Resurrection, Vitality And Perseverance Of Former ERP 'Goners' Part Three: Market Impact

Event Summary

Event Summary Although encouraging, it might also be quite ironic that, during these days of general lethargy of the market, the rare good pieces of news, in addition to some usual suspect' software giant's upbeat financial reports due to their certain large oligopolies' heritage, have been coming from these reformed traditional ERP vendors, which, not long ago provided ammunition to some pundits to announce the obsolescence of ERP. This note examines four vendors once considered to exemplify failed business models.

Those vendors are:

• Ross Systems
  
  
• SSA Global Technologies
  
  
• Geac
  
  
• Baan

This is Part Three of a five-part note covering these four ERP vendors once considers "Goners."

Parts One and Two discussed specific vendors.

Part Four will outline the Challenges they face.

Part Five will make User Recommendations.

Market Impact

The above vendors deserve kudos for apparently getting past their crossroads, although with an inevitable varying individual dose of lingering market skepticism. By being back from the edge of the cliff, on a comeback trail under rejuvenated management, and with pruned but also more viable product sets, these vendors have become de facto trend setters as once high-flying and almost deceased and then again rebounding mid-market ERP vendors.

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, and given that the vendors in case seem to have once reached their rock-bottom (and as a result they should now have much more upward room than consistently performing vendors), their positive results should bear more than merely a psychological importance. These vendors, in particular, are showing impressive license revenue growth lately against the odds (e.g., Ross Systems and SSA GT), and in light of many recent demises or protracted languishing of like vendors with seemingly much sexier products. In fact, Ross' new .NET-compliant architecture and/or Baan OpenWorldX middleware framework are as sexy as anything on the market today. In addition to the administrative and financial benefits mentioned above, the web-based user interface (UI) of both products are highly functional and visually attractive, much like providing a "My Yahoo" interface to the ERP system

In each particular case, it appears the vendor has at least learned some hard lessons so that it should not fall again in the trap of its former errors in the face of the overall weakness of the ERP market during 1999/2000, which had consequently resulted in sharp revenue decline, product development strategy limbo, disconcerted user base, and disastrous financial results. Some may rightfully say that almost all ERP vendors have struggled with these issues in the past three years. If one should measure the impact on ERP companies based on the size of layoffs, then almost all were indeed hard hit, not just the selected four in the this report. Still, whether owing to larger maintenance bases to dampen the overall effect of declining license revenues or owing to any other reason, the other vendors have largely stayed safely far away from the Grim Reaper. Let us still analyze some common and particular reasons of all these vendors' former stumbling and recoveries thereafter.

Destiny or not, the near-death experiences of these once ERP juggernauts had marked the end of an era when robust, inward-oriented enterprise transaction-crunching product suites were a guarantee of success. Today's enterprise applications are required as a matter of course to address more than the processes taking place within the walls of an enterprise. While Web-enablement and collaborative e-business will continue to be a major direction, easier enterprise applications integration/interconnectivity, more flexible pricing, embracement of plug-and-play' applications that support commonly accepted standards (reflecting a reduced need to heavily customize multi-vendor solutions), and embedding analytical applications, knowledge management (KM), and business process management (BPM) are some of the best prospects among the ongoing wave of enterprise applications hot-buttons. It is needless to say that almost all traditional ERP vendors (small and big alike) had to experience a rude awakening and have long been trying to expand their product offering in tune with the ever-changing trends and requirements of the new collaborative economy.

Obstacles to Overcome

Still, the fatal misfortune of erstwhile Baan, Geac and SSA lay then in the fact that their endeavors were severely hampered by serious former management blunders. Their troubles were only asseverated by a Y2K problem caused impulse downturn in the entire ERP market combined with ensued investor pessimism about technology stocks (i.e., with then unpopular ERP association in particular).

