Case Write-up Of Baan Company: Rise and Fall of its Ambitious but Risky Web Strategy (4th September,

2010)

In partial fulfillment of the requirement of the course Enterprise Resource Planning Of MBA Full Time (2009-11)

Submitted To: Prof. V.V.Nath

Submitted By: Ganesh Iyer (091115) Munish Mor (091127) Rohit Mangal (091134)

Baan Company: Rise and Fall of its Ambitious but Risky Web Strategy.

Case Write-up:

Baan company was founded in 1978 to provide financial and administrative consulting services. It sold its first information systems package in Holland in 1981. Since then, it expanded its operations to many countries across the world. In 1990s iot became a world leader in enterprise wide business software applications and consulting services for companies in the manufacturing automotive and other industries. The 1970s were characterized by the evolution of Materials Requirement Planning(MRP) which was followed by Manufacturing Resources Planning( MRP II) in 1980s. The 1990s saw the advent of ERP systems due to the intense need for internal control systems. ERP packages developed from a product with limited scope into one that was continually expanding in scope and that supported a growing number of processes within and beyond the organization. In 1990s, the market for ERP packages had become very turbulent. The product life cycle of the software was continuously shortening while the investments in R&D were increasing or the companies making these packages. Hence, the makers decided to make their products last longer. This made the market gradually thin out. To satisfy market demands, ERP suppliers not only had to have a clear vision for the future but they had to make sure that they could actually deliver what they promised. Already from the 1980s , Baan positioned itself as a software manufacturer. As a result, most of Baans revenues came from selling licenses. Offering services was secondary. It worked with four partners on a global scale: Cap Gemini, Ernst and Young, KPMG and Origin. In addition to these local partners, Baan co-worked with a lot of local partners. In 1995, Baan launched the next phase with implementation of a new service model. The model distinguished 3 types of services like support, implementation and partner services. Co-operation with partners the knowledge and resource base of the companies was directly available to Baan for use in its software packages. In May 1995, the company was listed on the NYSE. The two brothers who controlled Baan floated a investment company Vanenburg, which acted as an investment arm for Baan.

Baan had as its focus the development, marketing and distribution of a generic product which was the ERP product. To strengthen the execution of its mission Baan Company has built relationships with a variety of partners in all technologies. The objective is to generate new business on a joint basis.

The Baan Web Concept: Paul Baan believed that they had to grow quickly in different market segments with different product/market combinations. At the same time, the technology is liable to change radically yet again and you should not forget about customer satisfaction. Hence they introduced the concept of Baan Web. In Vanenburg they united companies that did business in the Baan software environment from early start up companies to established industrial players. All the companies were the best in their class. Baan put them all together in a constructive way in the web environment. It needed all the companies to share their knowledge base with each other as it was prerequisite to every one of these companies to grow together with each other and grow exponentially. In 1996, Baan realized a turnover of $400 million and aimed to generate $2bn by 2000. This could only be achieved if Baan involved other companies as co-workers in this effort. Through companies like BBA, Vanenburg acquired new companies and various minority interests for Baan to use their technology. Essentially, the money from Vanenburg was used to purchase smaller companies for the Baan Web. The Web tried to implement the system prevalent in the automotive industry of the ancillary units acting as partners for the automotive companies. Baan had never been a one man show. It had always been a team effort with strong leadership. Vanenburg acted a s the growth cycle accelerator for Baan Web. The appearance of new entrants enhances the web, the Baan technology and the software platform. This, in turn, attracts newer customers to join the platform creating a snowball effect. The partners will have the freedom to focus on new services, add-on products or develop newer strategies. Newer customers will provide additional market opportunities for retail products and services. With the Web, Vanenburg acts as the accelerator by putting up new venture fund and getting new partners and activities on board with the web.

Baan operated in a market where you cannot succeed on your own. Baan needed support which was provided by the Web. Successful partnerships were used to leverage the business of Baan and newer partners were formed and clients added to the ever increasing Baan Web. The web provided an opportunity for companies to enter ERP and move beyond from aiding young companies and developing partners to making significant investments in the manner of a typical venture capital organization.

