Vendor
Summary
Ross Systems, Inc. develops, markets and supports enterprise business
applications for the process manufacturing, healthcare, and public sector
markets. Founded in 1972 with headquarters in Atlanta, GA, USA, Ross Systems
generated $101.8 million in revenue in fiscal 1999 (approximately 30%
derived from the international market). Approximately 70% of the company's
sales come from consulting, maintenance, and other support services.
Its
flagship product, iRenaissance.ERP includes financial, manufacturing,
maintenance management, transportation management, decision support, human
resources, and payroll functions for process manufacturers, health care
businesses, public sector and not-for-profit agencies. iRenaissance.APS
is an advanced planning system (APS) for process manufacturers, whereas
iRenaissance.CMS is a customer management system envisioned to allow process
manufacturers to optimize their order management and relationship management
with their customers. Ross has also developed a process mapping and end-user
oriented help and document management tool called Strategic Application
Modeler (SAM).
Founded
in 1972 by Kenneth Ross, Ross Systems originally developed software for
Digital Equipment's (now part of Compaq) computers. In 1988, former Management
Science America executive Dennis Vohs led a group that acquired the company.
Ross Systems has grown partly through acquisitions such as Pioneer Computing
Group, a UK-based developer of manufacturing software, in 1991.
Owing
to a significant drop in sales during the early 1990s, the company restructured
in 1994, which resulted in closing some offices and reducing the workforce.
In 1995, an $8 million acquisition earn-out arbitration ruling in favor
of Argonaut Information Systems created an additional setback.
In
1997, Ross Systems opened a development laboratory in Japan. In 1999,
Ross Systems bought its business partner BizWare, which had developed
several components of the company's software. In 1999, Ross Systems began
offering online access to its applications by launching its RenaissanceLink
portal. It also formed subsidiary Ross Systems E-Commerce to provide sales-related
e-commerce software. In May 2000, Vohs announced he would retire at the
end of June 2000; president and COO Patrick Tinley will step up as CEO.
Ross went public in 1991 and currently trades on NASDAQ.
Vendor
Trajectory and Strategy
Over the past two decades, Ross Systems has shown the commitment to deliver
strong back-office functionality and good customer support within the
above-mentioned industries; it is considered a leader in native process
manufacturing functionality, with much less recognition within other targeted
industries. By the end of 1999, the company had more than 3,200 customers
worldwide. The company offers its product and services primarily through
a worldwide network of over 60 branch offices. With sales concentrated
in Europe and North America, geographic expansion, particularly in Asia,
has become Ross Systems' endeavor. The company has also been expanding
its online operations through its RenaissanceLink software application
portal and its Ross Systems E-Commerce order management software subsidiary.
We
expect Ross to continue its focus on the lower-end of the ERP market (companies
with $50 million - $500 million in revenues), by maintaining and enhancing
existing functionality and product architecture of its iRenaissance solution.
The product will likely also be enhanced through 3rd-party alliances in
the area of customer relationship management (CRM). We also expect the
company to pursue alliances for business-to-business (B2B) e-commerce
and supply chain collaboration within its industries of interest. Additionally,
we believe that Ross will have to gradually shift its focus and resources
solely to the process manufacturing ERP market.
ANALYSIS
Vendor Strengths
- Ross
Systems has developed strong horizontal process manufacturing functionality,
with recent initiatives to deliver tight vertical solutions. Its Formula
& Recipe Management, Product Attributes, Lot Tracing, and Multiple Units
of Measure (including 'Catch' Weight [1] and Potency [2]) features are
recognized as possibly the best in the industry. Moreover, Ross iRenaissance
offers broad, tightly integrated functionality across manufacturing,
financials, distribution, advanced planning & scheduling (APS), plant
maintenance, transportation, decision support, and human resources (HR)
& payroll. It also runs on a broad set of the most popular platforms
and databases.
- The company
has achieved a good geographical coverage, while its product has traditionally
exhibited strong multi-national capabilities in terms of languages,
currencies and double-byte characters set support. Its large loyal customer
base and strong widespread global presence should provide Ross a sustained
service and support revenue stream in the future.
- Ross
is generally very competitive in speed of implementation, total cost
of ownership (TCO), and its global service and support capabilities.
This is partly attributable to availability of Strategic Application
Modeler (SAM), a proprietary process modeling and implementation, and
document management tool. Ross has also recognized the benefit of and
embarked on Web-enablement and componetization of its product.
[1] The actual
weight of units of goods that are sold or inventoried by quantity.
[2] The measurement
of active material in a specific lot, usually expressed in terms of an
active unit. Typically used for such materials as solutions.
Vendor
Challenges
- The company
has eroded its financial position in the last 18 months due to the combined
effects of decreased license revenue and ongoing R&D work in progress
(see Fig. 1 & 2 - Ross Inc. - Annual & Quarterly Results Chart). Ross'
low market capitalization of approx. $32 million, which is less than
a third of its revenues, makes the Company a very attractive acquisition
target, while its low available cash resources ($3.6 million) do not
provide for any real expansion and/or defensive corporate initiatives.
