SAN MATEO (06/02/2000) - More than a few ripples disturbed the ERP (enterprise resource planning) market this week as a result of SAP's strategic overhaul and the acquisition of financially troubled middle-market player, Baan Co. NV, by Ivensys PLC, a London-based automation and controls group.
Hovering near bankruptcy, Baan's fate is a reminder of what can happen when a once very aggressive, risk-taking vendor makes one too many false steps.
But in addition to its own strategic miscalculations, Baan was also hurt by a prolonged market shakeout that began last year and continues to affect all of the players.
Last year was a wake-up call for ERP vendors that had been previously experiencing annual growth rates of approximately 20 percent, said Dennis Byron, an analyst at International Data Corp., a market research company based in Framingham, Massachusetts. Other than Oracle Corp., the ERP players were caught short-handed, he said.
While users focused efforts on Y2K and put off purchases last year, they were also turning to non-ERP vendors for the CRM (customer relationship management), e-commerce, and supply-chain automation functions they needed, Byron said.
The worldwide market for ERP in 1999, $19 billion, represents a growth rate of 8.1 percent over the $17.6 billion tally in 1998, Byron said.
The market leader, SAP AG, had a fairly flat year, and so did J.D. Edwards & Co.; PeopleSoft Inc., however, lost a little ground, Byron said. Oracle bucked the trend and grew its suite sales by approximately 20 percent mostly because it had CRM, e-commerce, and supply-chain offerings integrated with its back-office suite, Byron said. "Baan had a deflation of 16 percent in 1999," he added.
When the Baan sale becomes final, Invensys will fold the company into its newly created Invensys Software and Services (ISS) division, officials said.
The ISS division, which will produce the company's Leanware line of software, will be expected to have an annual turnover of approximately $2 billion. The division will continue to "support the Baan code base and take it forward onto the Net," said Katrina Roche, senior vice president and chief marketing officer at Baan.
While the ERP sector is struggling, the business-to-business, e-procurement, and CRM markets are expanding and changing the definition of what constitutes an ERP platform, according to industry observers.
The e-procurement upstarts Commerce One Inc. and Ariba Inc. are not eroding the ERP market shares for SAP, Oracle, and the rest but are giving them stiff competition, said Byron Miller, an analyst at Giga Information Group Inc., a market research company based in Cambridge, Massachusetts. "The ERP players have been trying to enter into that market," he said.
In the New Economy of e-commerce and business-to-business, ERP players are charged with the task of coming up with technology solutions for business processes that have just been born, said Ed Toben, vice president and CIO at New York-based Colgate-Palmolive Co., a major SAP customer site.
The New Economy presents problems for ERP vendors because they have to either provide solutions themselves as SAP has for supply-chain management, data warehousing, and the mySAP.com e-business push or build alliances such as SAP's recent CRM deal with Nortel Network Corp.'s Clarify.
But alliances translate into best-of-breed, which implies integration headaches. "We don't want to be the systems integrator," Toben said, adding that Colgate-Palmolive prefers a single-source approach with its IT suppliers.
Going forward, the ERP vendors "are going to have to realize that the craziness of the late '90s will not continue into the new decade," Miller said.
The settling out of the market has manifested itself in flat earnings, and retrenchments such as J.D. Edwards' recent layoff of 800 employees.
"The players in the traditional ERP market must reinvent themselves," said John Sawyer, director of corporate communications at J.D. Edwards. "If vendors can't make the successful transition to e-commerce, they can't effectively serve their customers going forward."
ERP players will be making more alliances with competitors/partners in the e-procurement, CRM, and related realms, giving new meaning to ERP.
"My whole sense is that it's expanding," said Colgate-Palmolive's Toben. The traditional ERP packages such as general ledger, sales, distribution, manufacturing, and financing will serve only as a foundation, he said.
End-to-end solutions that start with the Internet will be the next level of integrated systems that vendors and users will have to reach together, he said.
Baan Co. NV, with dual headquarters in Barneveld, Netherlands, and Reston, Virginia, is at www.baan.com. Invensys PLC, in London, is at www.invensys.com.
InfoWorld reporter Geneva Sapp and Laura Rohde and Clare Haney, correspondents for IDG News Service, an InfoWorld affiliate, also contributed to this article.
Missing the target
Circumstances and false steps have led to Baan's current state.
* Too many acquisitions
* Poor management of the acquisitions and growth* An ERP market that is rapidly embracing the Web* Challenges from online procurement players* Nose-diving stock prices* Securities exchange violations* Problems attracting new customers* Management turnoverChart: Analysts from AMR Research Inc., Giga, and Forrester Research