Baan, on one hand, had struggled for over two years to independently turn around its flailing business at the end of 1990s. Management blunders exhibited in distrustful accounting practices and subsequent loss of confidence, and its megalomaniac strategy of creating holistic enterprise applications by acquiring a myriad of disparate products sent the company in a downward spiral.

For former SSA, on its hand, transformation of its main BPCS product into a cross-platform and object-oriented product proved a gut-wrenching experience. A badly executed new product introduction in 1996 caused SSA's earnings to plunge, due to the combined effect of stalled new license sales and the huge R&D budget overrun. Infinium, now part of SSA GT, had a brush with death as an independent vendor due to the abrupt discontinuation of its high-hoped Application Service Providers (ASP) service and consequent closing of its costly investment a spacious enterprise applications hosting center in 2001. The lack of traction which resulted in only a dozen ASP customers forced the company to swallow a bitter pill and write off ~$10 million. Although it was an injudicious reaction to many analysts' overly optimistic predictions of outsourcing business and to the ASP euphoria, the company's ASP strategy to provide holistic, turnkey solution as to also obfuscate its IBM AS/400 platform confinement had some temptation and merit at the time.

Finally, Ross Systems had suffered from a mix of problems both SSA and Geac have also experienced respectively a steep transition from a proprietary to a new Microsoft-based product technology platform and managing two unrelated industries (i.e., process manufacturing on one side and healthcare and public sector HR systems on the other).

As a result, top management upheaval, staff exodus, a dissatisfied and stranded customer base, and affiliate partners' defection ensued across the board with various levels of severity. The companies' protracted financial sagas, negative publicities, personnel departures and channel shakeout, as well as the uncertain direction after some of them had meanwhile been acquired, have taken its toll on customers' loyalty and patience.

Consequently, there has long been an open season on disconcerted customers of these once beleaguered ERP vendors, as many renowned and more viable vendors have, with different levels of candidness, developed strategies of preying on dissatisfied and apprehensive organizations where those seemingly doomed systems were implemented. In addition to many logical incentives like possibly a lower Total Cost of Ownership (TCO) (see Standardizing on One ERP System in a Multi-division Enterprise), these predatory aspirations have also been based on the assumption that users might conveniently choose to rip-and-replace an existing outdated and non-viable system in a remote division rather than upgrading it because of the proverbial complexity involved in almost re-installing a back-office application when merely upgrading it. That has by no means been the case when it comes to more compelling reasons to upgrade, and ironically, Ross has lately been seeing this trend in reverse. Namely, the vendor claims it has lately been replacing the failed and semi-successful implementations of discrete manufacturing ERP systems that were retrofit in an attempt to address the intrinsic needs of Process Manufacturing.

Back-office systems indeed have a typical usability cycle period imposed by technology shifts (e.g., Web-based vs. client/server architecture, component-based vs. monolithic product) and/or applications functionality scope expansion (see The "Old ERP" Dilemma: Replace or Add-on). Well, what has happened in the meantime to apparently change this users' sentiment and impede more stalwart vendors in their onslaught on these ERP goners'?

Common Traits

Without trying to undermine these embattled vendors' impressive turnarounds, there might even be a paradox that the current bad economy has been an indirect ally to these all but written-off vendors. At least, the consequent back to basic' market mindset would be a pervasive conspicuous trait throughout all the above vendors comeback tales. This group of vendors has recently benefited from the market sobering up from its recent late 1990s infatuation with cool' (and often unproven and immature) technologies at any cost and from its subsequent reversal to a show me' attitude illustrated in a pragmatic home improvement' approach to utilize and/or rationalize already implemented software to excess ("shelfware") and to deploy new technology incrementally with a proven quick return on investment (ROI).

