Unit4 Adds Financial Performance Management with Prevero Acquisition

Unit4, a Netherlands-based vendor of financial management software focused mainly on midsize companies, recently acquired prevero, a German vendor of performance management and business intelligence software. The acquisition reflects a convergence of transactional and analytic business applications, which I have written about. ERP and financial management software vendors increasingly are adding analytic capabilities – especially in financial performance management (FPM) – to the core functions of transaction processing and accounting to broaden the scope of their offerings.

For users of finance software the addition of analytic capabilities makes it easier to obtain useful information directly from their ERP system. Our Office of Finance benchmark research finds that companies are split on information availability: Half (50%) of participants said that it’s easy or very easy to get information from their ERP system, but nearly as many (48%) said it isn’t easy. One benefit of having analytics built into a transaction system such as ERP or financial management is that it automates and therefore often speeds up the transformation of data that’s collected into useful, digestible information. Our next-generation finance analytics research finds a tangible business benefit in doing this. Nearly all (86%) companies that said they have up-to-date data also said they are able to respond to changes in business conditions in a coordinated fashion, compared to 38 percent in companies that said that most (but not all) data is current and just 19 percent of those whose data is less than up-to-date. From the vendors’ perspective, the integration of the two categories helps them increase revenue from customers, differentiate their offerings in a highly commoditized market and enhance the “stickiness” of the software by increasing the number of process and user touch points in customer organizations.

Midsize companies have essentially the same capability requirements as larger enterprises, but they typically have less money and fewer IT resources to acquire and maintain business software. Vendors that focus on this market segment have sought to respond to this situation by enabling specific types of businesses to cut implementation times and simplify maintenance. In Unit4’s case these categories include business and professional services, higher education, nonprofit and government. Cloud-based applications sold as a service address the cost and IT resource challenges better than on-premises systems by cutting the initial investment and eliminating the need for internal staff to manage the software. Integrating FPM software adds substantial value because it greatly simplifies the process of getting useful information out of the ERP system (in the forms of reports, up-to-the-minute dashboards and scorecards) as well as planning, budgeting and statutory consolidations that interact with the transactions systems. This is important for business and professional services companies, which need to minimize administrative staff, and to higher education, non-profits and government agencies, which have limited operating budgets and historically have had a hard time attracting IT talent.

The Prevero acquisition is a strategic step for Unit4 since it is likely the most cost-effective approach to adding analytics (including purpose-built predictive analytics) and FPM to its financial management offerings. This purchase has the potential of increasing the company’s annual recurring revenue for new and existing customers, and in any case, it will increasingly become necessary for any vendor to be competitive in the ERP and financial management categories. Prevero’s project management capabilities also are a good fit for Unit4’s professional services vertical and a useful feature for bridging annual budgeting and long-term planning, in which projects and major initiatives can span multiple fiscal years.

Practically speaking, however, Unit4 faces several challenges in challenges in absorbing prevero, beginning with integration of the software. Initially it can be easier to achieve a workable integration of cloud-based products than on-premises ones, but shortcuts may not eliminate the need for more comprehensive changes over the longer term. This is especially important for creating offerings tailored to the specific needs of targeted industries. For example, Prevero’s user interface is adequate today but will require significant updating to remain competitive. Although the two product lines are a great fit, financial management and FPM have different audiences in the buying process (even if the CFO and the controller are important in making the ultimate decision for both). Additionally, Unit4 will need to devise and implement sales training and marketing programs for effective cross-selling. Furthermore, part of Unit4’s growth strategy is to expand its presence in the North American market, but Prevero’s customers are mainly in Europe, and there are subtle but important cultural differences between the two (for instance, in attitudes toward the budgeting process) that will have to be addressed in localization of the software.

Nevertheless, bringing integrated FPM and analytics capabilities to Unit4’s financial management software can benefit both current and potential customers. I recommend that they monitor the product roadmap closely to understand when specific capabilities will become available. Prevero’s customers are likely to benefit from the investments that Unit4 will make in the software generally and the user experience in particular. At the same time, there are always uncertainties when any software company is acquired. Interested parties should watch how Unit4 addresses them over the coming year by clearly communicating its intentions and progress to these objectives.

Regards,

Robert Kugel

Senior Vice President Research

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Recurring Revenue Billing: Where Back Office Meets Front Office

Invoicing and billing are mundane business activities that hardly anyone outside of the accounting department cares about, but they are where the back office meets the front office. How well a company handles the process of getting paid by its customers can have an impact on its relationships with them. Like most of the details of business process execution, the impact of substandard invoicing and billing is rarely obvious or even of interest to senior management. That said, like trimming scrap rates or increasing sales pipeline conversion rates by a couple of percentage points, achieving consistent incremental gains in the “little stuff” of business usually translates into greater competitiveness and better financial performance.

Conversely, when invoicing and billing are not properly managed they can diminish the performance of a company in two respects. This is especially important for companies that use a recurring revenue business model. The most obvious is that inaccurate bills annoy customers when they’re overcharged and lead to revenue leakage when they are undercharged. Especially in recurring revenue businesses, invoicing and billing can be complicated. Unless a company utilizes software designed specifically for managing recurring revenue, these complications (such as ongoing changes to the customer’s service and promotional pricing periods) can increase accounting department workloads or constrain the ability of marketing and sales to create offers and subscription plans because of those workload concerns.

