SSA: Evolving into systems integrator to survive

Vendor Summary

System Software Associates, Inc. (SSA) is a leading global ERP software and services provider. Founded in 1981 with headquarters in Chicago, IL, USA, SSA is the seventh-ranked ERP vendor with $421 million in revenue in 1998 (approx. 2.6% of the global ERP market). SSA initially grew by offering products for IBM's AS/400 minicomputers. The Company then developed strong affiliations with software and management consulting firms and provided them with training to market its product. As a result, SSA today has the largest installed base of ERP systems on the AS/400 platform. SSA's Business Planning and Control System (BPCS) product line features more than 50 products that allow control over manufacturing, supply chain management and financial applications, as well as e-commerce and application development for industrial business. In 1996, SSA developed BPCS version 5.1 for UNIX users, but had very limited success. An improved version of BPCS (6.0) was delivered in the same year, causing SSA's earnings to plunge, due to the combined effect of stalled new license sales and the huge R&D budget overrun. In 1998, the founder Roger Covey stepped down as CEO and was replaced by former president William Stuek. Stuek attempted a few restructuring moves in order to improve SSA's ailing financial situation without success, and the Company suffered a hefty loss in 1998. In 1999, Stuek retired as chairman and CEO, and was replaced by Robert Carpenter, former president and CEO of system integrator Origin America. In the same year, SSA developed the NT version of its product in cooperation with Hewlett-Packard, and released the latest version of its principal product, eBPCS. The basic premise of this recently announced SSA strategy, called SSA Portfolio, is to easily integrate its core ERP system with other 3rd party software. By the end of 1998, the Company had licensed approx. 18,000 system installations to more than 6,500 customers in more than 90 countries worldwide. SSA's revenues are almost equally divided across North America, Europe, and the rest of the world. The Company supports its clients primarily through a worldwide network of over 40 branch offices. SSA went public in 1987 and currently trades on NASDAQ.

Vendor Strengths

  • BPCS has been a versatile core ERP product from its inception, and has achieved large market penetration in a wide range of industries. Its large customer base and strong widespread global presence will provide SSA a sustained service and support revenue stream in the future.

  • SSA is generally competitive in speed of implementation, total cost of ownership (TCO), and price/performance ratio. Moreover, BPCS is a good functional fit for some industries (See User Recommendations).

  • SSA's Portfolio strategy is to surround its core ERP products with best-of-breed 3rd party enterprise applications and provide system integration services and support around them. This strategy differentiates SSA from its competition, and we consider it to be prudent against the backdrop of SSA's current financial and resource situation.

Vendor Challenges

  • SSA has been languishing for over two years, and its financial situation has deteriorated rapidly in recent weeks (depleted market cap of less than $30 million, and debt of over $65 million). The trend of decreased revenues and loss reporting continued throughout 1999 (see SSA Inc. Annual and Quarterly Results Charts), with a particularly sharp decline in license revenue (down 57% in 3Q99, compared to 3Q98).

  • The major part of SSA's huge R&D investment has been squandered on resolving product instability and performance problems, instead of on development of new ERP extension components that would provide for new sales revenue.

  • The combined effect of bad corporate viability, problems with the BPCS product, and SSA's lack of new extended ERP products, may convince some of its existing customers to replace its outdated BPCS with a product portfolio from a more viable vendor who can leverage a "one-stop shop" capability.

Vendor Predictions

  • SSA will gradually transform itself into a systems integration provider, as opposed to a pure ERP vendor, within the next 3 years. By that time, we believe service & support revenue will contribute up to 80% of SSA's total revenues (70% probability).

  • We believe that SSA will be acquired within the next 18 months (70% probability). Potential acquirers could include Computer Associates (for which it would provide an established service revenue stream), Siebel Systems or i2 (for which it would provide back-end ERP capability), and Great Plains or Lawson Software (for which it would provide a product with a strong manufacturing and distribution functionality).

  • Year 2000 and after - SSA will still be a player to be reckoned with, however, there is a chance that SSA will loose its Top 7 global ERP vendor position by 2002 (60% probability).

Vendor Recommendations

  • Resolve any outstanding product quality issues and send a strong reassuring message to a confidence-depleted market. Target the Small-to-Medium Enterprises (SME) market segment within its strong vertical industry focus.

  • Identify the most appropriate partnerships for enterprise applications beyond traditional ERP solutions (Front-Office, Supply Chain, E-Commerce, Business Intelligence) for each targeted vertical solution, and leverage those partnerships to create sustained service revenue and regain the Company's profitability.

  • Conduct further ongoing cost scrutiny and identify opportunities for further cost reduction. Despite the recent restructuring, the general & administrative personnel count remain one of the highest in the industry, measured as a percentage of a total number of employees (See Fig. 4). Furthermore, the service & support employees as a percentage of the total number of employees is only 37%. That ratio should be increased to at least the industry benchmark of 44%, considering the Company's intention to significantly increase its service revenues in the future.

User Recommendations

  • Mid-market companies (with $30M-$800M) in revenue within the following industries: automotive supply, consumer packaged goods, food & beverage, industrial products, and pharmaceutical, may want to put SSA on its long list for ERP selection, due to its strong functionality and expertise in these respective vertical markets.

  • We strongly advise any organization evaluating SSA to consider existing functionality only, and be able to provide the majority of product support in-house or through a 3rd party, due to SSA's dire financial situation.

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