Geac Awakens On Its Deathbed - Part 2: Geac's Response

Part 2: Geac's Response
P.J. Jakovljevic - October 18, 2001

Event Summary 

On September 5, Geac Computer Corporation Limited (TSE: GAC), a struggling Canadian supplier of enterprise management software, announced that net income from continuing operations of Can$17.2 million in Q1 2002, compared to a net loss from continuing operations of Can$43.2 million during the first quarter of the previous year. While it may seem that returning to profits by merely trimming fat and milking revenue from the existing client base should not be worth writing about, positive results in today's business climate are more than simply psychologically important. The fact is many other vendors seem to have reached rock-bottom and not all have survived.

Figure 1.

This is Part Two of a two-part note on how Geac seems to be recovering. For a detailed Event Summary and Market Impact, see Part One.

Geac's Revitalization Plan 

Geac's past strategy of unbridled acquisition in a number of unrelated, diverse fields combined with the overall weakness of the ERP market during 1999/2000 resulted in dismal organic growth, a disconcerted user base, and disastrous results (See Figure 2). Sticking to its thrifty strategy (acquire, cut administrative expenses and generate service revenue) instead of taking decisive action to breathe fresh air into its arsenal of products, also backfired on Geac and relegated it in the back seat of the enterprise applications market.

Figure 2.

The positive news is Geac's determination to execute the following three-phased revitalization plan:

1. To shore up the business and return to profitability - achieved in Q1 2002 (July 2001).
   
   
2. To bolster human and financial resources, build and expand industry expertise, and partner with selected renowned vendors for complementary products - envisioned for Q2 2002.
   
   
3. To prudently acquire selected products to belatedly extend product functionality and increase revenue opportunities from new accounts and from existing customer base - to start in Q3 2002.

While Geac's difficulties surely originate from the Y2K-based slump of the ERP market in 1999/2000 and current economic slowdown, the catalyst was the poorly executed acquisition of once prominent UK-based ERP vendor JBA in 1999. The acquisition unfortunately stopped short of producing the great synergy it seemed to have offered initially. As a result, in the post Y2K ERP slowdown, former JBA's flagship System 21 sales dropped precipitously and the product has all but disappeared off the ERP radar screen.

The fact is also that Geac has not significantly enhanced System 21 (except for Web-enabling it through Universal Commerce Adapter (UCA) based on Jacada technology and for embedding an acquired RunTime CRM product for the apparel/fashion industry only). Reverting to support for only the IBM iSeries (formerly AS/400) and dropping the support for Unix have additionally narrowed the market opportunity.

Consequently or not, Geac has seemingly been unable to successfully market its System 21 product. The bottom line - more agile competitors have functionally leapfrogged a once very attractive product and captured the market share. To that end, the news of System 21's reinvigoration and recent contract wins is somewhat encouraging.

Geac's Plan Execution 

Geac's developers have apparently been busy recently re-architecting the product to embrace e-Business features by leveraging the range of @ctive Processes templates, which automate several business and development operations. The first two Web-based products resulting from this initiative that have been delivered are web.connect, for order management, and service.connect, for field service functions. Geac also envisions its new e-Business suite will amount to as many as nine applications, known collectively as commerce.connect. All products will logically use the latest IBM technology, including the proverbial Websphere e-commerce platform.

Geac also plans to promote more vigorously its existing partnerships with Cognos for business intelligence (BI), Applix for its iCRM solution and with Frontstep for its SyteLine APS and SyteCenter solutions on a global basis as both a component of its System 21 solution offering and as a stand-alone application in select markets. By intending to further expand the range of partnerships, Geac might partially allay some customers' fears that System 21 functionality will increasingly lag that of its major competitors. To that end, however, Geac also will have to create a rock solid strategy for integrating its product suite with multiple partners. The company may benefit from picking J.D. Edwards' brains, and closely allying with a major EAI vendor in order to ease integration with its partners (see J.D. Edwards Chooses Freedom to Choose EAI).

The partnerships are also intended to enhance Geac's StreamLine NT-based ERP solutions for 50 users and more. Geac's customers will benefit from being able to use Eden Origin, a tool that enables product configuration via a Web-enabled interface. Through Geac's partnership with Preactor International, small to medium (SME) manufacturers might benefit from advanced planning and scheduling (APS) and finite capacity scheduling. However, given that the above functionalities have become all but commodities nowadays, Geac will have to work much harder on StreamLine's enhancements if it is to match the functionality from many competitors, as most of the e-business and CRM components are still lacking.

Geac's Challenge 

A proverbial problem for Geac has been its preference for acquiring new products rather than pursuing in-house product development and/or true strategic alliances. While the strategy might have worked in a number of esoteric industries with a low penetration of competitors like hotels & restaurants, real estate and construction, it is indisputably, a completely different ball game in the global enterprise applications market in the mainstream industries.

Modern enterprise applications must be able to support dynamic business requirements, and every vendor is compelled to add much more value to its products and services portfolio to attract and retain customers, rather than mainly investing in the existing bundle of disparate core products and hoping for endless support revenues.

Realizing the crying need to change its faltering business model, Geac seems to be taking a more vigorous posture in addressing its strategic options. Look for more product strategy announcements in the near future if Geac is serious about appeasing and shoring up its large customer base. One is only to hope that Geac's renewed interest in alliances and acquisition will be to the point of effectively enhancing prosperous product lines. There is indisputably a sizable amount of work ahead of winnowing out the remaining under-performing units/product lines. Nevertheless, there is an opportunity too, provided Geac can regenerate a new growth strategy.

User Recommendations 

While Geac's balance sheet was boosted by recent events, a more positive sign is the company's intent to become a true software-developing vendor, not simply a software collector and dealer. The "catch 22" for current and potential users is to discern Geac's corporate strategy viability within the product line/industry in question.

Users will benefit from approaching Geac and informing themselves about what the company plans for future service & support (or divestiture and/or product stabilization?) of its individual products and what the ramifications of migrating (or not) to its new product offering would be. Users should vigorously question Geac on its future options and investigate alternative solutions now to fully understand their situation and options.

The SmartStream E (Expert) and M (Millennium) series, which are IBM S/390 mainframe-based, will likely not receive major functional enhancements owing to aging technology. The SmartStream suite that supports client/server-based Unix and NT systems, the StreamLine series of NT-based back-office products, and System 21 are the most likely recipients of R&D funds. However, overlapping modules in SmartStream and StreamLine will likely be rationalized to minimize duplicated R&D costs. System21 and StreamLine are the likely core systems, both providing scaleable and flexible ERP and e-business systems built on IBM middleware technology.

Manufacturing companies in a number of Geac/JBA's vertical industries of focus, including apparel, electronics, food and beverage, and automotive supply, which are considering a new ERP system should be wary of the System 21 offering until Geac more clearly states its future plans. Although Geac/JBA's partnership strategy is justifiable given the company's current state of affairs and as it results in offerings that it may have otherwise never happened, it places a burden on the company of having to rely on its partners' update schedules. It is also problematic in terms of integration issues and potential support difficulties. If vertical-specific solutions are all the customer needs and are near a perfect fit, Geac/JBA is worth evaluating, but new Geac/JBA customers looking to implement a comprehensive extended-ERP system outside of Geac/JBA's traditional focus of ERP vertical industry applications software may benefit from considering other options.

In any case, make sure that you are feeling comfortable with Geac's declared product strategy for your industry and keep a close eye on the future developments. More comprehensive recommendations for both current and potential Geac users can be found in Geac Lives By Acquisitions; Will It Die By An Acquisition?