Baan - What Will The Future In Invensys' Stable Bring?
2: Evaluating Baan
Baan Co. once a leading global provider of enterprise business software
has gone from an independent force in the ERP market to being part of
the Invensys Software Systems Division. It is not dead, as some feared
would be the case by now, because it has begun to win new major contracts.
the acquisition, Invensys seems to be determined to capitalize on what
Baan has to offer. The Baan core development organization in the Netherlands
remained virtually intact during numerous restructuring moves. With plans
that focus on sales, marketing, services and administration, Invensys
seems intent on both maintaining and expanding Baan's customer base.
has a wide portfolio of enterprise software applications, including customer
relationship management (sales force automation, product configuration
and call center products), corporate, and operations management (ERP and
supply chain) solutions. Baan also supports these core products with such
add-on modules as business reporting tools, business-modeling tools, and
e-commerce versions of applications. By the end of 1999, the Company had
licensed approx. 15,000 system installations to more than 7000 customers
is a two-part note; the first part
focused on Baan's history, how it fits in its market, recent developments
of interest, and the direction the company is headed under Invensys. It
also contains a Financial Summary.
second part contains specific analyses of Baan's strengths and challenges
along with bottom line predictions and recommendations for the company
and Product Profiles appear in both parts.
Manufacturing and Project Industries: Despite the destructive affects
of its difficulties during the last two years, Baan remains a strong competitor
in software for discrete manufacturing. Baan has traditionally been able
to accommodate different styles of manufacturing (make-to-stock, make-to-order,
assembly-to-order, engineer-to-order, hybrid, etc.) owing to its Customer
Order Decoupling Point (CODP) concept, which allows users to decide where
in the manufacturing process the forecast/make-to-stock (MTS) vs. make-to-order
(MTO) point is created for every product and/or component. Further, Baan
is still one of the leaders in complex engineer-to-order (ETO) project
industries owing to its very strong project definition, estimation and
Implementation and Easy Reconfiguration: Baan was one of the first
large ERP vendors that attempted to reduce ERP implementation complexity,
a problem that has plagued the market with languishing implementations
and rigid systems. To that end, the Baan Dynamic Enterprise Modeler -
Strategy Execution (DEM SE) concept attempts to remove some of the configuration
complexity by enabling users to graphically model (using flowcharts) and
navigate enterprise business processes, organizations and events, and
then automatically configures the product. Moreover, it provides for system
agility since software components can be changed and/or reconfigured at
any time without disrupting operations. Furthermore, Baan's core ERP product
still exhibits strong support for almost all industry relevant platforms
and middleware standards. These factors have made Baan products attractive
to both medium and larger enterprises in the past.
ERP User Base: With over 7000 clients spanning industries such as
aerospace, automotive, and complex manufacturing (to name but a few),
Baan has a number of industry verticals to develop, pilot and deliver
solutions to. Furthermore, Baan claims to have finally bundled together
a wide range of functional components to extend the core ERP functionality:
SCM, CRM, e-business, and middleware. Few if any other vendors can provide
integrated applications of this magnitude under one umbrella, particularly
in the mid-market. Also, Baan products have traditionally been less expensive
compared to its peers' products, giving it a competitive price/performance
ratio. On top of that, Baan has recently announced a promotion allowing
customers of its Baan IVc and higher releases to take advantage of a range
of special deals on Baan Sales, Procurement, Business Intelligence, Supply
Chain and Baan OpenWorld solutions. This initiative might be attractive
to some of its loyal customers.
Sensor-to-Boardroom' Capability: Invensys, with its ambitious 'Sensor
to Boardroom' product strategy, seems determined to provide manufacturers
a solution that satisfies all their needs, from shop floor measuring devices
to cyberspace collaboration. Baan offers ERP and e-business software,
as well as customer relationship management (CRM) software from its acquisition
of Aurum, and supply chain planning and execution software from its acquisitions
of Caps Logistics and Berclain, whereas Invensys offers manufacturing
execution system (MES) components. The possibility of integrating and
providing all elements of a complete manufacturing solution must be tempting,
and is quite possibly lucrative, but every effort should be made in order
to avoid the kind of poor product execution which partly led to Baan's
Deteriorated Competitive Position: Over the past two years Baan
has suffered a considerable loss of market share, money and customer confidence.
