SSA GT Has Its Work Cut Out for It

by Alex Woodie

Two years ago, System Software Associates was in serious trouble. The company had alienated much of its customer base with pricing practices related to Y2K conversions, had failed to enter the Unix and Windows marketplace with BPCS 6.0, was hemorrhaging cash, and was basically in a downward spiral that was obvious to everyone following the withering market for ERP software. Following analysts' warnings, companies in the middle of BPCS installations put a hold on those projects, and some software vendors that supplied BPCS add-ons suddenly started marketing their wares as migration solutions. Some of SSA GT's largest customers migrated to OS/400-based ERP systems from more stable companies, including SAP and J.D. Edwards.

SSA filed for Chapter 11 bankruptcy protection in April 2000. Soon after, Gores Technology Group acquired the assets of the company for $52 million and changed the name of Systems Software Associates to SSA Global Technologies. Gores is a Los Angeles company that specializes in acquiring bankrupt technology companies, or, as AMR Research analyst Rod Johnson put it, "a traditional bottom feeder." Things couldn't have been much worse for SSA GT.

But institutions as large as SSA GT don't just disappear overnight. More than 6,000 companies had invested billions of dollars in BPCS implementations, and many of them, especially the smaller companies, were not in a financial or technical position to walk away from their investments. Following the bankruptcy, the number of BPCS users paying their maintenance fees to SSA GT dropped to 1,800, according to SSA GT officials, one indication that few businesses had faith that SSA GT would be able to resurrect itself. (That said, plenty of companies have so heavily customized their RPG-based ERP suites that they are unable to get maintenance services for their applications from SSA GT or any other vendor. This is the down side of open source, yet licensed programs like the ERP suites sold into the OS/400 customer base.)

Despite all of these negatives, the new SSA GT has done a respectable job of lifting itself off the mat. Under the leadership of CEO Michael Greenough, who took over in 2001, after Vic Sheppard's short tenure at the post, SSA GT has shown that it shouldn't be overlooked as a player in the midrange application software market.

"It seems like the latest round of management has done some very positive things to put the company back on track," said Rick Halsten, president and general manager of Nexgen Software Technologies, an ERP consultancy that specializes in BPCS and PRMS suites, as well as J.D. Edwards' WorldSoftware and OneWorld suites.

Let's take a look at those moves. Under Greenough and Graeme Cooksley, SSA GT's executive vice president of global sales and marketing, expenses have been reduced and the management structure has been streamlined by cutting the number of management levels between customers and Greenough from seven to four. They've also signed OEM agreements with CRM, supply chain, and business intelligence software vendors to integrate with BPCS and extend their investments in the software.

According to SSA GT officials, these moves are already starting to pay dividends. The number of customers on maintenance recently has increased to 3,000, which is probably one of the main reasons SSA GT posted its first profit in a while last year, which saw $150 million in revenues. The majority owners of SSA GT, Cerebus Partners, will enjoy about 80 percent of the $25 million in profit SSA GT was expecting to generate. (Because it is no longer a publicly traded company, SSA GT is not required to disclose its finances, which somewhat obscures the view of the company's actual state; all of these figures were provided by SSA GT.)

So what does all this have to do with the interBiz acquisition? One of the reasons SSA GT fell so hard two years ago is that it wasn't able to execute its technology roadmap, and that it pushed customers too hard to upgrade on a cross-platform edition of BPCS written using C++ and CASE technologies that offered poor performance compared with the highly tuned RPG edition of BPCS for AS/400s. Today, as SSA GT has finally managed to lift itself back up to some degree of respectability, some wonder why the company has put itself in a position where it could make some of the same mistakes again.

Like many ERP vendors in the mid-1990s, SSA GT was bitten by the Unix bug, and soon thereafter it caught the Windows bug. BPCS had always run on IBM's midrange servers, first the S/36 starting in 1981 and then the AS/400 from 1988 on. In 1995, the company began a redevelopment effort that would do three things: move BPCS to Unix and Windows platforms; create a client/server version of BPCS; and solve the Y2K date problem. BPCS 5.0 was supposed to be the first Unix version of the suite, but it was scrapped because of problems in bringing it to market. In 1996, the company launched BPCS 6.0 (or BPCS Client/Server), the Y2K compliant version of its software, which came out a year late to market. SSA GT required that BPCS users who wanted to avoid problems associated with the Y2K bug install BPCS 6.0, which also required customers to buy the latest AS/400 hardware. This caused some dissention among the user ranks and cost SSA GT some clients.

Besides its Y2K troubles, SSA GT was having a difficult time executing its Unix vision, which in 1998 was modified to include support for Microsoft's Windows NT server operating system, which was growing in popularity among midrange users. The decision to support BPCS with all the different combinations of Unix operating systems, databases, and hardware platforms proved to be one of SSA GT's worst moves. By all accounts, the demand on developers was just too great, and eventually the company dramatically scaled back its Unix push, content to operate solely on HP-UX and Windows because Hewlett-Packard helped fund the Windows development efforts on BPCS 7.0 (marketed as eBPCS). The HP-UX BPCS suite is today used by an insignificant number of SSA GT customers, even though it is the most popular Unix platform in the midrange. SSA GT did not deliver that Windows-based eBPCS package until late 1999, just in time for the Y2K-related ERP slowdown.

