I D C V E N D O R S P O T L I G H T. H yb r i d C l o u d Solutions for ERP

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1 I D C V E N D O R S P O T L I G H T H yb r i d C l o u d Solutions for ERP November 2014 Adapted from Worldwide Enterprise Applications Forecast and 2013 Vendor Shares by Christine Dover Sponsored by UNIT4 There's a lot of talk in the ERP market about cloud solutions. Certainly the use of cloud by organizations worldwide is maturing and expanding, but rather than rip out on-premises enterprise resource planning (ERP) solutions and replace them completely with cloud solutions, many organizations are choosing a hybrid approach as they evolve their systems strategy to what IDC calls the "3rd Platform," which incorporates mobile, cloud, big data, and social solutions. This Vendor Spotlight discusses the trends affecting the enterprise applications market and the 3rd Platform, including the demand from customers for a variety of deployment options, and examines the role that UNIT4 plays in the growing market for 3rd Platform ready enterprise applications. Introduction The IT industry is in the midst of a transformation that IDC calls the 3rd Platform. This 3rd Platform market is driven by mobile, cloud, big data, and social solutions. IDC estimates that organizations spent $134.0 billion on enterprise applications software in 2013 and forecasts that spending will grow at a 6.3% compound annual growth rate to reach $181.5 billion in Much of this growth is fueled by organizations looking to modernize their enterprise applications to provide the business agility to adapt to changing business models, government regulations, customer and employee demand for mobile solutions, and more. However, few organizations can or even want to change their IT infrastructure 100% from existing on-premises solutions to multitenant software as a service (SaaS) offered in the public cloud. Most organizations prefer to evolve over time and instead use a hybrid approach that allows them to continue to take advantage of existing on-premises software that continues to work well for their organization and selectively adopt newer technologies, both private and public cloud, as their business needs change. This Vendor Spotlight discusses the trends affecting the enterprise applications market and examines the role that UNIT4 plays in the growing market for hybrid-based enterprise applications solutions that incorporate the 3rd Platform. IDC 1803

2 Benefits For all the talk about cloud solutions, most midsize and large organizations worldwide continue to use on-premises solutions for a variety of reasons, including the following: Public cloud offerings that lack the functional depth or industry-specific capabilities of existing on-premises solutions currently in use Version control as the organization's business cycle may not align with the upgrade cycle imposed on a public cloud vendor Complex business models, often driven by mergers, acquisitions, and divestitures, that result in a complicated IT infrastructure that cannot be replaced wholesale Corporate culture that needs time to adjust to change or is concerned about security and data privacy in the cloud Data residency requirements, which vary from country to country, that restrict where employee data is held However, enterprises are increasingly interested in moving to the cloud but want to evolve rather than rip and replace. Often called a "cloud also" strategy, this approach enables organizations to implement new cloud-based solutions and maintain their existing IT solutions but also consider new on-premises solutions. According to IDC's 2013 CloudTrack Survey, 77% of respondents claim to have a "cloud also" strategy. "Cloud also" can also be described as a hybrid solution because it incorporates the best of cloud and on-premises solutions that meet the business and IT needs of the organization. Benefits of the hybrid solution include the following: Leveraging functional depth and richness available in existing on-premises enterprise applications, whether custom or commercially available solutions Selectively rolling out 3rd Platform solutions for mobile, cloud, big data, and social where they have the most impact on the organization's business processes and ability or willingness to adapt to change Leveraging existing investments in IT infrastructure while evolving and modernizing the organization's IT foundation, as well as evolving the shifts in operating budgets and resources that reflect changes in how 3rd Platform solutions are paid for and managed Providing agility to meet changing business requirements for new markets, products, services, pricing models, and changing government regulations Key Trends Clearly, most organizations want to move their applications to the cloud, but they need the flexibility of a hybrid solution that allows them to adapt their business applications to meet their ever-changing business models yet continue to use on-premises applications where it makes sense to do so. And the enterprise applications market continues to grow strongly, despite its size and maturity. This growth is based not only on pent-up demand from postponed spending but also on the need to update and modernize existing applications. Modern business applications enable all organizations to evolve their business models to meet their customers' changing demands for new products and services, pricing models, and payment options, as well as the requirement to comply with changing government regulations and IT strategies IDC

