ERP Belle Époque Officially Ended With the Demise of Baan and SSA

ERP Belle poque Officially Ended With the Demise of Baan and SSA
P.J. Jakovljevic - September 13, 2000

Event Summary

Once high-flying ERP vendors, Baan and SSA, have officially ceased to exist as independent companies on the same day. Baan's new owner, a British industrial automation company Invensys, took control of 72% of Baan stock as of August 4, giving it enough leverage to assume management control of the once powerful Dutch ERP vendor. Invensys claims it plans to continue investing in development of Baan products and looking after its large customer list, which includes such big names as Boeing.

At the same time, Gores Technology Group (GTG), a leading privately held international acquisition and management company, announced that it successfully acquired Systems Software Associates Inc. (SSA). The company plans to continue investing in SSA products and supporting SSA's huge installed base of approximately 20,000 customers. GTG will provide its well-established operations, management and turnaround expertise to the recently restructured SSA. The initial focus of the newly formed company will be on its customers, employees, and profitability. Once the company has addressed these functions, it will focus on the market-driven expansion of product development and sales.

"This is a significant acquisition and an important opportunity for GTG," said Vance Diggins, president of GTG. "It firmly places us in the fast-growing ERP market and reinforces GTG's growing worldwide presence as a leading provider of software and services."

"There is great potential for this new venture," said Vic Shepherd, the new CEO of SSA. "This acquisition will help to ensure the long-term viability of the company. We will continue enhancing the value of our core products while starting to invest in new market opportunities."

Market Impact

Serendipity or not, the demise of these two ERP juggernauts marks the end of an era when robust, inward-oriented enterprise transaction-crunching product suites were a guarantee of success. Today's ERP systems are required to address more than the processes taking place within the walls of an enterprise.

While the Web and e-commerce will continue to be a major ERP direction, easier enterprise applications integration (EAI), more flexible pricing, acceptance of standardized applications (reflecting a reduced willingness to customize), and embedding analytical applications and knowledge management are some of the best prospects among the next wave of ERP hot-buttons.

It is needless to say that almost all traditional ERP vendors had to experience a rude awakening and are now trying to expand their product offering in tune with the ever-changing trends and requirements of the new economy. The fatal misfortune of Baan and SSA lies in the fact that their endeavors were severely hampered by serious management blunders. Their troubles were only asseverated by a downturn in the entire ERP market combined with current investor pessimism about technology stocks (ERP in particular).

Baan, on one hand, had struggled for over two years to turn around its flailing business. Management blunders exhibited in distrustful accounting practices and subsequent loss of confidence, and its megalomaniac strategy of creating holistic enterprise applications by acquiring a myriad of disparate products sent the company in a downward spiral. For SSA, on the other hand, transformation of its main product into a cross-platform and object-oriented product proved a gut-wrenching experience. A badly executed new product introduction in 1996 caused SSA's earnings to plunge, due to the combined effect of stalled new license sales and the huge R&D budget overrun. Top management upheaval, staff exodus, a dissatisfied and stranded customer base, and affiliate partners' defection ensued.

The companies' protracted financial sagas, negative publicities, personnel departures and channel shakeout, as well as the uncertain direction of acquired companies, have begun to take its toll on customers' loyalty and patience. There has long been an open season on disconcerted customers of beleaguered ERP vendors.

Many renowned and more viable vendors have, with different levels of candidness, developed strategies of preying on dissatisfied and apprehensive organizations where those doomed systems were implemented. These predatory aspirations are based on the assumption that users often choose to rip-and-replace an existing outdated system rather than upgrading it because of the proverbial complexity involved in installing a back-office application. Back-office systems have a typical usability cycle period imposed by technology shifts (e.g., Internet vs. client server architecture, component-based vs. monolithic product) and/or applications functionality scope expansion.

Both Invensys and Gores Technology have a history of buying up depressed software companies for their customer base and infrastructure. While it may be too early to predict the future of products at this stage, we believe that the new owners will be able to salvage the two companies. They should, without any delay, address customers' concerns by unequivocally stating a more detailed product strategy and the timeframe for its delivery. To that end, we commend Invensys' efforts to reinvigorate Baan's Aurum CRM division with appointment of Robert Karulf as its new leader.

It is also very important that the companies explain why they believe impending restructuring will not jeopardize future product development and/or service & support. The fact remains that Baan and SSA still have competitive products despite their dismal enhancements during the above-mentioned difficult period. However, core ERP product functionality and technology are only a small part of the selection process, with ever diminishing significance. While the acquisitions may allay some of the viability questions, the companies' channels, both direct and indirect, to buy and sell its products were all but decimated during the last two years. Failure to rebuild these channels will have far-reaching consequences.

User Recommendations

We believe that the operations of existing users and organizations in an advanced stage of implementation will not be seriously jeopardized in the short term. While we cannot advise Baan's and SSA's customers to remain cool, calm and collected, we do not recommend abandoning ship in a knee-jerk reaction. Due diligence and development of case scenarios for either a system change or remaining with the status quo states goes without saying. An unsuccessfully implemented system and unhappy and/or demoralized users would be one of the additional crucial arguments for the case of switching to another system. On the other hand, in the case of a successful implementation, smooth business processes flow and users being fond of a system, one would have to reckon with the tremendous issues of managing change and user resistance.

Unless there is a crying need for and apparent (preferably quantifiable) benefits from abandoning the Baan or SSA product currently in use, you may be better off by hanging on for awhile. 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 a team of skilled resources available. 'Self-sufficiency' should be the name of the game. Approaching Invensys and Gores Technology and asking for assurances and firm commitment to future service & support goes without saying.

Until the acquisitions are consummated and new product strategies become clear, we do not advise potential users to evaluate these products, although learning about new features would not hurt. We suggest evaluating the bells-and-whistles, price, and corporate viability of other vendors instead, before making a selection.

On a more general note, given that over the last few years, the ERP market became stratified into growing and profitable vendors on one side, and stagnating and non-profitable vendors on the other side and since this will become even more accentuated, customers are advised to conduct due diligence regarding vendor viabilities.

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