Geac Gets Its Commonsense Share Of Consolidation, With Revolving Door CEOs No Less Part Three: Challenges and User Recommendations




Challenges

Beyond the Market Impact of the events covered in Parts One and Two of this note, Geac Computer Corporation Limited (TSX: GAC) faces serious challenges.

Although it is functionally strong, Geac System21 has until recently lacked some of the technology and buzzword must haves' such as a web-based, server-centric architecture, XML-based integration and sales force automation (SFA) that have been natively provided by many of its rivals such as SAP, Intentia, IFS and J.D. Edwards. In contrast, Geac products have mostly "talked" to the outside modern collaborative world through a plethora of open APIs (application programming interfaces) and the company has remained content (or forced) to settle for best-of-breed' connectivity. Additional functional suites like CRM, advanced web-based product configuration management, business intelligence (BI) and so on have been provided largely through partner alliances such as with Cognos, Information Builders, and Business Objects for business intelligence (BI), Applix for its iCRM and interactive planning solution, and with former Frontstep for its SyteLine APS and SyteCenter solutions.

By delivering the above-mentioned native enhancements within System21 Aurora, Geac might partially allay some customers' fears that System 21 functionality will increasingly lag that of its major competitors. Still, the tacit stance Geac has assumed while developing the Aurora enhancements over the last few years has come with a cost of lost mind share and a consequent challenge of putting the product back on prospects' radar screens. In fact, Aurora is a 2nd or 3rd-generation of web-enablement, given the web-based supplier- and customer-facing applications have been available in earlier System21 versions since the late 1990's. This lost mindshare will make selling the product to new customers quite difficult, especially considering a tough selling climate.

Further, Geac will have to also embrace and promote a rock solid strategy for integrating its product suite with multiple partners. The company may benefit from following J.D. Edwards' example and closely partnering with a major enterprise applications integration (EAI) vendor in order to ease integration with its partners. In line with this thinking, Geac already has strong technology partnerships with IBM and Jacada (for hardware and middleware). The Aurora product uses the latest IBM technology, and the dependence on IBM has largely helped Geac curb its development costs while delivering a number of additional modules running on a unified platform.

Still, the process of harmonizing the installed user base across a controllable number of active software versions remains a major challenge. If history helps us predict the future, most contemporary vendors will not be able to pull off a smooth evolution from their current architecture to the next-generation. The problem largely involves the issue of being limited by the past, making it more difficult to truly transition to a new architecture (for more information, see What's Wrong with Application Software? It's the Economics).

It is needless to say that the still varied product portfolio under the Geac banner will inevitably take more pondering and soul-searching and may likely act as a distraction from the primary products' strategy. Geac has already begun to address this matter by divesting a number of less-profitable and non-viable products (see Geac Decomposes To Survive), but it still has a few products running on disparate platforms, from mainframes to web-based architectures.

Having an unfocused, multi-product and multi-technology strategy in markets with diverse dynamics typically multiplies and overstretches sales, R&D, and service & support resources, jeopardizing the products' possible long-term success in their respective niches. This market perception and sentiment is not to be neglected, as some customers feel that Geac essentially treats some venerable products like the M-Series (a.k.a., Millennium, acquired from former McCormack & Dodge) as a cash cow and has long not reinvested significantly in the product's enhancements. At the same time, the support fee is perceived as costly, while the Millennium architecture is unique enough that it is difficult to find resources to support the application independently. Time alone will tell whether the Extensity and Comshare acquisitions and IBM technology overlay will add some major new value atop these applications. At least, the opportunity seems to be there.

This is Part Three of a three-part note.

Part One detailed recent events.

Part Two discussed the Market Impact.

External Partnerships and Integration Costs

Geac still has quite a range of functionality to cover through external partnerships for some of its products, which gets increasingly complicated to track for several products and their multiple releases (see Geac Trying Its Luck in Partnering). The partnerships are intended to, for example, enhance Geac's StreamLine Windows NT/2000-based ERP solution aimed at manufacturing companies with 5 to 150 users. Geac's customers should benefit from being able to use Eden Origin, a tool that enables product configuration/product search engine via a Web-enabled interface. Through Geac's partnership with Preactor International, small to medium (SME) manufacturers might benefit from advanced planning and scheduling (APS) and finite capacity scheduling. However, given that the above functionalities have become all but commodities nowadays, Geac will have to work much harder on StreamLine's enhancements if it is to match the functionality from many competitors, as most of the e-business and CRM components are still lacking. The product's scope still remains within managing the flow of production through the supply chain, from purchasing of raw materials to sales and distribution of finished goods.

