Interview - Sage CEO Stephen Kelly on not forcing cloud, the end of ERP and leaving government
- Summary:
- Sage CEO Stephen Kelly has been in the top job for less than a year and is already driving an incredible amount of change through the company. But, will it work?
It's been less than a year since Sage CEO Stephen Kelly took over the top job at Europe's second largest software company; and in that time he has been attempting to force an incredible amount of change through the organisation.
When I sat down with him yesterday, I told him candidly that Sage had become somewhat tired in an industry that is so rapidly changing – which is why it is great to see a renewed level of enthusiasm and energy amongst employees, customers and partners this week at the company's Summit in New Orleans.
However, as I noted in my first day wrap of the event, Kelly and his team still have a lot of work to do to convince the market (and us) that this is a new and improved Sage, that it is here to stay and that it can be competitive and innovative in a market that is becoming increasingly crowded.
Some of the things that Kelly have done since he took the position have caused a bit of a stir. Most notably the tie up with Salesforce and the introduction of Sage Live, a cloud product that is running natively on the Salesforce 1 Platform. He has also banned the use of the word 'ERP' from Sage's product line. And he has told his customer base that he will not be forcing them into the cloud (unlike some of the other players in the market).
I got a chance to sit down with Kelly at the Sage Summit this week to dive a little deeper into the thinking behind where he wants to take the company over the coming months and years. He starts by outlining how he wants to build an organisation that represents the interests of small and medium businesses, rather than exploits them. And he wants to have a somewhat louder voice in the market – although not lose his British sensibilities, of course.
Kelly says:
The energy, the buzz, the excitement – it's very humbling. It's gone great. Most of the blockers are always in our mind, it's belief and confidence. The reality is that we have got 14,000 really amazing, kind, nice people. We've got a domain experience around small and medium businesses that is unparalleled. No-one in the world has got our intellectual property, our knowledge around the way that SMBs run their accounting, run their payroll, run their payments around the world.
But the truth is that in many respects, being British, there's a humility – which I love – but there is a great sense that we have punched way beneath our weight. We have lacked confidence. And that's changing. I'd never suggest we are brash, but we should be bold. We should be the champion of small and medium businesses.
If you look at what SMBs do for the economy in Britain, they have created 2.2 million jobs in five years. In terms of their voice, in terms of regulation, they're just trampled on sadly. We are building coalitions of interest to support SMBs, because they need a really strong representation.
One example of this is the launch of a change.org petition – by Sage – to get the government to tackle the problem of late payments for SMBs. You can sign that here.
A different approach to cloud
One of the other interesting things that Kelly has done is to tell the market and customers that whilst Sage is aggressively pursuing the cloud with its Sage One product and with the Salesforce tie-up, in the form of Sage Live, he is not going to make his existing customer base feel like they have to abandon their on-premise deployments. Unlike a lot of other vendors out there, which are using tactics to get their customers to the cloud as quickly as possible.
But is this a risky strategy? Or even somewhat of a cop-out? Kelly doesn't think so. He says:
[This is about] integrity and hypocrisy. It would be terrible for us to go to small and medium businesses and say you have got to move to a cloud-based technology and you've got to do it within twelve months, because at the end of the day if they have been with us for 20 years, their accounting works. Why on earth would they change it?
What they're worried about is growth, exports, taking on more people, winning new customers, servicing new customers. That's what they should be worried about. They shouldn't be worried about Sage forcing them to migrate, it's unnatural. So it's the integrity of us putting ourselves in the shoes of our customer and seeing the world from their lens. A lot of our customers want to be on premise. When I go to Germany, they're telling us they want to be on premise for twenty years, because they are worried about data security. We have a responsibility to be there for them.
And in terms of hypocrisy, I think technology companies have forced customers to migrate and it has been really unnatural for businesses to do that. It often ends up in more costs than they anticipated, it's business disruption and it's painful. And once they have gone through the migration, they have gone through all the pain and costs, but there's no new business benefit.
And so Kelly wants to do things differently. He adds:
So I'm sitting here thinking, why don't we turn the world on its head? Put ourselves in the shoes of the customer and say “we are here for you and you run the time clock”. But when you are ready to move, we will give you migration technology so you can flip a switch and move to the cloud. We will train partners to manage interfaces and integrations, because it's not typically one system. And then the other thing, when it's right, we will provide commercial incentives for them. I think it's the right and responsible thing.
But Kelly does anticipate that Sage will reach one million new customers in the cloud – although he wouldn't
provide a timeline for this figure. However, it seems that this will largely come from new customers, many of which Kelly anticipates being businesses run by millennials. Although existing customers will eventually migrate to the cloud, this is a slower transition than some of the other vendors anticipate. But Kelly adds that this should protect Sage from some of the transition pain that the likes of SAP have experienced.I think SAP's a pretty good example of a company that's had five goes at the cloud. We have got a lot of respect for them, but the reality is that they're in a different market. The big corporates are probably very focused on the cloud. Small and medium businesses often think that if it's not broke, don't fix it. If it's doing the job that it needs to, nurture it, keep it and then at the right time if they see business value, you can move them.