Despite vendors' incessant attempts (and hype), enterprise applications functionality has not yet reached maturity in terms of the value it can provide to organizations. Often simply because it is human nature to disregard and put into oblivion all but a few mundane, repetitive practices, and thus many enterprises systems gradually lose' their natively provided functionality, as users revert to previous manual workaround and sub optimal practices. For more information on this phenomenon, often referred to as application erosion', see Application Erosion: Eating Away at Your Hard Earned Value and Application Erosion: More Causes and Cures. In other words, new add-on applications and software enhancements should continue to surface for the foreseeable future, and to provide compelling enough ROI to justify purchases, even in this tough selling environment.

Also to these fellow vendors' favor, mid-market enterprises have increasingly adopted the concept of single-vendor application suites (ensuring thereby a single throat to choke) and tend to buy extended functionality from their ERP backbone vendor rather than to risk intricacies of a multi-vendor concocted solution. For all vendors targeting mid-market manufacturers, current loyal customers have indeed become pivotal to their success (or a mere survival) in selling upgrades and extended applications such as SCM, CRM, business intelligence (BI)/cross-departmental analytics, portals, and these vendors might have secured a fertile ground thus far.

While one would be overly optimistic to believe that the vendors in case will completely regain their old glory, given how much ground the bigger (and even some smaller) competitors have gained since the beginning of their well-publicized troubles in 1999/2000, over the last two years they have accomplished several remarkable endeavors. It might be interesting to analyze these vendors' revitalization strategy via facing and overcoming the following major challenges as a rule:

1. To curb losses by cutting costs and to become profitable,
   
   
2. To upgrade their software to keep abreast of the competitors' offering,
   
   
3. To restore confidence within existing customer base, and
   
   
4. To develop a strategy for expanding customer base. All of the above steps are important and necessary for survival, but none however, really enhances the competitive position for new business. If these vendors had stopped at 3, they would have been left to compete merely on price as their differentiator. However, apparently more successful vendors like Ross have chosen to compete on depth and breadth of functionality in their target industries, which has been the real key to its success.
   

While the first challenge was overcome even earlier than expected in many instances, the other three might have been resolved (or at least tackled) with the above-mentioned recent moves. These vendors have also cut expenses and resolved many specific problems well before the current set of economy-related problems hurting the majority of its Tier 2 peers (e.g., Baan has seemingly solved the integration of differing data models of its disparate CRM, SCM, PLM and ERP applications, which was its huge ever-lingering burden throughout the late 1990s).

Large global corporations who have deployed the Tier 1 ERP solution at the corporate level (i.e., SAP, Oracle, PeopleSoft, etc.) will have indeed planned to remove SSA, Baan, Geac or Ross back when these were struggling amid buoyant pre-2000 economy, but now the reality is setting in that it is neither that easy nor worthwhile to install the new system and ditch the old, just for the sake of replacing vendors' brand recognition. Nevertheless, every vendor in the market endures the replacement threats for many reasons, to a degree that even these predators are not immune to scrutiny and justification. As mentioned earlier, a sharp vertical focus has reportedly been the reason for Ross to be replacing more competitive installations than it has to defend its own.

Moreover, while SAP or Oracle might feature more horizontal functionality than most of the competitors, it is so spread over a range of industries (e.g., over 20 in SAP's case) that they are susceptible to focused attacks of some incumbent competitors within a certain industry either due to insufficient or unnecessarily intricate (so called, functional bloat') functionality (see What's Wrong With Application Software? Businesses Really Are Unique - One Size Can Never Fit All). Despite their notable efforts to increase their competitiveness in vertical sectors, vendors like SAP, Oracle, PeopleSoft, J.D. Edwards and Microsoft are still large generalist enterprise applications providers albeit with enough critical mass to weather the dips in demand.

Other vendors, like Ross or Baan, must truly specialize in the requirements of vertical markets that the generalists cannot address without rearchitecting their systems. This high degree of focus, if executed properly, should particularly enable these vendors to survive, and even evidently grow organically like Ross by expanding new business opportunities as a de facto choice for its target industries. For instance, the above larger vendors do not really "specialize" in many of the process industries and process customers are consequently forced to cope with unnecessary overhead of a generalized system.