While the best-of-breed approach has its merits and is a necessity for some plant-level applications that ERP vendors do not typically provide (e.g., data acquisition), it inadvertently leads to additional integration costs and complicates service & support arrangements. Interfaces between disparate applications like ERP, SCM, CRM and/or e-business usually require significant tailoring across different product versions. Things can get even more complicated due to partners' potential troubled performance and subsequent demises or change of ownerships, like in the recent case of Applix iCRM divestiture or Frontstep's acquisition by MAPICS, which both happen to be embedded within some earlier Geac's products' instances, albeit under OEM agreements that give the vendor the right to source code. All of the above can be a barrier to future changes as further modifying already modified code is notoriously time consuming, costly, and risky.

Thus, Geac has some remaining work to do, in terms of functionally bolstering some of its previously neglected products and figuring out a middleware and web services framework for its users. The traditional problem for Geac has been its preference for acquiring new products rather than pursuing in-house product development and/or true strategic alliances. While the strategy might have worked in a number of esoteric industries with a low penetration of competitors like hotels & restaurants, real estate and construction, it is indisputably a completely different ball game in the global enterprise applications market in the mainstream industries. Modern enterprise applications must be able to support dynamic business requirements, and every vendor is compelled to add much more value to its products and services portfolio to attract and retain customers, rather than mainly invest in the existing bundle of disparate core products and hope for endless support revenues. Geac's fierce competitors mentioned earlier have long grasped this reality and have acted accordingly.

Realizing the crying need to change its faltering business model, Geac seems to be finally addressing its strategic options, with the above product strategy announcements showing it is serious about appeasing and shoring up its large customer base. One is only to hope that Geac's renewed interest in alliances and acquisition will be to the point of effectively enhancing prosperous product lines as required by its large installed base.

The Extensity and Comshare purchases should seemingly provide Geac with enhancements to its multiple core ERP systems for a modest price tag. In times when everybody is keeping a close eye on all IT investments, financial management products that help companies achieve better control of spending and/or streamlined financial processes should provide strong value propositions and quick Return on Investment (ROI). Geac's industries of interest such as construction, apparel, automotive, financial services, healthcare, property management, real estate, libraries, public safety and government all experience the need to streamline processes involving procurement and time/expense management. Comshare's MPC suite of financial planning, budgeting, forecasting and consolidation software should also provide many cross-sell opportunities to Geac's existing enterprise customers, since MPC should appeal to the same C-level executives and corporate controllers that rely on Geac's ERP transaction systems.

In addition to cross-selling more products to its existing customers, the acquisitions hold the potential of generating new customers. The tough financial climate bundled with increased regulatory requirements (i.e., the Sarbanes-Oxley act) put added pressure on measuring and optimizing business performance, and financial analysis and planning appear to be exactly what the doctor ordered. When C-level executives are held severely accountable for the accuracy of these reports, there should be a high priority and easy justification for investments in financial analysis and business performance management. The addition of Comshare MPC to the Geac product line is in direct response to requirements from Geac customers, given that AS/400-based applications have traditionally lagged in financial reporting capabilities. Geac's existing mainframe and client/server customers are also calling for financial reporting capabilities. One could notice a parallel with the recent SSA GT's acquisition of Elevon (formerly Walker Interactive), although one might be intrigued with low-profile publicity about the Elevon acquisition that was atypical to other recent SSA GT's purchases.

Given the saying "once bitten, twice shy," one should believe Geac will have carefully thought out the rationale for the above two acquisitions. Although there is still sizable work ahead winnowing out the remaining under-performing units/product lines, there is a strong opportunity, provided Geac can regenerate its growth strategy. Although it remains at the fringe of Tier 1 enterprise applications providers, the company's focus on real-time financial reporting and BPM has earned it renewed respect in the market and some new customers. Comshare, in its own right, was one of the first vendors to have produced an executive information system (EIS) capable of pulling in data from various applications and presenting it in a compact form. Unfortunately, the EIS technology has since been eclipsed through the advent of integrated BI suites and portal technologies. Further, although Comshare has achieved a strong customer satisfaction rating, its dubious viability has traditionally been a major hurdle when competing against much larger and more visible competitors like Hyperion or Cognos. Geac's deeper pockets and much larger size should help it allay these sorts of past problems.

Given the fact that Geac too was up for sale in 2000 (see Geac Lives By Acquisitions; Will It Die By An Acquisition?) its turnaround has been impressive. However, a frequent turnover of CEOs will not fly very favorably with the market, although Jones' appointment should indicate keeping the course. Moreover, the leaner company with a large customer base and a palatable market capitalization of slightly over $300 million remains an attractive acquisition target in this seismically consolidating market. Still, the recent Comshare acquisition for cash and an impending products' merger might put off the acquisition spotting vultures for the time being.

User Recommendations

Geac's viability has long not been an issue. At least it should not be used as an excuse for not putting Geac on evaluation lists. The rejuvenated management team has done a praiseworthy job of bringing the company back to health while concurrently unveiling a new System21 product that can compete with the other products in the market. Deep vertical functionality, process integration, and the communication of a detailed product strategy blueprint to the market should help users manage total cost of ownership (TCO) during this era of conservative IT budgets.

