The Baan Company is the world's number two Enterprise Resource Planning (ERP) supplier, overshadowed only by SAP.
Active in 59 countries with over 2,500 customer sites, 1996 revenues were $388 million, up 79 per cent on 1995. 1997's first quarter results were equally impressive, with revenues up 59 per cent on the same period last time. In 1995, Baan was the number two performer in the US IPO market, outstripped only by Netscape. To date in 1997, the company occupies pole position.
How did this company, founded in 1978, grow from being a small-time Dutch manufacturing resource planner to reporting income of 70 cents with 20 per cent profit margins?
In a word, Boeing. When SAP bailed out of its ERP contract with Boeing, making front page news on the 'The Wall Street Journal', Baan stepped into SAP's shoes and completed the job.
Jan Baan, CEO and chairman, explains that SAP operates in a very different way to Baan. The Dutch company's structure and business model is fundamentally different to SAP's 'stiftung' status - a non-profit making trust into which the majority holdings, often the founders' shareholdings, are transferred. Once this transfer is complete, the stiftung is a powerful force in deciding how a company operates, and it is all but impossible to break up or acquire.
Proponents say it guarantees company independence in the future, and it protects both employees and charity donations. Jan Baan agrees with the last two objectives, acknowledging that employee pension holders may be among directors of the stiftung. But as the EU converges, the stiftung model may come under closer scrutiny, as Baan explains. "The Rhineland company model is protectionist; the Anglo-Saxon model is competive. We believe in a competitive scenario, on a global scale, and the Baan family is not afraid of seeing a further decline in our personal shareholdings."
He adds: "The German model means that companies are protected from takeovers, but by creating these trusts of stiftungs, the directors - usually the old banking networks - become directors of the stiftung. They protect their own investments at the expense of shareholders."
Jan Baan sees the open market as an opportunity. He says: "We are not afraid of the open market, trading on both the Dutch Exchange and Nasdaq. We think it is better to ask forgiveness for any mistakes than to see initiative decline."
Baan invests on global basis, performing much of its research and development in developing countries, notably in India. The effect is two-fold. By investing in these countries, hi-tech projects create work for a highly skilled workforce; secondly, Baan derives economic benefits by reducing the high labour costs and churn factor associated with European and US-based workforces. Baan sees about two per cent churn, "less than half that of our competitors," claims Jan Baan.
Baan's chief operating officer, Tom Tinsley, concurs, adding: "Our R&D costs are about half those of our competitors. That's because we are geographically spread, using cheaper rates in India and elsewhere. Secondly, our executive compensation costs are lower than average, with the top executives compensated with stock options."
Analysts like Gartner argue that all ERP vendors fail to match vision with reality, providing only about 20 per cent of what users want. Both Tinsley and Baan acknowledge the truth of these criticisms.
"SAP's initial spend:implementation ratio is about $1:$5-$10. Peoplesoft hovers around $1:$2.5, and we go from $1:$1.5, even $3 on a bad day," says Baan, adding, "we want that down to $1:$1."
Tinsley spent 17 years as a consultant with Kinsey and he advices against big-spend ERP consultancy programmes, saying that they take too long to implement. "Three years implementation should be nearer 60 days." He continues: "Gartner's 20 per cent is not an unfair comment. Customer satisfaction remains fairly low, and it's a high priority for us. Customers complain that products are not easy, that installation is too long; and that input from expensive consultants is spun out far longer than it should be."
He adds: "We're trying to correct that. For example, the turn period in Unix software was six weeks and it's now around one week. The new NT Compaq server implementation can be installed within two hours."
To be fair, the ERP timescale is also dictated by business requirements. Tinsley again: "Boeing, for example, dictated the timetable according to its order books. There are similar contraints at British Aerospace. Nonetheless we want to make it easier."
The need to simplify installation and delivery is a key point, putting a premium on speed, simplicity and fast return on investment. Baan is developing its template route to speed up implementation, and SAP is adopting a similar approach, targeting SME sites with a more open, componentised R3, and both companies are ramping up their Internet systems.
One of the crucial factors in Baan's future plans is a wholesale move towards the Internet. Does this mean the end of EDI, often a key component of ERP?
