Market Impact
The
UK-based global automation and controls group Invensys plc.
(London Stock Exchange: ISYS) has announced that Baan is finally
and definitely for sale. This is a part of its parent's major divestiture move
(i.e., over two thirds of its current business) and as Invensys recoils to its
bare fundamentals. (For details of the announcements see Part
One of this note).
What has then gone wrong between Baan and Invensys? While the justification of Invensys' narrower focus cannot be flatly dismissed, it can nonetheless be a virtue made of (dire financial) necessity. Invensys, with its ambitious 'Sensor to Boardroom' product strategy, seemed once determined to provide manufacturers a solution that would satisfy all their needs, from shop floor measuring devices to cyberspace collaboration, since Baan would offer enterprise-level applications, whereas Invensys would offer MES and plant automation components.
The possibility of integrating and providing all elements of a complete manufacturing solution must have been tempting, and was possibly lucrative, but every effort should have been made in order to avoid the kind of poor piled-up products execution which partly led to Baan's demise in the first place. While we approved of Invensys' move to provide manufacturers a solution that may satisfy all their needs, creating functional connections between front office, ERP and plant automation applications was a colossal task. Baan's service and support viability was also uncertain in the interim owing to the exodus of Baan staff and questionable Invensys' core competency in extended ERP applications.
The
need for cross training of the sales force in functionally disparate applications
should not be neglected either. Also, it turned out that there might have been
a cultural gap between many Invensys divisions manufacturing physical products
versus Baan as a software division, which had a different business model, uncertain
return on investment (ROI) and long and grueling sales cycles. Furthermore,
Baan's focus on discrete manufacturing has not been a close fit with Invensys'
plant automation products that have been geared mostly to process industries.
To that end, Invensys has had a nightmarish job of trying to rationalize Baan
and its process ERP counterparts, Protean and PRISM,
development strategy abandonment has been a catchphrase of late.
As
a result, recently, after a lengthy and painstaking soul-searching exercise,
Invensys created a new group within its Production Management
Division called Invensys Production Solutions (IPS) (www.invensysproductionsolutions.com).
The group will include the PRISM and Protean process ERP products plus the resources
of Invensys Validation Services group (www.vtc-usa.com),
a Montreal, Canada-based provider of regulatory compliance, validation, and
consulting services encompassing the entire validation project life cycle and
a range of validation services for the regulated supply chain.
In
the past three years, Invensys process solutions' customers have also experienced
the displeasure of witnessing several radical changes of strategy, causing some
of them to begin to seriously doubt the vendor will ever deliver their market-specific
product capabilities. In July 1999, Invensys bought the outstanding shares of
then struggling Marcam Solutions, and folded it initially into
its Wonderware factory automation division. Further, as mentioned
earlier, in August 2000 Invensys acquired then also languishing Baan Co. and
made it a part of the former ISS division.
The
initial strategy for the products, which was announced after the Baan acquisition
was to release a unified Baan product that combined functionality for discrete
and process manufacturing (see Process
ERP Market Loses PRISM and Protean). After hearing existing customers' less-than-pleased
feedback and after another reconsideration of its past investments, Invensys
then modified that strategy to one of creating the Baan Process division (see
Invensys
Announces New Division - Baan Process) which included five process ERP products
coming to Invensys through Marcam and Baan acquisitions: Baan IV Process,
Baan Dimensions, PRISM, Protean, and Baan Cable & Wire.
The announcement was a departure from rewriting all the products into one core
iBaan Enterprise product the unit was not going to provide
an integrated solution any longer, but would rather provide combined applications
capabilities via an integration framework.
Finally,
given Invensys has recently yet again put all its assets/investments under the
magnifying glass, it has now allocated the PRISM and Protean products into their
own profit-based division, called Invensys Production Solutions. Given the Baan
product line focuses on the discrete and hybrid (with only simple process requirements)
manufacturing sectors, this move should enable both organizations to fully leverage
their strengths in their respective industry sectors. Under the new setup within
Invensys PMD, well over 80% of revenues will now likely come from process industries,
since, in conjunction with solutions provided by sister Invensys companies such
as Wonderware and Avantis, Invensys Production Solutions also
provides a broad set of capabilities for the process sector. Thus, Baan will
have then been singled out as the discrete manufacturing black sheep' in the
family, causing Invensys to review the carrying value of its investment in Baan,
and to move it into its "window shop" Development division.
Still,
one should note that Invensys has not deteriorated Baan's business; quite the
contrary, it has kept some prominent Baan veteran staffers in charge, who did
a notable work to keep the company afloat, possibly better than many would have
expected three years ago. Invensys claims that some sort of strategic relationship
will remain (i.e., Invesys is still an iBaan user after all) and joint Invensys/Baan
technology will still reportedly be honored after the sell, such as Baan's OpenWorldX
platform that Wonderware uses as well. While Invensys does not plan to integrate
iBaan ERP functions with PRISM and Protean, it does plan to leverage Baan's
collaborative SCM or CRM software, using Baan OpenWorldX enterprise
management level integration framework, which, together with the ArhestrA
framework at the plant automation level and Production Engine (PE)
framework at the production management level, still represents a part-and-parcel
of the Invensys Real Time Enterprise (RTE) framework (formerly
referred to as the "sensor to boardroom" strategy).
