Baan Company N.V. - Is the Worst Over?

Vendor Summary

Baan Co. is a leading global provider of enterprise business software. Founded in the Netherlands in 1978 and with dual headquarters in Barneveld, the Netherlands, and Reston, VA, USA, Baan Co. is the fifth-ranked ERP vendor with $736 million revenue in 1998 (approx. 4.5% of the global ERP market). The Company's revenues increased steeply from $216 million in 1995 to $680 million in 1997, with a significant slowdown in 1998 (see Baan Company N.V. Annual Results). Baan Co. shipped its first core accounting products in 1982. Today, Baan has a portfolio of more than 100 software products, including customer management (sales automation, product configuration and call center products), corporate management (financial and HR), and operations management (ERP and supply chain) solutions. Baan also provides add-on modules to support these core products such as business reporting tools, business-modeling tools, and E-Commerce versions of applications. By the end of 1998, the Company had licensed approx. 12,000 system installations to more than 6300 customers worldwide. Baan Co. went public in 1995 and currently trades both on NASDAQ and on the Amsterdam Stock Exchange in the Netherlands.

Fig. 1

Vendor Strengths

  • Baan is competitive in some of TEC's six parent ERP market evaluation criteria (Product Functionality, Product Technology, Product Cost, Corporate Service and Support, Corporate Viability, Corporate Strategy), particularly in functionality for discrete manufacturing and project industries, as well as in price/performance ratio.

  • Baan can be rapidly implemented and easily (re)configured, which are critical differentiators in an ERP market with languishing implementations and rigid systems; BaanDEM (Dynamic Enterprise Modeler) and Industry Reference Models are Baan tools that facilitate quick implementation (we have yet to see another competitor deliver comparatively powerful and fully-functional product).

  • High scalability of product suite makes Baan a possible solution for both Large and Small-to-Medium Enterprise markets.

Fig. 2

Vendor Challenges

  • Financial turmoil after $315 million loss in year 1998 (dismal 8% annual revenue growth, license revenue dropped 22%, service revenue soared 63%, and costs skyrocketed 110%); The trend of decreased revenues and loss reporting continued in first half of 1998 (see Baan Company N.V. Quarterly Results Chart); Reviving top-line revenue growth primarily through license revenue growth is an absolute imperative.

  • A number of recent acquisitions have created a number of still unresolved integration issues within the product portfolio (e.g. ex Aurum, CODA and Berclain products).

  • Intense competition, key staff turnover, volatility of Baan's share price.

Fig. 3

Vendor Predictions

  • Year 1999 will be extremely challenging; We predict minor revenue growth (max. 5%). Break-even net income is the most optimistic scenario (20% probability).

  • No major acquisitions are expected in either direction; The focus will be on partnerships with IBM and Microsoft in a marketing effort for brand recognition, as well as on partnerships with Application Service Providers like Bull and Metamor Worldwide.

  • Year 2000 and after - Baan will still be a player to be reckoned with, however, the chance that Baan will be one of the Top 3 global ERP vendors has slipped away for good (90% probability).

Vendor Recommendations

  • Target Small-to-Medium Enterprises (SME) market segment with the entire product portfolio.

  • Expand into enterprise applications beyond traditional ERP solutions (Front-Office, Supply Chain, E-Commerce) regardless of company size.

  • Remain committed to further product innovation and reduction of product complexity and price, by keeping R&D budget for 1999 at least on the 1998 level ($152 million).

  • Expand global distribution, sales, services and support capabilities, primarily by leveraging qualified indirect channels.

User Recommendations

  • Worth considering in general - broad product portfolio, with improving global service and support.

  • Discrete manufacturing, project and distribution industries should consider BaanERP due to its comprehensive functionality in these respective vertical markets.

  • Other industries might benefit from utilizing individual Baan products for specific functional needs, like BaanFrontOffice, BaanSCM, and BaanService products.

  • Any organization evaluating Baan should consider existing functionality only, and be able to provide the majority of product support in-house or through a 3rd party, due to Baan's financial situation.

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