Once valued at $11bn (£7.3bn), enterprise software firm Baan is being bought by Invensys for just $710m. So where did it all go wrong for the Dutch company?
Baan certainly had the right idea. Back in the mid-1990s, the company realised the importance of enterprise resource planning and that software solutions were the best route to its implementation. The world’s multinational companies wanted the automation of their operations to integrate control throughout their whole enterprises.
In an attempt to be first to market with a full suite of software, Baan took the acquisition route to gain the necessary elements to be able to provide an integrated offering. However, when software is written by several different companies, there is a strong likelihood that the data produced by different packages will not be transferable without suitable interfaces. For Baan, the integration of its purchases became a nightmare.
Other players in the ERP market have done things slightly differently. SAP, for example develops new modules by buying a small software supplier and rewriting its product in a language that standardises data definitions and structure. The technique allows tight integration but takes more time.
Baan eventually solved its integration problem last year with the introduction of its OpenWorld enterprise application interface. This couples applications by sending messages between packages using a hub and spoke layout to cut down the number of interfaces. Data in the sending application is extracted through an open interface and translated into XML by an integration server. This standardises data definitions and structures, enabling reception by other applications.
Sadly, the interface came too late and did not satisfy the requirements of all the packages Baan had purchased during its acquisition phase. Two of its subsidiaries, where integration links could not be developed, were sold for less than their purchase price. With the integration difficulties, licence revenues fell, as did three of the company’s top executives. Baan posted losses of $512m over a two-year period from annual sales of $700m.
On the face of it, Invensys has taken on a sick company operating in an uncertain market. But what the acquisition will achieve is an automation capability no other supplier can offer today.
Compared to other supply chain and ERP providers, Baan has a well-respected business-to-business service. The e-fulfilment packages handle the entire order-delivery-collection process and manage activities like order acceptance, e-mail confirmations to customers, and coordination with fulfilment partners on shipping details.
Integrating Baan into the Invensys family will be a huge challenge. Invensys already owns Wonderware and Marcam, two established companies in the automation software field. Some commentators say there will be conflicts in the new Intelligent Software and Systems division, set up by Invensys to handle the three companies.
Baan’s present focus is discrete manufacturing such as aerospace, defence, electronics, automotive and fabricated metals. Wonderware is a leader in the human/machine interface (HMI) sector, but less than a third of its turnover comes from discrete industries and most comes from the batch and continuous process industries and the utilities sector. Marcam and Foxboro, another Invensys subsidiary, also focus on process industries, to which Baan is quite unsuited.
The combination of Baan, Wonderware and Marcam should generate an annual turnover of about $2bn. ISS has been created to provide business application software that is suitable for sensor-to-boardroom integration.
The Invensys vision of enterprise-wide integration is without doubt the way forward. Many large organisations have already benefited from this approach. However, whether integration from the hub of the enterprise radiating out to the factory floor is the most suitable approach for all companies is debatable. For smaller companies some automation suppliers are working to integrate in the opposite direction – from the shopfloor to the boardroom – which may prove a cheaper and simpler solution.
Paul Gay is editor of Control and Instrumentation, The Engineer’s sister publication.
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