Interview: "India Is Our Second Home"

As recently as 1998, Baan was a stockmarket darling, boasting of $8 billion in market value. It was an ERP (enterprise resource planning) major, with 15,000 customers on its list. It took less than a year and just one downturn in the ERP market to change all that. Baan, founded in 1978 by Dutchman, Jan Baan, saw its market cap plummet to $530 million, and angry shareholders oust its founder. In July this year, Baan was bought over by Invensys, a UK-based automation equipment maker, for $700 million. Laurens van der Tang, a 14-year Baan veteran and now its President, has lived through it all. Recently in India to launch Baan after the take over by Invensys, Tang took time off to speak with BT's Ashutosh Sinha on what went wrong and how the company is reinventing itself under Invensys. Excerpts:

Q. Baan was doing very well. Its products were selling fine. The market that it was addressing had huge potential. Then what happened?
A. There were several reasons for the decline. One, there was a general decline in the ERP market during that period. To give you figures, during the first quarter of 1998, the ERP market grew by 50 per cent. And during the last quarter of 1999, the market shrunk by 35 per cent. Second, the decline in the ERP market coincided with the time when some investors had their concerns about the corporate structure of Baan. Third, all of Baan's sales were based on the licence fee model. When the market started to decline, we had not realised all our revenues upfront. The problem was never the product. Baan was very focused on growth, sometimes at the cost of the customer.

Looking back, was Baan thinking ahead of time?
Yes. We moved into Customer Relationship Management (CRM) four years ago. We also invested in B2B (during that period). The big lesson learnt for us has been that you have to combine that with solid execution. You have to make sure that you are focused on the customer. The balance between vision and execution was missing.

Did products from Baan undergo a change after the slide in its fortune?
We have moved to a component-based architecture. You could choose what segment (of the entire ERP package) you wanted. Let's say you wanted to first invest in a sales automation plan. Accordingly, you could buy only that. In the case of a number of technologies, there is a hype cycle where the expectations of people grow. Then, there comes a phase where people think that the technology is dying. After that the going gets smooth. That is what has happened with us.

So, has there been a change of focus at Baan?
The big shift in the market has been that ERP, CRM, and some of the similar solutions have supported the enterprise internally, wall-to-wall. But how do you build support between companies? It is not the company, but a chain of companies which are competing in the marketplace. The challenge has become how to synchronise better with customers and suppliers. We are now focusing on business processes between companies. Call it B2B or collaborative commerce, but we are there. Soon, 50 per cent of our revenues shall come from these areas. Our business model has changed dramatically. But that does not mean ERP is dead. The backbone is important and it has to be effective.

Will Baan not be known as an ERP company anymore?
I think we will be known as a solutions company.

So, what are the focus areas for Baan now?
CRM is our focus area. AT&T is our big customer, KPM (a Dutch telecom company) is also our customer. We are looking for that in India. We are also looking at the telecom sector for business in the future.

How important is India in Baan's scheme of things?
India is our second home country. We have 600 people here and also have our core development centre here. Nearly 40 per cent of our development resources are (invested) here. We build a lot here, from the ideas to the complete product. India has also become the core support centre for the Asia-Pacific region. The Indian market is growing at around 40 per cent in our space and we have 120 customers here, including some of the largest companies.

How have you customised your product for the Indian market's requirements?
The smaller companies do have the critical mass to develop an application or to run them. They use an accounting package, at best. So, Application Service Providers (ASPs) make a lot of sense. If we can have an industry specific solution, it is good. We will be increasing focus on the companies between Rs 10 crore and Rs 50 crore.

How fast do you expect to grow in India?
We are growing 20 per cent globally and over 35 per cent in India. We are still looking at manufacturing in a big way in India. We already have 10 clients in the Rs 10-50 crore segment. Invensys (the parent of Baan) is the biggest company of its kind in the manufacturing sector. The good thing has been that since the beginning of 1999, when we were not doing very well, we have added 35 customers.

INTERVIEW: JAN BAAN
"We want ideas from India"

Here's the man himself. Jan Baan, who founded-and, some say, grounded-Baan. Now, no more a Baan executive, the 54-year-old runs an infotech venture incubation firm called Vanenburg Business it Solutions, set up in 1995. Baan was recently in Hyderabad to launch his venture fund, Vanenburg it Park, and spared time to speak to BT's E. Kumar Sharma. Excerpts:

Q. What went wrong at Baan?
A. The rising growth curve that Baan witnessed since 1996 could not be sustained beyond mid-1998. The company should have restructured internally in 1998. Instead, it was looking at M&As.

Do you think ERP is dead?
No. It has too much of legacy and functionality, and is too complex to rebuild. But today, there is another layer-the www layer. It is chaotic and unstructured. Critical business decisions today depend on this www layer. Many business processes will change as they make greater use of the www layer. They will need back-end and link to one or more ERPs.

What's beyond ERP?
Beyond ERP, we could look at, say, demand chain management, enterprise application integration, collaborative designing, support, and quality management. We could also look at ERP in healthcare and construction. We see these fields as half-a-step behind manufacturing and one that will increasingly need these processes. We could also be looking at BSP (Business Service Provider), where companies could outsource a complete business process.

What are your plans in India?
We want to look at India not only for resources, but also for many entrepreneurial ideas. We have set up an analytic research group in Hyderabad that will help us select entrepreneurs. We have invested Rs 75 crore in the Vanenburg it Park, spread over a 20-acre plot in Madhapur near the Hi-Tec City, and we plan to spend an equal amount to develop the second phase on the same plot. The primary objective of the development centre is to foster creativity and to deliver innovation. The infotech park is one of the principal elements in the incubation process, as it is meant to provide space, infrastructure and, thereby, facilitate in our primary strategy of incubation.