As Lexmark evolves, focus moves from printers to software

software acquisitions bolster its value, services to businesses

ssloan@herald-leader.comNovember 20, 2011 

Two acquisitions since last year by Lexmark International have continued to move the Lexington company further from its roots in printers only and more into computer software and services.

Foreshadowing much change in the printer industry, behemoths including Hewlett-Packard have followed suit and snapped up competitors in the realm of what's called enterprise content management.

The name is complicated, but the idea is simple. Printer companies are working to make themselves invaluable to businesses by getting more involved in the flow of information, regardless of whether it ever shows up on a printed page.

For Lexington, it could mean more high-tech employees of a different sort. During the past year, Lexmark has been posting more and more jobs with a computer software focus on top of the highly paid engineering posts the company is known for locally.

What have they done?

The moves began in June 2010, when Lexmark acquired Kansas-based Perceptive Software, which specializes in enterprise content management software.

Perceptive bills itself as providing "content in context," as it takes information in any number of ways — a scanned document, perhaps, or a typed-in form — and makes it accessible in a company's workflow.

Take, for example, a bank. If you were to fill out forms by hand to apply for a loan, Lexmark's role in the process once stopped after scanning the forms. Today, those forms can be scanned and sent directly to various steps of the bank's decision-making process using Perceptive's software.

"We were on the capture and delivery ends," said Lexmark's Tim Rowland, vice president of worldwide enterprise operations, referring to scanning and printing. "What we've done with Perceptive now is fill in that gap."

One of Perceptive's newest customers is Hospice of the Bluegrass, which has hired the company to help in its government-mandated quest to move to electronic records.

Perceptive's software "came off as very intuitive and easy to use," said Cros well Chambers, the non-profit's chief information and security officer.

Lexmark continued to bolster those software offerings last month with its purchase of Netherlands-based Pallas Athena for $50.2 million. The company specializes in what's called business process management in which its software interfaces with other data bases to make workflow easier.

Take a vehicle accident insurance claim as an example, said Darren Knipp, chief technology officer of Perceptive Software, which will oversee Pallas Athena. To complete questions in a claim form, Pallas Athena's software will interface with other data bases to find the answers. The software also could route the claim to a particular customer service person based on certain factors.

"It will route the case to him and include any content like pictures of the accident, insurance cards, past losses and injury reports," Knipp said. "That way when it comes to you, everything is wrapped up in the case. You can do your thing, and it goes to the next person."

Pallas Athena specializes, too, in what's called document output management, which is just what it sounds like. Once everything is finished, one click of a button will print the necessary reports.

Pallas Athena "strengthens the workflow component that we have in Perceptive," said Lexmark CEO Paul Rooke.

How did they evolve?

Rooke sees the acquisitions as building on the legacy of Lexmark over its 20 years.

One of the original employees after the company was spun off from IBM in 1991, Rooke recalls the origins of Lexmark, when the company had more dot-matrix printers than laser printers in its fleet of products.

"At first, it was basic printing; then it evolved to managed services," he said of the industry revolution of the past decade, during which printer companies have managed businesses' printing by choosing the most efficient printer setups. "Now it's extending into the businesses' content and particularly this unstructured content, stuff that comes off of paper, and now into business process management and workflow management."

For Lexmark, it's a natural progression, he said. The company began to differentiate itself in the 1990s by tailoring its products to businesses. It helped pharmacies print on pill bottles. Its products helped retailers print the tags you see on product shelves. And now it's looking to become more and more to those companies.

"They're all connected," Rooke said. "It makes perfect sense for Lexmark, and that's what we're trying to do."

It was a vision that was surprising at first to Scott Coons, who continued as CEO of Perceptive Software after its acquisition by Lexmark.

"I never imagined being acquired by what people thought to be a traditional hardware company," he said. "As we got to know Lexmark, it became very apparent to us they're a solutions company rather than a hardware company."

And those solutions Lexmark talks about, such as ways to use less paper — its mantra is "print less, save more" — are what's driving the need to become more involved.

As companies and consumers begin to think more about their environmental footprint, many are beginning to print less. As the entire printer industry is maturing in terms of pages printed, companies have turned increasingly to software to boost revenue and profits. It allows them to strengthen their hold on customers, who are finding the companies helpful in finding efficiencies.

"As documents don't get printed at all, customers are looking at ways to manage that content electronically and, more importantly, not only managing the digital version of that but linking that information back to their core systems," said Kevin Goffinet, a Lexmark executive who has overseen the integration of Perceptive Software. "This isn't just about a repository of information but about the workflow."

Lexmark's software is competing with those of other companies such as industry giant HP, which acquired enterprise software company Autonomy last month. It's also competing to make businesses more efficient with the likes of Xerox, which acquired business process outsourcer ACS last year.

Lexmark's software and solutions on its multifunction printers and in its managed print services offerings recently led to the company being named a leader in the field by research firm Gartner.

"Software that touches printing and document management is incredibly important for the future success of these companies," said analyst Shannon Cross of Cross Research. "Lexmark is competing against Xerox and HP, who have strong software offerings in various areas, and very strong scale and research and development capabilities.

"It's incredibly important that they continue to invest in this segment."

Where are they going?

The goal to grow Perceptive's sales is based in part on using Lexmark's international sales force to expand the reach of Perceptive's products, which before the acquisition had been limited primarily to the United States.

"We're doing this by hiring more Perceptive salespeople into our international locations for Lexmark," said Lexmark executive vice president Marty Canning.

Goffinet estimates the company will have its sales force to the desired reach within six to nine months.

And the expanded focus on software could mean a larger variety of jobs in Lexington. Perceptive will continue to be based in Kansas, but Lexmark has been hiring cloud-based developers here for its printer-based software initiatives, noted Rooke, the CEO.

The company recently unveiled a cloud-based "Print Release solution" that allows mobile printing from anywhere.

And there still are plenty of industries to tap into for software development. Rowland, the vice president of worldwide enterprise operations, sees the worlds of insurance and government as prime targets.

Added Randy Sparks, director of worldwide solutions marketing, "There's a ton of paper-based processes that we can help with as they transition to digital processes.

"We think we're ready to be the bridge between the copy space and the digital place," he added.

But how far Lexmark goes will be the primary question, analyst Cross suggested.

"HP can do Perceptive-like things and then do business analytics on the data that Perceptive has rendered," she said. "They can take it a step further. The question is: Does Lexmark ever get to that point?"

She used Lexmark's example of how its software assists with mortgage applications: "Can you get to the point where a Lexmark solution does the first level of analysis on those documents, saying yes or no, we'll deny this mortgage application immediately?

"This solution concept is all merging together," Cross said. "It's going to be important for them to decide what they can do successfully and how far they want to go into business analytics."

Reach Scott Sloan at (859) 231-1447 or 1-800-950-6397, Ext. 1447.

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