once one of the leading independent providers of enterprise application solutions
for industrial enterprises, and subsequently part Invensys plc.
(London Stock Exchange: ISYS), was sold on June 3 to an investment group consisting
of Cerberus Capital Management, L.P. and General Atlantic
Partners, LLC, two of the world's leading private investment firms.
Backed by nearly USD $14 billion in investment capital, the investment group
plans to employ a growth oriented, long-term strategy to the Baan business,
in the manner similar to the incredulous comeback of SSA Global Technologies
(SSA GT) (www.ssagt.com),
incredulous comeback. Very likely the new mid-market manufacturing ERP empire-in-the-making
will be spared from any unnecessary controversy and the stalemate that embroils
Oracle, PeopleSoft and J.D. Edwards.
In any case, Baan is now in a much better company, one that is solely dedicated to the enterprise applications business. In addition to Baan being in a better shape and hardly resembling its 1999/2000 incarnation this time the vendor was rather a victim of its now ex parent's sins' than of self-inflicted wounds, which was the case prior to its Invensys stint.
is Part Two of a four-part note.
One detailed the events.
Three will discuss the Market Impact on SSA GT.
Four will make User Recommendations.
refresh the memory, the former Baan Co., founded in the Netherlands
in 1978 with dual headquarters in Barneveld, the Netherlands, and Herndon, VA,
USA, was once the third-ranked ERP vendor, and its revenues peaked at $736 million
revenue in 1998. The company posted stellar growth (over 80% year over year)
from 1995 to 1997, with a significant slowdown in 1998 and sharp revenue decline
to $619 million in 1999, during which time it was overtaken by then blossoming
PeopleSoft and J.D. Edwards. In only a few years, Baan had made a steep transition
from a European-oriented discrete manufacturing ERP specialist to a contender
for the largest enterprise application deals. Also, through multiple acquisitions
during the same time period, the vendor had attempted to shape itself as an
applications company delivering far more than just core ERP.
service and support had consequently lagged new license revenue growth, despite
aggressive partnering for implementation. Baan's greatest challenge of managing
its erstwhile success, supporting its burgeoning customer base, and successfully
delivering the promise of its numerous acquisitions had never been solved during
the pre-Invensys era. The company once had direct and indirect sales, service
and support channels operating in 80 countries throughout Europe, North America,
Latin America and certain Asian, African and Middle Eastern markets. By the
end of 1999, when it still owned CODA, it had licensed approximately
15,000 system installations to more than 7,000 customers worldwide. Today's
figures, after losing some customers through the CODA sale and defections but
also after adding 450 customers since the Invensys acquisition would be 15,000
installations and 6,500 customers worldwide.
Interesting to note that in 1993 Baan sold 34% of itself to General Atlantic Partners (GAP) as part of an international expansion. Also interesting should be to note that GAP now employs former Baan CEO Tom Tinsley, who replaced the founder and CEO Jan Baan in 1998, when the first ominous sins of mismanagement emerged, and resigned shortly after in 1999, when the troubles really escalated. GAP has recently injected $75 million in SSA GT, Baan's future guardian.
in second half of 2000, crippled by eight consecutive quarters in the red and
yet another full-year loss, Baan was acquired by then buoyant giant automating
equipment provider, Invensys for more than $700 million. As some stage, it has
appeared that Baan was even back on track, since in early 2001 it mastered the
speedy although traumatic early recovery process it went through after the Invensys
acquisition in 2000. It straightened and strengthened its own house despite
the fact that the economy (and particularly the manufacturing sector, which
happens to be its sweet spot) was already in a steep slide downhill (see Baan
Achieves A Speedy Recovery Despite The Tough Times). This was achieved by
implementing a shared services synergy where possible and establishing sales
and consulting staff levels based on a realistic sales and service needs projections.
There has been instituted a much leaner management structure as well, while
a consolidation of sales and development facilities worldwide had also taken
place. A similar back-offices and cost sharing exercise will likely be repeated
during the merger with SSA GT.
