Baan Company

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Baan Company

Galvanistraat 9
P.O. Box 250
6710 BG Ede
The Netherlands
(31) 318-691691
Fax: (31) 318-691690
Web site: http://www.baan.com

Public Company
Incorporated: 1978 as Financieel Management Begeleidingsbureau Baan
Employees: 3,500
Sales: US$ 684 million (1997)
Stock Exchanges: NASDAQ; Amsterdam
Ticker Symbol: BAANF
SICs: 7372 Prepackaged Software; 6719 Holding Companies

The Baan Company is one of the world’s top producers of enterprise business management and client/server software systems, with more than 3,000 customers at 5,000 sites around the world. From its dual headquarters in The Netherlands and in Reston, Virginia, Baan oversees a global organization of subsidiary and partnership companies, both for product development and for distribution and implementation of the company’s products. Baan’s 20 years of experience developing automated software solutions for manufacturing and business systems has placed it in a strong position to meet the 1990s boom in client/server systems technology. The company has grown from being a US $35 million company in the early 1990s to earning nearly US $700 million in 1997 sales. Since going public in 1995, Baan’s market capitalization of some $7 billion has won it a place on the Fortune 500.

Baan has long been a pioneer in offering open-ended, platform-independent Enterprise Resource Planning (ERP) tools to companies. Under the umbrella name “BaanSeries”, the company’s products feature a modular architecture, enabling the company to offer client-specific solutions using standardized components developed by Baan and its partners. This feature sets Baan apart from its competitors’ systems, offering a flexibility of deployment and development to meet customers’ current and future needs. Baan components span the entire range of manufacturing and business systems, from inventory and ordering, to sales and customer support services, to financial system and forecasting processes. In addition, Baan products offer multi-lingual support with translations of its software in more than 20 languages, and a distribution and support presence in some 60 countries as well as multi-currency support. Furthermore, the company offers Internet and World Wide Web functionality, and support for Unix, Windows, and Microsoft BackOffice and FrontOffice applications.

Modest Beginnings in the late 1970s

Jan Baan seemed far from the most likely candidate to head one of the world’s leading information technology companies. Born in 1946 in Rijssen, Baan’s father was a carpenter, and his grandfather was originally a farmer and later an owner of a bus company. Baan himself left school at the age of sixteen, going to work in a meat packing plant. After fulfilling his mandatory military service, Baan found work in an administrative services office. In 1970, Baan went to work for a building materials supply firm. In 1972, after the death of his supervisor, Baan was appointed head of the company’s administrative services department. At that time, the company was automating its systems, and Baan’s position introduced him to emerging computer technology, as he became responsible for automating the company’s bookkeeping functions.

By the mid-1970s, Baan had begun working as a management consultant to an accounting firm, where he gained new experience that would prove central to his later career. It was then that Baan, with a family of five children, decided to set out on his own. In 1978, Baan formed his own management consulting firm, Financieel Management Begeleidingsbureau Baan (FMBB), renting an office in Barneveld. FMBB’s original focus was on providing models to assist companies in their financial planning; Baan sought to provide tools, in the form of information, to enable companies to make calculated decisions. Using a programmable calculator, Baan worked on refining his models.

A year later, Baan had succeeded in building up a list of clients, and had hired his first employee, Centinus van Haberden. Baan’s work had shown him that there was a need among small businesses for better record-keeping tools. A turning point for the company came when one of FMBB’s clients, a computer importer, paid Baan with an early computer, a Durango, one of the first small computers to be based on the Intel 086 processor. No Dutch-language software yet existed for the Durango, so Baan decided to design the software himself, hiring programmers to write software that would enable him to offer record-keeping and other administrative services to his clients as well. In this way, FMBB expanded its services beyond consulting toward an early systems management approach. By late 1980, Baan had brought in his own programmer to create programs tailor-made for each of the firm’s clients.

Baan was determined to offer a complete automation solution to his customers, which by then included a growing number of administrative services firms. FMBB became an authorized dealer for Durango computers in the Netherlands; thus, in addition to the company’s consulting and administrative services, FMBB could offer its clients tailor-made computer hardware and software solutions. The Durango sales quickly took on a central role for the company, and Baan sold off FMBB’s administrative services activities to van Haberden, who was then starting out on his own. The changing focus of the company led to the adoption of a new name: Baan Automation. The company also moved its offices to a farm in Terschuur, which also served as the Baan family home.

