| CASE STUDY >
Data management in the SME market
Written by: Petr Vykoukal
Photo: Tomáš Kubeš
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| Jan
Pøerovský
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LCS's founders made the dream
of many entrepreneurs come true - to found a successful firm, turn
it over to a capable manager after a few years, and then sit back
and watch it grow.
LCS INTERNATIONAL, the largest purely Czech producer of business
information systems, was founded in 1990, basically "in a
garage," according to Jan Pøerovský, the company's director.
In 1990 Pøerovský became the first employee of the newly established
company, LCS International. The founders were four IT experts who
decided to begin providing software creation - something they had
been doing as employees - as a firm. The founders still own the
company. In the mid-90s, when Pøerovský became the director, they
decided not to interfere with the firm's management. Their main
motivation was to delegate authority to capable employees, some
of whom later became shareholders in the firm.
The firm's first product in the early '90s was customized software
for such applications as salary processing and accounting. After
several implementations, the founders decided to create a standardized
product that users could buy "in a box" and install themselves.
This led to the 1991 establishment of LCS Helios, whose target
group was small and mid-sized firms with dozens to hundreds of
employees. The product's variability and so-called sector solutions
contributed to its success. The core is the main part of the system,
which covers the main economic and accounting agendas of most companies.
The core can be supplemented with other modules, software solutions
for activities that are typical of most companies, such as economics-accounting,
sales, and human resources. Demands by individual sectors then
led to specialized modules, for anything from e-commerce administration
to agriculture - including the most popular module, Production,
which is designed to resolve key issues of manufacturing firms.
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Benchmark
- products for all market segments
- sales through partner firms
- module-based core products |
Broad offer for solid growth
After earning a strong position in SME segment, in the mid-90s
LCS also focused on large firms with its Noris system. Like Helios
IQ, Noris has several parts which, besides the basics, also include
specialized solutions for various sectors like construction,
transport and shipping, waste, and others. When selling this
product LCS also uses a network of partners who are able to create
and implement other specialized solutions as per clients' requirements.
Pøerovský acknowledges that sometimes, when a potential client
who is interested in a special software modification comes to
him, he is sent directly to a partner company. LCS will get the
client anyway, as it must buy the system's core, so the firm's
programmers can concentrate on further development. The partner
network doesn't focus solely on Noris modifications, but on Helios
as well.
The last product line with which LCS has penetrated the smallest
systems market was added to the company with its acquisition of
Softprofes in 2000. Softprofes had been selling its SIS product
on the market since 1990. Through this acquisition LCS not only
gained a new product that covers another segment, but also a close-knit
team of programmers. Pøerovský says that the successful integration
of the two firms was one of the important moments in the company's
development. Today the firm's flagship, Helios, is the leading
product in the local small-firm segment (37.9% of the Czech market).
But the firm's overall market position is markedly affected by
the large-firm information systems segment. Essentially, LCS is
number three - the leader is SAP (54%), followed by Microsoft (7.4%),
with LCS in third (6.9%). The segmentation of individual products
according to various types of clients can also be seen in their
purchase prices. While the cost of the SIS product for the smallest
companies is in thousands to tens of thousands of crowns, Helios
IQ for mid-sized firms costs tens to hundreds of thousands, and
Noris costs a million crowns and up. SIS users include ETA and
Iron-Art, a manufacturer of metal furniture and accessories. Helios
IQ or Noris are used by the Czech branch of Nextra, MERO, an oil
pipeline administrator, Zapa Beton, and several thousand other
firms.
Language is no
barrier
Besides functionality, it's also important for foreign companies
that are active on the Czech market that Helios IQ and Noris have
several language versions. The original version functions on a
system in Czech, while a foreign manager can see the same information
in English or German. This currently helps with product sales in
Germany, where clients are mainly parent companies of German firms
that are active in the Czech Republic. Petr Maòas, the director
for strategy, notes that sales at the Berlin branch are based to
a great degree on references, because LCS doesn't support sales
with advertising in Germany at all. That's why Germany's share
in the firm's total sales is not very significant as of now, only
in the single digits, according to Pøerovský.
LCS's first foreign market was Slovakia, where the firm started
doing business almost as soon as it was founded, through a partner
company. LCS established a branch there only four years ago. Penetrating
the market there was somewhat different from the Czech market,
where mid-sized firms (Helios clients) are the key segment. In
Slovakia, the key clients are large firms, which buy Noris, which
is used by Slovak Television and Doprastav, a large developer,
for example. Nevertheless, the situation is starting to change,
and Helios will probably soon be the key product in Slovakia, too.
Today Slovakia is LCS's fastest-growing market - sales are increasing
by 30% a year, but they still account for only 16% of the firm's
total revenue. For now, LCS isn't planning on setting up branches
in other markets, but negotiations with potential local partners
are underway in neighboring Poland, Austria, and Ukraine.
Few changes after EU entry
While the Czech Republic's EU accession brought new business to
many companies, it didn't have any great impact on LCS. Large
foreign competitors were already active on this market, and entering
foreign markets was only simplified a bit. Pøerovský notes that
joining the EU rather brought business opportunities - there
was interest in products focused on EU accession, and this allowed
the firm's sales to increase. However, his colleague Maòas sees
a new opportunity in agriculture, which hasn't yet played much
of a role among the firm's clients, but because the EU requires
lots of paperwork from farmers, software tools that facilitate
the paperwork for them could join the other successful LCS products.
LCS currently has over 200 employees, and last year its sales reached
CZK 233 million. By comparison, in 1996 the firm's sales were in
the CZK 40 million range, and it had about 60 employees. There
was a great change in 2000, when the firm acquired Softprofes and
the number of employees nearly doubled.
Modest expansion
Penetrating foreign markets in the business information
systems sector is much more complicated than in a sector
where the products roll off an assembly line, ready-made
for all. Individual products must be adapted for national
specifics. It's not only a matter of language, everything
must be in harmony with local legislation and customs.
According to Maòas, LCS's director for strategy, product
localization costs about a million euros, regardless of
the market's size. In his words, "each country is
an original", meaning that each market requires new
adaptation, and being an EU member doesn't matter much,
because the markets all vary. That's why LCS chose Germany,
a large market, as its first EU target country.
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Japanese demands
LCS managed to earn a special position among Japanese
firms operating on the Czech market. The company began
working together with CzechTrade, which helps foreign investors
arriving in the Czech Republic, thanks to which it gained
its first Japanese client. "When the first Japanese
firm chose us, others followed," recalls Maòas, the
director for strategy. He claims that this success followed
a thorough tender, and he points out that the word "thorough" means
really thorough, as typical Japanese tenders take far longer
than is typical here, but then they form the basis for
very long-term cooperation. The firm started to adapt to
its Japanese clients; its website has a Japanese version,
and references printed in Japanese are available. Today
LCS even has a Japanese employee who ensures communication
with Japanese clients.
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