make that happen. If they had wanted the status quo, they never would have asked me to take this job.
So you’re kind of a change master.
I’ve been called a lot of things —that’s one of the nicest.
This article originally appeared in the September 2015 issue of Workflow.