Navision Software a/s: Mid-market iNvasion




Navision Software a/s: Mid-market iNvasion
P.J. Jakovljevic - May 11, 2000

Vendor Summary

Navision Software is an international provider of financial and business management software solutions for the small-to-medium enterprises (SME) market. Founded in 1984, with headquarters in Vedbaek, Denmark, the Company is currently one of the fastest-growing enterprise applications vendors, with approximately $92 million in revenue in fiscal 1999 (136% revenue growth compared to 1998). Navision Software went public in 1999 and currently trades on the Copenhagen Stock Exchange.

Navision Software (originally Personal Computing & Consulting ApS) initially focused on leveraging the PC technology as a platform for financial and business management software solutions for small business. In 1985, it released its first product, a single user accounting system named PCPLUS, that it marketed through a network of dealers in Denmark and Norway.

In 1987, Navision released a new PC based multi-user application suite with financial management capabilities called NAVISION (originally called NAVIGATOR). That product exhibited a number of then new, innovative software technologies for the PC platform. Concepts like client/server, relational database, transaction management, version management, screen designer, and report writer were introduced with its proprietary technology called Sum Indexed Flow Technology (SIFT). This proprietary database technology provides the user with rapid online information in online analytical processing (OLAP) and remains one of Navision Software's key technology components.

In 1990, Navision's new product generation showed an open, object-oriented architecture along with integrated 4GL development tools that allowed customers and dealers to modify the functionality of the product. Furthermore, the object-oriented architecture of the product made it feasible to develop international country- and language-specific versions of the product with different local regulatory functionality for different geographical markets.

In 1993, Navision initiated a major development effort with the purpose of creating a new generation of its products with a highly customizable graphical user interface (GUI). In 1995, it released the first release of the latest generation of products developed specifically for Microsoft Windows 95 and NT called Navision Financials. The next version, Navision Financials 2.60, which was released on March 31, has received the Microsoft Windows 2000 Professional logo.

Vendor Trajectory and Strategy

Navision has been an important contender in the SME ERP market over recent years. Its modern solutions, competitive pricing, and simple no-fuss delivery model has allowed it to fend off competition from big vendors like J.D. Edwards, Oracle, and SAP better than most other mid-market vendors. Soon after its inception and success in the Danish market, Navision branched out into Western Europe in the early 1990s, and began selling in the U.S. and U.K. in 1994.

Navision Software's solutions today are sold exclusively through a worldwide network of over 900 partners called Navision Solution Centers (NSCs) and staffed with certified professionals dedicated to providing customized solutions, training, support and service. The company currently has local representation in 23 countries as well as more than 39,000 installations in 89 countries and derives 20% of its revenue from the international market outside of Europe.

At present, Navision looks set to continue its march into the ERP mid-market (companies with $5 million - $250 million in revenues), focusing on maintaining and enhancing existing functionality of its Navision Financials solution. Over the last two years, Navision has delivered a slew of new functionality so that its solution currently includes all of the normal ERP functions - Financials, Manufacturing, Distribution and so on - and is e-commerce enabled. We expect the company to continue expanding Internet deployment and CRM capabilities. It is very likely that Navision will start pursuing alliances with ASPs to further its penetration into this increasingly popular marketplace.

Navision is committed to the Microsoft platform and has recently collected all of the new badges associated with W2K, such as "Certified for Windows 2000 Server" and "Certified for Windows 2000 Professional". It has recently taken its relationship with Microsoft one step further by signing a global sales and distribution agreement allowing its Solution Centres to sell BackOffice products with Navision systems. This will enable the delivery of complete single source solutions to smaller companies.

We expect Navision to continue providing breadth of horizontal functionality in a price competitive integrated business application delivered through a strong indirect channel. We also expect the number of NSCs to grow worldwide. These centers will add additional value by developing geographical and vertical product extensions, allowing Navision to focus on core product functionality.

ANALYSIS:
Vendor Strengths

Navision Software has established strong branding and penetration within the Small-to-Medium Enterprises (SME) segment of the European and recently the U.S. ERP market, with a large customer base and a developed partner channel within the industry.

Concurrently with the componentization of its product suite, Navision has also developed a tightly integrated broad functional solution that matches the SMEs' needs. Navision Financials offers the Web Storefront, HR/Payroll, warehouse management system (WMS), and innate OLAP and data warehouse (DW) functionality, in addition to traditional ERP modules. Furthermore, the Company was one of the first vendors to achieve Euro compliance and has also developed 23 localized, country-specific product versions.

