Baan Achieves A Speedy Recovery Despite The Tough Times

Event Summary

In June, Baan, the resurrected global provider of enterprise business solutions, reported continued growth and profitability for the six months ended on March 31, 2001, following its acquisition by Invensys, the global automation and controls group with headquarters in the UK. During the first three months of 2001 and its second quarter, Baan total revenue was $103 million, which is 3% less compared to a year ago, but a 3% increase compared to the previous quarter. License revenues grew to approximately $36 million, which is an increase of over 12.5% compared to the previous quarter, and an increase of 45% compared to a year ago. Overall Baan made a profit of approximately $8 million for the second half of the Invensys financial year.

When it acquired Baan in August 2000, Invensys originally expected that it would take until the end of June 2001 to return the Baan business to break-even. In fact, Baan returned to profit a full half-year ahead of schedule, and this latest performance shows Baan continuing to gain momentum. Geographically, growth in the EMEA region was particularly strong, with license revenue growth of 34% over the previous quarter. The number of new customer deals also increased by 36% over the figure for the previous quarter. Baan has now won more than 200 new customers since its acquisition by Invensys with a strong increase during this period. Approximately over 12 contracts valued above $1 million were closed.

Commenting on the performance of the business, Laurens van der Tang, President of Baan, said: "Since the launch of iBaan earlier this year we have really focused our attention on developing sales in this area. Organizations are clearly looking to leverage the power of the Internet to expand their business networks, and this latest growth in the number of new Baan customer deals shows that our pipeline is growing and we're busy closing deals. Longer term our goal is to maintain our strong progress and return Baan sales to their historic high levels. However, we must remain cautious about the future in the light of current predictions about the overall global economic climate. Baan will build on its progress with an increased focus on its target vertical market sectors. We've now developed 'best-of-industry' solutions for key business processes that include all the products, support and initial consultancy necessary to give customers a fast-track route to successful E-Business implementation. An example of this approach is in the EMS (Electronics Manufacturing Services) space where we've increased our penetration and have secured additional commitments from both the top two global companies in this sector. Our focus and the launch of our iBaan approach has helped reinforce our leadership in the rapid deployment of flexible systems in this high growth vertical and we will continue to build momentum in this area."

Market Impact

What a difference a year makes. Less than a year ago it seemed like one of ERP's once shining stars had faltered and faced an inexorable doom. Not only has Baan returned to profitability a full six months ahead of schedule, it has also recently been a better performing part of its parent company and then savior, Invensys. Baan added more than 200 new customers since the acquisition, and several of these deals were over $1 million. Not many vendors have been able to boast about numbers like these recently.

Invensys' acquisition of Baan has long been consummated, and Baan has since focused on rebuilding market confidence because there was a lot of bad publicity that plagued its business. The radical restructuring during which approximately a third of workforce and nearly half of offices worldwide were made redundant is also the matter of the past. Invensys' restructuring involved cutting Baan's quarterly operating costs from approximately $170m to $100m. This was achieved by implementing a shared services synergy where possible and establishing sales and consulting staff levels based on realistic sales and service needs projections. There is a much leaner management structure as well, while a consolidation of sales and development facilities worldwide has also taken place.

Recently, Baan completed what it refers to as "the mother of all upgrades" when it migrated 31,000 users at aircraft manufacturer Boeing to iBaan Release 5, the latest release of its software. That was the essential vote of confidence that the company needed form its most important customer. At the beginning of 2001, the vendor also unveiled a suite of products, called iBaan, which is fully web-based across the entire integrated Baan product line, including enterprise resource planning (ERP), supply chain management (SCM), and customer relationship management (CRM).

Baan's renewed focus on the mid-market discrete manufacturing segment, the fertile ground that made it thrive during the mid 90s, is undisputedly a wise move. Unified master data across ERP, SCM and CRM systems are of a paramount importance to attract the mid-market customer. It is advantageous to any company not to have duplicate customer masters in their disparate ERP and CRM systems. By the same token, it is also advantageous to eliminate duplicate vendor masters in ERP and SCM systems. Baan was one of the first ERP vendors to promote the idea that ERP should be integrated with adjacent functionality of e.g. SCM, CRM and eBusiness. In that endeavor, it unfortunately went on a rampant shopping spree, buying e.g. Aurum for CRM and Berclain for SCM (for more information, see Baan - What Will The Future In Invensys' Stable Bring? Part 1: About Baan), and then choked while trying to integrate these products into the core ERP system. For many reasons other than the acquisitions' indigestion, it was unfortunate to witness the more forward thinking Baan stumble in executing its strategy and temporarily loose its place in the ERP elite.

