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Aria Systems provides companies with software for managing subscription or recurring revenue business models. A recurring revenue business models includes three types of selling and billing structures: 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. Aria’s cloud-based software addresses key requirements of users in the marketing, sales, operations and accounting functions in this type of business.

Recurring revenue, first popularized in the telecommunications industry, is increasingly common in others. It is well suited to companies accessing software and hardware technology as a service through cloud computing. For example, has a strong impact in the entertainment business, as customers subscribe to rent movies, music and other creative digital products instead of owning them. In general recurring revenue is attractive to providers of services or products because it establishes a regular, predictable income stream as long as they retain the customer. In using it it’s essential to handle interactions smoothly and completely in order to sustain customer engagement and maximize each customer’s lifetime value. Software is an essential element to successfully doing so.

Aria’s software is designed to help companies maximize customer lifetime value in three main ways. First, it is designed to help create a positive customer experience with every interaction. In our benchmark research on recurring revenue,vr_Recurring_Revenue_03_recurring_revenue_challengesmaintaining customer engagement is the most frequently cited challenge in businesses that use it, cited by 55 percent of participants. Having repeated positive interactions can be an important determinant of renewal rates. Renewals in turn are a key driver of profitability in these businesses because of the relatively high cost of adding a customer. Along those lines, 39 percent of participants  cited customer retention as an impediment. 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.

Rather than treating billing as a purely functional accounting event, Aria’s software enables a company to automatically incorporate personalized usage tips or customized thank-you messages in anticipation of an approaching anniversary (and renewal) date. It also can automate up-sell and cross-sell messages tailored to each customer. Nearly half (46%) or organizations said cross-selling and up-selling are difficult. This may be because they can’t engage effectively with existing customers. Multiple internal factors may affect this, such as a poorly designed marketing program for existing customers, a lack of skilled agents for performing ongoing interactions or technology limitations that prevent a company from creating or executing an effective customer nurturing program. Using software to craft an automated process for deepening customer interactions can be a way to enhance engagement. Companies that find it difficult to up-sell or cross-sell also may discover that for some customers its primary service is of limited importance. This may be because they don’t want to consider a more expensive, deluxe version or add-ons. Understanding which customers fall into this category is important so that up-sell and cross-sell efforts are focused only on those who likely to be receptive. Aria’s software enables business people to manage these aspects of the billing process without involving IT professionals.

Second, to support positive customer interactions, the software offers flexibility to quickly create and modify customer offers in a controlled fashion. Aria has a centrally administered catalog that defines the products, services and bundles on offer as well as their pricing, terms and conditions. In addition the software can handle a range of things that a company can bill for, including types of content, service levels, usage metering based on physical quantities, time or distance  or some combination of factors. Companies can define and manage offers based, for example, on the sales channel, geographic location or currency, and it can do that without requiring expensive and time-consuming customizations; thus a company can introduce innovations rapidly or react quickly to changes in its market. The control provided by such a catalog enables sales people to configure a set of terms and conditions that best match a current or prospective customer’s needs within established parameters. These limits ensure that the offerings balance flexibility and complexity. They enable administrators to limit the available pricing and terms to offers are that are profitable (or at least not loss-making) for the company.

vr_Recurring_Revenue_06_finance_less_satisfied_with_invoicingThe third factor is that, by managing the billing process in a continuous fashion, Aria’s software ensures complete accuracy. For anything more than a simple subscription invoicing can be a chore because customers often add or remove services to and from their contracts or negotiate a new billing method to suit their needs. It’s easy for those outside of finance and accounting departments to overlook the impacts on the department of not having a controlled end-to-end process, which can be addressed by using a dedicated application designed to support the billing process in a recurring revenue business. In our research only 29 percent of participants with finance and accounting titles said they are satisfied with their company’s invoicing system, compared to nearly half (47%) of those who work in other parts of their company. Managing the billing process from contract to cash in a single system provides a control mechanism that makes sure that the customer is not overcharged and that the company doesn’t suffer revenue leakage.  Another benefit of the software is that by managing the process from end to end it ensures the integrity of the data used in the billing process and eliminates the need for time-consuming checks and reconciliations that are necessary when, for example, the same data must be entered into multiple systems or when companies use spreadsheets at any point in the process to move data from one system to another or to handle adjustments or allocations. A well-designed billing system also facilitates the revenue recognition process.

