CEO conversations: On the ‘post-modern’ ERP system
Stephan Sieber was appointed the CEO of Unit4 earlier this year, after heading up its sales division for the previous two. He was previously with SAP for a decade and a half, and has seen the ERP industry make some of its biggest transitions – from the premise to the cloud, from large-scale software systems to more fragmented applications – during his tenure at the two ERP giants.
Enterprise Innovation sits down with Sieber to talk about the industry as a whole, where he sees it going, the challenges of ‘cloud-born’ competitors, and the everything-as-a-service business models that are fundamentally changing the revenue streams of companies.
Working for SAP and then moving to Unit4 must have been quite the transition. Was it more a cultural change or management change?
It has been a little bit of everything, but I have to say it’s been a pretty exciting, and sometimes fascinating change in many ways. I always say that Unit4 is big enough to be relevant, but still also small enough to be focused and really agile and close to the market, and be able to react and execute on a strategy. It’s fascinating because the market is so big and so full of opportunities that are just lying around. It doesn’t mean you can just grab them, you have to work quite hard to get them. Right now, our biggest problem is we have almost too many opportunities—we see almost too much demand in pretty much every geography where we are growing fast, and in pretty much every vertical we are entering. We could go and grow fast, but it’s also clear for an organization of our size that we need to be cautious about how fast we go because our resources are not endless. It's the same how the resources of SAP aren’t endless—we all have our limitations, just in a different scale or magnitude. But it’s exciting. It’s been very positive.
If you take the average through all analysts and market research and look at ERP growth over the last 10 years, the ERP market grew at 6 to 8 percent while the economy grew at 2 to 3 percent. So there is a certain higher growth in ERP technology than there is in the overall economy—that is predominantly driven through a deeper adoption of ERP technology in companies, and also by the fact that ERP is actually growing down-market. Even the smaller companies adopt these technologies now.
The exciting part of the software industry is where we are investing today a lot. I always make this differentiation between the software a company needs and the software a company wants. The software a company needs is the ERP piece—the transactional system that’s the backbone system. This is what is needed but doesn’t really excite customers much. It just needs to be there and do its job—it's like water, electricity and gas.
The software that companies want is more on the periphery of ERP. This is where our customers manage their talent, where they strategically manage their funds, their financial assets, and this is where they take care of the relationship they have with their customers. The universities do student management and faculty management; non-profit organizations do grants management, donor management, volunteer management; and public sector organizations manage their relationships with citizens and so on… this is where we are investing a lot.
What do you think are the core differences in the way that ERP for the public sector should be run compared to ERP for other verticals?
There are clear trends, for example, for the public sector to centralize operations into shared service centers. In some countries, it’s even down to the merger of municipalities. The political structure of the public sector is changing by just merging municipalities into larger bodies to generate economies of scale. In some geographies like the United Kingdom, Germany, parts of Scandinavia, and Canada, the political structures remain the same but they merge their back office operations, and they've had almost similar consequences.
In many shared service type of scenarios where public entities decide to operate their back office together – or at least don’t want to give away the option to do this at some point in time – the architectural aspect that ultimately drives down total cost of ownership is a unique differentiator.
I was talking to Zach Nelson of Netsuite and he mentioned the difference between someone like Netsuite and SAP is that, SAP’s had its traditional ERP system for a while whereas Netsuite has been ‘baking in’ the cloud from the very beginning. What’s your perspective on that?
I don’t exactly know what he means by ‘baking in’ the cloud, but if it means things like multi-tenancy, then I’m not super excited. Multi-tenancy is predominantly a benefit for the vendor - it’s not necessarily a benefit for the customer because the customer is just expecting the result. He doesn’t really care about multi-tenancy. For us as a vendor, multi-tenancy is very important because we can innovate faster at lower cost-and-time efforts.
But you also need to see where you need not have multi-tenancy because you also want to have segregation of data and stuff like that. I think there are always pros and cons, but clearly we are super excited about the cloud. We take today 70 percent of our orders as software-as-a-service, and sales bookings are growing at 40 percent. I think some of these born-cloud players have challenges to keep up with the growth we are delivering.