UNIT4: The (Largely) Untold Story - Part 2

Part 1 of this series started with my invitation by UNIT4 (formerly Unit 4 Agresso), the second-largest business applications provider in continental Europe, to attend its UK 2010 user conference. Frankly, I was a bit skeptical about what new and exciting I might see and hear about at this event in light of the vendor’s analyst tour in Boston in late 2009.

My post then talked about another important development that preceded both the UK user conference and the Boston analyst tour (but which was not the topic of either gathering). Namely, in the fall of 2009, UNIT4’s on-demand venture, CODA 2go, evolved into FinancialForce.com, backed by both UNIT4 and Salesforce.com. The spin-off joint venture combines CODA’s 30 years of designing and building financial applications with Salesforce.com’s cloud computing development platform, Force.com.

The creation of the new entity and expanded relationship with Salesforce.com avails FinancialForce.com (and indirectly UNIT4) of many practical go-to-market and operating benefits, from branding and lead-generation to Salesforce.com providing hosting and the first-line customer support for the new offering (so that clients only have one number to call).

I believe that all these initiatives send a clear signal to the partners and developers on Force.com that FinancialForce.com is the finance and accounting engine of choice on the platform to leverage. Attracting even a fraction of nearly 70,000 existing Salesforce.com users would be a major success in terms of new revenues for the startup company.

For its part, Salesforce.com’s potential benefits from this joint venture are also apparent: a new revenue stream and the ability to validate and peddle the Force.com platform. In addition, Brian Sommer also talks about some less apparent benefits in his recent blog post. Indeed, since the announcement, FinancialForce.com claims to have been flooded with enquiries, leads, and free trial requests, plus extensive publicity around the industry. In other words, the high profile that UNIT4 and Salesforce.com had hoped for from this deal is certainly turning out favorably.

Financial Force to Be Reckoned With (in the Cloud)

FinancialForce.com’s CEO Jeremy Roche shared with me in our recent e-mail exchange that at its core, FinancialForce.com “attaches to the Salesforce CRM data model and expands it with its savvy about tax codes, currencies, financial reporting, etc., by providing a set of role- and function-based capabilities.”

Out of the box, the offering provides the following accounting functionality for businesses around the world (courtesy of CODA’s proven know-how):

  • Broad accounting applications: featuring general ledger accounting, user-defined budgets, spreadsheet integration, accounts payableaccounts receivable, and invoicing 

  • Multi-currency and multi-company support: allowing organizations to manage accounts across different countries, divisions, and companies

  • Support for global accounting and reporting requirements: reducing concerns about meeting the specific reporting and tax legislation of different countries

  • Real-time accounting: all ledgers are instantly updated to deliver real-time financial data and ensuring the system never goes out of balance

The traits of being quick to implement (with no infrastructure to worry about), scalable (in terms of managing future growth of cash flows, debtors, and creditors), accessible from anywhere (that has an Internet connection), a predictable license fee, and security come from the Force.com cloud computing platform. This will soon (if not already) also mean the general availability of Chatter, with its traits of content management, search, collaboration, and other Facebook-like user experiences.

Target customers range in size from a few dozen to 1,000 employees. In other words, the mix ranges from small to medium enterprises (SMEs) who run their business on Salesforce CRM to large organizations who can use FinancialForce.com as a piece of “financial middleware” to create debit and credit entries from Salesforce.com’s customer relationship management (CRM). These transactions can then get passed onto an already-installed accounting or enterprise resource planning (ERP) back-office system.

While FinancialForce.com will likely expand its functional scope over time (potentially targeting contract management and indirect procurement), the primary goal is to be the financial engine on the Force.com platform, whereby anyone developing on Force.com would use FinancialForce.com to generate debit and credit entries.

The idea is to have a full point-and-click financial accounting generator for any Force.com object. This means that any developer of any application on the Force.com platform can utilize FinancialForce.com to quickly integrate real-time and always-in-balance financial information into their application.