Navision is very competitive in speed of implementation, feasibility of customization, total cost of ownership (TCO), and price/performance ratio. The product architecture has been devised entirely from scratch in-house within the Microsoft context, which provides for flexibility and ongoing agility. End users of less complex smaller enterprises have been impressed with its intuitive user interface, ease of system navigation, and its drag-and-drop forms designer that allows less technically oriented users to perform cosmetic modifications.

Navision has exhibited a very strong long-term track record. The Company is currently one of the fastest-growing and most profitable ERP vendors:

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Furthermore, its high market capitalization that is several times higher than its revenues, guards the Company against an unwanted acquisition and provides much needed capital for R&D and/or future acquisitions.

Vendor Challenges

Navision currently does not offer the following functionality: business-to-business (B2B) e-commerce, more comprehensive Customer Relationship Management (CRM) suite, and solutions for service industries. Moreover, the distribution and manufacturing modules are currently available only in 5 country-specific versions. This may result in a number of lost opportunities in the future, since certain customers prefer more complete solutions from a single vendor.

In addition to the above 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, which we believe is insufficient to satisfy the stringent requirements of a highly competitive market.

The company has low brand awareness and an undeveloped channel outside of the European market, particularly in Latin America and the Pacific Rim, which contribute only 2% of its revenues. While Navision has done a respectable job of establishing its U.S. network, it has been facing a fierce challenge from domestic competitors like Great Plains, Epicor Software, and Solomon Software. Moreover, it is going to be challenged with combining its country-specific variants of applications into a single-code, global product in order to be selected as a global strategic partner of a centrally run global organization.

Navision has long depended on its proprietary development (database and 4GL), which was a drawback for the following reasons: 1) a need for a special skill set (in spite of its user-friendliness) and 2) scalability and integration difficulties for the higher end of the mid-market. While its recently released MS SQL Server version of the product may mitigate the above concerns, it is likely to exhibit problems related to its product immaturity. Furthermore, Navision's two-pronged product database strategy, although creating more options for a customer, inevitably creates some duplication of Navision's R&D and Service & Support resources.

BOTTOM LINE
Vendor Predictions

Navision will achieve over 50% annual growth rate during the next two years (70% probability), based on the still largely untapped SME market and on the potential of mining its large existing customer base. This will enable the company to become one of the Top 3 vendors within the global SME market within the next three years (60% probability).

We believe that, within the next 12 months, the company will significantly enhance, by using its own resources, its customer relationship management (CRM), human resources, field service, B2B e-commerce, and supply chain management capabilities (60% probability).

Within the next 4 years, more than 30% of Navision's revenues will come from outside of the European market (60% probability), with the license revenue contributing more than 60% of its total revenue within the same period of time (70% probability). Within the same time span, more than 40% of its customers will run on the MS SQL Server.

Vendor Recommendations

Navision should promptly resolve any outstanding product interconnectivity issues with other vendors' products in order to attract the high end of the SME market. It should also expedite the availability of the 'thin client' product architecture and the uniform global availability of all product modules.

Navision should further fortify its strong position within the Small-to-Medium Enterprises (SME) market segment in the following ways:

  • Expand business in its existing customer base, by upgrading older versions of software and by offering new extended ERP modules and enterprise applications.

  • Further expand its global presence, both by opening new offices and developing new affiliate partnerships. Consider acquiring or partnering with affiliates of faltering competitors, e.g., SSA, Epicor, and Baan.

  • Deliver more focused and pre-configured vertical solutions and consider offering application outsourcing.

Navision must remain committed to new product features and expedite the introduction of additional enhancements (see Vendor Challenges). We also encourage the company to consider undertaking a more aggressive marketing campaign concurrently with these developments, particularly in the markets outside of Europe.

User Recommendations

We generally recommend including Navision in a long list of an enterprise application selection to lower-end of the mid-market companies (with $5M-$250M in revenue) and divisions of larger enterprises, which have limited IT budget and smaller community of users (less than 75), and have significant financial accounting, distribution, and discrete manufacturing requirements, while currently not needing complex CRM and B2B e-commerce functionality.

Global, centrally managed organizations that need a single-code product for all their international business units, companies with more than 80 users, 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 should also conduct a preliminary research on industry expertise and reference sites of a regional Navision Solution Center (NSC), particularly outside Europe and the United States.

 
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