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Baan Seeking A New Foster Home -- A Déjà vu Or Not Quite? Part Three: Market Impact and User Recommendations

Written By: Predrag Jakovljevic
Published On: May 8 2003

Market Impact

The UK-based global automation and controls group Invensys plc. (London Stock Exchange: ISYS) has announced that Baan is finally and definitely for sale. This is a part of its parent's major divestiture move (i.e., over two thirds of its current business) and as Invensys recoils to its bare fundamentals. (For details of the announcements see Part One of this note).

What has then gone wrong between Baan and Invensys? While the justification of Invensys' narrower focus cannot be flatly dismissed, it can nonetheless be a virtue made of (dire financial) necessity. Invensys, with its ambitious 'Sensor to Boardroom' product strategy, seemed once determined to provide manufacturers a solution that would satisfy all their needs, from shop floor measuring devices to cyberspace collaboration, since Baan would offer enterprise-level applications, whereas Invensys would offer MES and plant automation components.

The possibility of integrating and providing all elements of a complete manufacturing solution must have been tempting, and was possibly lucrative, but every effort should have been made in order to avoid the kind of poor piled-up products execution which partly led to Baan's demise in the first place. While we approved of Invensys' move to provide manufacturers a solution that may satisfy all their needs, creating functional connections between front office, ERP and plant automation applications was a colossal task. Baan's service and support viability was also uncertain in the interim owing to the exodus of Baan staff and questionable Invensys' core competency in extended ERP applications.

The need for cross training of the sales force in functionally disparate applications should not be neglected either. Also, it turned out that there might have been a cultural gap between many Invensys divisions manufacturing physical products versus Baan as a software division, which had a different business model, uncertain return on investment (ROI) and long and grueling sales cycles. Furthermore, Baan's focus on discrete manufacturing has not been a close fit with Invensys' plant automation products that have been geared mostly to process industries. To that end, Invensys has had a nightmarish job of trying to rationalize Baan and its process ERP counterparts, Protean and PRISM, development strategy abandonment has been a catchphrase of late.

As a result, recently, after a lengthy and painstaking soul-searching exercise, Invensys created a new group within its Production Management Division called Invensys Production Solutions (IPS) (www.invensysproductionsolutions.com). The group will include the PRISM and Protean process ERP products plus the resources of Invensys Validation Services group (www.vtc-usa.com), a Montreal, Canada-based provider of regulatory compliance, validation, and consulting services encompassing the entire validation project life cycle and a range of validation services for the regulated supply chain.

In the past three years, Invensys process solutions' customers have also experienced the displeasure of witnessing several radical changes of strategy, causing some of them to begin to seriously doubt the vendor will ever deliver their market-specific product capabilities. In July 1999, Invensys bought the outstanding shares of then struggling Marcam Solutions, and folded it initially into its Wonderware factory automation division. Further, as mentioned earlier, in August 2000 Invensys acquired then also languishing Baan Co. and made it a part of the former ISS division.

The initial strategy for the products, which was announced after the Baan acquisition was to release a unified Baan product that combined functionality for discrete and process manufacturing (see Process ERP Market Loses PRISM and Protean). After hearing existing customers' less-than-pleased feedback and after another reconsideration of its past investments, Invensys then modified that strategy to one of creating the Baan Process division (see Invensys Announces New Division - Baan Process) which included five process ERP products coming to Invensys through Marcam and Baan acquisitions: Baan IV Process, Baan Dimensions, PRISM, Protean, and Baan Cable & Wire. The announcement was a departure from rewriting all the products into one core iBaan Enterprise product the unit was not going to provide an integrated solution any longer, but would rather provide combined applications capabilities via an integration framework.

Finally, given Invensys has recently yet again put all its assets/investments under the magnifying glass, it has now allocated the PRISM and Protean products into their own profit-based division, called Invensys Production Solutions. Given the Baan product line focuses on the discrete and hybrid (with only simple process requirements) manufacturing sectors, this move should enable both organizations to fully leverage their strengths in their respective industry sectors. Under the new setup within Invensys PMD, well over 80% of revenues will now likely come from process industries, since, in conjunction with solutions provided by sister Invensys companies such as Wonderware and Avantis, Invensys Production Solutions also provides a broad set of capabilities for the process sector. Thus, Baan will have then been singled out as the discrete manufacturing black sheep' in the family, causing Invensys to review the carrying value of its investment in Baan, and to move it into its "window shop" Development division.

