ERP and the slow road to the cloud

Unit4, like all ERP vendors, would love its customers to move to the cloud, but what can it offer to tempt them to make the switch?

Enterprise resource planning systems are not the sort of thing you adopt or switch on a whim. As a result, there is a lot of inbuilt inertia in the market, which could be mistaken for a slow pace of innovation. This is not the case of course, with moves to improve UI/UX, self-service, modularity, automation and cloud and hybrid options all disrupting the status quo - but slowly, and more for new customers than existing ones, who struggle to justify the cost and potential turmoil of replacing such a complex, mission-critical mainstay.

"The vast majority of ERP customers will tell you that their system works as it was intended," said Bo Lykkegaard, associate VP for software research Europe at analyst firm IDC. "If you ask the same customers is it ready for those new initiatives that you have going in terms of turning digital, in terms of having a more fluid organisation, typically the answer is no."

So, ERP vendors will have to continue to straddle two (or more) stools for years to come. Most innovation will go into the newer, almost certainly cloud-based versions, with legacy versions lingering longer than they might wish, as borne out by the experiences of Oracle and SAP, who have repeatedly had to extend the lifetimes of older systems.

"In order to win new customers, you need a next-generation ERP system," Lykkegaard said. "And as soon as you have that go-to a platform, in order to realise economies of scale you need people to migrate. And that's a big challenge for all ERP vendors because from the point of view of the customers, at least in the short term, they have something that works."

The slow road to the cloud

Unit4, which serves 6,000 mid-market, people-centric organisations around the globe, spent four years refactoring its ERP into microservices, to be able to offer just such a next-gen, cloud-based, modular solution. The Azure-hosted ERPx covers financial planning and analysis (FP&A), ERP and human capital management (HCM) functions, and became generally available last year. ERPx customers can pick and choose from a SaaS menu that includes Financials, HCM, Procurement and Projects, and more, and for Unit4 itself ERPx is the key platform on which new innovations are developed.

Nevertheless, chief product officer Dmitri Krakovsky insists the company is happy "meeting customers where they are", which is generally on-prem. So far, 130 customers have adopted ERPx, according to Krakovsky, with take up accelerating in line with the general adoption of cloud services during and after the pandemic.

"For most customers it's the default offering now," Krakovsky said.

That's as maybe, and it's early days, but 130 out of 6,000 customers is just 2.2% (the company does not provide revenue splits).

Krakovsky said that cloud "where our vision is", but conceded it will take time for this strategy to be fully realised. "It's not just our vision, I think everyone sees it this way, but we have to accept people will come at different speeds and paces," he said.

Indeed, Computing hears regularly from IT leaders who resent what they regard as being frogmarched to the cloud by enterprise IT vendors. It's incumbent on those vendors to continue to support existing versions, while making the cloud option more compelling, to offer features that only cloud can provide, and to ease the eventual migration process.

One way Unit4 is attempting to do this is through what it calls its Industry Mesh, which is a formal linking together of various cloud services and applications the customer is using. Integration is what ERP is all about, of course, but Krakovsky contends that most services deployed by organisations remain as islands because it is too expensive to cover the long tail. Unit4's customers typically use 100 to 200 applications, he said, but only the big ones, or those used by multiple or key departments - CRM, BI tools and the like - get integrated, while the more specialised or niche applications do not, generally due to the cost of managing the integrations.

"Companies say 'it's expensive, we have 100 of those, so we're not going to do it; our middleware for these will be Control-C, Control-V'."

The central idea of Industry Mesh is to integrate all these applications plus their data and offer them as a single, configurable, industry-specific product with default settings, rather than having to add each individually as an SDK or an API and manage them thereafter. Unit4 started by integrating 50 of the most commonly used services, and plans to eventually extend that number to the thousands. Customers can select the integrations they want - their favourite CRM, collaboration tool, CPQ - and the flows will work more or less out of the box, according to Krakovsky. And they'll keep working: "When things change in the universe we maintain it, we rewire it, so it becomes a product feature."

This is only possible because of the initial refactoring work that went into cloudifying Unit4's ERP and HCM software, which enables more granular access to APIs and allows new integrations to be created quickly and economically with lo-code tools, including programmable logical flows and messaging.

"As long as the thing has an API endpoint, you can create these things very, very fast," he said.

But could speed be the enemy of security? Unit4 CTO Claus Jepsen insisted that, despite the apparent simplicity of the lo-code user interface of Industry Mesh, the all-important compliance and access controls are very much in place below the surface when you create an integration.

"You get this layer of security added into the artefacts you may create. So you won't have employees in your organisation poking around payroll data, because it has to adhere to the same access rights," he explained.

Potentially, by integrating together lots of services and providing configurable defaults, the mesh model makes it easier to offer domain-specific functionality at scale. It embeds the expertise of multiple domain experts who have spent time visiting specific industries to discover their needs and looking for commonalities, Krakovsky explained. It's also about looking at what to connect to, how and why.

"There's no such thing as a 'Salesforce connector' because different businesses need different data to flow, some care about prospects, some only care about customers," he said. "So understanding the flows on the very granular or industry-specific level is what we're trying to do."

Innovations like Industry Mesh are a good move in making the cloud product more attractive, believes Lykkegaard, but a more important one is to increase reach, by integrating the ERP with other nearby service. In the case of Unit4, this might be Unit4 Financials (formerly Coda), which the company is in the process of refactoring. Another way, of course, is through acquisitions. Unit4 bought Danish SaaS procurement firm Scanmarket earlier this month, which should prove a relatively quick way of expanding ERPx outward from the firm's traditional focus on the CFO and towards procurement, with functionality including sourcing, spend analytics, supplier management and contract lifecycle management.

Alliance with the giants

Unit4 is one of the biggest Azure partners in Europe and a reseller of Azure services as well as using the platform to host its services. Asked whether Unit4 finds itself in competition with Dynamics 365, Microsoft's fast-growing, cloud-based ERP, Jepsen said the cloud vendors are always present ("for SaaS solutions there's always a hyperscaler somewhere") but that they depend on partners to do the customisation and implementation on the ground, whereas customers often prefer to deal direct with a company like Unit4.

However, IDC's Lykkegaard believes Dynamics is a "key competitor" to Unit4 because of Microsoft's footprint, the fact it embraced the cloud model a little earlier, and because it targets the same mid-sized organisations, but he agreed that Unit4's direct approach was an advantage, and that it makes the most of its 'people-centric' niche.

"Unit4 is small potatoes compared to big Microsoft, but that Microsoft partner is a small potato compared to Unit4."

Being based on Azure has plenty of advantages, argued Jepsen, not least taking care of trans-jurisdictional compliance challenges, including the insistence by a growing number of nations and blocs that data remain resident. This can be a major headache for cloud enterprise tech companies, because customers look to them to make compliance, as far as possible, a tick-box exercise.

"Microsoft spent a significant amount of energy understanding what is actually needed by law. And then they work further because they have huge interest in Office 365, so they drive that agenda with these countries. And we piggyback on all the work they're doing."

Same boat

ERP vendors would love to streamline their operations by having their customers move to the cloud, but they cannot force the pace. This is a story we've heard for a number of years and it while the pandemic may have upped the speed of adoption a little, it's still a blip in thebigger picture. Mid-sized vendors like Unit4 may be able to move faster than the giants, are focussed on innovation and have the advantage of dealing with clients directly, but it's all to play for, in Lykkegaard's view, with born-in-the cloud Workday having obvious advantages and with Microsoft and Oracle growing fast, having put in the groundwork years ago. "And don't forget the big gorilla, SAP," he said.

The slow revolution continues.