Enterprise software companies, along with their customers, are in the midst of a transition to a modern, digital world that's quite different from the one they used to operate in. This week in Amsterdam, Unit4 unveiled the latest iteration of its transformation from a traditional ERP vendor to a digital business platform provider. My impression is that the company has made a lot of progress on that journey, but there's still more ground to cover.
There are several vectors on which to measure progress. The make-up of the customer base, the evolution of the vendor's offerings and underlying technology, and how it positions itself to the world — all play a part in forming the overall impression.
The most concrete measure is the customer base, which in turn determines the company's revenue mix and thus its financial wellbeing. Unit4 appears to be making solid progress on this vector, with SaaS revenues now making up more than two-thirds of its total software revenues. This is important because SaaS means growth, whereas traditional perpetual license sales are in decline. As CEO Stephan Sieber candidly remarks: "That declining on-premise business is hurting us less and less."
People business verticals
In 2017, SaaS bookings grew 38% and accounted for two-thirds of the company's new customers. This not only marks a shift to a cloud-based delivery model but also shows off the momentum in its strategy of focusing its SaaS offerings on four key people business verticals — professional services, public sector, higher education and not-for-profit. This means Unit4 is seen as a cloud ERP vendor that offers meaningful solutions to business problems, says Sieber:
We have more differentiation through that vertical approach. We're really perceived by clients and by prospects as a tech vendor that doesn't just come and say, 'We can do it as well,' but we come with a differentiating story.
The company is also winning customers in other services verticals, and there are on-premise wins as well as cloud, particularly among public sector clients and in geographies where Unit4 can't offer hosting in a local Azure datacenter. But migration from on-premise ERP to the cloud is also accelerating, he says, although Unit4 is letting customers choose their own timing rather than forcing the pace:
We offer them choice and that is actually what they like. We don't threaten them. We don't blackmail them. We don't take releases out of maintenance in a crazy way. There is a maintenance policy that we have and that we continue to deliver.
We give them a lot of headroom plans and we give them choice and options. And we entertain very honest and thorough conversations about the benefits of a cloud migration, the benefit of an ERP landscape or a business application landscape in the cloud. Ultimately, the vast majority of the customers say, 'That's where I want to go, but I can't do it now. I probably want to do it in six months.'
Adapting to an XaaS future
To encourage businesses to make that move to cloud ERP, Unit4 has a new message based around the concept of Everything-as-a-Service, or XaaS. At diginomica, we pronounce this 'x-ass' and we have our own take on what we call The XaaS Effect. In Unit4's lexicon, XaaS describes the new way that services businesses operate, enabled by modern digital technology.
Sieber highlights five key strands to XaaS — subscription billing, low barriers to entry, a very fluid workforce characterized by the gig economy, location-independent working, and a land-and-expand approach to customer acquisition. Unit4's own experience shows how the XaaS model is changing customer expectations and interactions, he says:
Traditionally on-premise vendors, like all technology companies, there was always, sales, professional services, R&D and customer support — that's how all the org charts were written. This is the ranking order of the hierarchy internally.
When you talk to customers today in this XaaS economy or SaaS economy, they actually look at the value chain exactly the other way around. They first want to understand, OK, if I sign up for your service, how do you help me to benefit from it? How do you continuously work with me to make sure that I benefit? That's customer support, in traditional terms.
The next question is, as you learn more about how I use your technology or how I use your service, how are you evolving your product in a way that it improves the benefits that I'm getting? That's R&D.
And then they come to, OK, now as you improve your product and deliver new innovation, how do you help me to digest it fast and to benefit fast? That's professional services.
Once you've answered those three questions, eventually they are willing to talk to a salesperson. Whereas in the past it was the other way round. Call it customer success or whatever fancy name you want to give it, that is for me the most important — probably the most challenging — but also the most promising aspect of the SaaS or cloud transition.
A global study commissioned by Unit4 finds that 85% of mid-sized and larger service businesses are already seeing XaaS having an impact on their products, services and pricing models. Although only a fifth say they have made significant changes, those that have made at least some change have seen increased income in 85% of cases, according to the research.
This new XaaS positioning wraps around the existing message of three years' standing that Unit4 provides a people-centric platform for enterprises where people are responsible for most of the work, and which helps them do that work more effectively. A subsidiary message is that further efficiencies are achieved by harnessing the power of artificial intelligence and machine learning to make software 'self-driving', for example through the Wanda intelligent assistant.
New product functionality
The final vector is all of the technology and product functionality that underpins and enables these grander goals. Here, the hard work of transition to a cloud-based, digital platform is mostly complete after a multi-year journey. Reflecting that progress, the product announcements this week concentrated on new functionality in the core product and enhancements to recent additions rather than any large-scale re-architecture. There was also an increased focus on speeding implementation processes for customers.
The most significant announcement is the introduction of a toolkit that allows customers and partners to build their own extensions to the core Unit4 platform. Initially available under an early adopter program, this taps into the loosely coupled, microservices-based architecture of the underlying platform. Rather than Unit4 setting up its own marketplace, finished extensions can be made available in other marketplaces such as those hosted by Azure or AWS.
We were not shown a demonstration, but product managers say this will be a low-code/no-code path to adding custom functionality alongside the core Unit4 applications, for example to bring in data from other sources or add functions such as learning management or talent acquisition. There is also an integration kit that connects third-party applications into the platform's messaging hub.
Demonstrating its willingness to work with third parties to add needed functionality, Unit4 announced a new partnership with US-based Humanitarian Software LLC to add its Humanitarian Enterprise Logistics Manager (HELM) into Unit4's solution for not-for-profit organizations. HELM meets the specific warehousing and distribution needs of those organizations working in humanitarian aid and disaster relief, adding specialist supply chain capabilities to Unit4's project accounting and financial accounting systems.
Unit4 also announced an Azure-native version of its prevero corporate performance management solution and the latest release of its Business World ERP platform. New features include additional support for revenue reconciliation, GDPR tools, a role-based workspaces user interface and the ability to search previous projects to use as a starting point for a new project. The platform also includes specific support for a number of digital government initiatives, from digital medical notes and reimbursements in Norway, through Making Tax Digital in the UK to the EU's Peppol specifications for cross-border digital procurement.
In line with many other cloud application vendors in the enterprise market, there's an increased emphasis at Unit4 on rapid implementation for quick business results, with more use of vertical templates and turnkey solutions for microverticals, known as value accelerators. This is one way in which the company is following the XaaS principle of reorienting around customer success, or as chief product officer Jeremy Roche calls it, a "value-based engagement methodology."
Now that the technology transformation is complete, the hard work begins. As in any digital transformation project, it's the change management that turns out to be the biggest piece. Unit4 is learning to work with customers in a new manner, delivering early results fast and engaging with them so that they continue to realize value from the relationship — even if that means adding functionality and data from beyond the Unit4 platform.
This next phase in Unit4's evolution still involves technology but a much bigger part is going to be the engagement model. That may be a larger project that the vendor has currently envisaged, but at least it has made a start and recognized that it means a significant change from how it used to do business.
Its customers too are undergoing similar changes, as acknowledged in the XaaS messaging. That part of the story still needs rounding out, I feel, with more explanation of how the People Platform helps customers adapt to an XaaS world. The ingredients appear to be in place but the full narrative still needs to gel over the coming months.