Still, one should note that Invensys has not deteriorated Baan's business; quite the contrary, it has kept some prominent Baan veteran staffers in charge, who did a notable work to keep the company afloat, possibly better than many would have expected three years ago. Invensys claims that some sort of strategic relationship will remain (i.e., Invesys is still an iBaan user after all) and joint Invensys/Baan technology will still reportedly be honored after the sell, such as Baan's OpenWorldX platform that Wonderware uses as well. While Invensys does not plan to integrate iBaan ERP functions with PRISM and Protean, it does plan to leverage Baan's collaborative SCM or CRM software, using Baan OpenWorldX enterprise management level integration framework, which, together with the ArhestrA framework at the plant automation level and Production Engine (PE) framework at the production management level, still represents a part-and-parcel of the Invensys Real Time Enterprise (RTE) framework (formerly referred to as the "sensor to boardroom" strategy).

This is Part Three of a three-part note.

Part One detailed the announcement.

Part Two discussed the history of Baan and Invensys.

Potential Buyers

Now that the Invensys/Baan relationship has not worked out, who would be the likely suitors? It is nonetheless a difficult and ungrateful job to speculate who would be the most likely buyer willing to inherit Baan's dowry, although the vendor has significantly restructured and become a much leaner and efficient business under Invensys; it was able to leverage offshore development resources in India, and move forward with its next-generation technology, which is still purportedly on track with its release schedule later this year. Thus, while the savvy buyer will obtain much improved technology and large customer base in need for new products, the overriding problem has been the lingering negative sentiment around the company, as viability of the vendor is of utmost importance in the enterprise applications space.

We could hereby think of all the usual and some unusual suspects, from direct competitors (i.e., SSA GT has long been trumpeting its wish to grow through acquisitions backed up with a huge pile of venture capital cash infusion), via complementary software providers or consulting/system integrating firms, to a venture-funded group like Golden Gate Capital or Bain Capital taking Baan private. However, as much will depend on price, geographic coverage aspirations, functional fit and so on, many acquisition inclined companies like Microsoft, IBM, PeopleSoft, Computer Associates, Geac Computer, and even the former owner Jan Baan (i.e., Vanenburg) may get a sudden shopping urge, since one can be sure the price tag will not be nearly high by the standards of a couple of years ago (i.e., ~$800 million that Invensys paid at the time). Look for the outcome to happen soon though (maybe even during the editorial cycle of this article). It would have been a skittish business practice to announce the intention and to further disconcert existing users and stall prospective ones, if the sale process was not well under way and with a number of viable prospective buyers.

Although it would be a likely better outcome for Baan and its customers to become a stand-alone vendor through an acquisition by an investment firm or a system integrator (since these buyers would not have to rationalize Baan's technology and functional overlap with another vendor's application stack), it might be more likely (i.e., 55% vs. 45%) that Baan will be acquired by another like vendor. But, even that should not be necessarily bad, particularly if the vendor in case could use Baan technology straight away; also, merely maintaining existing Baan install base, even 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').

One should note that Baan was by no means the only major ERP vendor to succumb to market forces in 2000, given Gores Technology Group (GTG) acquired at a similar time former Systems Software Associates, Inc. (SSA), also once a high-flying ERP vendor (for more information, see ERP Belle poque Officially Ended With the Demise of Baan and SSA). It would even be spooky to see Baan acquired by its former brother in arms', although SSA GT's current bullish posture might bode well for Baan's future, regardless who the buyer happens to be.

What the Buyer Will Get

However, Baan's suitor will still have work cut out for itself to regain the former Baan glory, since Baan, still has a lot of housekeeping to do given it admits that nearly 70% of its customers are still on Baan IV, owing to the unfortunate fact that the former Baan Co.'s business was hit with troubles exactly when it finally seemed to have delivered its most stable and mature product although technologically outdated, Baan IVc. BAAN IV is still a traditional monolithic third- and fourth-generation procedural language (3GL/4GL)-based product, with an internally developed proprietary toolset (i.e., Baan Tools) that requires significant domain expertise to be productive. Like most contemporary ERP products, BAAN IV's Internet-enablement had to be developed outside its native toolset and represents a minute portion of the total functionality of the product. In addition, the number of integration points, i.e., published application programming interfaces (APIs) in BAAN IV is still low, even if one counts Baan IV step-sibling products acquired in the 1990s.

With BAAN V (now renamed into iBaan Enterprise 5.0), which was released in late 1998, Baan begun the evolution of its ERP product to a component-based architecture, and with workflow being native to the product. All functionality in the product was also Internet-enabled via a separate Java-based user interface. The new product release, which features much more advanced architecture, still may lack a number of pre-defined industry templates, which were available in Baan IV though. Also, while architecturally Baan has made some notable moves, scalability lags its larger-user competitors. Therefore, the bifurcated releases of the core ERP products, Baan IVc and iBaan 5.0 — with diverse vertical solution extensions, while necessary at this stage to keep old customers aboard, will eventually have to be merged into one code set for development and support. To that end, the Gemini product release is to provide a smooth simultaneous migration for customers of Baan IV and iBaan ERP, given this is an issue that Baan was very aware of and was specifically addressing. Otherwise, valuable R&D and service & support resources will continue to be diluted indefinitely by the requirement to maintain multiple code bases.