Some companies sell directly to customers either through sales people (assisted selling) or a commerce website (unassisted selling), and some do both. Where subscription-like services are concerned, using a centralized catalog as the authoritative source for controlling offers ensures that the offers are valid and consistent with policies. For directed selling, Aria’s offers integration with the salesforce.com CRM system to ensure data in the two systems is synchronized. The software can be integrated with a company’s e-commerce site and enable offers and promotions tailored to specific buyers based on their relationship with the company, their location, past buying history or other factors. For both types of selling, the software facilitates testing of plans, promotions and services to determine the best approach to use. Users can apply effective dating to turn promotions on or off automatically at set times.

Aria’s built-in analytics addresses the needs of various roles in managing the recurring revenue business. Analytics is necessary to measure and monitor the health of a business. Having up-to-the-minute data digested and displayed for specific roles and responsibilities supports faster, more coordinated responses to market developments. Confirming its importance, most (82%) of the participantsvr_Recurring_Revenue_08_analytics_most_important_for_recurring_revenuein our research chose analytics as an important new technology necessary to support their recurring revenue business.

Not every company needs a dedicated application to manage its recurring revenue business. Those with simple offerings that rarely change over the term of the subscription are likely to find that their ERP system will serve their needs. However, companies that have even moderately complex offerings, that serve a diverse set of customers or that need to be nimble in managing offers and promotions will find that a recurring revenue application improves their performance. Our research finds that users of dedicated third-party software said they are satisfied with its performance more often than those using any other method: 86 percent said they are satisfied or somewhat satisfied with it, compared to 70 percent of those that use their ERP system and just 40 percent that use spreadsheets. I recommend that companies that have recurring revenue businesses assess whether dedicated software can help their performance and, if they so decide, they should consider Aria’s offering.

Regards,

Robert Kugel – SVP Research

Workday Financial Management (which belongs in the broader ERP software category) appears to be gaining traction in the market, having matured sufficiently to be attractive to a large audience of buyers. It was built from the ground up as a cloud application. While that gives it the advantage of a fresh approach to structuring its data and process models for the cloud, the product has had to catch up to its rivals in functionality. The company’s ERP offering has matured considerably over the past three years and now is better positioned to grow its installed base. Workday recently added Aon, the insurance and professional services company, to its customer list (becoming its largest customer to date) and reported that its annual contract value (ACV – the annualized aggregate revenue value of all subscription contracts as of the end of a quarter) has doubled since the second quarter of this year, albeit from a low base. This is an important milestone because for years the company’s growth has come from the human capital management (HCM) portion of the business, not financials. Workday has around 160 customers for its financials (more than 90 of which are live) compared to more than 1,000 customers for HCM.

The latest release of Financial Management, Workday 25, enhances its analytics and dashboards, including an audit dashboard with 14 prebuilt reports that can, for example, flag issues in separation of duties. The company’s Composite Reporting, introduced last year, enables users to automate the assembly of highly configurable reports that can combine operational and financial data to provide a more complete picture of a company’s performance without having to use a separate business intelligence system. These multidimensional reports also enable users to drill down and around to underlying information – the why behind the what. The ability to quickly get to authoritative numbers that describe the underlying causes of issues and opportunities does away with delays in people “getting back to you with that information” and enables faster response to changing conditions. These reports can be viewed on mobile devices to enable more interactive dialogues about a company’s condition and performance.

Workday 25 also adds an inventory module to address the need of many services companies to manage their indirect inventories (materials that are not incorporated in final products such as computers or facilities maintenance items) on an end-to-end basis (which speeds their completion and ensures data integrity). It also has improved its global configuration engine to make the product more useful to entities around the world (including subsidiaries operating in jurisdictions in a range of countries). And now the mobile expenses app finally includes direct posting from captured receipts rather than requiring manual entry.

