Geac
Hopes To See System21 Shine Again Like 'Aurora'
Part 2: Market Impact
P.J. Jakovljevic - September 17, 2002
Event
Summary
Lately,
Geac Computer Corporation Limited (TSX: GAC), a large and until
recently struggling Canadian supplier of enterprise management software,
has indicated it might have finally gotten its ducks in the row not
only has it posted a few stable and profitable quarters, but the company
has also shown the intent to move away from its all but failed business
model of selling maintenance and services for outdated applications. As
a result, it has a number of recent new contract wins.
This
note covers the following recent Geac announcements:
- The Extensity
and EBC Informatique acquisitions
- A contract
with ZPC Mieszko
- A contract
with Ghim Li Holdings Co Pte Ltd
- Delivery
of three new System21 products for automotive manufacturers
- Further
details on Project Aurora
- Industry
response to AnswerLink
- Financial
Results for fiscal year 2002
This
is Part Two of a three-part note on recent announcements by Geac. Part
One detailed the announcements. Part Three will discuss the Challenges
faced by Geac and make User Recommendations.
Market
Impact
Geac
has seemingly past its crossroads, although with an inevitable slight
dose of lingering market skepticism. Back from the edge and on a comeback
trail under rejuvenated management and with a trimmed down but also more
viable product set, Geac has become de facto a sort of a trend setter
amongst once high-flying and almost deceased mid-market ERP vendors, for
example: Baan, SSA GT and Ross Systems. While one
may object that returning to profits by merely trimming fat and milking
revenue from the existing client base should not be worth writing home
about, given that the vendors in case seem to have once reached their
rock-bottom, positive results should bear more than mere a psychological
importance, particularly for the vendors that are showing impressive license
revenue growth lately against the odds (e.g., Ross Systems).
In
Geac's particular case, it appears the company has at least learned some
hard lessons and it should not fall again in the trap of its former rampant
acquisition strategy in a number of unrelated, diverse fields and in the
face of the overall weakness of the ERP market during 1999/2000, which
had since resulted in sharp revenue decline, product development strategy
limbo, disconcerted user base, and disastrous financial results (see Figure
2).
Sticking
to its former frugal strategy (acquire, cut administrative expenses and
generate service revenue) instead of taking decisive action to breathe
fresh air into its arsenal of products, had also backfired on Geac and
relegated it in the back seat of the enterprise applications market. Still,
Geac's strengths today remain its geographical spread, restored financial
health, retained level of products' diversity, and its savvy of industry
business process in the chosen vertical sectors. The company seems to
have meanwhile become highly attuned to the needs of the mid-market, with
many loyal long term customers currently enjoying considerable service
& support attention. Moreover, Geac's Enterprise Solutions division still
ranks among Top 5 global ERP vendors based solely on revenues and customer
base, as the company has more than 7,000 customers in 55 countries (around
150,000 users), around 3,700 staff globally, and R&D expenditure in fiscal
2002 totaling over Can$90 million.
Consequently,
the Geac of today has turned into an appealing combination of back-to-basics,
stable, pragmatic, manufacturing-focused ERP software developer and implementer,
and modern collaborative, web-based extended-ERP enterprise software provider.
Following the lull of a couple of years ago, its above-announced technology
developments (see Part One)
appear to be in sync with the market's trends, and leaning shrewdly towards
the requirements of holistic business requirements from engineering design
collaboration, to customer relationship management (CRM) and on to supply
chain management (SCM).
Therefore,
it should be positive news Geac's determination to execute the following
two-phased revitalization plan:
- To shore
up the business and return to profitability and positive cash flow,
which was achieved in Q1 of fiscal 2002 (see Figure 1). With a healthy
balance sheet, no debt, and substantial cash reserves, Geac should be
able to carry through the next phases of the plan.
