Geac Hopes To See System21 Shine Again Like 'Aurora' Part 2: Market Impact


Event Summary

Lately, Geac Computer Corporation Limited (TSX: GAC), a large and until recently struggling Canadian supplier of enterprise management software, has indicated it might have finally gotten its ducks in the row not only has it posted a few stable and profitable quarters, but the company has also shown the intent to move away from its all but failed business model of selling maintenance and services for outdated applications. As a result, it has a number of recent new contract wins.

This note covers the following recent Geac announcements:

  • The Extensity and EBC Informatique acquisitions

  • A contract with ZPC Mieszko

  • A contract with Ghim Li Holdings Co Pte Ltd

  • Delivery of three new System21 products for automotive manufacturers

  • Further details on Project Aurora

  • Industry response to AnswerLink

  • Financial Results for fiscal year 2002

This is Part Two of a three-part note on recent announcements by Geac. Part One detailed the announcements. Part Three will discuss the Challenges faced by Geac and make User Recommendations.

Market Impact

Geac has seemingly past its crossroads, although with an inevitable slight dose of lingering market skepticism. Back from the edge and on a comeback trail under rejuvenated management and with a trimmed down but also more viable product set, Geac has become de facto a sort of a trend setter amongst once high-flying and almost deceased mid-market ERP vendors, for example: Baan, SSA GT and Ross Systems. While one may object that returning to profits by merely trimming fat and milking revenue from the existing client base should not be worth writing home about, given that the vendors in case seem to have once reached their rock-bottom, positive results should bear more than mere a psychological importance, particularly for the vendors that are showing impressive license revenue growth lately against the odds (e.g., Ross Systems).

In Geac's particular case, it appears the company has at least learned some hard lessons and it should not fall again in the trap of its former rampant acquisition strategy in a number of unrelated, diverse fields and in the face of the overall weakness of the ERP market during 1999/2000, which had since resulted in sharp revenue decline, product development strategy limbo, disconcerted user base, and disastrous financial results (see Figure 2).

Sticking to its former frugal strategy (acquire, cut administrative expenses and generate service revenue) instead of taking decisive action to breathe fresh air into its arsenal of products, had also backfired on Geac and relegated it in the back seat of the enterprise applications market. Still, Geac's strengths today remain its geographical spread, restored financial health, retained level of products' diversity, and its savvy of industry business process in the chosen vertical sectors. The company seems to have meanwhile become highly attuned to the needs of the mid-market, with many loyal long term customers currently enjoying considerable service & support attention. Moreover, Geac's Enterprise Solutions division still ranks among Top 5 global ERP vendors based solely on revenues and customer base, as the company has more than 7,000 customers in 55 countries (around 150,000 users), around 3,700 staff globally, and R&D expenditure in fiscal 2002 totaling over Can$90 million.

Consequently, the Geac of today has turned into an appealing combination of back-to-basics, stable, pragmatic, manufacturing-focused ERP software developer and implementer, and modern collaborative, web-based extended-ERP enterprise software provider. Following the lull of a couple of years ago, its above-announced technology developments (see Part One) appear to be in sync with the market's trends, and leaning shrewdly towards the requirements of holistic business requirements from engineering design collaboration, to customer relationship management (CRM) and on to supply chain management (SCM).

Therefore, it should be positive news Geac's determination to execute the following two-phased revitalization plan:

  1. To shore up the business and return to profitability and positive cash flow, which was achieved in Q1 of fiscal 2002 (see Figure 1). With a healthy balance sheet, no debt, and substantial cash reserves, Geac should be able to carry through the next phases of the plan.

