Trade secret: sometimes your well-planned interview gets thoroughly disrupted.
Last week, my video interview with Unit4 CEO Mike Ettling dug into the characteristics of agile midmarket ERP, as laid out in my colleague Phil Wainewright's Unit4 CEO Mike Ettling on the stale, the bad and the agile in midmarket ERP.
I had a few productive nits to pick with that (worthwhile) list, but before I could write that up, a few big things happened:
- Unit4's virtual user event, Experience4U, took place (see diginomica's event hub coverage of X4U 2021).
- I took part in Unit4's analyst day event, on the ground in Boston, where a number of interesting debates occurred. We also got clarifications on Unit4's cloud adoption numbers.
- Last but not least, Unit4 went shopping, announcing their acquisition of Compright (press release: Unit4 Acquires Compright, Extending its “Right for your Business” Capabilities with Best-in-Class SaaS Compensation Planning).
Unit4's Compright acquisition - why now?
What's a scribe to do? You toss your original story and chase the new. Let's start with Compright. I found the acquisition intriguing, because during the analyst day, Ettling told us he was prepared to acquire companies that gave Unit4 an edge in industry verticals, deepening their cloud ERPx offering.
But isn't compensation planning a core component of Unit4's "HCM-inflected ERP," as Ettling calls it? Wouldn't this acquisition apply to any number of verticals? Short answer: yes. Ettling told me:
Compright is what we are calling a magic dust product acquisition. We see ourselves doing a few acquisitions where we're going to buy very focused product components, which really bring a lot of sizzle to the suite - where we either are not fully built out yet, or where we can leapfrog the market. But it's also going to be something which we know our verticals absolutely need.
Talent management is a pressing issue that crosses all verticals. Ettling continued:
In today's world with talent shortages, getting compensation right is essential. It's no longer a nice to have. It's table stakes.
Assessing midmarket ERP vendors
Here's one way to get a handle on a midmarket ERP vendor:
- Do they have a modern multi-tenant SaaS offering? (Unit4 does - dubbed ERPx)
- What is the adoption level of that offering?
- Do they have an on-premise install base?
- Is the on-premise install base aggressively migrating to the modern ERP release, or do they have a different agenda altogether?
- How do they capture the imagination of buyers? What is their narrative, value prop or differentiator?
- What industry verticals does the vendor focus on?
Now, that last question is a bit deceptive. In truth, most verticals can be chopped down to micro-verticals, where there is plenty of action. Why? In the mid-market, most micro-verticals are still not well-served by modern ERP. In other words, those micro-verticals might still have a prevalent, proprietary industry software that is tied to on-premise systems. The ERP vendors that serve them are tied to on-prem also.
Underserved micro-verticals usually welcome modern ERP, with the characteristics Ettling outlines here, as long as it comes with expert services partners and cloud-based industry functionality.
Defining Unit4's vertical approach
But it's not necessarily simple for a vendor to figure this out. Which cloud ERP functionality to build? Which micro-verticals should partners extend into? What type of configuration templates are needed?
One notable example is Unit4's June 2021 separation of its Student Information system (SIS) business. If Unit4 is focused on "people-centric ERP," why wouldn't they build out multi-tenant SIS functionality? Why spin it off as an on-prem/hosted ERP business? The answers to that question are revealing.
When Unit4 calls themselves "people-centric ERP," it also defines their limits. They have no intention of expanding into the manufacturing areas core to classic ERP. They see plenty of opportunity to bring cloud HCM, financials, FP&A and micro-vertical functionality to services organizations. Unit4's ERPx vertical focus is professional services, higher education, non-profits and public sector. The biggest go-forward area for ERPx? Professional services organizations, where Unit4's PSA (professional services automation) comes into play.
Unit4 is still finalizing the (micro) verticals in PSO where ERPx will bear down. Four prime candidates include management consulting, business and IT services, architecture, construction and engineering (ACE) and accountancy. Given that, one of the analysts asked, why isn't SIS a fit? Ettling explained that SIS (Student Information Systems) are complex to build - as complex as manufacturing.
But why wouldn't Unit4 build out a cloud-based SIS? Then they'd have a new defensible vertical for modern ERP. In a hallway chat, Ettling explained that SIS is not only complex, it's highly localized. Institutions running SIS have high expectations for customizations as well. Those aren't good characteristics for a SaaS ERP micro-vertical, where code customizations are off-the-table - thus the spinoff.
So where are we? Combine the characteristics of Unit4's ERP vision with its "Industry Mesh," cloud ERP integration as a service, if you will - available January 2022. It's a modern approach, but where does adoption of ERPx stand? Brian Sommer pressed the issue today, probing a Unit4 press release that left open questions.