The company has, therefore, been affected much more by the Y2K-induced
market slump than other Tier 1 vendors (See Figures 4 & 5). The company's
channels, both direct and indirect, have also been all but wiped out during
the same period of time. The situation has particularly been aggravated
in the US market. As a result, the market has witnessed a hungry flock
of Baan's competitors preying on its large, perturbed customer base. SAP,
for one, has been creating interfaces to ease migration for current Baan
customers to its own software offerings. There are indications that many
of Baan customers are at least considering migration to another provider,
while some have already opted for it.
while the acquisition by Invensys (see
Part 1), may have allayed the recent concerns about Baan's imminent
demise, doubts remain over Baan's future given recent Invensys' profit
warning and speculation that it may in turn be an acquisition target.
Immaturity and Inconsistent Functional Strength: The Baan product
portfolio, achieved through a number of acquisitions (see Part
1), has seen hefty delays and costs that resulted from resolving integration
issues and reworking disparate pieces into a single schema/data model.
There are still instances of the products having different look-and-feel
across the range of the portfolio. The number of acquisitions over the
last few years has created a clutter of many different technologies and
applications that required integration. How well integration was implemented
remains to be seen. Moreover, if one can judge by the past, we can expect
product quality problems with immature product releases as well as uneven
Baan Series (formerly Baan V), Baan has embarked on a mission to deliver
a component-based architecture, a major departure from its monolithic
4GL-based Baan IV product. Unfortunately for Baan, this undertaking coincided
with its financial troubles, which had an impact on its execution. It
is also ironic that the Baan business was hit with troubles exactly when
it finally seemed to have delivered its most stable and mature product
(Baan IV) and when it finally seemed to have straightened out its service
and support part of the business. Conversely, during its golden days of
over 80% annual growth, the company struggled to recruit enough experienced
resources to keep up with its mushrooming global market while selling
an unstable and bug-ridden product.
while Baan has addressed enhancement of its general financial functionality
by providing features such as multinational support, consolidations, and
central invoicing, its functionality is still inferior to that of larger
competitors. Also, its lack of native HR/Payroll functionality means that
Baan will not attract customers that prefer a truly enterprise-wide 'one-stop-shop'
Base Retention and Leverage: The legacy of questions about its viability
is not the only reason Baan may have difficulties leveraging its existing
client base. Companies interested in "e-business" may need to move faster
than Baan is currently able to do. Boeing, a crucial Baan ERP client,
recently chose a competitor's product to implement its e-procurement initiatives.
While this is only one customer, the case indicates that Baan will need
to provide feature-rich and tightly integrated solutions if it wishes
to maintain the existing client base.
estimate that Baan is at least a year behind the market leaders regarding
e-business capabilities. Competitor J.D. Edwards has inked a deal with
marketplace mover Ariba, whereas SAP and PeopleSoft have established partnerships
with Commerce One, as well as a number of ASP partnerships, while also
pursuing a dozen vertical markets. Oracle's e-business initiatives have
also been well publicized. If Baan wishes to compete in the ERP/e-commerce
environment, it will need to consider similar initiatives within the year.
Furthermore, while the choice of Microsoft's Back Office Suite as a sole
platform for its E-Enterprise solution certainly has its merits, it may
represent a double edge sword. We estimate over 50% of Baan's existing
ERP customers are Unix based. Many of those companies may not be ready
or willing to support a Microsoft operating platform at this time.
Dubious Strategy and Execution: While we approve 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 will be a colossal task. Baan's service and support viability
remains 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. These factors may aggravate Baan customers'
are have been speculations that in order to recover the cost of the acquisition
Invensys will keep only Baan's core ERP product, to gain strength in manufacturing
sectors, but will sell off product lines such as the Aurum CRM business
and Caps Logistics SCM business. Although Invensys has indicated it will
not dismantle Baan, its statement that it "is committed to a strong research
and development program at Baan and the full suite of Baan products" may
not be good enough for a disaffected customer base.