Having overcome these hardships, Baan should try to expand the business in its existing large customer base, both by increasing the number of seats and by offering extended-ERP enterprise applications such as Front-Office, Business Intelligence, Supply Chain, and e-Commerce. Baan must also continue its efforts to penetrate the lower-end of the market with its entire applications portfolio, mainly through indirect channels and outsourcing arrangements. To that end, Baan must expand global distribution, sales, services and support capabilities, primarily by leveraging qualified indirect channels. For that purpose, the sales channel has been streamlined and cross-trained to sell the entire product portfolio and reduce the past confusion among disparate sales organizations (e.g., ERP, CRM, SCM, e-Commerce, etc.). The indirect channel has also been reevaluated and reduced to only tried-and-true strategic suppliers that can deliver the necessary customer satisfaction the new organization has been striving to achieve.

The company pledges that customer satisfaction and support is the game play from now on. The alignment of the organization to enhance the customer issues has been propagated throughout the sales, technical, and client support divisions globally. A new account management feedback practice was implemented in order for the company to hear the voice of its client base and to continually improve the customer support process.

Challenges Remain

However, Baan is still quite far from its former glory - its revenues are still almost the half of its revenues for 1998 despite a much larger product offering. The constellation within the ERP space has meanwhile changed too. While Baan's decision to avoid the direct competition with SAP is prudent, it may not be possible given SAP's (and other Tier 1 vendors') increased appetite for the smaller enterprises.

Further, the protracted difficult period has taken its toll in Baan functional product enhancements; as a result, many inferior competitors seem to have caught up or even leapfrogged Baan's competitive differentiators (product functionality and/or geographic presence) of the past. Good examples are Intentia, IFS, Frontstep (formerly Symix) and QAD to name but a few, while one should not neglect PeopleSoft's incursion in the manufacturing segment too.

It is also unfortunate that the Baan business was hit with troubles exactly when it finally seemed to have delivered its most stable and mature product although technologically outdated, Baan IV. The new product release, which features more advanced architecture, currently lacks a number of pre-defined industry templates, which were available in Baan IV. Also, the lack of native HR/Payroll functionality means that Baan might not attract customers that prefer a truly enterprise-wide 'one-stop-shop' solution. This is often the preference of the mid-market. Baan's interconnectivity to third-party products and support of many platforms and middleware standards (iBaan OpenWorld architecture) should be a strong mitigating factor though.

Another possible challenge is recent Invensys' decision to roll the Wonderware Protean and Prism process manufacturing products into Baan's offering, with integration to be completed in about a year (for more information, see Invensys Announces New Division - Baan Process). Given the fact that the current Baan product portfolio, achieved through a number of acquisitions, has seen hefty delays and costs that resulted from resolving integration issues and reworking disparate pieces into a single schema/data model, the market may expect to witness yet another daunting product development and delivery experience. And, don't forget the dilution of the above-mentioned focus on discrete mid-market manufacturing. However, with more than 1,000 R&D employees (that were unaffected by the restructuring) enhancing the product quality and functionality, and with the prior grueling product integration experience, Baan may stand a chance to deliver the promise this time.

User Recommendations

Baan's viability does not seem to be an issue any more. Baan's rejuvenated management team has done a praiseworthy job of bringing the company back to health while concurrently unveiling a new product release that can compete with the other products in the market. Baan should be evaluated in a number of enterprise software selections within the discrete and, to a degree, within the process mid-size manufacturing market. Still, any organization evaluating Baan should keep itself posted, and consider existing functionality only. Current and potential users are advised to follow the company's new product introductions and keep a close eye on its future strategy.

Further recommendations for both current and potential Baan users can be found in Baan - What Will The Future In Invensys' Stable Bring? Part 2: Evaluating Baan and Invensys Announces New Division - Baan Process).