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.
Geac's fault was 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 (see Geac
Computer Corporation: Mastering Growth by Acquisitions). 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. 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.
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:
-
To curb losses by cutting costs and to become profitable,
- To upgrade
their software to keep abreast of the competitors' offering,
- To restore
confidence within existing customer base, and
- 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.