The recurring revenue model has grown in popularity with providers of services or products because it establishes a regular, predictable income stream as long as the business retains the customer. There are three basic types of selling and billing structures in recurring revenue business model: a one-time transaction plus a periodic service charge; subscription-based services involving periodic charges; or a contractual relationship that charges periodically for goods and services.

Companies that bill annually for a simple subscription is likely to find that they don’t need dedicated recurring revenue billing software because their ERP system can meet its requirements. On the other hand, companies that bill monthly and have any sort of complexity in how they bill for services should look into using a dedicated application designed to handle more demanding requirements. Our recurring revenue benchmark research finds that complexity is relatively common. Half (52%) of companies that use a recurring revenue business model employ four or more types of billing methods. At least one-third use methods that are time-consuming to handle manually (such as an introductory free or discounted period or one-off charges) or that are usage-based (35% have usage-based charges, and 49% have charges based on hours worked).

Quality of service is a metric that companies use to assess how well they meet the needs and expectations of their customers. Achieving a high quality of service in invoicing and billing is essential for recurring revenue businesses to acquire and retain customers, so it’s necessary to handle interactions smoothly. Software designed specifically to handle invoicing and billing for recurring revenue businesses can help ensure high-quality service because it has a direct impact on customer experience. In our research on recurring revenue, improving customer experience was the second-most often cited objective in using the recurring revenue model (by 68% of participants) after increasing revenue (80%). Having repeated positive interactions can be an important determinant of renewal rates. Renewals in turn are a key driver of profitability for subscription-type business because of the relatively high cost of replacing a lost customer. Moreover, since a company’s costs related to its recurring revenue business are relatively fixed in the short term, almost all the impact of lost revenue drops to the bottom line, depressing profits.

Adding to the challenge posed by multiple types of billing arrangements is that historically execution of the order-to-cash process has been fragmented, with each part of the business doing its own thing and managing its activities. This leads to fragmented data as information is entered manually in multiple systems. When data is entered multiple times, inconsistencies and errors are almost inevitable. Last-minute changes in the contract or a purchase order may not be entered everywhere or at the same time. After a couple of months, customers may add or subtract services, and these changes may not be reflected accurately in every system at the same time. For some types of services, data needed for usage-based billing is created in some physical device (such as counting the number of CPU cores used by each customer per unit of time, the minutes of connection time to a call center or the volume of data processed in a billing period). All these complexities and changes can create billing errors.

A dedicated invoicing and billing system is particularly useful for companies that have usage-based billing, especially if customers are utilizing a physical device. Some systems can be set up to collect usage data automatically from that hardware, ensuring accuracy and eliminating several steps necessary to pull data from the system and re-enter it into the invoicing system. When data from one system is re-entered manually into another, it usually requires checking to ensure that the data in the invoicing system is accurate and complete.

In situations such as these, finance departments wind up bearing the brunt of data fragmentation, a fact that is rarely appreciated by the rest of the company. Since finance professionals can’t take for granted that the billing data is utterly reliable, they have to construct enormous spreadsheets to reconcile information about the customers’ services, pricing, the contract terms, usage and other aspects that are stored in each of the systems. It takes time and experience to work through the reconciliation spreadsheets. The more variations in the services and products offered, the more complicated and time-consuming the reconciliation process becomes. Therefore, it shouldn’t be a surprise that our research reveals that those working in finance and accounting organizations are far less happy with their company’s invoicing process than everyone else: Only 29 percent of them said they are satisfied with it, compared to nearly half (47%) of people working in other parts of the company. One way of dealing with complexities is to put tight controls on what sales people can offer and what product managers can introduce, but this isn’t a good solution. It might save time spent by the accounting department, but it can make the company less competitive. Moreover, it’s unnecessary when capable software is on hand.

Dedicated billing systems designed for companies that offer recurring or subscription services make it easier to give finance and accounting departments tools they need to perform their jobs well without diminishing the company’s ability to introduce new products or features quickly and without severely limiting sales teams’ flexibility in negotiating pricing, terms and conditions. These dedicated billing systems provide finance and accounting groups with controlled, accurate and up-to-date billing information so that invoicing becomes easier and more reliable. They can substantially reduce or even eliminate errors, which speeds up collections, and they enable companies to handle customer billing inquiries quickly. Automating the process reduces the need for administrative or operational overhead, thereby cutting costs. This facility probably accounts for the research finding that almost all (86%) of users of dedicated billing systems said they are satisfied or somewhat satisfied with them, more often than those who rely on their ERP system (70%) and far more so than those who use spreadsheets to support their process (50%).

A well-designed and -implemented recurring revenue billing system usually will automate the revenue recognition process to make it completely reliable and easier to audit. Companies that try to manage revenue recognition in desktop spreadsheets almost certainly will find that keeping track of even slightly complex services is difficult and time-consuming. It’s even more difficult in recurring revenue businesses because customers frequently modify or change their contracted services or products. Keeping track of what revenue can be recognized and when is even more difficult to do in a spreadsheet when new users sign on or customers decide to add or drop features,  or respond to a new marketing offer.

Companies that have even moderately complex recurring revenue business models should investigate using dedicated invoicing and billing software. Before investing in such software, though, they should think ahead about how it will be implemented – especially how the system will capture contract data, contract changes and usage data – to be sure of making the most appropriate choice of product.

Regards,

Robert Kugel

Senior Vice President Research

Follow Me on Twitter @rdkugelVR and

Connect with me on LinkedIn.