A year ago, Europe's second largest software company was on the brink of collapse. But after an eleventh-hour rescue and a drastic restructuring, Dutch-based Baan is now off life support and on the way to a full recovery, claims Laurens van der Tang, its new president.

"Baan is coming back faster than was expected and faster than even we expected," he says.

The new Baan has little in common with the Baan that shot to fame on the back of the booming enterprise resource planning (ERP) industry of the 1990s and then came crashing down, according to Mr van der Tang. For one thing, Baan is part of a much larger company, Invensys, the UK engineer, which bought the company for E762m last August.

Baan is thus subject to thorough reporting and financial controls designed to prevent a repeat of the buccaneering expansion and dubious accounting which led to the company's downfall in 1998.

For another, Baan is now run by someone who understands its complex technology better than anyone. Mr van der Tang joined Baan in 1986 when it was an unknown Dutch software house run by brothers Jan and Paul Baan. He has helped develop many of its products and was most recently responsible for managing the company's R&D strategy. "I have great confidence in the potential of this company, which is why I accepted the [president's] job," he says.

Coming from his predecessors, such a statement might ring a little hollow. Baan has had four bosses since the Baan brothers were forced out in 1998. The last one through the revolving door resigned after just six months.

But Mr van der Tang has risen through the ranks at Baan and has hung in during the dark days at Baan when other colleagues jumped ship. What kept him from leaving? "To be honest, I was very frustrated at what had happened to the company," he says.

"There was no true customer focus, cost-management was an issue and we did not have clear accountability. Nevertheless, there are a lot of exciting things in Baan that are unique and following the deal with Invensys, employees felt that we had finally won back the company."

Mr van der Tang was installed in the hot seat by Allen Yurko, the chief executive of Invensys, who gambled that the little-known Dutchman would be better able to understand and turn around the company than an outsider.

"It was quite an astute move on his part," says Mr van der Tang in a rare moment of immodesty.

Invensys' acquisition of Baan last August raised many eyebrows. "The acquisition was seen as an end point and people asked if they would ever hear from Baan again," admits Mr van der Tang.

The industrial controls manufactured by Invensys seemed to have little in common with the sophisticated enterprise software that is Baan's strength.

Some analysts saw the acquisition as a desperate attempt by an old-economy company to reinvent itself for the internet age. Others saw the deal as a cynical move by Invensys to milk maintenance and service revenues from Baan's long-suffering customers. These often have invested millions of dollars in Baan software and associated services and cannot switch vendors overnight.

The months of silence that followed the acquisition reinforced the perception that Baan had disappeared. The time was not wasted, however, as Baan's new management was quietly laying the foundations for a new company.

Staff numbers were cut by 30 per cent and drastic restructuring saw its costs fall by 47 per cent in just five weeks.

Break-even earlier than expected

The reduced costs allowed Baan to break even earlier than expected and in its most recent quarter, ending December 2000, the company reported its first operating profit after nine consecutive quarters of heavy losses. It had earlier predicted that it would take another six months to achieve break-even.

Baan has also been working hard to boost sales from their depressed levels. In its most recent quarter, sales grew to $100m, an increase of 37 per cent over the preceding quarter, while licence revenues trebled to $32m. Almost half of those licence revenues came from the US, which Mr van der Tang sees as particularly encouraging.

"The fastest recovery was in the US which is the most competitive market. We have never had a quarter in the history of Baan where so much revenue came from the US," he says.

The months of self-enforced radio silence were also used to revamp Baan's product portfolio. Baan had a strong product line in 1998 but was widely perceived to have fallen behind during its two years of financial turmoil.

"During all the rough times with Baan, we nevertheless kept up our R&D effort and our development engineers were quietly focussing on a new generation of products," says Mr van der Tang.

The new strategy, called iBaan, was unveiled last month. It aims to convince customers and analysts that Baan is not just about ERP but can provide a full range of internet-based e-business software.

The main focus of iBaan is to allow companies to manage their orders and relationships with business partners in real time using standard internet technologies, such as web browsers and extensible markup language (XML).

Specific new products include collaboration tools, a corporate portal and a revamped version of OpenWorld, which provides integration with non-Baan software.

The latter product is important, for Baan has belatedly realised that it cannot hope to convince big businesses to use only Baan and so it is committed to working alongside software from bigger vendors including SAP and Oracle.

"Every customer has different needs. They want to buy integrated solutions - but they do not want to throw away what they have already," says Mr van der Tang.

Focus on specific industries

While the Baan of yesterday attempted to compete with the likes of SAP and Oracle in many different markets, today's Baan has decided to focus on industries where it has had most success, such as discrete manufacturing and telecommunications.

"Today's telcos have increasingly complex processes in areas such as configuration-to-order and customer relationship management," he says. KPN, the Dutch carrier, is one of Baan's more recent customer wins. It will use OpenWorld to integrate Baan software with other KPN applications at its various locations in the Netherlands.

Baan claims to have signed 160 new customers since the acquisition. It is also working hard to interest existing customers in the new products. Its most famous customer and the biggest by far is Boeing, whose landmark contract in the early 1990s put Baan on the ERP map as far as US businesses were concerned.

At the height of Baan's troubles, some analysts suggested Boeing might be tempted to pull the plug on its Baan software and switch vendors, which would have opened the flood gates for other customers to do the same. Such fears have proved unwarranted as Boeing has recently completed a mammoth upgrade of its 31,000 users to the latest version of Baan's flagship ERP software, Baan V.

While Baan's existing ERP customers can breath a sigh of relief that Baan has bounced back, ERP is no longer a high-growth business and the jury is still out on whether enough customers will sign up to the new iBaan vision to let Baan finally put its painful past behind it.