2000 and 2001 will be very challenging, with revenues dropping more than
80% compared to revenues in 1998 (70% probability). We do predict a return
to profitability during 2002 (60% probability). While remaining among
the Top 5 enterprise applications vendors is not a likely scenario within
the next three years (30% probability), Baan will retain its position
among the Top 10 applications vendors during the same period of time (70%
acquisitions are very unlikely (20% probability), while selling off parts
of the Baan business (e.g., Aurum CRM or Caps Logistics SCM) are also
unlikely (35% probability). Instead, the focus will be on strategic alliances
with local VAR and ASP companies in order to penetrate the Small-to-Medium
Enterprises (SME) market via outsourcing offerings. The focus will also
be on partnerships with IBM and Microsoft (70% probability) in a marketing
effort for brand recognition and restoring customer confidence.
the next four years, more than 55% of Baan revenues will come from the
European market (60% probability), with license revenue contributing less
than 30% of the total revenue within the same period of time (60% probability).
CRM and supply chain solutions will be significant contributors to Baan's
sales revenue (up to 40% within next 3 years, with 60% probability) despite
not being the cutting-edge products in the market.
believe that, within the next twelve months, the company will officially
announce an alliance with a vendor whose products provide it deeper B2B
direct material e-procurement and vertical marketplace capabilities (70%
probability). Potential candidates are the likes of RightWorks, SupplierMarket.com
Baan must continue its effort shore up its customer base and to penetrate
the SME market segment with its entire product portfolio of component
applications, mainly through indirect channels and outsourcing arrangements.
Baan must expand global distribution, sales, services and support capabilities,
primarily by leveraging qualified indirect channels. Failure to rebuild
these channels may annul all its endeavors in the right direction. Baan
should consider utilizing Invensys' infrastructure to fill existing gaps
in current geographical coverage.
must use its direct sales force 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, Supply
Chain, and e-Commerce beyond its core ERP solutions. To clear the deck,
Baan should promptly attend to the resolution of any remaining integration
and/or inconsistent functionality issues that early users of Baan Series
(Baan V) software have experienced.
should maintain and improve its core ERP product while enhancing e-business
offerings (e.g., direct material procurement and link to digital marketplaces
functionality). These endeavors are very ambitious and the current R&D
budget should be maintained at least at the 1999 level.
should promptly address customers' concerns by unequivocally revealing
its detailed product strategy and the timeframe for its delivery. Also,
it is very important that the company defines and publishes a long-term
e-business plan. While the recent executive appointments and marketing
campaign are commendable, Invensys should maintain its program to reenergize
the Baan business. Financial and other merit-based incentives should be
extended to a wider range of employees.
should also carefully reevaluate its product migration strategy from current
Baan IV and older instances, in order not to alienate and disillusion
its customer base. The company should consider extending the previously
mentioned promotional offer to all customers, not only to users of Baan
IVc and later versions.
The Invensys involvement in Baan business reinforces our belief that the
operations of existing users and of organizations in an advanced stage
of implementation will not be put at risk. While we cannot advise Baan's
customers to completely relax, neither do we recommend abandoning ship
in a hasty manner. Due diligence and development of case scenarios either
for a system change or for remaining with an expanding Baan offering is,
manufacturing and less technologically aggressive companies may be better
off by hanging on to Baan for a while. Nevertheless, be on high alert
and develop medium- to long-term alternative plans for moving to a new
technology. Ensure that you have the prerogative to change the source
code, and that there is a team of skilled resources available should that
become necessary. 'Self-sufficiency' should be the name of the game, given
that we expect Baan service and support to continue to suffer in the short
term owing to recent restructuring throughout the organization. We do
expect support services to improve in 6-12 months time at the earliest.
However, identifying and approaching your local Invensys/Baan sales representative
and asking for assurances and firm commitment to future service and support
would be the best course of action at this stage.
the new product strategy, particularly regarding e-business and Internet
trade exchanges, is crystal clear and publicly committed to, we advise
potential users to warily evaluate the product even within its engineer-to-order
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.
existing Baan clients, we suggest keeping your eye on the extended-ERP
solutions. Understand what functionality you're interested in 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
Invensys/Baan and a list of recent customers can alleviate some potential