Sage's mid-market evolution - insights on how Sage Intacct, People, and X3 are converging

Sage certainly has been pouring a lot energy and development into its mid-market solutions, cloud and digital offerings. The company is tweaking its organization to better serve the mid-market. And, its news regarding its Business Cloud Platform points to the adoption of a number of new enabling technologies within the various product lines. Grab a fresh Dr. Pepper and enjoy the read!

Sage Intacct Advantage - a preview

This weeks' annual confab, Sage Intacct Advantage, will include a surprising number of news items that tie directly into Sage Intacct's expansive product roadmap. A recent Sage Intacct analyst day gave us a deep dive into this news and data points around Sage's other solutions for the mid-market (Sage calls this: Medium segment). For those tracking Sage Intacct and midmarket cloud ERP trends, this piece should give you some deeper context for the array of stories you're going to hear about this week.

Context

When one software company buys another, there are four common outcomes and only one of them is good. The acquired company can either fade away, suffer neglect, become absorbed into the larger firm's suite, and/or, deliver more than the expected accretive results.

Around 2017, Sage group acquired two software companies: Intacct and Fairsail. As acquisitions go, these have proceeded very well. Most all of the senior leadership of Intacct remains with Sage with some executives seeing marked increases in their responsibility and influence over the entirety of Sage group. Both product lines are getting access into new geographic markets and revenues are increasing.

So, what else is going on?

In their flurry of recent announcements, we learned that Sage has oriented its efforts around several focus areas. These include its Medium segment organization, an increased focus on the US market, and, tons of development effort regarding the Sage Business Cloud.

Let's look at these in more detail.

Medium segment/mid-market organization

Sage Group has decided to pull together the leadership, development and go-to-market activities of several of its products into its Medium segment organizational unit - a group led by the former CFO of Intacct. What this means is that Sage People (nee Fairsail), Sage Intacct, Sage Intacct Budgeting & Planning and Sage X3 are being more closely managed, integrated and marketed. 

Sage now has 125 VAR partners selling and implementing its Sage Intacct product line. 39% of these are eligible to sell other Sage products.

The company believes its solutions to be capable of "powering back office transformation". To be more exact, I would say that the solutions provide many opportunities for digital transformation or the digitalization of more business events than business transformation. Business transformation is often more expansive than mere digitalization. Business transformation usually involves all new business models, the use of massive external data stores, huge internal sensor generated data types, video files and other technologies. While some of that capability may be on the drawing board at Sage, the focus near-term is clearly on digital.

Vertical solutions are a component of the Medium Segment strategy.

Sage Intacct will be positioned for service industries while Sage X3 will target product or asset-intensive industries. Sage People will be sold into both spaces. Sage Intacct Budgeting & Planning (SIBP) will be sold to all Medium Segment customers. Sage Intacct also has a construction solution, Sage Intacct CRE, which they launched early this year.  Sage Intacct CRE is a native cloud financial management solution built with the construction management functionality of Sage 300 CRE (formerly Sage Timberline) onto the Sage Intacct multi-tenant cloud platform.

This Medium Segment focus is important to Sage as:

• It has thousands of Sage 100 and Sage 300 customers that are looking for a more modern solution or have outgrown their existing solution
• Sage wants to increase the footprint it has in these customers and cross-selling them Sage's other solutions (e.g., cross-selling Sage People to Sage Intacct customers) helps with that
• It provides more opportunities for Sage's implementation partners to make money

Sage is making Sage Intacct more global than its original North America focus (more on that below) and is making Sage People more complete functionally with the addition of cloud payroll capability for the U.S. market (also noted below).

That Medium segment focus also means that Sage will need to add to and upgrade its partner ranks. More up-market customers will likely mean that service providers will need to possess more service lines/competencies (e.g., change management) and greater geographic coverage. One example of this that Sage pointed out was Cross Country Consulting. That firm has numerous ex-Arthur Andersen executives and offices across North America. Could they do a global financials deal? Probably. A global payroll install? I don't know.

Sage Business Cloud

Sage's technology investments fit under its Sage Business Cloud (SBC). Essentially, SBC takes Sage's collection of "cloud native and cloud connected solutions to …. a Digital Environment". Translated, that means that integrations, workflows, analytics, etc. are now provided thus allowing businesses to immediately reap the benefits of greater automation, lower errors (via less re-keying), faster decision making, etc.  Sage is doing this to help customers with their digital transformations and to "elevate the work of humans".