As such, the above old' albeit focused ERP vendors' value proposition has lately become clearer -- rapid time-to-benefit, and a near-complete functional fit to the requirements of customers. That has particularly been true for mid-sized manufacturing customers, who have traditionally been conservative (or relentlessly practical in appreciating more the functionality over the fancy of often unneeded immature cutting-edge' technologies) and have thereby protected themselves from these technologies' false promises. Some of these customers have also been religiously loyal to the IBM AS/400 platform (now IBM iSeries), which remains the primary platform for SSA GT/Infinium and Geac. While not a platform with a high growth potential, iSeries remains a proven technology that is highly regarded for its reliability, stability, and robustness, which all typically result with a low TCO.

The fact that IBM continues to invest in the platform's development and its Web-integrated infrastructure has been yet another reason for these vendors and their users to stick to their long-term partner's recognized technology. The recently enabled temporary capacity on demand' feature, which lets IT managers switch it on and off as required (e.g., for month-end processing capacity surge requirement) and pay only for the temporary additional license rather than to buy a permanently stronger expensive processor, would be yet another example of attractive incremental improvement.

One Customer's Opinion

Consequently, these ageing ERP fellows have recently started to see revenue even from accounts that have once been lost (not necessarily to a competitor, but without a running service contract either) or have been all but lost. To illustrate the point that the notion of old' can even be beneficial (i.e., associated with experience and domain expertise, according to the adage "An old ox makes a straight furrow"), here is an anecdotal recent event.

At an annual user conference of a prominent manufacturing ERP vendor, a swanky vendor that is also a big proponent of harnessing the Internet and collaboration, we shared a cab with that vendor's power user, a material management executive within her user firm. During the trip from the airport, she proudly mentioned that this product has been the umpteenth ERP product she has used in her impressively long career of over 20 years. On the question which one of them she liked/enjoyed the most, she said, to our slight dismay and disbelief, the product that the pundits would regard as a dinosaur of the ERP, MANMAN, now part of SSA GT's portfolio. Why? Because the ancient green-screen application would provide her with a wealth of information on the same screen with only one key combination (ctrl/alt + xyz'), whereas the new cool & sexy application requires dozens of frustrating to-and-fro hyper-linked screen navigations only for the fragments of same information.

Would anybody out there like to volunteer to debate with her about the pure-Internet ROI rationale and users' buy-in? It all comes to back-to-basics logic of doing the job effectively and of business processes' improvement; the web-based technology might be a solution enabler to accelerate customer's productivity (as well as the vendor's product development productivity), but not the goal in itself.

Common Traits Summary

To recap these vendors' recently restored vitality, one should try to highlight the following common threads:

1. large customer base with a wide geographic spread (particularly in emerging markets unaffected by the recession), 2. recently adopted (or enforced) focus on selected vertical industries and/or platforms, 3. prudent product scope expansion, with a fair balance of partnering and native applications, 4. mid-market incumbent status, and 5. the prominence or at least adequate offering for some less-contested process industries.

For instance, when we recently asked the customers why they thought Ross Systems was thriving even in these difficult times, we got consistent feedback. These are pragmatic mid-market companies and they told us that Ross is providing them with pragmatic solutions tailored for their industries (i.e., Food & Beverage, Life Sciences, Chemicals, Metals, or Natural Products). These customers do appreciate the deep functionality in the Ross applications and were very positive on the recent expansion in breadth to include SCM and CRM capabilities. Services, support and training also consistently received high marks from customers in terms of quality and the feeling of true commitment to customer success. International companies further cited Ross's global capabilities, including both market coverage and localization, as unique benefits. The response would likely be similar for all other vendors in case, which are taking a sensible approach in bringing new products to market by creating solution sets that meet the specific needs of the vertical industries they have traditionally served.

