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CASE STUDY >
Data management in the SME market

Jan Přerovský
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 Přerovský, the company's director. In 1990 Přerovský 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 Přerovský 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.

  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. Přerovský 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. Přerovský 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 Maňas, 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 Přerovský.
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. Přerovský 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 Maňas 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 Maňas, 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.


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 Maňas, 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.

© The Prague Tribune, 2005
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