Baan's New Direction: Will It Fly?

Keeping on top of enterprise resource planning (ERP) companies is a real challenge—especially for tracking the European-based vendors.

Keeping on top of enterprise resource planning (ERP) companies is a real challenge—especially for tracking the European-based vendors. Among the most important is the Baan Company, based in the Netherlands. It is on the short list of nearly every major auto-industry manufacturer seeking an ERP solution. The Dutch firm has over 200 customers worldwide in the automotive sector, including some of the largest assemblers. Its growth rate has traditionally been among the fastest in the industry, exceeding 70% in most years. In addition, for many of the largest manufacturers, Baan is perceived as the only real alternative to the industry leader, SAP.

Baan’s rise is due in part to its innovative business strategies and direction. After reporting a relatively poor financial quarter, Baan has once again surprised the industry by offering very low-cost-per-seat pricing—only $99 in volume purchases. This contrasts with the more traditional pricing of up to $3,000 per ERP seat that Baan itself was charging until only a few months ago.

Clearly, the ERP market is entering a new era. In the past, large companies did “big-bang” ERP purchases of $10-million or more, spanning multiple sites or even continents. Since then, the average ERP sales-transaction price tag (and corresponding scope) has dropped dramatically. Today’s typical Baan or SAP deal is more on the order of $1-million and covers only one or two sites. At the same time, most of the world’s larger firms already have some ERP implementations underway. The race today for ERP vendors, consequently, is to mop up the remaining seats. These are concentrated mainly in two sectors (1) mid-sized companies, defined as roughly in the $50-million to $350-million annual revenue range, and (2) the still-untouched areas of the largest firms.

Mid-size companies are much more price conscious than their larger brethren. Hence, the $99 seat offer should be quite attractive to them. The largest firms, on the other hand, have been hesitant to purchase licenses for many of their remaining employees. This group has large numbers that would use the ERP system only occasionally, making the $3,000 per-seat price tag prohibitive. Consequently, Baan may do very well with its “Microsoft”-style pricing scheme.

The Dutch firm is also differentiating based on a business strategy stressing broad applicability. It focuses on more generic products that Baan hopes will appeal to a huge cross section of the roughly 80 million users yet to be touched by ERP. The company is organized into five lines of businesses where each pursues particular functions. Baan has resisted a strongly vertical-industry focus like that adopted by its arch-rival, SAP. Baan develops special software for only three industries: automotive, aerospace/defense, and electronics.

SAP has 26 such industry concentrations. On one hand, this gives SAP an edge in offering much more customer-specific solutions to these 26 industries. The downside is that such coverage may make it impossible for SAP to keep any kind of consistency within its core software. Worse yet, SAP’s software may get even more unwieldy and complicated than it already is. However, functionality sells, regardless of how sprawling or unmanageable it becomes (as evidenced in Microsoft’s rise!). Baan is certainly not standing still with its automotive functionality, however. For instance, at the October, 1996 BaanWorld event in the Netherlands, the company announced new software for assembly control, electronic data interchange (EDI), the parts aftermarket, dealers, and more.

The newly announced ERP release enables in-line vehicle sequencing including elaborate rules for setting unit-by-unit scheduling. Perhaps the most breathtaking new functionality is in the supply-chain area. Baan’s recent acquisition of Cap Logistics allows a manufacturer to experiment with various supply- and distribution-network topologies. Adding and deleting warehouses, for instance, can be studied in terms of cost impact, delivery performance and the like, all using an intuitive, graphical interface. This tool can be used both for long-range planning (such as sourcing decisions) or for short-term, tactical matters. An example of the latter would be to investigate the best solution if a strike closes a key entry port. Furthermore, total delivered cost can be broken down by customer, by product, and so forth.

Because Baan is relatively new to these shores, a better understanding of the firm is possible by reviewing its successes in Europe, its first market. Baan is the dominant ERP company in the Italian automotive industry, for example. Fiat uses Baan for everything but accounting and engineering. Baan also is entrenched in parts of Renault, VW, and Daimler-Benz. An example is the MCC “Smart” car, jointly developed by Mercedes and Swatch. Baan software is responsible for assembling 700 units/day and coordinating the suppliers to this heavily, make-to-order plant. At VW’s physical prototyping center, over 600 engineers use Baan software. They are handling twice the number of vehicle launches per year with only one-third more employees, thanks to Baan software.

Baan clearly has substantial successes under its belt. The open question is will it be able to sustain its blistering growth rate into the future? Its product-centric strategy may have to be tempered with a more segment-specific approach. This is necessary for it to offer a closer approximation to what customers actually need. For instance, it is developing a single, assemble-to-order module to cover the following industries:

  • aerospace/defense
  • low-volume truck
  • high-volume automotive.

These are really three, very different beasts not accommodatable by a single vanilla package. While some high-tech wizardry can stretch the applicability of the same set of software, sooner or later that software must be tuned to the peculiar requirements of particular segments.

ERP visionaries such as Baan’s Laurens van der Tag and SAP’s Hasso Plattner truly are betting their respective companies on finding the right mix here—span the biggest markets, yet still meet the individual segment and customer needs. Baan’s ability to bet right will determine whether the company will become an automotive industry workhorse for the long haul or whether it will fade. Its significant momentum to date positions it to become one of the three or four ERP firms that will likely dominate the automotive sector in the years to come.