Written off as dead in the water three years ago, Systems Union has emerged from the dotcom ashes of the late 1990s to once again become a real competitor in the tier-two packaged accounting software market.
Under the leadership of Paul ‘Jack the Knife’ Coleman, the company has turned around from losses that, at their worst, were running at around £30m – based on revenue of around £60m – to a net profit last year of £3.9m on revenue of £74.6m.
More importantly, the company’s culture and direction have completely changed to the same situation that existed before Coleman’s arrival in 2000.
Today, there is coherence around product development that didn’t previously exist alongside a hunger-to-win business. Marketing has been beefed up, but that doesn’t prevent Coleman from keeping his eye firmly on the financial ball. But even with this good news, Systems Union faces significant challenges.
At present, the company is partly insulated from the economic downturn because it has a healthy maintenance revenue stream. Currently, the sales mix is 35% licenses, 40% maintenance and 25% services: ‘This is something other companies would give their eye teeth for,’ says Damian Traynor, the company’s global marketing director. This mix provides Coleman with the flexibility to turn the expense tap on and off to suit market conditions.
But key to long-term success lies in Systems Union’s ability to develop technology that meets market need. This is particularly important given that in the run-up to 2000, the company got itself into a terrible mess over redevelopment.
Coleman insists this is all behind the company and that the new management team is a ‘different breed’. Part of its development strategy has been to move much of its research and development offshore to Shanghai. Coleman believes this gives him ‘the same or similar numbers of development people, but at around 25% of the equivalent UK cost’.
Asked whether the cost savings outweigh the potential quality issues of using Chinese staff, Coleman says: ‘We’ll never pass our development “crown jewels” out of Farnborough.’
The company has also radically changed its development methodology so that it can now release individual functionality as it is complete rather than as part of a system-wide upgrade. This has, for example, allowed Systems Union to release purchase requisitioning as an add-on product to its main SunSystems offering.
‘This is like a modular approach where product can be released iteratively, but where development risk is tackled early on,’ says Iain Bishop, the company’s director of research and development.
All SunSystems development is conducted under its ‘Evolution’ banner.
This is designed to establish future needs in a more agile manner. Part of this strategy means that the company is willing to partner or acquire for functionality what it doesn’t possess. Its Vision reporting tool, for instance, was the result of an acquisition.
But users will be more interested in knowing when the company will release a truly modern, web-based version. This will take several years and, having already been badly burnt, the company is not prepared to commit to a specific release timetable.
One of the development problems is that the original single ledger design, which is now more than 20 years old, remains a good solution for many companies. Not surprisingly, the company is loath to tinker with a great idea that continues to deliver value.
The single ledger design provides users with a great deal of flexibility in the way they set up and operate the system. It also means that sophisticated reporting is not a daunting prospect. Recently, SunSystems 5 was benchmarked with 500 concurrent users at Willis Insurance. ‘This provides the validation that customers need when entering large deals,’ says Nigel Rayner, the company’s product marketing director.
Jonathan Teller, national director of management information systems at Numerica and a 13-year veteran SunSystems user, says he has kept with the product because: ‘It has grown with the business – it meets our needs, it is robust and we don’t see a reason to change.’
But there are other issues. The company currently competes with Oracle, PeopleSoft, CODA and Scala in the domestic market. It can do so for several reasons. First, its customer reference base includes installations at 74 of the FTSE100 and a quarter of the Fortune 500. Many of these are in subsidiaries where installing an Oracle or PeopleSoft would be prohibitively expensive, but where SunSystems is established as the tier-two product of choice – like at Shell Oil and Gas.
But while SunSystems 5 is a vast improvement on version 4, it is sometimes characterised as ‘old’ technology. It isn’t fully web-based so struggles in highly distributed environments where information might be needed by business partners, customer and suppliers.
The company gets over some of these problems by using Actuate’s web-based reporting tool. But it doesn’t solve the business process problems that arise when financial information becomes part of a package of other information on which business processes are triggered.
An example might be field service, where customer contract information held in a CRM system is augmented by debtor information in situations where field service needs to respond to account queries. This can be overcome and is less likely to be an issue in smaller companies, but it’s a bit of a fudge.
Numerica, for example, takes sales data from its Solution 6 practice management system into its ledgers, but doesn’t use Systems Union Connect product to automate the procedure. This is something Systems Union R&D will need to address.
