Ross Systems, Inc.: In Process of Renaissance

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.