Navision Executes At a Slower Pace

Navision Executes At a Slower Pace
P.J. Jakovljevic - October 26, 2000

Event Summary

In September, Navision Software a/c (CSE: NAVI.CO), a Danish provider of enterprise business solutions for mid-sized companies, released annual report for fiscal 2000 that ended on June 30, 2000 (See Figures 1 and 2). Navision Software achieved 36.8% annual revenue growth in fiscal 2000. Navision Software's solutions are sold exclusively through a worldwide network of close to 1000 partners called Navision Solution Centers (NSCs), whose number increased by 170 compared to the previous year. The company currently has local representation in 24 countries as well as more than 41,000 installations in 108 countries, and derives 83% of its revenue from the international market outside of Denmark.

Figure 1.

Figure 2.

Releases during the year included the Web Shop e-business application in September 1999, support for Microsoft's SQL Server 7 in November 1999 (with 234 customers embracing the new product within the six months time period) and Windows 2000 support in March 2000 (for more information, see Navision Becoming More Visible). However, the company reported a net income of approximately $8.1 million, which represents a decline of 25% compared to fiscal 1999.

Market Impact

Fiscal 2000 was a very unusual year for Navision with sharply contrasting year halves. The main theme depicting Navision's business during recent years has been fast growth and international expansion, which continued throughout the first half of fiscal 2000. However, the unexpectedly higher revenue slowdown in the second half of the year damaged the company's overall results (See Figure 2). Nevertheless, while the majority of its peers have been struggling Navision has continually been increasing its market share and product offerings while remaining constantly profitable. We believe that its recipe for success was a good balance of the following required elements of the game - a flexible and technologically advanced object oriented product, a tightly integrated horizontal extended-ERP functionality that matches the SMEs' needs, a strong channel and reputable customer service and support, and very competitive pricing for its target market.

The company has recently addressed the missing functionality that we outlined in TEC's vendor research note (see Navision Software a/s: Mid-market invasion). Its worldwide agreement with Siebel Systems has provided it with a reputable CRM functionality (for more information, see Siebel Has Done It Again - This Time with Navision). The company touts its forthcoming product release 3.0 that will feature a browser-based GUI, a generalized commerce portal, WAP support and functionality, a B2B collaborative e-commerce solution, and full integration of CRM and back-office applications. Significantly increased R&D investment in 2000 speaks to the commitment to this release.

Navision also continues to expand its channel in the US, which should help it boost its much-needed North American presence and market awareness. To that end, its North American business unit, with headquarters in Atlanta, GA, achieved notable results of a 29.1% revenue increase from the same period of the last year. Navision has also started pursuing alliances with ASPs to further its penetration into this increasingly popular marketplace. Nevertheless, the challenge of further international expansion and brand awareness remains. While Navision has done a respectable job of establishing its North American network, it has been facing a fierce challenge from domestic competitors like Great Plains and Epicor Software.

Also, the perception of poor scalability within the higher-end of the market is yet to be overcome. Users should also be aware of other challenges that the company is facing. In addition to delivering the new functionality and the channel training issues, the company must be concerned about its payroll, distribution and manufacturing modules, which are currently available only in a limited number of country-specific versions, and there is no functionality for service-related industries. In addition to this product functionality gap, Navision does not exhibit much of a vertical focus. Its distributors (NSCs) offer vertical solutions on an opportunity-by-opportunity basis only.

Navision has also long depended on its proprietary development tools (the Navision Server database and 4GL), a strategy that is becoming less and less attractive to customers as interconnectivity becomes critical. While its recently released MS SQL Server version of the product has mitigated the above concerns, it is likely to exhibit glitches related to its product immaturity. Also, Navision's two-pronged product database strategy, although creating more options for the customer, inevitably creates some duplication of its R&D and Service & Support resources.

User Recommendations

Navision customers should certainly consider the new offering, but must avoid selecting it without looking at what the other vendors have to offer. We recommend identifying your unique needs and doing comparison shopping, at least for the sake of negotiation leverage. As with all new releases, users should employ a critical approach in their evaluation of Navision, and require all potential vendors to demonstrate specific business processes.

As for potential customers, we generally recommend including Navision in a long list of an enterprise application selection in the lower-end of the mid-market companies ($5M-$250M in revenue) and divisions of larger enterprises which have limited IT budgets, smaller communities of users (less than 75), and have significant financial accounting, distribution, and discrete manufacturing requirements - so long as they don't currently need complex B2B e-commerce functionality. Organizations seeking a Web-based solution and out-of-box functionality with little customization effort may benefit from evaluating Navision's ASP offering.

Global, centrally managed organizations that need a unique single-code product for all their international business units (whereas Navision offers country-localized products), enterprises in service-related industries, and companies looking for a broader functionality and a particular industry focus from a single vendor may benefit from evaluating other products at this stage.

Current and future users interested in running on the MS SQL Server database may want to inquire about Navision's strategy regarding the product's business intelligence and data warehousing capabilities, bearing in mind that those are innate within the proprietary Navision Server database.

Any organization evaluating Navision Software should consider existing functionality only, and, in the case of final selection, should negotiate incorporation of new applications components now at negotiated license fees, in expectation of Navision's future product introductions. Potential clients, particularly those outside Europe and the United States should also conduct preliminary research on the industry expertise of a regional Navision Solution Center (NSC), and speak with its reference clients.

As for the new added CRM functionality through the partnership with Siebel, users are advised to ask for firm assurances on the availability and timeframes for future upgrades, and more detailed scope of the combined product functionality. One caveat to bear in mind is that although this suite was developed from existing Siebel products, it is a first version release. This means there are inevitable bug fixes to be made over the next few months.

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