Computer software of the period remained hardware-specific. Most programs were written for a particular brand of computer, in that computer’s specific language, and would work only on that computer. Programs tended to be created from the ground up and tailored to a single client’s needs. Baan’s insight was to see the need for what he referred to as an ‘industrial’ approach to software programming. Instead of taking the tailor-made approach, Baan instead sought to create a standard program that could then be easily adapted to each client’s requirements. The resulting software would be less expensive to produce, and less expensive to the company’s clients. The off-the-shelf concept would continue to mark the Baan Company’s products through the 1990s.

By the summer of 1981, Baan had determined to develop his company into a full-fledged system house. At this time, he brought in two new partners—his younger brother, Paul Baan, and Tom Bakker, a former colleague from the building materials supply firm. Each of the three set up an office, with Jan Baan remaining in Terschuur, Paul Baan opening an office in Rijssen, and Bakker setting up an office in Middelburg. In that way, Baan established itself as a national company in The Netherlands. Paul Baan became his brother’s partner, with each man owning 50 percent of the company, and serving as co-directors, a relationship that would continue up until the company’s 1995 public offering.

The three Baan branches quickly developed particular areas of expertise, with the Terschuur office specializing in accounting and production firms, Rijssen focused on the building and construction market, and Middelburg on the trade industry. The company’s client list—chiefly small and mid-sized companies—was growing rapidly, and achieving a national scale. By 1984, Baan decided to group its activities into a single location, centralizing the firm in Terschuur. A year later, the company’s growing number of employees led Baan to construct a new building in Barneveld. By 1985, the company employed more than 120 people.

Independence in the 1980s

In the early 1980s, Baan’s software, as with most of the computer industry at the time, remained dependent on a single platform. This system, however, was soon feeling the strain of rapid developments being made in computing technology—particularly the introduction of what would become the first personal computers. On a trip to California in 1981, Baan had discovered an emerging operating system, called Unix, which promised platform-independence—that is, the capability to run on any type of computer hardware. Unix, moreover, offered the ability to control several computer-clients from a central computer, the server, which linked the system to share resources, such as printers and other network operations. While this latter ability would not take on its full importance until the early 1990s, Baan was attracted to the possibilities of platform-independence, and became among the first to bring Unix to the Netherlands.

Working with Unix required Baan to convert all of its software from the Durango’s proprietary language to the Unix’s code. The company created its own set of tools, computerizing the conversion process. Baan, meanwhile, continued to supply Durango-based systems to a client base reluctant to embrace the new operating system. But Baan’s early interest in Unix positioned the company to become the Netherlands’ premier Unix systems provider in the second half of the decade. The company also found itself perfectly positioned to bridge the demise of the Durango and other proprietary hardware systems.

By the mid-1980s, Baan, now known as Baan Info Systems, had succeeded in building a strong library of tools, including its own Unix shell, that the company could implement for its clients’ needs. While the company had successfully broken the ‘built-to-order’ mold, its software nevertheless represented an evolutionary process—the software would be expanded, and otherwise adapted, for each new client’s needs. The company’s three areas of specialization had, in fact, led to the development of three separate software systems, each with its own architecture, making it impossible for the company to offer a fully integrated package. The fact that the company had become the Netherland’s premier Unix systems supplier did not prevent Baan from recognizing its own limited future. The Netherlands remained a small market, and the company’s software—despite being translated into English and German during the 1980s—was not suited for an international market composed of large-scale and increasingly global businesses. While the company managed to score several successes—including an implementation order from Italy’s Olivetti in 1988, and a similar OEM agreement with France’s Bull in 1989—Baan looked forward to a scenario of continuing to sell its MRP (manufacturing resource planning) software for another couple of years, then abandoning software development to become a third-party vendor for other systems.

Instead, in 1985 Baan decided to risk stepping backwards. While continuing to develop its existing package, the company set to work developing a new software system, beginning from scratch. The new system, dubbed Triton, would not be ready until 1989. The new product’s launch would also coincide with a drastic reorganization of the company.

A World Leader in the 1990s

In 1989, Baan suffered a dramatic drop-off in new orders. The company’s reliance on its first-generation software had meant that it had fallen behind its competitors. The company had been attempting an aggressive domestic and international expansion, opening a series of sales offices—including US offices in Grand Rapids, Michigan and in Menlo Park, California. The stock market crash of October 1987 and the long slump of the high technology industry through much of the 1980s, however, provided limited perspective for the type of financial backing Baan required for its expansion. The company, forced to fund itself, had meanwhile become bloated with a variety of additional services and activities, including technical maintenance, and even tools supplies. The company became determined to regroup around its core software development operations. The 1989 reorganization slashed the company’s payroll—from 400 down to 215—and exposed Baan to a great deal of criticism in the Netherlands.

