Midrange Stuff, OS/400 Edition

Since being resurrected from bankruptcy in 2000, SSA Global Technologies has put on a clinic for how to do acquisitions. Last month, the Chicago software conglomerate completed its biggest acquisition yet: a $135 million buyout of Baan, the once high-flying ERP software vendor that lost a lot of money but has a good product and hopes for a comeback. (Sound familiar?) Graeme Cooksley, the SSA GT executive charged with righting Baan, recently spoke with Guild Companies about the acquisition and how it fits in with SSA GT's agenda.

Our strategy overall is to acquire the market share and then acquire the customer share. Two-and-a-half years ago, we started with that as our philosophy as a way forward. Since then, the world's grabbed hold of our strategy, as we've seen the mergers of J.D. Edwards and PeopleSoft, and the attempt by Oracle. So we continue to believe the market will consolidate, and we continue to believe the large will get larger and more secure, and that the small will get smaller or become niche within the market. In the words of Larry Ellison, the world does not need another CRM or another ERP.

When it comes to the Baan acquisition, we see we have bought very good products. We've bought a very good CRM product that's got some very good features, very strong configuration, and sales force automaton. The acquisition of Baan brings us a very good customer set; it brings us some very good vertical products, especially in aerospace and automotive. It brings us some good technologies, but it also brings us some extension products that allow us to fill in that product gap across the entire SSA GT organization.

Will Baan products be offered to SSA GT's existing customers as extension products?

And vice versa. There are some products in the current SSA GT product range that we can offer across the Baan customer base. So we see that the integration layer between all of our transactional systems will become common. We see that the extension products will be very common. And we'll see that the portal we have developed will also be common across these products.

We're committed to the integration layer as an organization. We're working very closely with IBM in that area, and we already have an enterprise integration product, and Baan already has OpenWorldX, and we see those products merging very quickly. They're very well developed and deliverable products at the present time, and basically all you need to do is build the connector to the transactional systems and then the extension products become common; that is, we have the same CRM system across all our various products, so there's no need to have a separate CRM product for Baan, or for BPCS, or for Masterpiece, or whatever.

What pieces is SSA missing in its quest to offer customers "end-to-end solutions"?

Document management and a few areas in the supply chain, but nothing dramatic. Obviously, as opportunities come along, we'll certainly look at those products, and if we can acquire something that's better than what we've got, we'll certainly do it.

We see over a period of time many of the applications within the iSeries area certainly being convergent as we move forward. Certainly we're not going to divorce ourselves from any product we currently have. However, we have a number of products running on the AS/400, that all have a general ledger; all have accounts payable or accounts receivable, and, obviously, over a period of time they will become common. Why would you want to continue to develop nine different general ledgers? A general ledger is a general ledger. So what we'd rather do is focus our development on one SSA GT general ledger that is of high quality and has all the feature function, and build seamless migration paths so our customers on the AS/400 iSeries will be the same product. This convergence will certainly happen over a period of time. Through the iSeries product, and we would think based on the Baan products, and a number of the open system products, they can be made available through the Baan root.

So you're going to have one core product, such as general ledger, for each platform?

In the intermediate term, certainly, we can see that on the iSeries the general ledger should be relatively common as we move forward. So we would not have separate development; we would be bringing a best-of-breed. But the important fact, from a customer perspective, is he will just see it as the next natural migration, like moving from one version to another version; it should not be dramatic for you. It's the same as going from Infinium Release 1 to Release 2 to Release 3. And Release 3 could be the same as Release 7, as one of our other general ledgers.

We see it a little like the Ford Motor Company. The Ford Motor Company is the brand, and they are the holding company. But when you get down to it, you have Land Rover, you have the Jaguar, the Ford Mondeo. They're all really the same chassis and the same engine and the same gearbox, but they may have a few different things around the periphery to make the dashboard look slightly different. We see the software industry as no different. Why shouldn't we have common features between the products and essentially end up with the same strategy and a common development [environment] as we move forward?

Why keep the products separate? Why not have just one product? How does it benefit the users?