Reflecting the maturing of its Financial Management offering, management will assign all of its salespeople quotas for this product in the upcoming fiscal year. Achieving a large, sustainable presence in the ERP segment is essential to Workday’s long-term success. Longer-term prospects for the financial software are best understood in the context of the evolving ERP software market and the company’s strategy of positioning its offerings as easier to own and use than others.

The outlook for the multitenant software-as-a-service (SaaS) ERP market – which will impact Workday – is simultaneously encouraging and vr_Office_of_Finance_20_finance_prefers_on-premiseschallenging. Revenue and user growth in the ERP segment of enterprise software (both in the cloud and on-premises) is coming almost exclusively from cloud adoption, mostly in a multitenant format. At the same time, however, our Office of Finance benchmark research finds that nearly half (46%) of participants still say their company prefers to deploy its ERP systems on-premises. (By analogy, on-premises ERP may be a dinosaur, but we’re only at the start of the Cretaceous period and extinction is a long way off.) That insistence apart, the percentage of on-premises ERP has been declining and likely will continue to decline over the next five years. One reason is that resistance to the cloud for security reasons in this category is waning. An increasing number of companies are realizing that their on-premises servers are likely to be more vulnerable than those operated by a cloud ERP provider. For many companies, a cloud deployment can provide higher quality of service than on-premises (because of better hardware and the greater competence in maintaining the software compared to one’s internal IT staff), and its total cost of ownership can be lower.

However, anyone looking for a replay of the rapid-growth, 1990s-era ERP client/server applications market will be disappointed. Multitenant cloud software doesn’t have the substantial advantages that vr_Office_of_Finance_01_ERP_replacementclient/server had over the mainframe applications of that era nor the Y2K rationale for immediate replacement. Demand for financial management systems in midsize and larger corporations is almost always driven by the need to replace an existing one. Our research also shows that replacement has slowed over the past decade. Companies are changing ERP less frequently than a decade earlier, on average every 6.4 years as opposed to 5.1 years in 2005.

Another significant challenge for multitenant SaaS ERP vendors like Workday is that their market potential is actually constrained by a key benefit of multitenancy. Because buyers configure the features and capabilities rather than customizing the core code base, implementations can be done faster and cost less. Note, though, that ERP deployments by large, complex organizations are still difficult. For example, Aon expects to spend 14 to 15 months implementing Workday Financial Management. A related benefit is that since all customers are running the same code base, when the software vendor issues new releases or modifications to the software, those changes are quickly made to the code that everyone is running, either immediately or after a grace period. This requires far less work for the customer than on-premises versions and patches. Moreover, the changes are implemented accurately and securely. The trade-off, however, is that the core software cannot be customized. If the cloud software offering cannot be configured to meet the customer’s feature, functionality and process requirements, and if a potential customer cannot adapt its operations to these limitations, it isn’t a feasible solution. Unlike with on-premises software, there is no option to customize multitenant SaaS offerings to the needs of a single customer unless the vendor is willing to make changes to its code base within timing acceptable to the customer. So Workday and other cloud software vendors are finding it necessary to target specific types of businesses in order to focus development efforts on specific business needs. In this company’s case, for Financial Management these verticals are chiefly financial services, business services, software and Internet services, higher education, government and nonprofits.

On the other hand, some software categories lend themselves to a multitenant SaaS environment because the needs of most companies are easily accommodated through configuration. Sales automation, travel and entertainment and human capital management are in this category and consequently have benefited from rapid adoption.

Not so with ERP, which is less amenable to the SaaS multitenant model because of the inherent complexity of the business processes the systems manage and the difficulty in creating SaaS offerings that are sufficiently configurable – as I’ve written previously. This is one important reason why on-premises remains an attractive option; even though sales in this segment are not growing, they are still a large percentage of the market. ERP systems must be able to handle the specific needs of users, which can differ considerably from one industry to another and even between specific microverticals. A large company’s ERP requirements might span multiple business units in multiple industries in multiple locations and jurisdictions. Many manufacturing and product-centric businesses have found multitenant offerings impractical because their requirements cannot be met by available software. Workday is not targeting these types of companies.