3 In IDC's view, multitenancy is the defining factor of SaaS. Primarily, it is the sharing of resources that enables disruptive new pricing models for software. Other customer benefits include the acceleration of innovation and product releases, global consistency as all users operate on the same platform, and improved response time as vendors invest in datacenters worldwide (which also alleviates the "data residency" concern). But most organizations are choosing to evolve to SaaS solutions rather than switch everything at once. This is due in part to the requirements of first-generation SaaS vendors that all of their organizational customers be on the same release. Software upgrades happen at the vendor's convenience and generally do not take into consideration the business cycles of the customers. This evolutionary, not revolutionary, change to SaaS is also apparent in the market spend on enterprise applications. While the SaaS market is continuing to grow at a rate nearly five times faster than that of the software market as a whole and is becoming the significant growth driver to all software markets, IDC estimates that by 2018, only $4 of every $10 spent on applications will be consumed via the SaaS model. This is apparent in the growth of cloud applications as a share of the overall software market. For example, in 2012, only 20.2% of the overall $43.6 billion market for enterprise resource management (ERM) applications (e.g., accounting, human capital management, payroll, procurement, order management, financial management and budgeting, project management, and asset management) was for cloud applications. While the cloud applications segment is the fastest-growing part of this expanding market, IDC estimates that by 2018, 39.1% of ERM applications will be in the cloud, emphasizing the continued need for hybrid ERP solutions. Considering UNIT4 UNIT4 Business Software, headquartered in the Netherlands, is a global provider of ERP solutions. Founded in 1980, UNIT4 has grown as a result of a merger with Norway-based Agresso Group in 2000 and several acquisitions, including the acquisition of United Kingdom based CODA in The company has over 4,000 employees and operates in 26 countries across Europe, North America, Asia/Pacific, and Africa. UNIT4 strives to differentiate itself as an innovator in the market and in particular seeks to address the needs of organizations in fast-moving markets or undergoing high rates of business change. UNIT4 takes the approach that business agility is key to the organization's success as economic cycles, global economies and politics, new technologies, new market opportunities, changing business models, and other trends impact how organizations go to market and run their businesses. Unfortunately, the technology solutions that organizations use to run their businesses have not been able to meet this idea of business living in change. Too often, the software implementation is completed according to a set of business requirements that were defined at the beginning of the project and based on transaction-centric processes rather than the needs of the people performing the transaction or using the system to gain insight into the business. Later, as the business needs change, it may be difficult if not impossible to change the implemented technology solution, resulting in high costs, slow response times, and high levels of business disruption. UNIT4's strategic approach to product development is people centric, not transaction centric, meaning the focus is on how people in an organization work across traditional silos to complete business processes rather than focusing solely on their own transaction, which is usually just one piece of the whole process. UNIT4 also focuses on solutions for vertical industries such as government, not for profit, real estate, travel management, wholesale and distribution, education and research, and professional services. Vertical-specific solutions are important because they can often be implemented more quickly as industry-specific features that formerly required customization are built into the product. Plus, the user interface includes terminology and process flows that are familiar to employees, potentially increasing user adoption and decreasing some of the end-user training requirements. The company centers its innovation in the 3rd Platform of cloud, mobile, social, and big data, thereby blending social collaboration, analytics, mobile, and cloud in the most relevant way for each user IDC 3