Coleman argues: ‘We want to remain in finance, right at the heart of the boardroom.’ This is being addressed principally through development of integrated reporting, budgeting and planning. But Coleman’s ambition may come under increasing pressure as large companies consolidate their systems onto single suppliers.
RAF Strike Command, for example, has successfully used SunSystems for its sophisticated modified historical cost accounting. ‘We are constantly revaluing our assets,’ says Geoff Sullivan, chief accountant at RAF Strike Command. ‘SunSystems allows us to do that difficult task with a high degree of accuracy and precision.’ But an MoD edict will see SunSystems replaced by Oracle next spring.
Traynor says that there is value in companies ‘parachuting’ SunSystems’ solutions in situations where the cost of installing and maintaining larger systems would be prohibitive or where a larger system would be overkill. Also, Traynor says the older SunSystems 4 is attractive for companies in locations ‘where the level of computing sophistication and telecommunications is relatively low’.
How long this will remain the case is a moot point.
Systems Union has put significant resource into strengthening its channel relationships. The objective is to create a global channel into which Systems Union can feed opportunities. Simon May, Systems Union chief technology officer, says: ‘You can’t get a fag paper between us and our resellers.’
And this seems to be true. Christine White, MD at reseller Infor, adds: ‘I feel we have a two-way partnership. Systems Union is listening to us and actively helping us to promote a manufacturing solution into the mid-market.’
Infor sells integrated ERP/financials into manufacturing companies and uses SunSystems as the financial engine. At present, Systems Union doesn’t see manufacturing as a core market, but is positioning partners like Infor as solution providers.
Alan Quinn, MD at Castle Computer Services, claims the combination of newer product and the relationship between the two companies has allowed him to add an extra £1m to revenue. He is particularly pleased with recent advances in the Pegasus Opera product: ‘We’re a lot more positive about Opera now – it is a real competitor again.’
Elsewhere, Touchstone MD Paul White, says: ‘We remain very supportive of Systems Union – the current product roadmap is entirely appropriate for our client portfolio.’
- Dennis Howlett, a freelance journalist.
WHAT’S THE FUTURE FOR SYSTEMS UNION?
When software companies have the equivalent of a heart attack, survival depends on well-executed change. Systems Union has gone through recovery and is back on its feet.
Much of the credit has to be laid at CEO Paul Coleman’s door.
He has slashed costs where appropriate, divested non-core activities, realigned the business so that R&D can deliver in sensible timeframes, shored up marketing and sorted out customer service.
But that isn’t enough. Slashing costs provides a one-hit wonder result and so to sustain growth and profit, the company has to come up with fresh ideas. Rayner, who was a key figure in analyst Gartner’s creation of corporate performance management (CPM), says the company is in the process of ‘productising’ third-party technology that will provide Sun Accounts users with data warehouse capability – a core CPM requirement.
This will be attractive to larger customers, but in the mid-range, such a pitch may be hard to take in.
Rayner acknowledges that the company needs to package and price the offering to gain traction with smaller customers and is looking to provide as much by way of out of the box functionality as possible. ‘KPIs will be pre-built and we’ll add in a portal with content management facilities,’ he says.
For budgeting and forecasting, Rayner reflects Coleman’s view that acquisition is the most likely route. Cash reserves of around £20m and a market cap of around £87m give Coleman the leverage to do just that.
HOW THE LAND LIES FOR OTHER COMPANIES
Microsoft Business Solutions: This has been a year where Microsoft could afford to spend as much as it chose developing rather than marketing.
Given the current lack of appetite for buying software should customers adopt a ‘wait and see’ approach or should they press ahead with their buying decisions?
Industry pundits, like Basda chairman Dennis Keeling, say: ‘No one’s keen to buy, and that suits Microsoft very well.’ ‘Not so’ say Microsoft insiders who are keen to gain market share. Those who already have exposure to the products are pressing ahead with more development. Resellers are caught in the middle and customers trust them.
Sage: Despite the service-related criticisms, Sage enjoys significant market share. Of the 101,000 UK manufacturers that use software, Sage owns 67% of the market. In construction, it supplies 44% of those that use software.
Sage plans to increase its share, in part by providing customers with a ready means to ‘trade’ documents such as invoices and orders over the internet.
This would provide a means of locking in industry specific users because there would be no requirement to invest in electronic document ‘translation’ software like EDI or SML. The company believes it can readily persuade up to 30% of its user base to make this change.