As resistance to cloud-based ERP wanes, Workday will benefit as ERP software buyers evolve from a nearly complete focus on features and functions to a more nuanced set of requirements that include ease of use, reliability and security. The maturing of the category and advancing technology are behind this shift. Total cost of ownership and the ability to meet business requirements are becoming gating factors (packages that don’t fit the basic needs don’t make it to the short list), but increasingly vendors will have to differentiate their ERP software based on the user experience and – for cloud services – the ability to minimize disruptions and eliminate vulnerabilities to disasters and hackers. From the start, Workday’s product strategy has been to provide customers with a user experience that addresses many of the issues that business users have had to date with ERP systems. Its focus on providing a practical, pleasing and productive working environment gives it an edge in successfully addressing the needs of companies that do not have complex operating requirements. For example, Composite Reporting makes it easier (compared to many on-premises systems) for companies to get actionable information out of the software by combining analytical capabilities with transaction management. Technology limitations made this extremely difficult until recently and forced companies to invest in and maintain business intelligence and reporting systems. (This capability is not unique to Workday and is likely to become a baseline requirement for ERP systems within the next several years.) Another objective is to simplify the process of creating dashboards and reports in order to provide individuals with the information they need and to do so with the shortest possible time lag. Having a rich set of employee data in the same data structure as the financials, companies that are in people-centric businesses can find it easier to create performance metrics to improve management effectiveness.

Workday’s Planning application (due for release in 2016) also illustrates its approach to using technology to provide a better user experience. Does the world need another planning application? At first glance, not really. The category at the enterprise level is decades old. Perhaps because of that, our 2015 Business Planning Value Index confirms that the category is a commodity. Although there are differences among the packages offered by vendors that can drive preference, all that we evaluated rated highly in handling this task. Their plusses and minuses netted out to a tight range of scores. Moreover, at this stage in its evolution Planning lacks many refinements that are useful for companies operating in dynamic business environments. But unlike other planning applications, Workday Planning is not designed to address complex planning requirements in dynamic business conditions. It is designed to address the needs of organizations that must manage to fixed budgets. This group includes higher education (especially universities with limited commercial or for-profit activities), government and nonprofits – key targeted vertical industries for Workday. Unlike business enterprises that operate (largely) from a common pot, departments and other units are allocated specific amounts at the start of the fiscal year and are not permitted to exceed that amount. Properly configured, Workday Planning can alert department heads, controllers and others when there is a risk that a limit will be exceeded at the point where a purchase order is entered into the system and before it’s approved. In some cases, predictive analytics can be used to generate alerts if it looks as if specific funds accounts are in danger of being overspent. In these types of organizations, the focus on simplicity of use and native integration with the general ledger should help attract buyers since it is often the best way to ensure high participation and compliance.

Very soon “the cloud” will cease to be a point of discussion. It’s likely that within a decade software as a service will be the favored means of consuming ERP functionality, either in a multitenant or a hosted single-tenant format. Shortly, software vendors, industry analysts and journalists will have to focus on the more substantive qualities of specific business applications. In this era, total cost of ownership, system performance and security will be pass/fail gating factors in selection. For vendors offering multitenant services, the ability to configure their offering to suit the operating needs of the company (highly objective) and the user experience (highly subjective) will be the key determinants driving preference. Workday has succeeded in creating a brand image that emphasizes a useful, simpler user experience. Its strength in HCM provides an advantage in selling Financial Management into these companies. However, it also will be facing stiff competition from other vendors (especially Infor and Oracle) in its targeted verticals. Financial Management has advanced significantly over the past several years. To achieve a significant position in the ERP market, it will be necessary to sustain a rapid pace of product development to expand its scope of configurability and keep pace with a rapidly evolving set of user experience norms.

Companies that find they need to replace their ERP system should assess whether the available multitenant offerings can address their requirements. To do this, they need to sort out requirements that are essential to running their business from those that can be adapted to the capabilities of the individual offerings. I recommend that organizations on Workday’s list of targeted verticals investigate whether its Financial Management application will fit their needs.

Regards,

Robert Kugel – SVP Research

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