- To bolster
human and financial resources, build and expand industry expertise,
and to build, prudently acquire or license a number of selected products
to belatedly extend product functionality and increase revenue opportunities
from new accounts and from existing customer base, which has just seemingly
started. This will prove more difficult and testing, as the company
will have to deliver a portfolio of add-on applications and develop
a sales force that understands how to compete in the new collaborative
enterprise applications market. One should also hope Geac will look
for smaller and innovative software companies as the acquisition targets
(rather than erstwhile antiquated software companies at bargain prices
in order to capitalize on their maintenance customer bases), with complementary
products that can be sold into its GES division (SmartStream and System21)
customer base. The two recent acquisitions seem to fit the description.
Figure
1.
More
on a down note, Geac remains strongly service driven with less than 12%
of its revenues coming from license revenues (compared to the 33% industry
benchmark, estimated by TEC), with close to 80% coming professional services
and 10% from maintenance revenue. Still, it is now a financially conservative,
stable but acquisitive organization which has remained profitable despite
the general IT industry downturn. Geac's future focus on its heartland
of existing customers and industry verticals, while building out its technology
to make System21 more future-proof and keeping abreast of the competitive
offering, seems prudent.
While
Geac's difficulties surely originate from the Y2K-based slump of the ERP
market in 1999/2000 and current protracted economic slowdown, the catalyst
was poorly executed acquisition of once prominent UK-based ERP vendor
JBA International in 1999. The acquisition has 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 System21
sales dropped precipitously during 2000/2001 and the product has until
very recently all but disappeared off the ERP radar screen.
Impact
of Acquisition of System21
The
fact is also that Geac has not initially significantly enhanced System21
since either (except for Web-enabling it through Universal Commerce
Adapter (UCA) based on Jacada technology and for embedding
RunTime CRM product acquired in 2000, but for the apparel/fashion
industry only). Reverting to support for only the IBM iSeries (formerly
IBM AS/400) and dropping the support for Unix have additionally
narrowed the market opportunity. Consequently or not, Geac had seemingly
been unable to successfully market its System 21 product during the 1999
2001 period. The bottom line more agile competitors have functionally
leapfrogged once very attractive product and captured the market share
(see SAP
Learns The Ropes Of Fashion/Outfitting).
But
that looks set to somewhat change in the future, as Geac has poured over
a $15 million worth R&D program over the last 12 months alone, dedicated
solely to System21 enhancements. To that end, the news of System 21's
reinvigoration and recent contract wins is quite encouraging. 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.
Geac also envisions its new e-Business suite a series of applications
and infrastructure components designed to extend the use of System21 out
to suppliers, customers and mobile employees via the web and mobile technology,
known collectively as commerce.connect. All products will logically
use the latest IBM technology, including the proverbial WebSphere
e-commerce platform, MQSeries messaging and so on.
Consequently,
down but not out, System21 is on the comeback trail, and possibly leaner
since, while delivering the integration and e-Business functionality add-ons,
Geac has also exploited the opportunity to rationalize the multiple code
bases that had arisen from its former zeal to create industry-specific
solutions. The outcome thereof should be reduced application costs and
development lead times, and a more stable and robust ERP core.
Geac
System21 is a suite of integrated backbone systems for middle-market companies
operating on the IBM iSeries platform. Since its launch in 1994, it has
been used by 1,600 customers worldwide (150,000 users), with 650 in the
UK many in the apparel and footwear, food and beverage and automotive
supply markets. As for product scope System21 covers all the bases of
manufacturing, customer service, logistics, financial and service management
operations, with several versions geared to its vertical markets and offering
indisputably deep functionality and advanced business process mapping
development, configuration and automation technology in the form of its
@ctive business suite
Typical
customers are small to mid-market enterprises, many of them operating
in complex supply chains serving some of the world's largest manufacturers
and retailers. As for manufacturing environments, System21 is amenable
to just about everything at its level - from repetitive, batch process,
hybrid, configure-to-order (CTO), engineer-to-order (ETO), to mixed mode.
System21 is further also supported by a complete set of complementary
services that include implementation consulting, training, customization,
network design and post-implementation support.
This
concludes Part Two of a three-part note. Part
One detailed recent Geac Announcements. Part Three will discuss the
Challenges Geac faces and make User Recommendations.