Taking stock of the Deloitte Digital/Rootstock alliance in a trifurcated ERP market
- This deal is a bit different from the usual vendor/implementer alliance story. There’s a decent mid-market angle here that many implementers can’t/won’t enable. There’s a good culture fit and a mechanism for a global deployment capability.
Last month, cloud ERP vendor Rootstock announced it has inked an alliance with Deloitte Digital. The new relationship will serve manufacturers with revenues in the $50 million to $2 billion range. Rootstock’s software is built on the Salesforce platform and Deloitte Digital has a long-standing relationship with Salesforce. The official announcement can be found here.
I spoke with Rootstock’s CEO, David Stephans, and Deloitte Digital partner Camil Bourbeau about this relationship. Here are the highlights of that conversation.
Bi-/Tri-furcated ERP markets
The ERP software market is a trifurcated market. There are solutions for small, mid-sized and large enterprises. Unfortunately, the ERP services market is mostly a bifurcated space where there are implementers/integrators who serve either small businesses or large enterprises. The mid-market is a poorly served space.
Why is this? Many mid-market manufacturers have some multi-national operations. But, few implementation partners, except for those that cater to large enterprises, have:
- Local, in-country personnel to do integrations, data conversions, etc. tasks
- Expertise in local regulations, compliance matters, etc.
- An ability to hire, pay, etc. people in another country
- Methods and practices to effectively utilize a multi-national workforce on a multi-national implementation
In fact, to establish a presence in another country, a systems integrator may have to shell out $10-30 million per country to create such a foothold. It’s simply too expensive and too risky for many smaller implementers.
Larger implementers have the infrastructure, local personnel, local regulatory knowledge, etc. to serve the mid-market but many prefer to stay focused on large enterprise deals. Those bigger deals often have comparable cost of sales as mid-market deals but they offer an opportunity to have more people chargeable for a longer period of time. It’s often a choice that bigger implementers make so as to maximize margins and firm profitability.
What’s different in this alliance is that Deloitte Digital already has a long-standing relationship with Salesforce. They have many clients using Salesforce and they have numerous dedicated resources who are familiar with the Salesforce technology stack. For Deloitte Digital to cross-sell into its pre-existing Salesforce customers is a far easier effort as it already has pre-existing customer relationships. Their cost of sales should be less. Moreover, Deloitte Digital can enhance the chargeability of its Salesforce-trained personnel.
Deloitte’s Bourbeau added that Salesforce has a big mid-market focus in manufacturing and that Deloitte Digital likes to go to market with Salesforce.
This deal, in effect, is accretive to Deloitte Digital’s business.
The growing relationship
I learned that Deloitte Digital and Rootstock have been informally working together for years. They already have two very substantial joint clients. One is a major government entity. The other is a very large advanced manufacturer of cutting-edge products. Both customers are moving Rootstock ever more upmarket.
The relationship even goes back further as Deloitte Digital used to work with Kenandy, another ERP solution built on the Salesforce platform, before Rootstock acquired Kenandy.
Rootstock’s Stephans indicated that Rootstock has already invested in this relationship. They’ve hired a new SVP of Alliances. This person has a number of joint metrics and targets re: Deloitte Digital initiatives. Additionally, Stephans indicated another dedicated alliance resource is coming on-board at the end of this month.
The companies are currently prioritizing a focus on North America and other global regions where the three partner organizations—Rootstock, Salesforce, and Deloitte Digital—already have a strong presence. For example, Japan is a prospective region of focus.
Deloitte Digital is evaluating the addition of Rootstock’s cloud ERP solutions to its “Smart Factory” demonstration facilities in Montreal, Germany and the US. These centers will permit prospective Rootstock buyers to see both Rootstock’s applications and how they can be used with advanced manufacturing technologies (e.g., IoT).
I asked about the alignment of people and cultures between Rootstock and Deloitte Digital. Bourbeau stated that the trust between the two firms has been very good to date. The two firms go into new deals as one team. Both firms appreciate the other’s team members. David intimated that both firms let their people achieve what they want/need in a career.
A recent manufacturing survey conducted by Rootstock revealed that there’s significant interest in updating / replacing ERP solutions and driving digital transformation. Stephans is confident that this relationship is timely as it helps manufacturers enable strategic investments especially in a difficult macro-economic environment.
Lots of vendors announce a lot of partnerships but not all of these are consequential or newsworthy. Many of those will be specific to a very limited geography. Some will be limited to very small customers. Some will be with partners that won’t or can’t invest in the relationship.
This one is fairly interesting, not just for the points above, but also because a firm like Deloitte Digital is only going to have a couple of relationships with ERP players. They would only want to train and develop a cadre of skilled personnel for a small number of vendor solutions. To create a relationship with Rootstock (and not others) is notable.
I also liked that Rootstock’s CEO was on the call. Software CEOs usually only get personally involved in big deals – deals that they will likely promote and make efforts to drive lots of long-term deal success. David is already investing in this relationship and I doubt Rootstock would abandon it any time soon.
Mutual customers of Deloitte Digital and Rootstock should benefit from this relationship. Mid-market firms often struggle to find implementers with any kind of global breadth and depth. This deal is a great value creator for mid-market firms who have some measure of global operations.