Good products, shame about the leadership

ERP software house Baan is criticised over a strategy that could cost users dear, Guy Campos reports

ERP software house Baan is criticised over a strategy that could cost users dear, Guy Campos reports

Industry analysts have slammed the management at ERP software house Baan over moves to split up the company, which could lead to price rises for users.

Over the past couple of years Baan has suffered losses and endured changes of leadership and direction. But now the company has a new strategy - to hive off its e-customer relationship management products into a separate unit with its own stock market listing.

The move is good news for shareholders, but not for users, said Ovum analyst Duncan Chapple. He said Baan will have increasing difficulty selling to customers who look for a one-stop-shop software house, if it ditches e-commerce and front-office applications.

At its most basic, ERP is just a glorified manufacturing and accounting system, and the market has become increasingly commoditised. This has left suppliers vulnerable to other companies that offer ERP as part of a wider e-commerce solution, Chapple explained. Users should be begging the company not to split itself up.

Chapple sees the split as the fruit of Baan's relationship with merchant bank Lazard Freres. "They have been brought in to unlock value - which is financial speak for tearing the company apart." He suggests that it is almost as if they have recognised that Baan is now worth more dead than alive.

Chapple said a split would make Baan a prime candidate for takeover by a company that would milk money from the existing user base by raising annual licence, maintenance, support and training fees.

The new strategy has prompted GartnerGroup to warn customers off Baan altogether. "Only prospective [users] willing to assume some risk, and with which Baan products are a very close fit should continue to evaluate Baan," a recent advice note from the analyst said.

Gartner analyst Nigel Wood believes Baan's financial difficulties are set to continue, as the uncertainty over its future may constrict the pipeline of future orders. But he regards the ERP product as too good to abandon. "You would get more money out of it by keeping it and enhancing it," he said.

Wood believes that a complicated set of restrictions on shares and shareholding in Baan would make a hostile takeover more difficult.

Baan's plight is unlike that of other ERP suppliers whichhave simply been hit by a drop-off in sales, according to Chapple. "The problem at Baan is not a poor product, its not even poor financial performance per se. It is weak leadership," he said.

Chapple describes Baan's strategy in the last few years as going upmarket, midmarket and downmarket at the same time, spreading its limited resources thinly across a range of projects.

However, Grans Goettshch, Baan's vice president corporate treasurer, said Baan now had a very strong management team in place and had secured its future by restructuring its finances.

"I think we have taken a lot of steps to ensure the viability of the company, like building a very strong cash position," he said.

The separation of CRM into its own division will allow Baan to focus more clearly on its customers needs, Goettshch explained, and was not driven by the desire to improve Baan's share valuations. "There is a high demand for this sort of product and we want to be in that market," he added.

David Marshall, chairman of Baan's UK user group, thinks the analysts' worry too much. He believes the promise of e-commerce is overhyped in many cases and there is a long way to go before it becomes all-pervasive.

According to Marshall, there is still a role for an independent back-office ERP product that can be integrated with other applications or not, as the need arises. He pointed out that many software companies, including Baan, work in partnership with other suppliers so that users do not need to buy all their software from one source.

On the issue of price rises, Marshall suggests companies that do not have provisions in their contract to protect them from new owners ramping up annual charges, should change the people who negotiate for them.

He added that the uncertainty over Baan's future will have little impact on the day-to-day concerns of users. It is only an issue for the medium to long term.

"I still believe Baan is as good a product as JD Edwards or SAP from the functionality point of view, and on a day-to-day viewpoint it doesn't really matter who is in charge," said Marshall. "I believe the product is so well established in the market that it will continue whether it is owned by Baan today or someone else tomorrow."

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