We have then endorsed the company's renewed focus on the mid-market discrete manufacturing segment, the fertile ground that made Baan blossom during the mid 90s. The majority of Baan's customers and capabilities still lie in the discrete repetitive/make-to-stock (MTS), assemble-to-order (ATO) and engineer-to-order (ETO) industries, such as automotive, aerospace & defense (A&D), electronics, and industrial machinery & equipment. However, Baan also has considerable flexibility within its manufacturing functionality style coverage because of the customer order decoupling point (CODP) concept, which allows the user to determine where in the manufacturing process the forecast vs. an individual order run the production demand.
complex project-based industries, Baan has created specific functional modules,
such as the big' (i.e., complex or capital) project module, which has never
been a strength nor the target market of SSA GT. ETO-oriented manufacturers
have been fond Baan's complex project and A&D vertically oriented functionality
strong from a project definition, estimation and management (e.g., project-based
resource planning or PRP) perspective. With the introduction of BAAN
IV product release, Baan was one of the first ERP vendors to deliver
serial effectivity and the US government-specific financial control and reporting.
a number of lost customers during multiple transitions, Baan has, at least,
addressed the existing customer base attrition, partly by its senior management
personally reassuring the major customers of the company's viability. The next
step was to expand the business in its existing large customer base, both by
increasing the number of seats and by offering enterprise applications such
as Front-Office, Business Intelligence (BI), SCM, PLM, and e-Commerce beyond
its core ERP solutions. Possible momentum from these activities may have then
earned Baan some renewed customers confidence and acceptance. Concurrently with
improving customer satisfaction threefold, Baan has also managed to reach 75%
of existing customers paying for support in part by offering them its recent
strategic product broadening announcements including iBaan for Product
Lifecycle Management (iBaan PLM), iBaan for Supply Chain Management (iBaan SCM),
and iBaan for Customer Relationship Management (iBaan CRM).
Given that only ~50% SSA GT's customers are currently paying for support, it
appears that SSA GT could take a page from Baan's book in this regard.
Baan Challenges & Response
Baan will have to do much more to address its ever-tainted viability, excluding
a blissful but short-lived stint of six consecutive positive quarters in 2001/2002
against its ex parent's dismal results. The main reason for Baan's recent losses
will likely have been a hefty $100 million investment in the next-generation
platform, though, that is envisioned to supplant its older ERP predecessors
Baan IV and iBaan Enterprise, and which is code named Gemini
and still slated for the launch in the week of October 7, 2003 at the Baan
World User Fall Workshop in Charlotte, NC. At the end of the day, the
Baan's phase under Invensys, after a turbulent three years that have seen considerable
people, market and technology change, and considerable worthwhile investment,
is a matter of past.
Recent technology developments seem to be in sync with the market's trends, and leaning shrewdly towards the requirements of holistic business requirements from engineering design collaboration, to CRM and on to SCM. Baan, for one, offers a core stack of modules under iBaan Enterprise suite that includes ERP, an integration middleware layer that even features a framework for cross-application processes like supplier and engineering design collaboration, then Decision Manager, B2B Server, Portal, and Reporting capabilities.
the importance of integration looms large, Baan's framework (until recently
called OpenWorldX, likely to be renamed into Enterprise Integrator
after the merger with SSA GT) was devised to make it possible for Baan solutions
to plug in with third-party enterprise systems. Baan proudly claims its technology
is "Integrated but open", since by using an integration layer Baan solutions
can co-exist with legacy and third party applications, which might come in handy
to SSA GT's ever growing portfolio of many primeval but venerable products.
This has already been demonstrated in practice, where Baan sell-side e-commerce
solutions are running fully integrated with SAP back end installations via a
tailor-made connector (there are indications of ~1,000 enterprises where SAP
and Baan coexist on corporate/divisional level, which should also be the case
with SSA GT's bundle of products deployed at many manufacturing divisions of
Further, one should note that Invensys did not diminish Baan's business; quite the contrary, it kept some prominent Baan veteran staffers in charge, who have done notable work to keep the company afloat, possibly better than many would have expected three years ago. Thus, the above-mentioned private investment savvy buyers will have obtained much improved technology (rather than a vintage product like in some previous acquisitions) and large customer base in need for new products, while the possible synergy with SSA GT might alleviate the overriding problem of the lingering negative sentiment around Baan, as viability of every vendor is of utmost importance in the enterprise applications space. The merger seems to offer opportunities for Baan extended-ERP solutions (particularly CRM and PLM, which SSA GT either had to partner for in the past or was still pondering what to do about them), integration and BI solutions to possibly 10,000 additional manufacturing enterprises, mainly from SSA GT's fold.
could even be the best outcome for Baan and its customers since, given it will
at least become an autonomous subsidiary (if not a completely independent vendor)
through an acquisition by an investment firm (since these buyers do not initially
intend to rationalize Baan's technology and functional overlap with another
vendor's application stack). But, even being controlled by SSA GT should not
be necessarily bad, particularly since SSA GT could use Baan technology almost
straight away; also, even if only relying on mining existing Baan install base,
with a limited number of new accounts has lately been a proven tenet of success
for a number of vendors (see Resurrection,
Vitality And Perseverance Of Former ERP 'Goners').
concludes Part Two of a four-part note.
One detailed the events.
Three will discuss the Market Impact on SSA GT.
Four will make User Recommendations.