From a company that started out on the path of consolidation much earlier than their counterparts, here’s a piece of advice from ERP vendor SSA Global: “Don’t consolidate for the sake of consolidating.”
The big danger a company can get into when consolidating is to lose sight of the whole business perspective, according to Graeme Cooksley, executive vice president, Chicago, Illinois-based SSA Global.
When consolidating, focus should be on the industry or market where the acquiring company has the knowledge and expertise, he said. “If you stick with what you know are the areas that you are in, I think you’ve got focus.”
When SSA Global ran into financial difficulties four years ago, it embarked on a “re-energization” effort that involved changing the leadership and venturing into strategic acquisitions.
“We realized at that time that the market would continue to consolidate and the ERP players would become fewer and become bigger,” said Cooksley.
The ERP space back then consisted of specialized “boutique” software vendors that would constantly add-on value applications from other larger vendors. That was when the new SSA leadership in 2001 – headed by its president and CEO Michael Greenough – decided that consolidation was the way to go, said Cooksley.
Four years and several acquisitions later, SSA Global became the visionaries of the ERP market as other big vendors, such as Oracle and SAP, embarked on their own consolidation ventures.
Focused on the “cost-conscious” mid-market, SSA determined that customers wanted a single supplier that can give them a complete suite of their ERP – and extended ERP – requirements, said Cooksley.
“We believed the market would consolidate and most of the analysts in the industry at that time said we were crazy…now what happened in the market? Oracle continues to consolidate with other companies. So our strategy had been proved right and now we are the third largest ERP company in the world,” said Cooksley.
SSA’s strength is in the manufacturing industry, which includes other sub-verticals such as supply chain and warehousing, consisting of over 80 per cent of the company’s global business.
According to its latest financial report, SSA raked in US$711.8 million in total revenue for fiscal year end 2005, an increase of 12 per cent compared to last year. License revenue grew as well by 15 per cent, representing over 30 per cent of the company’s total revenue from last year.
Bob Locke, senior analyst at AMR Research, based in Boston, Mass., said SSA Global has successfully managed to turn the company around.
“The strategy that the company took proved very effective for them as evidenced by the continuous growth in their revenue,” Locke said.
He said that compared to Oracle Corp. – a company with large resources to consolidate and integrate with other companies and technologies – SSA’s acquisitions have strengthened the company’s position in the market. Whether Oracle’s acquisitions will give them market leadership and increase its revenue are yet to be seen, said Locke.
For SSA, consolidation was a good strategy to increase market share, accelerate product development and enhance its extended ERP technologies. When looking at an acquisition, SSA considers two important aspect: installed base and technology integration.
When buying for market share, a big consideration is on how a company’s market fits with the market that SSA serves, said Cory Eaves, CTO for SSA Global.
“The product and technology question [for market share buys] centre around how we can continue support on the product, [implementing] our policy never to sunset support for a particular product,” said Eaves.
However, he said, SSA provides customers with a migration path – to either of its two ERP platforms, ERP LX and ERP LN – when they are ready to upgrade from their legacy systems. Until that time, SSA would continue to support existing technologies.
This makes technology acquisitions another important consideration.
When making a technology buy, Eaves said, the company must have a platform that aligns with SSA’s Java J2EE-based and WebSphere-based technologies.
SSA is currently finalizing a US$329 million deal to buy CRM vendor Epiphany, based in San Mateo, Calif. SSA expects the acquisition to enhance its CRM offerings as part of its “demand-driven” extended ERP line.