  2. To bolster human and financial resources, build and expand industry expertise, and to build, prudently acquire or license a number of selected products to belatedly extend product functionality and increase revenue opportunities from new accounts and from existing customer base, which has just seemingly started. This will prove more difficult and testing, as the company will have to deliver a portfolio of add-on applications and develop a sales force that understands how to compete in the new collaborative enterprise applications market. One should also hope Geac will look for smaller and innovative software companies as the acquisition targets (rather than erstwhile antiquated software companies at bargain prices in order to capitalize on their maintenance customer bases), with complementary products that can be sold into its GES division (SmartStream and System21) customer base. The two recent acquisitions seem to fit the description.

Figure 1.

More on a down note, Geac remains strongly service driven with less than 12% of its revenues coming from license revenues (compared to the 33% industry benchmark, estimated by TEC), with close to 80% coming professional services and 10% from maintenance revenue. Still, it is now a financially conservative, stable but acquisitive organization which has remained profitable despite the general IT industry downturn. Geac's future focus on its heartland of existing customers and industry verticals, while building out its technology to make System21 more future-proof and keeping abreast of the competitive offering, seems prudent.

While Geac's difficulties surely originate from the Y2K-based slump of the ERP market in 1999/2000 and current protracted economic slowdown, the catalyst was poorly executed acquisition of once prominent UK-based ERP vendor JBA International in 1999. The acquisition has unfortunately stopped short of producing the great synergy it seemed to have offered initially. As a result, in the post Y2K ERP slowdown, former JBA's flagship System21 sales dropped precipitously during 2000/2001 and the product has until very recently all but disappeared off the ERP radar screen.

Impact of Acquisition of System21

The fact is also that Geac has not initially significantly enhanced System21 since either (except for Web-enabling it through Universal Commerce Adapter (UCA) based on Jacada technology and for embedding RunTime CRM product acquired in 2000, but for the apparel/fashion industry only). Reverting to support for only the IBM iSeries (formerly IBM AS/400) and dropping the support for Unix have additionally narrowed the market opportunity. Consequently or not, Geac had seemingly been unable to successfully market its System 21 product during the 1999 2001 period. The bottom line more agile competitors have functionally leapfrogged once very attractive product and captured the market share (see SAP Learns The Ropes Of Fashion/Outfitting).

But that looks set to somewhat change in the future, as Geac has poured over a $15 million worth R&D program over the last 12 months alone, dedicated solely to System21 enhancements. To that end, the news of System 21's reinvigoration and recent contract wins is quite encouraging. Geac's developers have apparently been busy recently re-architecting the product to embrace e-Business features by leveraging the range of @ctive Processes templates, which automate several business and development operations. Geac also envisions its new e-Business suite a series of applications and infrastructure components designed to extend the use of System21 out to suppliers, customers and mobile employees via the web and mobile technology, known collectively as commerce.connect. All products will logically use the latest IBM technology, including the proverbial WebSphere e-commerce platform, MQSeries messaging and so on.

Consequently, down but not out, System21 is on the comeback trail, and possibly leaner since, while delivering the integration and e-Business functionality add-ons, Geac has also exploited the opportunity to rationalize the multiple code bases that had arisen from its former zeal to create industry-specific solutions. The outcome thereof should be reduced application costs and development lead times, and a more stable and robust ERP core.

Geac System21 is a suite of integrated backbone systems for middle-market companies operating on the IBM iSeries platform. Since its launch in 1994, it has been used by 1,600 customers worldwide (150,000 users), with 650 in the UK many in the apparel and footwear, food and beverage and automotive supply markets. As for product scope System21 covers all the bases of manufacturing, customer service, logistics, financial and service management operations, with several versions geared to its vertical markets and offering indisputably deep functionality and advanced business process mapping development, configuration and automation technology in the form of its @ctive business suite

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 is amenable to just about everything at its level - from repetitive, batch process, hybrid, configure-to-order (CTO), engineer-to-order (ETO), to mixed mode. System21 is further also supported by a complete set of complementary services that include implementation consulting, training, customization, network design and post-implementation support.

This concludes Part Two of a three-part note. Part One detailed recent Geac Announcements. Part Three will discuss the Challenges Geac faces and make User Recommendations.

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