Strengths

Indeed, the above vendors' strengths today remain their geographical spread, restored financial health, retained level of products' diversity that does not necessarily contradict focus, and savvy of industry business process in the chosen vertical sectors. These companies seem 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. For instance, it appears that SSA GT understands and listens closely (via Global Guide Groups) to the needs of conservative ERP customers that are unwilling to ditch a good functional product even at a cost of its technological antiquity, particularly if their provider has a track record of strong functional development that preserves the customer's current investment. To that end, BPCS V8 is a scaleable ERP system extended beyond traditional ERP boundaries, with several manufacturing mode flavors such as discrete lean manufacturing, assemble-to-order (ATO) and make-to-order (MTO) operations, and even process manufacturing. Geac has also reorganized itself lately while surveying its customers' opinions about how exactly it should approach its products' modernization.

Consequently, these fellow vendors have again with varying levels of success turned into an appealing combination of back-to-basics, stable, pragmatic, manufacturing-focused ERP software developers and implementers, and modern collaborative, web-based extended-ERP enterprise software providers. Following the lull of a couple of years ago, their recently-announced technology developments seem to be in sync with the market's trends, and leaning shrewdly towards the requirements of holistic business requirements from engineering design collaboration, to CRM and on to SCM. Baan, for one, offers a core stack of modules under iBaan Enterprise suite that includes ERP, OpenWorldX integration middleware layer that even features a framework for cross-application processes like supplier and engineering design collaboration, then Decision Manager, B2B Server, Portal, and Reporting capabilities. To enhance this stack, the company strives to address customer intimacy, operational excellence, and product leadership capabilities (supported by the respective CRM, SCM, and PLM products) tailored to specific industry requirements.

Part of these vendors' success thus stems from sales of add-on applications for core suites, which harness XML-based middleware layer that facilitates trading partner connectivity via portal offering, and might obfuscate the older technology foundation. Most of these vendors have embarked on the mission to modernize their products architecturally while preserving its customers' investment in its older product releases. Typically, the Web-integrated business applications framework has been laid out -- it features multi-tier (3-tier) architecture and is based on commonly used Web standards such as XML, HTTP, Java/J2EE.

As the importance of integration looms large, Baan's OpenWorldX framework was devised to make it possible for Baan solutions to plug in with third-party enterprise systems. Baan proudly claims its technology is "Integrated but open", since by using OpenWorldX Baan solutions can co-exist with legacy and third party applications. This has already been demonstrated in practice, where Baan sell-side e-commerce solutions are running fully integrated with SAP back end installations via OpenWorld SAP Connector (there are indications of ~1,000 enterprises where SAP and Baan coexist on corporate/divisional level).

As another example, SSA GT has developed an integration architecture that runs on a J2EE application server and provides common integration for portal applications to legacy applications. The infrastructure also enables integration to SSA GT extension products, other software solutions and to future SSA GT product acquisitions. This infrastructure includes the development of a Common Object Model, which normalizes the data across multiple applications and takes advantage of object technology, and SSA GT will develop functional extensions that reference this Common Object Model. These so-called "wrappers" will be developed to expose data in the individual applications, to the Common Object Model, which will in turn facilitate the integration of these applications to newly developed functional extensions.

These vendors, while fearing Microsoft' s intrusion, may also vicariously benefit as Microsoft's move might raise awareness of the need for these types of applications across the mid-market and provide a further stimulus to a possibly recovering market for enterprise applications down the track. By encouraging smaller companies to put in place applications backbones in their organizations, it will provide the foundations for investment in more sophisticated applications that will allow these organizations to effectively participate in an increasingly online economy. Finally, these vendors have strengthened their distribution network worldwide and experienced a surge in their international business, although not necessarily in the highly contested and ailing North American market. With a significantly expanded product line, improved distribution network, and good market momentum, and due to the fact that good news travels fast across the world, one might even see the US market warming up again to these once disgraced products.

This concludes Part three of a five-part note.

Parts One and Two detailed specific vendors.

Part Four will discuss Challenges.

Part Five will make User Recommendations.