While recent events continue to improve Geac's balance sheet, a more encouraging sign is the company's intent to become a true software-developing vendor, not simply a software collector and dealer. The challenge for current and potential users is to discern Geac's corporate strategy viability within the product line/industry in question. Users will benefit from approaching Geac and informing themselves about the company's plans for future service & support (or divestiture and/or product stabilization?) of its individual products as well as the ramifications of migrating (or not) to its new product offering. Users should vigorously question Geac on its future options and investigate alternative solutions now to fully understand their situation and options.

Mid-market manufacturing companies in Geac System21 Aurora's key vertical industries, including apparel, electronics, food and beverage, and automotive supply that are considering a new ERP system should evaluate the offering while observing closely Geac's future plans. Typical customers are small to mid-market enterprises, many of them operating in complex supply chains serving some of the world's largest manufacturers and retailers. As for manufacturing environments, System21 Aurora is amenable to many environments — from repetitive, batch process, hybrid, configure-to-order (CTO), engineer-to-order (ETO), to mixed mode. If vertical-specific solutions are near a perfect fit, Geac System21 Aurora should be evaluated given Geac's apparent determination to keep it highly competitive, but prospective customers looking to implement a comprehensive extended-ERP system outside of Geac's traditional vertical focus may benefit from considering other options.

Existing Extensity and Comshare customers looking to expand beyond their financial packages into ERP/supply chain planning should consider evaluating appropriate Geac's products. Conversely, Geac users with a need for a strong financial spending, planning, budgeting, consolidation, etc. products should consider Extensity and Comshare as high-priority contenders, although questioning the level of integration between the products goes without saying. Still, Geac's existing relationships with BI vendors like Cognos and Business Objects may become strained because of inevitable functional overlap, and Geac users of these applications should clarify their options with Geac's management.

The E (Expert) and M (Millennium) series, which are IBM S/390 mainframe-based, will likely not receive major functional enhancements owing to aging technology. Still, existing users should investigate Geac's plans to leverage Comshare and Extensity add-on enhancements to the systems. The SmartStream suite that supports client/server-based UNIX and Windows NT systems, the StreamLine series of NT-based back-office products, and System 21 Aurora are thus the most likely recipients of R&D funds. However, overlapping modules in SmartStream and StreamLine will likely be rationalized as to minimize duplicated R&D costs. Consequently, System21 Aurora and StreamLine are the likely core ERP systems going forward, both providing scaleable and flexible ERP and e-business systems built on IBM middleware technology.

As for the newly added and/or anticipated functional footprint, users are advised to ask for firm assurances on the availability and future upgrades timeframes, and more detailed scope of enhanced product functionality. Existing customers, particularly those that have been yearning to rejuvenate their almost outdated technologies should welcome Geac's plans and check whether any new product in the family might be a fresh enhancement or even replacement -- although product switching is typically a bumpy road for users of legacy applications. Less technologically aggressive global companies and/or their divisions that have been happy with their existing product's performance may be better off by staying with older instances for the time being.

Nevertheless, at the end of the day, users will have to undergo a thorough what if' scenarios' assessment such as porting onto another platform, keeping the status quo, migrating to another product from the same vendor, going for another ERP provider, etc. Identifying and approaching your local sales representative and vigorously negotiating assurances and firm commitment to future product roadmap, and service and support would be the best course of action at this stage. For more rationale on what to do about your legacy application in place, see The "Old ERP" Dilemma: Replace or Add-on, The Old ERP Dilemma: How Long Should You Pay Maintenance?, and The Old ERP Dilemma - Should We Install The New Release?

On a more general note, existing customers of once-troubled vendors should address their concerns directly to the management and put contingency plans in place for ongoing support. Potential customers should proceed cautiously, buying components in a tactical manner and with a tangible, quick ROI. Stick to a series of smaller projects targeted at streamlining a specific business process. Keep it simple and smart, and be aggressive while negotiating risk allocations, price parity and general terms and conditions. Fixed project prices (as opposed to time and material pricing), milestone payment schedules linked to deliverables, and a penalty clause for late deliveries (as well as a profit sharing incentive for early completions) should be a matter of course. It also might not hurt to consider reviewing your current processes and systems to find any still undetected malfunctioning practice in accounting and/or financial reporting.

More on a general note, leading applications vendors are reaching parity in many areas. New users should base their software purchase decisions on many other criteria such as impending integration costs, product usability, product architecture, and TCO. Given the vendors' zeal for new license revenue, take advantage of any assistance offered by vendors identifying ROI, both in application customization for vertical industries and in integration to your legacy applications.

 
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