Business software solutions giant SAP thought they had a competitor. Baan, a Dutch company offering business software, entered the North American market in 1994 when it landed the coveted client Boeing. The next few years, Baan grew at an unprecedented rate of 100 percent, a growth rate almost anyone would realize is unsustainable. It didn’t take long for Baan to make mistakes that inevitably cost customers and millions of dollars.
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Situation
Baan offered innovative products which were appealing to customers. It didn’t take long for the company to sign an array of desirable customers, and many of their products were especially appealing to small to medium-sized businesses. For a while, the company offered a complete assortment of software products for business using only 15 percent of the resources expended by their main competitor, SAP. It appeared Baan had a virtually unlimited potential for growth.
Approach
Though the software developer began with offerings of ERP design and implementation, they soon acquired a number of third-party software development companies, and expanded their product base to include human relations software, logistics software, finance software, and more. Yet as Baan focused on its acquisitions, it did little of its own development work, preferring to acquire established software. Baan also offered long-term maintenance and support of their products. Baan’s primary goal: to overtake industry leader SAP.
Along the way, instances of financial mismanagement caused concern with both investors and customers. It came to light that in 1997 Baan sold $66 million worth of products and services to subsidiaries of Baan Investment, an independent charitable organization created by the founder of Baan, Jan Baan, and his brother Paul Baan. Jan stepped down from his leadership position shortly after. The company was also found to have failed to disclose 30 separate transactions worth an estimated $60 million in licensing fees.
Impact
The result of acquiring a plethora of third-party software, rather than engaging in their own development endeavors, was that Baan couldn’t offer a consistent, well-integrated product. It was more like a patchwork quilt of incompatible or barely compatible components. Over time, they were unable to fulfill promises for long-term product maintenance and support because acquiring and integrating third-party applications was all-consuming.
SAP and other competitors, such as Oracle and J.P. Edwards, began wooing Baan’s customers, offering better integration and support, along with a level of customer service that Baan’s stressed staff couldn’t provide. By 1998, Baan’s losses were $31.7 million. Customers like Sensormatic Electronics Corporation and Buckman Labs International Inc worried about the company’s solvency and how they would be able to continue to supply upgrades and support with dwindling funds and a lack of focus.
To compound the problems, the ERP market began to slow down about the same time Baan’s problems became evident. There wasn’t room for struggling software providers in a market barely able to support its strongest members. Baan was eventually bought by Invensys and changed hands several times until its final transfer of ownership to Infor Global Solutions in May of 2006. SAP remains an industry leader with a net worth of $85 billion. [/show_to]