Emerging from its reorganization, Baan had now become a holding company for two operations: Baan Info Systems was placed under Paul Baan’s leadership, and focused on distribution activities to the company’s domestic market, while Baan International was led by Jan Baan, and continued the company’s software development while serving its distribution needs on the international front. Through the first half of the 1990s, Baan continued to experience revenue losses, as customers proved reluctant to return.

By the end of 1990, Baan showed signs that it had weathered the crisis. Aiding the company was a new policy of seeking OEM agreements providing Baan software to companies to sell under their own name. Agreements with companies including IBM and ASK Computer Systems in the early 1990s helped add some $10 million to Baan’s till. The company also began to develop an international distribution network, this time turning to third-party and other partnerships, instead of developing a more capital-intensive, company-owned network. The distribution network—which the company would later gradually dismantle in favor of direct ownership—helped the company survive the early years of the 1990s. The company remained extremely small. In 1991, it’s revenues amounted to just US $35 million.

Baan’s turning point came with the 1991 introduction of its Triton software. If the company had been lagging the competition, Triton now gave Baan an advance of several years over its competitors. Triton also represented the fulfillment of Baan’s ‘industrial’ vision. Featuring a truly modular concept, Triton customers could purchase a system tailored to their needs from among a hundred or more components, all designed to work interactively. With a modular system, moreover, the client discovered a new flexibility: where competing systems required clients to determine the current and future needs at the time of the purchase contract, Triton would enable clients to add-on and otherwise evolve their systems processes as their needs evolved or changed.

Baan’s system quickly attracted the attention of the investment firm General Atlantic Partners, which foresaw the coming boom in client/server technology rapidly becoming an essential component in the increasingly globalized economy. General Atlantic Partners offered to invest in Baan—an offer Jan Baan initially rejected. Yet Baan’s international customers were increasingly demanding worldwide support directly from Baan, requiring the company to develop a company-owned distribution and support network. In 1993, Baan agreed to sell 34 percent of the company to General Atlantic Partners, in exchange for their investment of $18 million. With this capital, Baan was able to begin building a new direct sales and distribution network, including establishing a second US headquarters in California’s Silicon Valley. At the same time, the company phased out its OEM sales.

Soon Baan was attracting large-scale customers. Among the first were the US’s Snap-On Tools and Northern Telecom. Baan’s success was solidified, however, with a $20 million contract from Boeing in 1994, which helped it edge out more than 60 competitors, including industry leaders Oracle and SAP. The contract gave Baan instant name recognition and boosted its revenues for that year to nearly US $123 million. In order to consolidate its reputation in the U.S.—which alone accounted for more than 41 percent of worldwide software sales—Baan next turned to the stock exchange. Listing as a public company would give the company’s image the added stability and maturity necessary for attracting the world’s large-scale, globally-based organizations.

Baan’s 1995 listing proved to be among the year’s most successful IPOs. The initial offer price was adjusted up from $12 per share to $ 16 per share before trading even began; the offering, oversubscribed by some 40 times, would top $25 per share by the end of its first trading day. Two years later, and after a stock split, the company’s stock price would soar past $61 per share—giving the company a market capitalization of nearly US $7 billion and placing it among the world’s leading software developers. At the same time, Jan Baan, recognizing this new development in the modest business he had founded nearly 20 years before, brought in Tom Tinsley, formerly with McKinsey & Company, to serve as the company’s president—and later chairman—in order to lead Baan’s future growth. Jan Baan remained involved in the company’s operations as its CEO.

In the late 1990s, Baan continued to play a leading role in the development of client/server and ERP systems, including being among the first to develop systems for the Microsoft BackOffice and FrontOffice lines. In 1997 and 1998, Baan introduced its next generation of products, grouped under the name BaanSeries, including its Dynamic Enterprise Modeling-Strategy Execution (DEMSE), a graphical interface enabling clients to expand and re-deploy their Baan-based systems in real-time, and an enhanced version of the company’s Orgware products, developed specifically for the needs of globally-operating enterprises. Baan was poised to increase its share of the industry. Its future plans called for the company to advance from its 5 percent market share (in 1997) to becoming a US $1 billion company among the top five software developers in the world by the year 2000.