Evolution Of The Web: The Baan Web is the project developed by the management of Baan in close cooperation with Vanenburg. The essence of the project was to accelerate Baans growth and increase its market share. Baan aimed at becoming the market leader which could only happen if it developed strategic alliances to be supported by number of targeted acquisitions. The company wanted to learn from other businesses and companies which had explored and exploited web-based strategies. Vanenburg was destined to play a role in the Web as a co-partner. The Vanenburg companies would not only so-operate with the Baan Web but also the Baan Company. New initiatives were setup by the Vanenburg. One of Vanenburgs first activities in this regard was th establishment in 1996 of Baan Business Systems as a pan-European distribution organization focusing on the SME market with business compatible with Microsoft software. BBS was intended to be the first Baan company to have a independent listing of its own in the market. Vanenburg also acquired a stake in Bain which was into Product Data Management(PDM). This provided Baan Web with access to PDM technology and improved its technological and knowledge base. It also built relations with Meta4 which was into HR functions implementations. They also created Baan Midmarket Solutions which offered Baan products into the indirect channel systems market. BMS served as an intermediary between Baan Company andthe channel partners and will make the that technology available to them as well they will work with the hardware and solution partners to make sure the configuration is done acceptably and that any issues in area of mid management is handled by BMS. The agreements with HP and Compaq both are geared to allowing companies to buy solutions from Baan Company in a manner where the pre configuration has been done and where the complexity of the implementation has been reduced.

Demise Of The Baan Web: During 1998, Baan Company faced serious financial crisi and a management crisi. The company was no longer allowed to include turnover that had not yet been invoiced. This reduced Baans profit estimates and put pressure on it. Then, Baan was criticized by the American securities houses for its accounting policies, which, in their view, was unacceptable. Furthermore, analysts doubted whether the money flows between the various elements in the Baan Web were transparent and there were claims of conflicts of interest and insider trading. To provide the desired clarity, Founders Jan and Paul retired in 1998 from operational and supervisory positions altogether. The company blamed the overall economic situation for the decline in profits of the company. A major difference between Baan and other players in the industry were that Baan made most of its revenues from the licensing of its software unlike other companies which made them through servicing also. The large proportion of licenses in the companies turnover was due to its position as a manufacturer. The company did not want to present itself as a service provider. Baan had been aware of the risks, but the company had deemed them acceptable. As a consequence, when the growth of the market of new software licenses declined, Baan was hit the hardest. Nobody had foreseen this slowdown in demand, not even the analysts. The disappointing results and the crisis of Baan in the second half of 1998 had severe consequences for Baan. The bankers to Baan called back their loans from the company. Also, the company, in its expansion drive had taken too much debt from the bankers. The shjares kept with the bank as security had fallen in value due to fall in share price. The two main points which led to the downfall were the acquisition strategy and the change in companys top leadership.

Overview of the case:

The company started out as a small service package provider which was present in the right market at the right time. It took off with the ERP boom of the 90s and wanted to grow very rapidly across various markets. The company wanted to acquire a global footprint and hence, started the Baan Web. The Baan Web was meant to bring together different companies in various stages of growth together under one platform and make them work for each others profit through which all the companies as a unit would profit because of the individual expertise in many fields of the various companies. Vanenburg, which was the investment arm of the foundation that held Baan, used to acquire companies and also buy stakes in many of them to share technology and knowledge with them. The Web enabled the companies to go for their individual targets but at the same time profit from the new technology being developed by other companies in the Web by way of knowledge and technology sharing. The area where Baan faulted was it wanted to grow too fast too quickly. The amount of growth that it was targeting needed it to acquire companies in a jiffy which eventually led to its downfall. The change in its leadership, as also the economic environment and also the business model that Baan followed of making major revenues through licenses led to its downfall eventually.