"This is really an entirely new foray for the company," Kevin Calderwood, Baan's executive vice president, told Washington Technology. "As a result of success on the commercial side, we're being pulled into the government market. It's a good opportunity for us," he said.
Baan designs enterprise resource planning (ERP) products, used by businesses to control operations like payroll, finances and inventory. It's a fast-growing market, with the major players enjoying annual growth rates of more than 50 percent. The company had 1997 revenue of $684 million, up 65 percent from 1996.
Baan, which now has dual headquarters in Reston, Va., and Barneveld, the Netherlands, has picked John Wilkerson to head its government division, which has 15 employees and was formed in February. Wilkerson previously ran Baan's aerospace and defense division.
Plans call for Baan to leverage its ties with aerospace and defense companies to target the Department of Defense. "The initial push will be on the defense side," Calderwood said.
Companies like Boeing Co., Seattle, which has been a Baan customer since 1994, have helped the company tailor its software for the Defense Department, Calderwood said. Further work is needed, but "we have made major strides forward because we have customers doing significant business with the federal government that have helped us round out our product offerings," he said.
Baan specializes in software to support manufacturing, distribution and purchasing functions, but it also sells software to control financial operations and human resources. It competes with rising stars like PeopleSoft Inc., Pleasanton, Calif., and established firms like SAP AG, Waldorf, Germany, and Oracle Corp., Redwood Shores, Calif.
Rival PeopleSoft had sales of $816 million in 1997, up 81 percent from 1996, and SAP - by far the market leader - had sales of $3.3 billion, up 62 percent.
In the federal government, the ERP arena is booming. It's expected to swell from $984 million in 1997 to $2.2 billion in 2002, according to Brian Haney, a senior analyst at Input, a Vienna, Va., market research firm.
Baan is hot off a contract win in Germany's public sector that Calderwood said could be used as a model to pitch the company's products to federal customers. The contract, won last February, is Baan's largest government contract to date, a deal worth $10 million to sell its entire suite of software products to the ministry of finance in Lower Saxony. The software is being implemented in more than 600 departments and will have over 10,000 users.
"Based on that success, we'll try to leverage that to federal, state and local governments" throughout the United States, Calderwood said.
But there have also been some bumps for Baan this year. The company has been under pressure from analysts to simplify its complex management structure, which involves partnerships with other companies that use the Baan name.
Baan has since made several moves to change its structure and separate itself from related companies. For example, Baan Investment B.V., a venture capital firm that owns 39 percent of the Baan Co., changed its name to Vanenburg Ventures B.V. This was done to keep investors from confusing the two.
In addition, Jan Baan, founder of the company, announced in July he would step down as chief executive officer to seek a seat on the company's supervisory board. His brother, Paul Baan, also decided to remove himself from the company's supervisory board to focus his efforts on developing Vanenburg Ventures.
Calderwood said the company's structural difficulties are behind it. "We've agreed we need to be a little more clear in what we do and how we do it," he said.
Steven Kahl, research analyst at Piper Jaffray Co. Inc., Minneapolis, said the company is on the right track. "They're definitely moving in the right direction. They have a complex management structure, and it isn't something you fix overnight."
Baan reported strong growth for the second quarter ending June 30. Total revenue grew to $230 million, a 46 percent increase from the year-earlier period.
Net income rose from $16.9 million to $17.1 million. It includes a $14.4 million one-time charge for its May acquisition of Coda Group Plc., Harrogate, England.
Baan is two years behind most of its competitors in the federal market. PeopleSoft started selling its suite of business software to the government in 1995. PeopleSoft doesn't disclose government revenues, but the division has doubled its growth every year and expects to have 95 people in its federal division by year's end, according to Michelle Cooper, PeopleSoft's director of government marketing. SAP started selling to the government this year, and Oracle has been selling a full suite of ERP products to the government since 1996, according to Karol Burt, vice president of business development at Oracle Government, Education and Health in Bethesda, Md.
Burt said the market is big enough for many players, but suppliers must be ready to make a steep investment developing the products. "ERP is without exaggeration the most complicated software to develop," she said.
Oracle's ERP business has thrived. Burt said ERP contracts generated nearly 70 percent of Oracle's total revenue in the government, health and education division, which comprises about 10 percent of Oracle's $7.1 billion in 1998 revenue.
"I see awesome growth in human resources, financials and even more so in supply chain management," she said.
Kahl said it makes sense for Baan to sell software to the federal government since the company already has extensive relationships with companies like Boeing. "Extending to the government market is not much of a stretch," Kahl said.
Calderwood dismissed the company's late entry to the federal game, saying each of the ERP companies has their own specialties.
"Everybody tries to lump ERP into one category," he said. "There's a broad mix, and that's why we're all successful. ... In that marketplace, there is plenty of room to compete and products win on the merits of their value proposition."