This
is Part Three of a three-part note.
Part
One detailed the announcement.
Part
Two discussed the history of Baan and Invensys.
Potential Buyers
Now that the Invensys/Baan relationship has not worked out, who would be the likely suitors? It is nonetheless a difficult and ungrateful job to speculate who would be the most likely buyer willing to inherit Baan's dowry, although the vendor has significantly restructured and become a much leaner and efficient business under Invensys; it was able to leverage offshore development resources in India, and move forward with its next-generation technology, which is still purportedly on track with its release schedule later this year. Thus, while the savvy buyer will obtain much improved technology and large customer base in need for new products, the overriding problem has been the lingering negative sentiment around the company, as viability of the vendor is of utmost importance in the enterprise applications space.
We
could hereby think of all the usual and some unusual suspects, from direct competitors
(i.e., SSA GT has long been trumpeting its wish to grow through
acquisitions backed up with a huge pile of venture capital cash infusion), via
complementary software providers or consulting/system integrating firms, to
a venture-funded group like Golden Gate Capital or Bain
Capital taking Baan private. However, as much will depend on price,
geographic coverage aspirations, functional fit and so on, many acquisition
inclined companies like Microsoft, IBM, PeopleSoft,
Computer Associates, Geac Computer, and even
the former owner Jan Baan (i.e., Vanenburg) may get a sudden shopping urge,
since one can be sure the price tag will not be nearly high by the standards
of a couple of years ago (i.e., ~$800 million that Invensys paid at the time).
Look for the outcome to happen soon though (maybe even during the editorial
cycle of this article). It would have been a skittish business practice to announce
the intention and to further disconcert existing users and stall prospective
ones, if the sale process was not well under way and with a number of viable
prospective buyers.
Although
it would be a likely better outcome for Baan and its customers to become a stand-alone
vendor through an acquisition by an investment firm or a system integrator (since
these buyers would not have to rationalize Baan's technology and functional
overlap with another vendor's application stack), it might be more likely (i.e.,
55% vs. 45%) that Baan will be acquired by another like vendor. But, even that
should not be necessarily bad, particularly if the vendor in case could use
Baan technology straight away; also, merely maintaining existing Baan install
base, even with a limited number of new accounts has lately been a proven tenet
of success for a number of vendors (see Resurrection,
Vitality And Perseverance Of Former ERP 'Goners').
One
should note that Baan was by no means the only major ERP vendor to succumb to
market forces in 2000, given Gores Technology Group (GTG) acquired at a similar
time former Systems Software Associates, Inc. (SSA), also once a high-flying
ERP vendor (for more information, see ERP
Belle poque Officially Ended With the Demise of Baan and SSA). It would
even be spooky to see Baan acquired by its former brother in arms', although
SSA GT's current bullish posture might bode well for Baan's future, regardless
who the buyer happens to be.
What the Buyer Will Get
However,
Baan's suitor will still have work cut out for itself to regain the former Baan
glory, since Baan, still has a lot of housekeeping to do given it admits that
nearly 70% of its customers are still on Baan IV, owing to the unfortunate fact
that the former Baan Co.'s business was hit with troubles exactly when it finally
seemed to have delivered its most stable and mature product although technologically
outdated, Baan IVc. BAAN IV is still a traditional monolithic third- and fourth-generation
procedural language (3GL/4GL)-based product, with an internally developed proprietary
toolset (i.e., Baan Tools) that requires significant domain
expertise to be productive. Like most contemporary ERP products, BAAN IV's Internet-enablement
had to be developed outside its native toolset and represents a minute portion
of the total functionality of the product. In addition, the number of integration
points, i.e., published application programming interfaces (APIs) in BAAN IV
is still low, even if one counts Baan IV step-sibling products acquired in the
1990s.
With
BAAN V (now renamed into iBaan Enterprise 5.0),
which was released in late 1998, Baan begun the evolution of its ERP product
to a component-based architecture, and with workflow being native to the product.
All functionality in the product was also Internet-enabled via a separate Java-based
user interface. The new product release, which features much more advanced architecture,
still may lack a number of pre-defined industry templates, which were available
in Baan IV though. Also, while architecturally Baan has made some notable moves,
scalability lags its larger-user competitors. Therefore, the bifurcated releases
of the core ERP products, Baan IVc and iBaan 5.0 — with diverse vertical solution
extensions, while necessary at this stage to keep old customers aboard, will
eventually have to be merged into one code set for development and support.