Is SaaS Going Mainstream?

Building up and nurturing a strong partner network to drive deal activity in the short-term (beyond what Salesforce.com can provide) will be critical to establishing a profitable business at the lower end of the market, at the same time that FinancialForce’s direct sales force goes after larger fish. I see that as Financial.Force.com delivers software as a service (SaaS), the next logical step would be to deliver "accounting as a service."

This evolution sits logically with the approach to use partners, and FinancialForce.com sees Corefino as a primary partner. Corefino, an innovative finance and accounting business process outsourcing (BPO) startup, continues to get an amazing amount of downloads of its white paper collateral, largely by the mid-market and billion dollar companies who want to get off the “hamster wheel” maintenance spend cycles of their on-premise accounting solutions.

FinancialForce.com’s new sales team has reportedly been introduced to Corefino and introduced to the benefits of the partnership. The two vendors are hoping to see deals start to materialize where a joint approach is adopted, and Corefino is starting to appear in FinancialForce.com’s leads funnel as being discussed with prospects.

Dennis Howlett’s recent attendance of a panel of early adopters of FinancialForce.com confirms the discussion about strategic and avant-garde CFOs from Part 1. Indeed, economic vigor comes from the startups, visionaries and innovators, and FinancialForce.com (and similar nifty offerings) are a likely place where these forward-leaning CFOs will go looking for their accounting systems.  

FinancialForce.com is yet another indication that the SaaS market may be shifting away from stand-alone best-of-breed departmental applications to broader suites (with one common database that is shared enterprise-wide). There could be different approaches in this regard – whether the suite comes completely integrated from one company (as in the case of NetSuite, SAP Business ByDesign, Datasul, Plex Systems, Everest Software, or Workday) or pre-integrated across a platform-based family of offerings (as in the case of FinancialForce.com). Finally, Intacct Corporation’s bi-directional integration with Salesforce.com is another option for an integrated SaaS CRM and accounting offering.

Generally, the SaaS/on-demand deployment mode is the future of ERP, at least as a hybrid “software plus services” approach, and I am convinced of it. While there is a growing list of ERP vendors that are already delivering SaaS offerings,  virtually all renowned vendors are heads down building out their short-term and long-term subscription model (Saas/hosted) strategy. This is no longer an “optional” game: virtually all of the on-premise-only ERP companies have seen by their weak recent quarters that if they don’t move in this direction they are likely going to be out of business or acquired in a several- year-window at best.

It Won’t Be a Cakewalk Either

However, I second Saugatuck Research’s initial assessment of the advent of FinancialForce.com that there will be substantial challenges – from early product immaturity, via a laggard target buyer, to a crowded competitive landscape that will only get tougher over time. Not only are there entrenched on-premise solutions in the lower-end of the SME market, such as those from Intuit and Sage, but there is already a slew of the abovementioned SaaS products.

One should also never neglect the upcoming revived SAP Business ByDesign offering (Feature Pack 3 slated for early to mid 2010), and ultimately competitive on-demand solutions from Sage (i.e., SageLive and SageCRM.com). Last but not least, Oracle and Microsoft Dynamics will eventually bring to market some sort of credible and integrated software + services offering that bridges its disparate and largely on-premise family of ERP and CRM solutions.

In addition, Salesforce.com will have to appease some members within its burgeoning portfolio of its AppExchange market place partners, given its direct investment strategy. After making a substantial bet on Salesforce.com’s platform and the marketplace, no single AppExchange partner wants to feel less significant.

But this is the nature of the beast, and Salesforce.com might already be in a position of power: able to cherry-pick its strategic investments, while leaving the rest of the partners to the “survival of the fittest” way of life. SAP, Oracle, and Microsoft occasionally have to make selected acquisitions from their ecosystems, which does not necessarily mean a doomsday scenario for other partners.