The implication of that is that it will be a slower burn and therefore for our financial model we have given some sensible projections about how we will grow the company.
We have got some internal plans that are pretty ambitious. And the momentum we are getting is really great. For technologies like Sage One and Sage Live it's clear that they have leap frogged and changed the game for SMBs completely.
But is there a risk of isolating those on-premise customers? And will Sage be able to manage the twin-track approach to cloud that Kelly describes? He argues that this shouldn't be a problem for Sage, as he has put plans in place to ringfence existing customers and suggests that selling cloud will come in a different form than it has previously – because Millennials will just try and buy. He says:
You just have to carefully plan this. What we have done is carefully focus our customer service with three thousand people around the world and our business in terms sales, marketing and account managers to look after existing customers. Effectively wrap that and insulate it. And be there for the customers when they want to move.
We have also set up these customer business centres, one in Atlanta and one in Dublin, where the cloud based products will be marketed. But the next generation wouldn't think about running their business on premise, they will go straight to cloud, running their business on their mobile.
The reality is that is about digital marketing – those millennials will have done their research, they will hit our website and we will have three seconds of their time, then they will try before they buy and if the user experience is incredible and it meets the functionality, you will probably buy it.
The 'death' of ERP
One of the things that Kelly has said this week that is likely to attract some attention is that he is killing off ERP at Sage. He's removing the term from the company's product line and he is banning its use internally – because he believe it represents an industry that is focused on complexity and making additional money for consultants, rather than driving outcomes for businesses.
And Kelly knows the reaction he's likely to get. He says:
I'm sure we will get a bit of attention, we might get a bit of fun from Waldorf. But that's good. It's a wake up call. There's not a finance director out there that loves ERP. And I don't know any project that's got in on time and on budget. I think it's a big statement.
However, despite being a bit tongue in cheek about it, he adds that there is an important intention behind the move.
The serious message around 'no ERP' is that we are demanding a world of simplification. You just think about the first generation of mobile phones, the functionality, if you wanted to go on the web it was difficult and complicated. And the world of ERP is all about creating complexity, because it creates a gravy train and a meal ticket to do billions of dollars worth of consulting. Whereas, if we drive simplicity, it's a totally different paradigm.
Simplicity seems to be the name of the game, doesn't it? He adds:
Certainly for the next five years we see a huge opportunity for Sage right across the world in terms of the movement of money, the golden triangle – accounting, payroll and payments. When I talk to customers that have all three solutions, totally automated, it's magic. We think that there's plenty of runway ahead of us to build on that.
Leaving government
Last time I spoke to Kelly he was Chief Operating Officer for the Cabinet Office in the UK, in charge of driving commercial savings across Whitehall and delivering on the digital agenda. I was keen to get Kelly's take on where the government is going now, with regards to its government-as-a-platform agenda, and to understand what role suppliers like Sage could have working with the public sector going forward. He says:
Obviously what they need to do is be passionate about serving the citizens of Britain, getting a much better deal for the taxpayer. The good news is that when I left government, the job was only half done. The work that Mike Bracken [the head of the Government Digital Service] and I did, around the first generation stuff, was digital-by-default. The next generation is government as a platform. It's a game changer. The UK is probably three years ahead of any government in the world.”
The massive shift that is going to happen over the next five year will be a revolution, around the
citizen, underpinned by government-as-a-platform. Simple things like doctor appointments – there's appointments in dozens of institutions, but why isn't that just a component that's in the cloud and it's plug and play? The other thing is that businesses have been slaves to technology, because we talk a language that people don't understand. We need to talk a language of business and get technology to serve business. To be the slave to business. And it's exactly the same in government. We need citizens to take control of their relationship with government.This means that citizens can have a relationship with government across all the different agencies. Look at the world of government from the point of view of the citizen coming into government, rather than government just giving stuff out to citizens. I think it is a radical change in government. I think it will continue.
And after all the work he did in Whitehall to squeeze big suppliers and pivot their relationship with the government, what role does he think Sage can play now he's on the other side of the fence? Well, it seems like Kelly has plans. He says that given how much Sage knows about SMBs and accounting software, there could be a role for it to advise the tax office, HMRC, on its Real Time Information system – which allows companies to regularly submit their PAYE details, instead of once a year. He adds:
In the UK over 50% of companies pay their people using Sage. The data we have in this company, and the customers we have, means that there is a role for us to play. We should be helping HMRC with its RTI system because we probably know more from the small and medium business side than anybody else in the economy. I'm sure there will be lots of stuff we can do with government.