To that end, the Gemini product release is to provide a smooth simultaneous
migration for customers of Baan IV and iBaan ERP, given this is an issue that
Baan was very aware of and was specifically addressing. Otherwise, valuable
R&D and service & support resources will continue to be diluted indefinitely
by the requirement to maintain multiple code bases.
Moreover,
the protracted difficult period has taken its toll in slower core ERP product
enhancements; as a result, many competitors seem to have caught up or even leapfrogged
Baan's competitive differentiators of the past. A case in point would be the
Baan Dynamic Enterprise Modeler Strategy Execution (DEM SE)
concept, which attempted to remove some of the system configuration complexity
by enabling users to graphically model (using flowcharts) and navigate enterprise
business processes, organizations and events, and then automatically configures
the product, have been emulated by many competitors meanwhile. Rather than using
traditional menus, DEM would allow users to use graphical flow charts to navigate
and interact with BAAN IV functions, while portions of the product could be
reconfigured in operation without affecting all end users. However, the granularity
of assembly within DEM was limited only to what has been defined at the screen
level along with its associated business logic. Also, while DEM has the appearance
of workflow in BAAN IV, there is no workflow engine to drive decision and routing
processes.
Further, the lack of native HR/Payroll functionality means that Baan will not attract customers that prefer a truly enterprise-wide one-stop-shop' solution, which is often the preference of the mid-market. Also, while general financial functionality in BAAN IV caters for multinational/complex organization support, it has never been the main reason for adopting the Baan product. Some partnership-based endeavors might have strengthened financial consolidation and reporting, but not transaction accounting, as activity-based costing (ABC) and drill-down analysis remain very basic in Baan IV. As for iBaan, there have been some enhancements in the areas such as multicurrency, albeit only as an incremental improvement. Baan's ability to support local requirements is still a moving target and is still reliant on partners and customers' input to ensure compliance with fiscal and statutory reporting. Many of these shortcomings could be mitigated within the future owner's product portfolio, though.
User Recommendations
While uncertainty is not pleasant, existing Baan users are by no means in a situation prior to 2000. As for existing users and those currently going through implementation project work, business as usual would be the best course of action. Baan is now a solid Web services-compliant product and a valuable property, and regardless of who acquires it, it will likely be taken seriously, at least for significant maintenance revenue if not for an ample cross-sell and up-sell opportunity within the existing install base.
Given
Baan existing install base's diversity, different strokes may still be applicable
for different folks, and given some time bracket before the acquisition happens,
the decision does not necessarily have to be made in a hurry. Baan IV users,
which constitute the vast majority, have the least reasons to worry about their
ongoing support, and they have the most reasons to wait for the certain sale
to happen, and to go from there. Users that are on older versions than Baan
IV (i.e., green-screen' based Triton product) may benefit
from upgrading to Baan IVc as to increase their chance of protected support
in the future. Baan IV Process, Baan Dimensions and Baan Cable & Wire customers
are likely in the least favorable situation, and they might want to look for
other alternatives, although the migration opportunity might present itself
within the future buyer's offering. Current iBaan 5 customers and Baan IV customers
anticipating an upgrade to iBaan 5 may want to postpone their major plans until
the new owner articulates its product strategy for Baan. Users of iBaan CRM,
iBaan SCM and iBaan PLM should assume the same approach, given that the new
owner may decide to spin off some of these divisions, in case of product overlap.
It is the waiting game, given Baan's future will still depend on who acquires it, and what products are to be retained, what are to be divested or phased out over time. Until the new product strategy is crystal clear and publicly committed to by the new owner, we advise potential users to warily evaluate the product even within its ETO discrete manufacturing sweet spot. (Of course, learning about new features and attractive pricing would be beneficial, at least for information and for leverage with other vendors.) We suggest evaluating the bells-and-whistles, price, reference sites within your industry, and corporate viability of other vendors as well, before making a selection.
While no current Baan users, particularly those in the middle of implementations, can be completely at ease, we believe that their endeavors will not be seriously jeopardized, if at all. They may want to consider the prerogative to change the source code and secure a team of skilled resources just in case. Furthermore, for existing Baan clients, we suggest keeping in close touch with current Baan executives and keeping your eye on the potential extended-ERP solutions with a proven quick ROI like the Measure Up ones. Understand what functionality you're interested in to solve which problem, and investigate what the company can offer. Identify the requirements and related costs to upgrade your systems to support the added functionality. If you are interested, perhaps your existing relationship could be leveraged to dramatically reduce the cost of the suite. Consider negotiating a pilot or trial period at no cost to you. Also, use the opportunity of Baan's promotion to negotiate a lower price with competitors. An upfront implementation guarantee by Baan and a list of recent customers can alleviate some potential anxieties.
Very
detailed information about iBaan Enterprise 5.0 is contained in the ERP
Evaluation Center at http://www.erpevaluation.com/