On-premise CODA Going Strong, Notwithstanding

If nothing else, my attendance of UNIT4’s Boston tour and the UK user event helped me at least allay any initial doubts about CODA’s future and UNIT4’s commitment that I might have had (as mentioned in Part 1). In hindsight, my initial knee-jerk assessment was way off the mark. UNIT4’s on-premise CODA Financials business continues to provide excellent customer service, while new product updates are being delivered regularly, and the product has a highly professional and experienced team.

In fact, not only does on-premise CODA continue, but UNIT4 has been lately putting a lot more “oomph” behind the product in terms of a revamped marketing strategy and new marketing investment. Following the work the company has done in aligning Agresso Business World (ABW) and CODA messaging there were some key announcements in late 2009 that gave CODA the focus it needs.

Incidentally, the percentage of CODA staff that moved to FinancialForce.com was tiny, and of course they have almost all already been exclusively focused on CODA 2go for the last two years anyway. FinancialForce.com and CODA are separate products, i.e., there is no common code, as FinancialForce.com was developed from the ground up.  Still, the design of FinancialForce.com was based on CODA Financials such as, for example, the single ledger real-time design, account code structure, and multicompany, multicurrency, and multicultural approach to accounting.

There may have been some resource sharing in the early days, but UNIT4 had increasingly kept staff focused on their own areas prior to the spin-off. UNIT4 was striving to create a "start up" feel in its former CODA 2go group, and UNIT4 took FinancialForce.com to the logical conclusion by spinning it out as a separate company. The spin-off gives the new venture the opportunity to be run like a startup and generate the energy and commitment that a startup can exude, whilst of course having the benefit of not one but two major financial backers.

Meanwhile the spin-off does leave CODA with a clear focus and no distraction or confusion by the cloud accounting activities. Since the majority of the market still wants on-premise  applications today, this division lets the CODA products exploit that.

With more than 2,850 customers and installations around the globe, the CODA Financials solution is known for its international capabilities and the vast integration options offered by its LINK architecture, which plugs and plays with all of the world’s leading enterprise solution providers and its real-time accounting strengths. The solution provides extensive interoperability value for companies in high-change environments that need to continually adjust technology infrastructure to support industry consolidation, geographical expansion or contraction, changing business models, etc.

Favorable Change of Buyers’ Behavior

Over the past 10 months, UNIT4’s executives have tracked a distinct change in software buyers’ behavior, especially in terms of the weighting of core requirements that business buyers list to make their software selections. Namely, prospective buyers are moving from being feature/functionality-centric to being integration- and change-control centric. The trend is especially apparent in a segment of the market that UNIT4 calls BLINC - Businesses Living IN Change, where the company sees more than twice as many 2009 deals attributed to "change/integration improvements" as in 2008.

This is not to imply that functional enhancements do not continue. Quite the contrary: the newest CODA 11.3 release is particularly relevant to the retail sector. This sector has arguably been the hardest hit vertical market during this recession owing to a daunting combination of cash and credit constrictions (not only for retailers, but for shoppers as well), rising energy prices for operating stores and shipping goods, commercial real estate leases or ownerships that have been poorly negotiated, etc.

The CODA system is already installed at about 30 percent of the UK’s top retail market, and is aggressively penetrating new markets. The following four key features headline the 11.3 release:

  1. Dual line level and quantity invoice matching – enabling organizations to record, track and report on bills via alternate input formats

  2. Group level balancing – a key capability for extremely high-volume invoice matching

  3. Personalized customization capabilities – streamlines business processes by enabling business users to create screens, actions, and activities that match the work that they need to get done, in the way they need to do it (this is a direct result of CODA’s purpose-built workflow engine)

  4. Elimination of additional procurement software – saving money and time thanks to the elimination of the need for an add-on procurement system

In Part 3 of this series I will present my observations of the recent UNIT4 2010 user conference in the UK. Your comments and opinions about the abovementioned products and the vendor’s strategy are welcome in the meantime. To be more precise, how crucial are a system’s inherent agility and interoperability as well as SaaS capabilities in your evaluation efforts?
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