This digital future is different from the historical applications Sage (and most ERP vendors) have pursued. The focus is clearly on making people, applications, decision making, workflows and outcomes smarter. Under the covers, Sage is utilizing AI/ML, integrator/connector tools, new ways of identifying and managing relationships (of people, organizations, data, etc.) and more.  The bottom line is that their view of digitalization encompasses more than just automating transactions and interfaces.

The relationships are critical as Sage appears to be identifying data, microservices and applications that are needed to connect all players and systems together in a company's value/supply chain and with other constituents like jobseekers, regulators, board members, suppliers, customers, retailers, etc.  The key element is a Sage ID for each entity/person/node so that relationships, processes and data can be mapped and improved.

The value behind all this information should increase exponentially as more and more participants are connected to the Sage Business Network (SBN). This is a classic network effect outcome that will happen only if Sage and its partners can drive adoption of these new digital capabilities and membership in the network. Once a firm is part of the network, more benefits can be derived (e.g., more information is pre-filled, fewer transactions require encoding, the AI can learn how to automate document entry via similar documents other companies have received, etc.).

The network could also help in identifying potential fraudulent activity, provide process benchmarks, etc.  We also saw several examples Sage is prototyping including one where:

• a new position is opened up (Sage People),
• budget for the position was established (in Sage Intacct Budgeting and Planning (SIBP)),
• a candidate is recruited and hired (Sage People),
• the proposed hire's start date and salary trigger alerts and the issue is escalated via a collaboration/chat tool,
• a decision is made to finesse the timing of the new hire's start date to keep the budget within plan
• the person is on-boarded and setup in Payroll (Sage People)
• actual payroll costs get booked to the G/L and a variance issue is avoided (Sage Intacct)

There are several automated integrations, all new analytics and alerts involved in the execution of this exception workflow. And, this all happens digitally - the transformation outcome Sage is championing.

This digital environment has developer tools for Sage partner firms and customers to use. Digital documents, payments and notifications can be moved through the network and/or across the company. Chat technology may play a big role in many actions.   Everything from invoice presentation and payment, payroll, SSO, employee self-service, bank transactions, bank account reconciliations, approvals and more are going into the SBC via the cloud today.  

Customer/User Experience

Within the Medium Segment, there are architectural differences amongst the product lines. Sage People is built on Salesforce's Force.com platform and uses the Lightning UX. Sage Intacct uses a number of open source, Oracle and other tools. Sage X3 is on still another platform.

Sage is committed to delivering consistent user experiences within individual roles. For example, accounting users will see the Sage Intacct UX while HR users will utilize the Sales Force Lightning UX in Sage People. All smartphone users, regardless of the base product, will have the same mobile user experience.

According to Sage's CTO Aaron Harris, the issue isn't platform integration, it's in helping users experience a consistent and useful user experience. Furthermore, he sees two kinds of users out there: super users who will want a powerful, desktop UX tied to their functional role (e.g., Accounts Payable clerk) or more casual users who will access other applications via a smartphone (e.g., a shop floor employee entering in a time off request).

The overarching issue isn't making tech stacks converge but is to make the rapid, painless integration of other applications, microservices, partner solutions/extensions, etc. possible. Business changes occur so rapidly today that the core apps must possess rapid adaptability and permit new capabilities to be enabled rapidly whether they come from the core application provider or not.

A More Global Solution Set for the Medium Segment

Accounting

Sage Intacct is now available in the United States, Canada, South Africa, United Kingdom and Australia. Why those countries? Sage is strong in those markets but other issues may be in play, too. Accounting software companies have often found it easier to expand globally into markets where English is a primary language and the accounting standards there have a British lineage. This is why former Commonwealth countries often see new accounting solutions before other countries.

While this has been a traditional path for many software vendors, it hasn't always appealed to software buyers. For example, look at all of the professional services being sourced today from the Philippines, India, Russia and China. And look at where raw materials and manufactured goods are coming from today! Businesses everywhere have become multinational or global entities and they don't restrict their supply chain or value chain to just a handful of countries that were part of the former Commonwealth.

Making a software solution viable as a global solution for customers can be time-consuming and expensive. For each country the vendor wishes to sell into, they may need significant pre- and post-sales support. An in-country marketing organization may be required and the product may need to undergo significant enhancements to support regulatory/compliance, tax filing, language, and standard in-country business practices. Even simple things like address information can change dramatically from country to country.

Traditionally, Sage Intacct had most of its sales success in the United States and Canada.  Expanding into the UK, South Africa and Australia should be straightforward as Sage already has partners in those countries and knows those markets well.

HR

In contrast, Sage People had big success in the United Kingdom and Western Europe by dint of its founding in the UK.

