FinancialForce 'ERP for services' outsources HCM to ADP

In a deal that was signed after just four weeks of discussions, cloud ERP vendor FinancialForce has effectively outsourced its human capital management (HCM) product roadmap to ADP. At its annual customer event in Las Vegas this week, FinancialForce revealed that it will be doing no more new feature development for its own HCM product, which is based on its acquisition of Vana Workforce more than three years ago. While the company committed to support customers who wish to continue with the product through 2022, they will be encouraged to migrate to one of ADP's HCM offerings — either Workforce Now or Vantage HCM, depending on company size.

Those products will be integrated into the FinancialForce 'services ERP' product set, specifically professional services automation (PSA) and financial management, with the first wave of integration becoming available in FinancialForce's next scheduled release in November, and then quarterly thereafter. A key aspect of the partnership is the opportunity to integrate payroll directly into financials. Kerry Morse, DVP Strategic Software Alliances at ADP, says the partnership also gives ADP an opportunity to connect into FinancialForce's PSA product and the underlying Salesforce platform:

What we got excited about at ADP was an integration path and strategy that we could proceed with forthwith for PSA with Salesforce, with financials from a GL perspective back to payroll, as well as creating an embedded user experience in the long term that we're not doing with any other organization. So the partnership and strategic initiative that we put together is across business units at ADP and it's a long-term strategy for us overall.

Compliance transparency

For FinancialForce, the partnership will help strengthen the company's offerings from a compliance perspective by providing greater end-to-end visibility of all the components that feed into revenue recognition, says CMO Fred Studer:

There's a lot of things that we get that, as regulation starts to fold through, when we think about consultants, billables, all sorts of services that we need to do, having that full transparency across and entire spectrum of everything — from how we get the opportunity to how we actually bill it to how we actually pay people — is really critical.

Think about configure-price-quote ... this also has to do with what your agreements are. There are contracts, there are expectations. Everything from how you establish a contract and what is the format by which you will share services, in this case subscription, and the way that you recognise those all the way through and every resource across that goes into delivering that, is really key. This partnership helps us put a complete view of really trying to comply authentically and fully with that regulation.

While the ADP product will become the system of record for HCM data, FinancialForce will incorporate into its PSA offering certain aspects of skills management and talent management that it considers are critical for services companies.

Development co-operation

There will be close co-operation between the two companies' development teams to ensure alignment of end-to-end capabilities, says Studer:

We will have developer resources on that, working on collaborative co-development, not just integration but deep-line, co-developed strategy with regards to ADP as they now will be a strategic partner for HCM ...

The development resource that we have on HCM will now start to work in conjunction with ADP to build integration and different scenarios that we mutually think are critical for HCM with regards to service industries.

The reason we think this is so exciting is that they really are the leader across the board. This isn't our dad's HCM company, these guys are really good.

Revenue recognition

Letting ADP take the strain on HCM functionality allows FinancialForce to focus on getting its revenue recognition capabilities ready for the new ASC 606 regulations that come into force in the US in December this year for public companies, and a year later for private companies. The company also wants to ramp up its analytics capabilities with AI and machine learning from Salesforce Einstein, to provide more sophisticated insights into complex services revenue metrics. This is all geared around its ambition to be the cloud ERP of choice for services businesses, says Studer.

As you start to think about the accounting around it, the regulatory needs behind it, this isn't just us making money in selling PSA, this is about selling a broad-based ERP that helps companies not just track consultants but bill, collect and now pay people all the way through that.

We're looking at it really as a modern ERP for the services organization.

In addition to the ADP deal and its ongoing relationship with Salesforce, FinancialForce this week announced two other partnerships. It is linking up with Expensify to directly sync expense reporting into its Accounting and PSA products, and with Vena Solutions to integrate its financial planning and analysis tools.

My take

One of the challenges for enterprise application vendors offering a soup-to-nuts set of capabilities is what to do when the customer wants to order off-menu. However compelling the message that everything simply works better when everything's running off the same core dataset and workflow, no vendor can offer best-in-class for every conceivable function. And so there are always bolt-ons.

This gives rise to an ongoing debate as to where to draw the line. Three years ago, FinancialForce opted to draw the line wide, looking to provide a full ERP solution on the Salesforce platform.

Today, the vendor is pulling back from that broad positioning to focus far more narrowly (or precisely, if you like) on the ERP needs of services companies. That's probably a wise decision, as the complexities of managing more flexible and diverse revenue streams have become more evident in the intervening years. Facing astute competition from both NetSuite and Zuora in this market, FinancialForce has to make sure it can stay on top of its game.

I also sense the hidden hand of Salesforce at work — an influence to which FinancialForce's new CEO Tod Nielsen, a former platform chief at Salesforce, will be especially sensitive. Salesforce has its own priorities and looks for solid allies among its partner ecosystem. A redefined focus at FinancialForce will make it easier for Nielsen to explain to former colleagues at Salesforce where the vendor fits with its own strategic goals. That can be enormously helpful in leveraging the support of Salesforce's sales teams.

If this new partnership with ADP works out well, the payroll and HCM vendor may itself benefit from a closer working relationship with Salesforce through working with FinancialForce. Much depends on the success of the integration work that has to take place over the coming months. Customers of the existing HCM product will be particularly keen to see the outcome of that project. While FinancialForce has committed to seeing them right through 2022, and ADP has been hinting at preferential pricing to entice them into switching to its own products, they will not welcome the uncertainty this week's announcements has brought unless the two vendors can rapidly demonstrate that there will be an upside to the new regime.