2007 - a year of turmoil in the financial systems marketplace
As we head towards the end on 2007 I suspect that many market participants will welcome the opportunity to catch their breathe and take stock of a year marked by significant acquisitions. Whilst 2006 was a year marked by consolidation in the ERP market, 2007 is notable for consolidation in the performance management space and renewed vigour in the mid-market.
It is fair to say that much of the activity this year was predictable but the speed of change probably caught some people off guard. The coalescence of traditional Business Intelligence players and Business Performance management suppliers was widely expected but the collapse of these newly formed software giants into the ERP vendors happened with breathtaking speed. For example, no sooner had Business Objects acquired Cartesis (which itself had made several acquisitions in quick succession) then Business Objects was folded into SAP which had acquired OutlookSoft along the way. Similarly Hyperion was merged with Oracle leaving Cognos out on a limb as one of the few 'independents'. But it was not long before Cognos fell victim to a takeover by IBM
As a result of all of these deals the software landscape has been dramatically re-shaped. Business Intelligence as a discrete sector has all but disappeared and the ERP vendors now enjoy the lion's share of the performance management market. What remains are either enormous software vendors or small niche players with very little in between.
The ERP space is 'owned' by SAP, Oracle, Infor and Microsoft which all have formidable performance management solutions as well. SAS and IBM, neither of which have an ERP base of their own, appear to be positioned as strong infrastructure companies, capable of delivering a wide range of data management capabilities as well as performance management solutions.
Outside of these software giants 2007 has seen the growth of the niche players – quietly ploughing their own furrow. CODA, has expanded geographically as well as broadening its capability across the finance function, especially in controls and compliance. COA Solutions another British provider has concentrated on the UK market, building niche capability in analytical solutions, such as People Analytics . It also acquired Version One which continues to dominate document management in the finance function. Agresso too has been quietly building business as a provider of ERP solutions specialising in services based organisations.
Outside of the ERP pack, Clarity Systems has emerged as a developing star in the performance management space having developed specialised products for financial reporting. Its novel FSR product which delivers automated statutory filings and other documents from its consolidation system (or other consolidation systems) has deservedly attracted a lot of customer interest. It is also reaping the rewards of remaining private and independent in the face of widespread market turmoil.
Fortunately, 2007 has seen an easing in the pace of regulatory change affecting the finance function. After the introduction of Sarbanes Oxley, IFRS and Basel 11 a few years earlier, the finance function has had relatively little new legislation to take on board. In fact there are signs that regulators are recognising the need for simplification with an influential group being set up in the US entirely for this purpose and the acceleration of US-GAAP to IFRS convergence . Attention is now turning to draft proposals for the application of IFRS to mid-sized companies and hopefully the lessons learned from the last two years will ensure a realistic approach to the eventual implementation of any new standard.
Continuing the subject of financial reporting, great store is being placed in XBRL, the emerging global standard for tagging financial information so that it can be analysed and reported electronically. With the full weight of SEC backing the standard looks as though it may become mandatory but the next few months will be critical as voluntary filing programs take their course and users of financial statements give their feedback on the newly released US GAAP taxonomy for XBRL.
2007 has also been marked by rapid change in the mid-market. Sage has been under attack from all sides as Microsoft and SAP aggressively target fast growing companies in this sector with new products. SAP has nailed its colours to the Software as a Service (SaaS) model - where software is delivered on a rental basis over the web, cutting out the need for heavy IT support and infrastructure in house. Microsoft on the other hand has launched new products at the low end, such as Microsoft Office Accounting , which is free to download and strongly leverages the integration with Microsoft Office.
Although the renting software over the web is becoming more popular, for example, SalesForce.com, it remains to be seen whether accounting software vendors promoting the SaaS way of doing business will ever enjoy the same level of popularity.
Outsourcing continues to thrive as an industry although it too has witnessed significant structural change. The trend towards multi-sourcing of smaller contracts of more limited duration continues unabated as companies seek more manageable arrangements. But there are also signs that the types of outsourcing options on offer is growing as companies keen to reduce their cost base examine the merits of HR outsourcing as well as finance and administration.
So what will happen in 2008? Realistically next year is likely to be one of consolidating positions as newly formed software giants strive to digest their acquisitions, develop their strategies and align their workforces. Viewed from the outside, many of these organisations have too many product overlaps and have so far been slow to communicate their future direction. This has left customers with considerable uncertainty as they try to finalise their systems strategies in the face of their own industry problems.
Understandably, customers may be unwilling to commit to large systems budgets until the leading vendors provide clarity around which products have a real future and which will be mothballed. So the leading players will have to work hard on communicating their strategy if stagnation is not to set in. 2008 will also be a year of more testing economic conditions, particularly for those software houses that have relied on the debt markets to build rapidly their product portfolios.
As for innovation in the financial systems arena this still seems to be coming mainly from one source. Apart from small pockets of creativity elsewhere, Microsoft's influence remains one of the key drivers of change with new product releases in almost every segment of the market, often accompanied by radical new ways of thinking as their technologies and applications coalesce. In time the whole market benefits from these innovations and during a period in which mergers and acquisitions have stifled product development elsewhere Microsoft's continuing developments are especially welcome.