Moreover, the protracted difficult period has taken its toll in slower core ERP product enhancements; as a result, many competitors seem to have caught up or even leapfrogged Baan's competitive differentiators of the past. A case in point would be the Baan Dynamic Enterprise Modeler Strategy Execution (DEM SE) concept, which attempted to remove some of the system configuration complexity by enabling users to graphically model (using flowcharts) and navigate enterprise business processes, organizations and events, and then automatically configures the product, have been emulated by many competitors meanwhile. Rather than using traditional menus, DEM would allow users to use graphical flow charts to navigate and interact with BAAN IV functions, while portions of the product could be reconfigured in operation without affecting all end users. However, the granularity of assembly within DEM was limited only to what has been defined at the screen level along with its associated business logic. Also, while DEM has the appearance of workflow in BAAN IV, there is no workflow engine to drive decision and routing processes.

Further, the lack of native HR/Payroll functionality means that Baan will not attract customers that prefer a truly enterprise-wide one-stop-shop' solution, which is often the preference of the mid-market. Also, while general financial functionality in BAAN IV caters for multinational/complex organization support, it has never been the main reason for adopting the Baan product. Some partnership-based endeavors might have strengthened financial consolidation and reporting, but not transaction accounting, as activity-based costing (ABC) and drill-down analysis remain very basic in Baan IV. As for iBaan, there have been some enhancements in the areas such as multicurrency, albeit only as an incremental improvement. Baan's ability to support local requirements is still a moving target and is still reliant on partners and customers' input to ensure compliance with fiscal and statutory reporting. Many of these shortcomings could be mitigated within the future owner's product portfolio, though.

User Recommendations

While uncertainty is not pleasant, existing Baan users are by no means in a situation prior to 2000. As for existing users and those currently going through implementation project work, business as usual would be the best course of action. Baan is now a solid Web services-compliant product and a valuable property, and regardless of who acquires it, it will likely be taken seriously, at least for significant maintenance revenue if not for an ample cross-sell and up-sell opportunity within the existing install base.

Given Baan existing install base's diversity, different strokes may still be applicable for different folks, and given some time bracket before the acquisition happens, the decision does not necessarily have to be made in a hurry. Baan IV users, which constitute the vast majority, have the least reasons to worry about their ongoing support, and they have the most reasons to wait for the certain sale to happen, and to go from there. Users that are on older versions than Baan IV (i.e., green-screen' based Triton product) may benefit from upgrading to Baan IVc as to increase their chance of protected support in the future. Baan IV Process, Baan Dimensions and Baan Cable & Wire customers are likely in the least favorable situation, and they might want to look for other alternatives, although the migration opportunity might present itself within the future buyer's offering. Current iBaan 5 customers and Baan IV customers anticipating an upgrade to iBaan 5 may want to postpone their major plans until the new owner articulates its product strategy for Baan. Users of iBaan CRM, iBaan SCM and iBaan PLM should assume the same approach, given that the new owner may decide to spin off some of these divisions, in case of product overlap.

It is the waiting game, given Baan's future will still depend on who acquires it, and what products are to be retained, what are to be divested or phased out over time. Until the new product strategy is crystal clear and publicly committed to by the new owner, we advise potential users to warily evaluate the product even within its ETO discrete manufacturing sweet spot. (Of course, learning about new features and attractive pricing would be beneficial, at least for information and for leverage with other vendors.) We suggest evaluating the bells-and-whistles, price, reference sites within your industry, and corporate viability of other vendors as well, before making a selection.

While no current Baan users, particularly those in the middle of implementations, can be completely at ease, we believe that their endeavors will not be seriously jeopardized, if at all. They may want to consider the prerogative to change the source code and secure a team of skilled resources just in case. Furthermore, for existing Baan clients, we suggest keeping in close touch with current Baan executives and keeping your eye on the potential extended-ERP solutions with a proven quick ROI like the Measure Up ones. Understand what functionality you're interested in to solve which problem, and investigate what the company can offer. Identify the requirements and related costs to upgrade your systems to support the added functionality. If you are interested, perhaps your existing relationship could be leveraged to dramatically reduce the cost of the suite. Consider negotiating a pilot or trial period at no cost to you. Also, use the opportunity of Baan's promotion to negotiate a lower price with competitors. An upfront implementation guarantee by Baan and a list of recent customers can alleviate some potential anxieties.

Very detailed information about iBaan Enterprise 5.0 is contained in the ERP Evaluation Center at http://www.erpevaluation.com/

 
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