Reviving Baan

Not so long ago the ERP company was in deep trouble. Now, after its takeover by SSA Global things are improving, but slowly. Rahul Neel Mani finds out what’s going on

The challenge in the SME space is retaining leadership with a perpetual growth in market and mind share, says Mike Greenough

Mike Greenough, president of SSA Global—the company that recently acquired Baan—is busy meeting Baan customers, system integration partners and developers. Reason: Greenough wants to make sure that the 34 percent market share of Baan ERP in the small and medium enterprise (SME) segment does not get diluted. Greenough also wants SSA Baan to achieve a growth rate of around 12 percent year-on-year.

Simultaneously, plenty of brainstorming is going on between the top brass of Baan and SSA Global. This is about shifting the entire development activity (read development and not research) of SSA Global to India in a phased manner. The move will increase the manpower intake over here at a time when SSA Global is downsizing elsewhere—800 employees were axed immediately after SSA took over the company early this year.

Apart from retaining existing customers, there must be growing concern in the mind of Greenough over the huge accumulated losses at Baan. The company lost $150 million last year and was also bloated, operating as if it had $500 million in annual revenue when actual revenue was about half that amount. The responsibility SSA has taken on is bigger than it imagined. The damage-control exercises, coupled with a complete restructuring of SSA Baan will have a deep impact on SSA’s books. Indeed, Greenough says that anywhere between $65 million to $100 million will have to be spent to build the brand once again and then sustain it at the top.

Though he stated that as of now there is no acquisition deal pending with SSA Global, he also said that its strong ‘A-Team’ (acquisitions) is always on the lookout for appropriately valued offers. “Every small company that is truly global and has something to do with ERP products (not extensions) is on my list of acquisitions,” says Greenough. It’s well said that SSA is not shy about its intentions. “No one else in the industry has on its website a pull-down tab dedicated to acquisitions, including contact information for those with software companies to sell,” he declares.

Gemini delayed

This doesn’t mean SSA Global is not facing problems with regard to Baan. Baan was not in good shape when it was earlier bought by Invensys, and then the trouble escalated when divorce followed within a short time of the marriage. One of Baan’s most ambitious projects, code-named Gemini, has been delayed. Gemini was to be ready for release in October this year, now it can only be made available by July 2004. Says Greenough, “I don’t think it’s delayed as much as it wasn’t really ready for release.” Sources say that SSA Global came to know that quality was a big issue with Gemini—that it just wasn’t up to the standards generally followed by SSA Global. Even more, its market acceptability was low. The gap between the existing releases that customers already had and what Gemini could give them was narrow. The localisations and translations weren’t done. “SSA sells products in 20 different languages, and being ready with just the English version wasn’t good enough for the company,” he explains.

But with this delay the company might have a problem keeping its entire flock of customers together. Greenough feels otherwise. “After SSA Global’s acquisition of Baan, the latter went in for an interim survey and discovered that approximately 70 percent of its existing customers didn’t really want an upgrade!” says Greenough. Quite stunning, but that’s the reality. According to sources, Invensys Baan committed a great blunder by not including customer feedback (what exactly they were looking for in terms of changes in the existing ERP) while planning for Gemini. It was clear that Gemini wasn’t a product of market development. “The management did not give me even a single dollar of license fee sales for Gemini in this fiscal, which starts in July. So the fact is that Gemini was really just a product of someone’s ideas. SSA doesn’t involve itself in such gimmicks,” says Greenough emphatically.

The key objective of Gemini is putting more functionality into the system. But will it bring new customers? “Not really,” says Greenough. “New customer wins are only about 25 percent of SSA Baan’s business as of now. It surely won’t go to 50 percent with the introduction of Gemini. Very realistically, we would say that we are extending the life of our customers’ existing investments through other releases, and I don’t believe that Gemini is going to produce millions of new user licenses…nothing of that sort.”

The resurgent SSA Baan will aim to block attempts by top-tier vendors such as SAP, Oracle and PeopleSoft to make headway in the mid-market that it currently dominates. The top-tier companies will have the innovation factor on their side, but SSA Baan can and will make a strong case for keeping its 16,000 customers away from the upsell attempts of the upper echelon. The only real threat may come from PeopleSoft with its new J D Edwards-derived mid-market focus, but that too only in the markets where they compete.

A lot will also depend on the integration and product-merger strategy. Merging disparate code bases, which is a daunting task, will make or break SSA Global. It will be up to SSA to prove that they can do it better than the roll-up vendors. 34 percent of the SME space is already with Baan. “I am already the market leader, so big companies will have to formulate a strategy to combat SSA Baan. The challenge here is retaining that leadership with a perpetual growth in market and mind share,” says Greenough. “If you look at BPCS products (from the SSA stable) in the last two years, we have grown in license fees and maintenance revenue by over 12 percent, with maintenance revenue doubling during this period. I expect the same to happen in the case of Baan.” As of now, license fees forms a very low percentage of its total revenue (it was 20 percent last year) as compared to SSA Global’s 34 percent. “There is this huge opportunity to re-engage the customer because the Baan situation is similar to SSA’s when I took over. So the strategy to retain this market share will be specialisation in the vertical and consolidation of the product. Baan will be a one-stop-shop for the ERP stack,” reveals Greenough. SSA as of now has PLM, ERP, CRM, BI and also financials and HR. If it buys some CAD/CAM as well it will be complete from top to bottom. SSA is also working on the interoperability layer of these different products which are divergent in nature. With its recent supply chain management (SCM) initiative, SSA Global will be one company offering very focussed solutions for specific industry verticals.

“SCM is actually a natural extension. There are three sides of extending ERP. These are CRM, PLM and SCM. Customers tend to fall in one of those categories. We have seen that the products we introduce get a tremendous reception from our existing customers. We wanted to go deeper in the SCM area and that’s why we acquired EXE, a $80 million company,” says Greenough.

R&D in India

The Hyderabad development centre of Baan has already been renamed SSA Global Development Centre. Greenough says that SSA has decided to move the MK (an SSA product) development to India. EXE’s development business in Germany will also be moved to India very soon. “In the next three to six months we will see what other R&D we can move to India and thus make use of the economic advantages here. There is a lot to come. We are not necessarily moving research but we are moving development.” The research function will be split among all the centres worldwide, but development will be focused in India.

BPO acquisition

Greenough is confident of acquiring a business process outsourcing (BPO) company in India, but that plan is 12-18 months away. This is to make sure that whatever money customers invest in SSA Global and its products is completely protected. It is a huge area of opportunity for SSA Global. Gemini, Web services and all the other drivers will bring in more business in just a couple of years, and that will create a compelling need to have a BPO outfit to service those customers. “But it won’t be done before the end of 2004. It needs to be worth over $100 million,” says Greenough.

Finally

The loss incurred by Baan in the past cannot be recovered. Nobody knows the actual losses because there were a lot of discrepancies between the books of Invensys and Baan. SSA has analysed the cash received over the past 12 months and will scale up the business accordingly. “I want to have inventories and deliveries to match the income. We are now applying better manufacturing principles to Baan and reducing a lot of overheads,” says Greenough.

“I love solving cryptic crosswords where the answer is right in front of your eyes but you need to deduce it properly. That’s what I feel SSA Baan is. We will deduce the answer and we will get there,” Greenough concludes.

rahul@expresscomputeronline.com