Sage is putting its money where its corporate mouth is, and in a way that’s a departure from past practice.

In a Webcast discussion about results for the year ended Sept. 30, CEO Paul Walker said that company will give up one or two points of margin in the operations of  Sage Software, its North American subsidiary, during the current year, to invest better customer service and better customer connectivity. For Sage, that’s a bit like being willing to chop off a couple of toes.

The English parent has always been margin conscious. In fact, that’s the underlying basis of the acquisition strategy outlined by Walker a few years ago in a casual conversation. The company avoids buying highly profitable operations, because the only way it can improve the acquired unit is to increase sales. It much prefers to buy a company with okay sales—and potential for growth—but which has margins that Sage can improve. The plan for 2008, then, is a big departure from the play book of the past, not that Sage is going to stop acquiring companies, but that it’s going to be investing more in Sage Software.

The mistake was probably not doing this sooner. I have always felt that during the period rival Microsoft Business Solutions was in disarray, Sage had a chance to make a dent in the competition, but passed it up in favor of—higher margins.

Apart from stating the North American performance wasn’t what it would like, the company made it clear that customer service and connectivity were among the top goals. Walker said that England had excellent customer service and that he ranked the U.S. as only  good. He also said the U.K. sales force has switched from a product orientation to a customer orientation, which bore good results.

This was brought back to the dismissal of Sage Software’s CEO, CFO, CTO and an SVP, as people whose skills were somehow not appropriate for running the new American divisions that are designed to bring the business closer to the customer.

And that requires spending some bucks.

As former MBS president Doug Burgum once put it, the problem for competitors is that Microsoft has already made the investment during its money-losing days.

Sage has some catching up to do.


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