But the U.S. and Canadian markets for HR software suites are, in a word, brutal. There are numerous, large, established competitors with very complete HR suites. Customers in those markets expect a very complete HR suite that includes critical payroll and other in-country compliance and tax filing functionality. A payroll module is essential and it's difficult to create given the huge number of federal, state and local requirements. Other requirements for union members, garnishments, and diverse employee benefits make the processing of payroll very complex.

Sage People is building out a Payroll module for the U.S. market but it is still in development. Besides Payroll, Sage People will get additional capabilities in Benefits and Talent Acquisition. These additional modules will go a long way into making the HR suite complete and more competitive.

Other Global Points

Sage will continue to seek prospective customers with a headquarters in one the five countries above. The firm will cross-train partners on all Medium segment solutions. And, technically, we should see tight integration, not just between Sage People and Sage Intacct, but also with SIBP (Sage Intacct Budgeting and Planning).

Genuine Customer Focus

There was some discussion at an analyst briefing event as to what Sage was doing to help out companies that were adversely impacted by the pandemic. The level of empathy towards an ERP vendors' customers has ranged widely across the spectrum lately. It has ranged from those vendors doing hardly anything at all on one extreme to others being quite thoughtful and helpful on the opposite extreme. And while we've seen some vendors push out small, free (or low-cost) and/or limited time use applications to affected customers, very few vendors have been willing to alter the economic terms of their cloud contracts. Their empathy only extends to the non-monetary aspects of their hearts.

Of those vendors expressing some willingness to help, the economic help has mostly been limited to the spreading out of payments over the fiscal year but no meaningful reduction in the subscription amount overall.

Sage executives indicated that with some companies, in particular those in hard-hit verticals, that they have taken a one-off approach to work with those firms. The goal being to help retain the company as a long-term customer and not just to maximize short-term revenue. Additionally, Sage reminded us that their standard contract already permits customers the right to downgrade user subscriptions or applications at renewal. As someone who negotiates software contracts, I can assure you that is a rare contract term for software subscriptions.

Company Update

We also got a fast update on the company's financial state.  I noticed that Sage Intacct's recurring revenue grew by double digits last year while their annual customer transaction volume also saw an even greater double-digit increase in the same timeframe. What could that imply? Sage Intacct customers are:

• getting larger. Bigger companies have more transactions to book. The products' functionality can certainly support companies on the high-end of the mid-market and the low-end of the large enterprise space.
• using more Sage Intacct applications. This means the Sage or partner sales teams are triggering more add-on sales. It also means that customers must be satisfied with their original purchases to activate more modules
• moving the books of more legal entities under the Sage Intacct software.

Other News Tidbits

In no particular order, here are some additional items we learned:

• Cloud is clearly the future for these applications. Multi-tenancy will be the order of the day for both Sage Intacct and Sage People. Sage X3 remains mostly an on-premises or hosted solution for now.
• Customers that use Slack or Microsoft Teams will now have plug-ins to support this
• Sage has plans to help Sage BMS customers (i.e., Sage Business Management Solutions:  100, 300) migrate to Sage Intacct.  
• Sage is also providing a way for these BMS customers to move to a cloud environment on their timeframe.  For those that are ready now, Sage is providing a way to move to Sage Intacct.   For those users that want some of the benefits of cloud but are not ready to replace their ERP, they can move their Sage BMS solution to SEOS, a technology that enables single tenant hosting of those same solutions.

My take

This is a long writeup because Sage has done a lot and had a lot to cover. Frankly, my colleagues haven't had many sessions like this in 2020.  

The digitalization focus is one a lot of small-to-mid-sized firms need to complete asap. Sage's smarter partners will approach prospects with a compelling vision of the prospect's business and not a technical primer on digitalization and the underlying tools to support it. Prospects need business not technical solutions and they need things that add value now. This is not the time to ‘convince' a prospect to go to the cloud, or get on the multi-tenant bandwagon. This is the time to discuss with them how they need to scour their processes and workflows and eliminate all of that non-value-added (or low value added) waste and use new capabilities to delight customers, suppliers and other constituents. Help these prospects attain some measure of competitive advantage and also achieve a high-functioning business execution environment.

If I had a nit in all of this, it's this: Sage's product lexicon is like something out of an SAP product catalog (hint: that's not a compliment). If I as an industry analyst have to prepare a crib sheet to remember what SEOS, SBC, BMS, SIBP (or is it SIPB?), etc. are, then the names are problematic.

I do think it's time for Sage Group to really accelerate the international expansion of the Medium Segment group. Yes, I know it takes capital to expand into a country but firms only replace their core systems once every decade or so. The opportunities that are missed now might not come around again for a long time.