- Ross
has not achieved very strong mind share and brand awareness outside
of its manufacturing niche. It also offers financial and HR products
for the healthcare and public sector market segments, which have proven
to be significantly less profitable than its process manufacturing product
line and have mainly resulted in the past in diluting the company's
resources and focus. These products, which contribute only approximately
20% of revenue, are based on different technology and are not integrated
with the flagship manufacturing and material management product.
- Ross
has recently abandoned its original proprietary GEMBASE technology in
favor of Microsoft's proprietary technology and integration standards,
which may be a strong impediment to future scalability and/or existing
UNIX-based users migration. The company may therefore often be overlooked
in selections for top-tier customers. The situation has been further
aggravated by a bland user interface, although it should be resolved
with the release of new Web-based GUI.
- Ross
faces the challenge of delivering its ambitious undertaking (full Internet
product re-architecting and componentization) as planned. The company
did introduce its iRenaissance ERP solution in December 1999, as well
as its Internet connection and navigation architecture, iRenaissance.Portal.
However, the company's wholly owned subsidiary, Resynt is currently
only in beta testing with its initial sell-side website application,
PriceLink. Furthermore, the company only plans to announce to its customer
base and to industry analysts its more complete CRM and e-commerce strategy,
ranging from e-procurement to sell-side solutions, including trading
exchanges and supply chain collaboration. Executing these initiatives
with its ever-thinning resources will be a notable challenge.
Figure
1.
Figure
2.
BOTTOM
LINE
Vendor Predictions
- Fiscal
2000 will prove to be challenging for Ross Systems. We predict flat
revenues as the best scenario, with a return to profitability in fiscal
2001 a 40% probability. However, despite a competitive environment,
we predict that Ross will reach $150 million in revenues within the
next four years (60% probability), assuming its focus on the process
manufacturing mid-market segment.
- We believe
that, within the next six months, the company will have to officially
announce an alliance with a vendor whose products would provide it B2B
e-commerce and vertical marketplaces capabilities (75% probability).
The potential alliance candidates are Peregrine, Elcom, Remedy or Viador.
We also believe that, within the next 12 months, the company will have
to partner with vendors whose products would significantly enhance its
customer relationship management (CRM) capabilities (75% probability).
The potential alliance candidates for eCRM functionality are GoldMine,
Pivotal, or SalesLogix.
- Ross
System's service and support revenue will contribute more than 70% of
its total revenue within the next four fiscal years (60% probability).
Within the same period of time, we believe the process manufacturing
products will contribute more than 90% of its license revenue (60% probability)
and more than 85% of its new customers will be companies with less than
$500 million in revenues (70% probability). Within the next four years,
more than 35% of Ross' revenues will come from outside the US market
(60% probability).
- We believe
that Ross may be acquired within the next 18 months (40% probability).
Potential acquirers could include Computer Associates (for which it
would provide an established service revenue stream), ABB or Honeywell
(for which it would provide back-office ERP capability), and PeopleSoft,
Great Plains or Lawson Software (for which it would provide a product
with a strong manufacturing and distribution functionality).
Vendor
Recommendations
Ross Systems should expand its visibility within the global ERP mid-market
in the following ways:
- Expand
business in its existing customer base, by upgrading older versions
of software and by offering new extended ERP components.
- Further
expand its global presence, both by opening new offices and developing
new affiliate partnerships, particularly in the Asia-Pacific region.
Consider acquiring or partnering with affiliates of languishing competitors,
e.g., SSA and Baan
- Deliver
more focused and pre-configured vertical solutions for industries, and
offer application outsourcing to make iRenaissance attractive to resource-constrained
enterprises.
Ross must
remain committed to new product introductions and/or enhancements and
take more decisive steps regarding the CRM and B2B e-commerce vertical
applications delivery, preferably through product alliances.
Conduct ongoing
cost and organization scrutiny and identify opportunities for further
improvements. In fiscal 1999, the research & development personnel count,
as a percentage of a total number of employees, was one of the lowest
in the industry, 19%, compared to the industry average of 25% (See Figure
3). This may not be sufficient for its ambitious product development endeavors.
Figure
3.
We encourage
the company to conduct a serious 'soul searching' and justification of
its target markets and respective product lines. Giving each product line
profit and loss accountability may possibly help Ross close its ranks
and weather the impending stormy period.
User
Recommendations
- We generally
recommend including Ross Systems in a list of an enterprise application
selection for mid-market companies (with $50M-$500M in revenue) within
the following industries: chemicals, food & beverage, pharmaceuticals,
forest products, and metals.
- Ross
should be included on any package selection short list within the above
markets where material management and process manufacturing are the
main pillars of an enterprise application. Users from the healthcare
and public sectors may also benefit from evaluating Ross' relevant product
lines on an opportunity-by-opportunity basis and as leverage against
other vendors in the selection exercise.
- Potential
larger clients and existing clients on Ross UNIX product may benefit
from querying the company's future product migration path and/or scalability
strategy.
- As for
the newly added and/or anticipated functionality through product alliances,
users are advised to ask for firm assurances on the availability and
future upgrades timeframes, and more detailed scope of combined product
functionality. Any organization evaluating Ross Systems should consider
existing functionality only, and, in the case of final selection, should
inquire and negotiate incorporation of new applications components now
at negotiated license fees, given its recent new product introductions.
Moderate caution should be exercised now and a watchful eye should be
kept at the company's future financial performance.