Today's SSA GT recognizes its errors and promises not to make them again. "What SSA GT tried to do was too much," Cooksley said. "What we tried to do--to come up with technology to take AS/400 code and run it on Unix boxes.… We've learned our lessons from that, and won't go about converting AS/400 to Unix anymore."

Before this acquisition, SSA GT supported three operating systems with BPCS, including Windows, HP-UX, and OS/400; although OS/400 accounted for 90 percent of SSA GT's revenue, according to SSA GT officials. Now, as a result of the acquisition, SSA GT has committed to supporting 13 different back-office applications that run on 12 different host operating systems and 8 different databases. (For a complete list of applications that SSA GT got in the deal, read last week's story in The Four Hundred.)

With so many different applications to support, the interBiz acquisition raises several questions. Will SSA GT continue to develop and support all 13 applications that it acquired from CA? Will the deal hurt SSA GT's commitment to the OS/400 platform? And, most importantly for SSA GT's new interBiz clients, did the company acquire interBiz to gain technology that it intends to continue to develop and improve, or was the deal just a means of getting a captive user base that it intends to charge maintenance licenses fees?

A cynical view might be that SSA GT made the acquisition to boost revenue from maintenance fees. This is certainly a strategy that is not alien to Computer Associates. While some view that as a good thing with PRMS--its Y2K remediation cycle was much less complex than that of BPCS, in part because CA wasn't spending millions to overhaul PRMS' architecture, like SSA GT was doing with BPCS--it has been viewed as a not-so-good thing for other CA acquisitions, such as its purchase of the programming language developed by Synon. If this cynical view holds true, we might see little new development for the non-OS/400 applications in SSA GT's expanded portfolio.

One has to assume that the 5,000 interBiz customers played some part in SSA GT's decision. After all, these customers are mainly manufacturers and distributors, which is exactly the industry focus that SSA GT is setting its sights on. CA, on the other hand, has stated that it no longer wants to be in the application business. For PRMS customers, being acquired by SSA GT, which counts the majority of its customers as AS/400 and iSeries users, is probably a good thing.

But what about the non-OS/400 customers SSA GT has acquired? Were they, and the ERP systems they use, included in the interBiz deal at CA's insistence? How will SSA GT continue to provide them value?

Then there is SSA GT. Just as it has finally returned itself to profitability, SSA GT might be bringing pain upon itself by purchasing so many applications running on so many different platforms. SSA GT might be setting itself up for a fall, as it did in the 1990s with its push to support all the different Unix combinations.

Of course, SSA GT says that it is not setting itself up for failure, and that it intends to support each and every one of the new products it has acquired (except for ones based on platforms that have already been sunsetted, such HP's venerable 3000 minicomputers).

Officials with Nexgen, the consultancy that serves upward of 500 BPCS and PRMS users around the world and is probably the largest BPCS consultancy, have seen improvements in SSA GT since the bankruptcy. This is encouraging. "What we've seen in the last 12 months is the development of a comfort factor that SSA is going to be around," said Alwyn Francis, vice president of services at Nexgen. "They have stabilized the ship and have introduced a strategy to come out with a product that fits in and around BPCS."

However, as other companies in this space have consolidated on a single-product go-to-market strategy, SSA GT is facing the prospect of supporting multiple products, some of which obviously overlap, such as BPCS and PRMS. "It was a very bold move for SSA GT to commit, as they're currently doing on paper, to support these products moving forward," Francis said. "The challenge they face moving forward…is the issue of trying to support multiple products and multiple platforms in the ERP market space."

Whether or not this acquisition will help SSA GT in its quest to regain market share against J.D. Edwards, the leader in the OS/400 ERP software space, remains to be seen. "J.D. Edwards wins on a technology comparison against SSA GT when the two are put side by side," said Dan Mitchell, Nexgen's chief technology officer. "SSA used to be in [Gartner's] Magic Quadrant…but they've kind of fallen off the chart. Hopefully, SSA GT's current management team will right some past wrongs."

To some people's way of thinking, both BPCS and PRMS have not changed much from their RPG, host-based roots; whereas J.D. Edwards, says Mitchell, has "done a marvelous job" of allowing its OneWorld software to run on other servers besides OS/400. Mitchell certainly believes this. Guild Companies is of the opinion that J.D. Edwards had plenty of transition problems with OneWorld, its open system software that is most like the latest BPCS version, and has a large base of WorldSoftware customers who see no need to move to OneWorld, which they perceive as being less efficient on OS/400 servers, even if it is more open and modern.

No matter what, the fact that SSA GT can pull off a deal like the interBiz acquisition signals that the company has renewed energy and backing from investors, who helped finance the acquisition. "J.D. Edwards considers SSA GT out of the game. Now SSA GT is positioned to reenergize…to conquer the manufacturing market," says Mitchell

Many of the questions we at Guild Companies have raised on the interBiz deal will work themselves out over the next 60 to 90 days, and when they do The Four Hundred will be there to tell you about them.