4 Second-generation multitenancy allows customers to apply upgrades on their schedule rather than on UNIT4's schedule, unlike first-generation multitenancy SaaS vendors that require all of their customers to upgrade at the same time. This means that an organization's peak business cycle (e.g., shipping products to retail customers in time for holiday shopping) will not be interrupted by a software upgrade. Instead, the organization can complete its busy season and implement the upgrade at a later time. UNIT4 cloud customers can also choose to have their data physically segregated from that of other customers and move from cloud to on-premises or to another cloud and back again as their IT strategy demands. This also allows organizations to choose where the data resides, so if the German government demands that social security data must reside in Germany, UNIT4 can enable its customers to meet this requirement. Agresso is UNIT4's flagship ERP software solution designed to manage the finance, procurement, projects, people, payroll, and general administration of midsize to large service-intensive organizations that are living in change. First launched in 1995, Agresso is now in use by more than 3 million users in over 100 countries. Agresso was designed to enable organizations to adapt to changing business requirements, including those that occur long after the initial implementation. Also, business users can make their own changes, without having to always rely on IT. Key to this ability to adapt is the UNIT4 Agresso VITA architecture, which enables organizations to accommodate change quickly and effectively. According to the company, the VITA architecture framework offers the following advantages: Enhanced security. Customer data remains in its own unique and complete data schema, which provides an extra layer of security that even protects against human errors. Portability. Because customers demand a choice of deployment solutions, the VITA architecture allows organizations to move into the cloud, out of the cloud, or to a different cloud in a hybrid cloud solution that can adapt to the changing needs of the organization. Release control elasticity. Updates are automatically added when needed, and organizations can choose to accept or postpone the updates according to their own business cycle, not that of the software vendor. Additionally, the two previous main releases are still supported by UNIT4. Complete ERP solution set. With a mature legacy ERP solution available for on-premises deployment, UNIT4's cloud ERP includes key features and functionality. Customers can choose how they want to combine the on-premises and cloud solutions for a hybrid approach, or they can choose to exclusively use one or the other. Disaster forgiveness. Customers can quickly restore crucial data and reverse potentially crippling "disasters" caused by user error. Genuine data restoration goes beyond basic business continuity measures, data is recovered in hours, and there is no need for expensive third-party backup and recovery solutions. In addition to Agresso, UNIT4 offers a broad portfolio of international and vertical-oriented products, all of which follow the people-centric approach to business process and change. These solutions, which also leverage the VITA architecture platform, include the following: UNIT4 Wholesale an ERP solution for wholesale organizations worldwide UNIT4 Real Estate an ERP solution for real estate organizations UNIT4 Campus an administrative solution for higher education UNIT4 Travel an ERP solution for travel agents IDC

5 In June 2013, UNIT4 brought in a new CEO, José Duarte, formerly of SAP. With a lengthy background as an accountant and an implementer of ERP systems and having held senior leadership roles in customer-facing teams at SAP, Duarte has the experience to help UNIT4 grow worldwide. Challenges There are three primary challenges for UNIT4 to succeed in the highly competitive market for enterprise applications. The first is brand awareness. UNIT4 has grown by acquisitions (e.g., Agresso, CODA Financials), so many people in the industry know the product branding better than the company branding. At this time, UNIT4 is continuing to develop its unified brand awareness as UNIT4 and expand that awareness outside of its primary strength in Europe and into the rest of the world. Second, organizations continue to be concerned about security in the cloud, so UNIT4 will need to clearly demonstrate how its approach to security can alleviate these concerns. Finally, more market awareness is needed of how UNIT4's second-generation multitenancy is an improvement over the competition and enables a superior hybrid approach that supports each organization's definition of business agility. Conclusion IDC believes that the enterprise applications market for hybrid cloud solutions will continue to grow. Organizations do not want to be locked into any single IT strategy, and for the foreseeable future, hybrid solutions that leverage the best of cloud and on-premises will continue to dominate. To the extent that UNIT4 can address the challenges described in this paper, such as brand awareness outside of Western Europe, the company has a significant opportunity for success. A B O U T T H I S P U B L I C A T I ON This publication was produced by IDC Custom Solutions. The opinion, analysis, and research results presented herein are drawn from more detailed research and analysis independently conducted and published by IDC, unless specific vendor sponsorship is noted. IDC Custom Solutions makes IDC content available in a wide range of formats for distribution by various companies. A license to distribute IDC content does not imply endorsement of or opinion about the licensee. C O P Y R I G H T A N D R E S T R I C T I O N S Any IDC information or reference to IDC that is to be used in advertising, press releases, or promotional materials requires prior written approval from IDC. For permission requests, contact the IDC Custom Solutions information line at or Translation and/or localization of this document require an additional license from IDC. For more information on IDC, visit For more information on IDC Custom Solutions, visit Global Headquarters: 5 Speen Street Framingham, MA USA P F IDC 5

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