Tinsley says no, not entirely. "EDI will be bundled into applications labelled ecommerce. The downside of sacrificing EDI for Internet communication is that despite what the technologists says, many business are unwilling to trust data to the Internet. EDI is expensive in comparison, but it offers a wide array of industry accepted standards. Internet comms are cheaper, but more standards need to evolve."
Similarly, as Baan and its ilk look to the future, the sheer volume of multidimensional data is an issue. Database vendors claim they can handle multidimensionality, but the truth is that very few have solved the problem in a cost-effective way, one that avoids the problem of database explosion. Tinsley says that the database vendors are lagging Baan in their multidimensional capabilities. "The need is there and no has really cracked it yet. We're held back by the database vendors."
Jan Baan disagrees, claiming that Baan will handle different data types by building bridges, and he denies that these bridges will hit performance. "The real pitfall for users is that they get locked in by Oracle."
Given the array of query and forecasting tools being added to Baan's portfolio through the Baan Family and Friends Network, is data warehousing on the company's agenda? It plans to acquire Aurum Software, customer relationship specialists that provide linkages across financial, sales and marketing information.
Earlier this year Baan and Hyperion Software signed a letter of intent to develop a venture and cooperative strategy. Phase I will see the immediate introduction of a new financial product line combining Baan IV with Hyperion's Enterprise and Pillar systems. Phase II is timed to coincide with the release of Baan V. It will provide more function, a sophisticated interface and implementation of the Hyperion Analytical Ledger technology. Phase III will focus on the joint development of Internet-based accounting and financial software, and all products are designed to be database independent. Similarly, Baan's close relationship with Interactive Software provides the Olap function of its Safari ReportWriter.
Tilling says a cautious yes to data warehousing, commenting: "It's not an immediate priority, but it could be a next dimension of where we're going and what we're doing?.we are creating such volumes of information that we certainly need to think about the possibilities of data warehousing."
Simultaneously, Baan and Compaq are providing a joint migration path to NT-based Baan IV Back Office. Andreas Barth, Compaq's senior vice president and general manager EMEA, a keynote speaker at Baan World, touted the benefits of Web computing, describing it as "the ERP of the future."
Citing the Gartner Group's forecast that 80 per cent of business critical applications will run under NT by 2000, he says: "With Compaq as Baan's Microsoft Windows NT development and deployment partner of choice, approximately 80 per cent of all Baan IV Back Office pilot installations in Europe will run on Compaq. 1,000 joint customers will be installed on Baan IV by the end of 1998."
Informix is the database supplier of choice; Oracle is a competitor that wants to lock in users, according to Jan Baan, but a crucial partner for increasing Baan's NT sales this year; and Microsoft SQL Server functionality is being touted by Compaq, which claims to be Baan's NT deployment partner of choice.
Is this broad brush approach to databases and partners of choice an indication that the company is confused? Or is it simply covering all angles? "Databases are commodity items," reiterates Tinsley, implying that Baan's priority is a range of alliances rather than the special relationship of yesteryear. Everyone, it seems, can lay claim to be a Baan's partner of choice.
The Baan Company describes its own evolution in terms of two eras. BB and AB. Before Boeing and After Boeing - and the religious parallels are not entirely fatuous. Jan Baan makes no secret of the ethical and religious influences on The Baan Company. For instance, on his personal wealth, and that of his brother, Paul Baan, who runs the seed capital arm, Baan Investments, which may be fertile ground for future IPOs, he says: "We live in nice houses with nice gardens, and making money is a pleasure. Spending and living with money can be a problem. We are simple millionaires, but with the proceeds of two IPOs and the dilution of our stock from 100 per cent to 66 per cent and then to 40 per cent, we could have been billionaires, very easily."
He continues: "But we worry about what comes after. How do we know that Baan's charitable contributions, on par with the Rockefeller Foundation, will continue? Our relationship with the Dutch government and setting up the Baan Foundation, ensures the crucial charitable work can go on. Enough wealth is enough wealth, and as the company grew we felt that profits could be put to good use."
The Baan Foundation is the repository for any excess wealth. When Baan makes $400 million profit, about $100 million goes to charity in what amounts to a deed of covenant to the Foundation. Even if the company is taken over or sold, the Foundation's independent existence is guaranteed, enabling it to continue the charitable brief so dear to its founders.
Jan Baan again: "Information technology makes for less chaos. It can make life bearable and good - good for society and good for business."
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