Accountancy Software - The Nordic boom

Think of a fast-moving vendor in the booming mid-range market ande-grown players, such as Sage, but the balance is shifting to a more innovative power, says Nick Huber. chances are, its head office is in Scandinavia.

‘Five years ago, none of the foreign companies had the dominant share of the marketplace,’ says Jyoti Banerjee, managing director of Tate Bramald Consulting. ‘But just look at Systems Union, for example. It’s hurting from an inability to get release-5 sales off the ground.’

When Danish software house Navision held its annual conference in Copenhagen at the beginning of the month, it provided an opportunity to measure the impact of the Scandinavian accountancy software boom.

Navision executives were celebrating the company’s Dkr 813m (£72.1m) flotation on the Danish stock exchange in March, and trumpeted a 60% rise in revenues over the past few years.

‘We want to become one of the top three mid-range ERP vendors worldwide within the next three to five years,’ boasts Navision chief executive Jesper Balser.

A taxi ride around the leafy streets of Copenhagen takes in two more representatives of this new breed – Damgaard and Maconomy. The Danish contingent is also competing with Agresso of Norway and the Swedish/Dutch/Hungarian hybrid that is Scala.

Scandinavian success story

Analysts point to two factors that are driving the Scandinavian success story – technology and marketing.

The marketing theory hinges on the relative sizes of the UK and Scandinavian domestic markets. The larger UK market, which encompasses close to 600 different accountancy software packages, is actually a handicap to international expansion.

Because Nordic markets are much smaller, local software developers have to put more effort into internationalising their products. They do this by building in facilities that allow them to be easily configured to meet local practices and statutory reporting requirements.

After operating for several years as an accountancy software laboratory for IBM, Damgaard’s founding brothers bought back IBM’s 50% share in the company last year and now run one of the fastest-growing software companies in Denmark.

Damgaard’s UK general manager, Otto Strandvig, says that the company’s strategy is based on technical innovation. It uses the Web-enabled Java language and object-oriented programming techniques to produce flexible software that can scale from hand-held PCs to enterprise-wide installations.

Dennis Keeling, the chief executive of the UK-based Business and Accounting Software Developers Association (BASDA), liked this approach so much, he took a non-executive position with Damgaard.

Professor behind the boom

According to Keeling, the technical foundations of the Baltic financial software boom can be traced to a computer science professor in Copenhagen.

The professor urged students to write their own compilers, which is the software that converts program commands language into the binary machine code that actually pulses through the computer processors.

‘Once the code is compiled, it’s a lot quicker,’ says Keeling. ‘It also gives them tremendous flexibility, so they can build changes into their applications.’

Keeling is not the only UK fan of this programming school. MPower, the new 32-bit Windows accounting application from Kettering-based Pegasus, was originally created by two ex-Damgaard programmers.

Jonathan Hubbard-Ford, Pegasus’ chief executive, says that the company decided to license the Danish program because ‘it was further down the line than us’ when it came to integrating accounting software with Microsoft’s Windows-based BackOffice architecture.

The third member of the Copenhagen software triumvirate is Maconomy, which specialises in supplying financial software for services industries, such as advertising, publishing and accountancy.

At Maconomy’s understated and light offices, information manager Elena Tsapatolis says the company can offer mid-market clients a better deal than software giants like SAP. With built-in industry best practice guidelines, Maconomy can get its clients up and running in three to six months, she says, ‘where SAP might take up to 12 months for business re-engineering and another six to 12 months to customise the technology’.

And with a jealous eye on Navision’s stockmarket success, Maconomy, too, is planning to go public, although it has not fixed a time to do so.

But it would be premature to write off UK vendors. Newcastle-based Sage gets bigger by the month, often thanks to the acquisition of smaller rivals. The company is committed to becoming an international brand, and thanks to its March acquisition of Tetra, Sage is renewing its attack on the mid-range ERP market.

Tate’s Banerjee, however, points to Sage’s previous failure to make an impact in the mid-market with Multisoft. He is sceptical that the company’s strategy of dominating different local markets with different software products. ‘Because software markets have become more international, it’s no longer a case of one area, like Scandinavia, against the UK,’ says Banerjee. ‘The battleground is truly international, particularly in the cherished mid-market.’

But can the mid-range market sustain such a deluge of new products and vendors? Banerjee warns of an impending shake-up which will see many smaller vendors either ‘go to the wall’ or be acquired by larger fish.

The millennial meltdown is likely to be just as menacing for the new-wave Scandinavians. However, Sage aside, the speed and international dimension of their growth is likely to leave them less vulnerable than their UK equivalents.

The market share lost by stars of the early 90s is probably gone for good. UK suppliers face a formidable challenge if they are to claim back the rewards that will come from leadership in international markets.

Navision’s CEO Jesper Balser warns that this task will not be so easy for his UK rivals: ‘We’ve been living in a shadow, but that is changing now.’