Unit4 cloud ERP and ERPx adoption - by the numbers
By the end of our back-and-forth, we had a collection of "Unit4 cloud by the numbers." Why do analysts press into this? Because when it comes to reporting adoption, ERP vendors with on-prem install bases usually call their on-prem hosting customers "cloud" also. That makes it hard to assess adoption progress with the next-gen offering.
In Unit4's case, they also provide ERPx services like the Wanda digital assistant to on-prem customers running on version 7. Ettling says that doesn't count in Unit4's cloud accounting. Nor does "cloud" hosting customers, when done by partners. But if the customer is hosted by Unit4, that counts. Also, keep in mind: while ERPx is selling very well this year, as per Unit4, go-lives are always different than sales in the ERP world. Several ERPx customers are poised to pull the go-live trigger when their fiscal year ends.
There is one more crucial point: Ettling told us Unit4 has no intention of putting customers on a forced march to ERPx. A crucial breakthrough was making sure that Unit4 ERP 7 customers were able to take advantage of ERPx services, such as Wanda and workflow automation. Version 7 also moves customers closer to the architecture they will need to run on ERPx someday, should they choose to. So for Ettling, the number of customers that have moved to ERP 7 is a very important metric.
When it comes to ERPx, Unit4's tech teams, under the leadership of CPO Dmitri Krakovsky, decided to build an all-new multi-tenant architecture. How they did that, while bringing forth most of the classic Unit4 ERP functionality, is one of the core appeals of ERPx.
The numbers, then:
- Unit4's customer count is around 3,000. 2,500 of those are ERP. Most of those are running the older software, now called Unit4 ERP (formerly Business World and, before that, Agresso). 75 percent of Unit4's revenues are ERP revenues.
- Of those 2,500 customers, almost 80 percent are now running on Unit4 ERP version 7. 700 of those are considered "cloud" by Unit4's definition above, and counted in cloud revenue numbers.
- Unit4 reported 68 ERPx customers by April 2021. That number should get to 100 ERPx customers by the end of the year.
- 2/3 of ERPx customers are net-new. 1/3 of them are migrations. The first two ERPx go-lives are booked for December, with two more customers going live in January.
- 90 percent of Unit4's new business globally is cloud; in North America, that number is 97 percent. Cloud growth in North America is 128 percent year over year.
- Perhaps most encouraging for Unit4, a third of North American ERP customers are in active discussions with Unit4 about moving to ERPx.
With these numbers as the baseline, the context for reviewing quarterly numbers is better (example: the Q3 2021 numbers, which include mentions of "cloud subscription revenue," now make sense as per the definitions of what is counted as cloud above. Therefore, the 55 go-lives mentioned in the press release obviously are not about ERPx, clearing up a point of confusion on analyst day).
My take - headless ERP gets traction
I give Unit4 credit for going through all the nuances of the ERPx numbers with us, on the record. So many vendors are impossible to nail down on this topic. Unit4 seems to understand that if you benchmark where you are now, that will lead to an excellent story down the road as momentum grows - a story that's not possible when we're forced to take guesses at next-gen cloud adoption, obscured by cloud ERP hosting stats.
This is the opportunity of an on-the-ground event. It's not easy to hash that out virtually. Unit4's leadership team took full advantage of the interactive format, encouraging provocative discussions, even if it sometimes led to criticism of product strategy or corporate messaging.
But now we're at the end of the post. I haven't even gotten to my bones of contention with the agile ERP characteristics list, and my discussion with Ettling about it.
There is one thing, however, I want to get to on that list. I was surprised "collaborative" didn't make the cut. Future ERP needs to capture discussions in the context of numbers, transactions, and customer/employee engagement. That means, in my view, "headless ERP." I'm loathe to use the insufferable word 'headless,' but the ability to engage with ERP systems without logging into the ERP UI matters - especially for the business users who are so important to ERP's future prospects.
I'm surprised Ettling didn't mention it on his list - it's an area where Unit4 is starting to excel versus its peers. It was a notable point in the day's customer story, brought to us virtually by Jaime Everard, Business Systems Manager at the UK-based, international engineering and services firm Buro Happold. Early on in his talk, Everard said, and I'm paraphrasing liberally here: 'My teams are using ERP less and less, and it might sound odd, but I'm happy about it.'
Everhard didn't mean they are using Unit4 ERP less. He meant, by using Wanda in a Microsoft Teams environment, they are getting things done that invoke Unit4 ERP functionality, without leaving their messaging environment. He added:
People can now perform their daily functions quickly, from any location, any device, using Teams and Wanda, whether that's booking holiday approvals; it's all there. It speaks to a common language, and it's been a real boost for us in terms of selling the product internally.
That leaves us with Unit4's North American push. It's a topic I took up last March (With ERPx on deck, new Unit4 North America President John Gregitis talks modern ERP). I saw Gregitis today; we agreed to pick this up with an update in the new year. As always, I'm out of space before I'm out of story.