The great thing is, for the customer, they end up with a lot of feature function, and they end up with security of tenure. Because if you're currently using an AS/400 product that's supplied by a supplier at the present time, that's only got 400 or 500 users, the chances of that supplier being around in four to five years are very slim. A lot of the AS/400 suppliers in the market and other niche markets will disappear over a period time. Thus by acquiring a number of these products and bringing them together, we're giving security of tenure for a lot longer.

How will you support all of the different versions these ERP products indefinitely?

We, as a company, have a policy of not sunsetting any product. We will continue to support a product as long as the customer continues to use that product. Obviously, as we move forward we bring out new versions with increased functionality, but many companies certainly don't want to pay for those features, because they don't need them. As we move forward, we will increase functionality by way of, what we would call a PTF, rather than a completely new release. We will give incremental benefit to a customer, rather than having to re-install and change his complete database.

Obviously, we would like all our customers on the latest release of our product. But we're realists and know that a lot of our customers don't want to move as frequently as they used to. I won't do what J.D. Edwards or PeopleSoft does. I'm not going to stop supporting a release x, y, or z of the product next year, and therefore the customers are going to have to move. We certainly don't believe that's the right way to treat a customer. Our strategy is: We will continue to support you, Mr. Customer, until you have a compelling event, when you are ready to move to the next release of the software. And it doesn't mean necessarily they have to move every 12 months.

How much overlap is there between Baan and SSA? How many Baan employees have been laid off?

Overall in the Baan organization, there will be 775 layoffs worldwide. Some of those caused by duplication, but really the cold hard facts show Baan was spending more than it was earning, and therefore you have to right the ship and right the organization. I always said would be a number of reduction in staff, and it's just under 800 out of a total workforce of about 2,800. Baan revenues were around $240 million or$250 million. Not as high was what people thought. But still relatively strong for the customer base. So together SSA and Baan revenues will be $600 million before further acquisitions.

What kind of feedback have you gotten from Baan customers regarding the acquisition?

The Baan customers are relieved. The largest customers worldwide--the Rolls Royces, the Boeings, the ones I've spoken to-- are relieved because SSA GT is seen as very strong financially, with very strong shareholders. We have General Atlantic and Cerberus Group, who together have between $13 billion and $14 billion worth of assets. The other thing they're pleased about is that Baan is being bought by a software company. We're a market-driven organization, and they see that as very positive, rather than being seen as a venture capital that's trying to pump it up and resell it or refloat it from that aspect.

We want 20,000 customers. We currently have 16,000, so we'd like another decent-sized acquisition. From the technology perspective, if we see some gaps, if we see some opportunity, then we will buy those companies to fill out our product portfolio. We have some companies we're targeting.

Any concern the company might be growing too fast? CEO Michael Greenough recently said SSA GT will double in size over the next 12 to 18 months.

We want to make it to $1 billion. We may make it to $1.5 billion; I'm not quite sure. Certainly we have a structure in place that can fully support our acquisition strategy to get to over $1 billion. The way I've structured the organization is taking those things into account, so the management teams and the financial teams can support our desire and demand to get to more than $1 billion and, more important, 20,000 customers.

The 20,000 customers, we believe, will give us a certain market share. When you start looking at SAP and how many customer's they've got, it makes us the number-one player in the market, based on the number of customers. We think that's a number that can be sustainable. We think it's a number that can give us pretty good organic growth going forward. And that will consolidate our position as the major supplier of manufacturing systems around the world.

What kind of changes have occurred in Baan's management since SSA GT took over?

A number of managers have left the company. [Former president] Laurens van der Tang has left the company. The head of development, Paul Rajski, has started to leave the company. The marketing director has decided to leave the company, as did the person looking after what we call the extension products. So certainly I've made some changes relatively quickly with respect to the senior managers within the organization. This company was losing millions of dollars, so you have to make some changes very quickly. We need to put some focus back in the product, back into the customers, and certainly make some more changes to get this company back on its feet. From a people perspective, there are some very talented people at Baan, and we believe they can make a contribution. But the big thing I've got to fix real quickly is that we're spending a lot more money than we're bringing in as an organization, and I have to get that right, and that's the reason I have to make a number of people worldwide redundant.

We'll have it profitable by Q1. We'll have it profitable in three months. We're spending a lot of money in restructuring the business. But the core business will be profitable in 90 days. And this is a business that has lost money for four years. We will take actions quickly.