FinancialForce.com, a provider of cloud-based financial applications, recently announced two pending acquisitions. One is Vana Workforce, which makes a human capital management (HCM) application aimed at small to midsize companies. The other is LessSoftware, a supplier of Web-based supply chain management (SCM) applications. The acquisitions are part of FinancialForce’s strategy to build a broad suite of applications that run on salesforce.com’s Force.com platform. The three companies already have joint customers, so they build on established use cases and relationships. FinancialForce.com itself is jointly owned by salesforce.com and Netherlands-based Unit 4.

The acquisitions are consistent with FinancialForce’s go-to-market strategy as well. Rather than sell only a complete suite, it offers customers the option of buying separate applications that address a specific need. For instance, one initial use case was to get FinancialForce’s sales order processing module to bridge cloud-based sales processes offered in salesforce.com to a company’s on-premises ERP system. At the time, many companies were using desktop spreadsheets or paper forms to pass order information. And rather than replicating the typical ERP and CRM forms-driven application design, FinancialForce aims to differentiate its software by designing it to facilitate communications and coordination in executing processes that connect functional silos in an organization – in this case the front office and the back office. Because all of the code within its suite is running on a single platform in the cloud, FinancialForce can offer an interoperable set of capabilities that can be purchased in entirety or in component form.

The two recent acquisitions further this strategy. Vana Workforcevr_NGWM_01_few_have_workforce_management_systems provides a necessary complement to FinancialForce’s professional services automation (PSA) capabilities, which it acquired in 2010. It provides, for instance, the skills management and basic HR functionality for staffing and scheduling consulting projects. These capabilities are notably lacking in a large majority (73%) of midsize and smaller businesses, which are an important segment of PSA and for FinancialForce generally. Moreover, since all three of the companies’ software is built on the Force.com platform, integrating them should be straightforward. Using this single platform allows for easier cross-application workflows, single sign-on and a single reporting database from which to generate reports, dashboards and scorecards. The applications enable social collaboration with Chatter, salesforce’s enterprise social networking application, but salesforce needs to develop it further to support narrowcasting and collaboration in context to meet the needs of Finance, the back office and other business functions, as I have pointed out.

Vana Workforce’s Human Capital Management application supports a range of hire-to-retire functions including core human resources management, applicant tracking and recruiting, onboarding, compensation management and learning management. Vana should benefit from having broader distribution and access to development funds to continue developing the suite. LessSoftware’s SCM suite offers a useful set of applications including Configure-Price-Quote (CPQ), Order Fulfillment, Service Contracts, Inventory Management, Supplier and Spend Management. The new owner will rebrand the suite as FinancialForce SCM.

From a business perspective, FinancialForce has flexibility in acquiring customers, selling whole suites or one or several parts that customers might need, especially as add-ons to their Salesforce implementation. And this product strategy is facilitated by use of the Force.com platform, which allows its main development focus to be on process design and capabilities, not the plumbing, and an indirect sales channel, which reduces the need for its own sales organization. However, I calculate that FinancialForce needs both a significant proportion of full-suite deals and a sufficient volume of component sales to achieve healthy margins. One challenge with implementing this strategy is that in many geographies – especially North America – the consulting partners that sell and implement business software usually focus on a single silo, whether it’s finance, HR, sales or logistics. Resellers of financial software may have little experience in implementing HR software and may not have much interest or skill in selling human capital management. And since the buyers of these functional components work in different departments, the ability to cross-sell is not a given. That noted, in some cases this is probably not going to be an issue. For example, partners that implement PSA software can readily master the Vana HCM components and seize the opportunity to expand their project scope. And there are plenty of consultancies served by FinancialForce and its resellers that do not have HR management capabilities, which they could acquire now.

There are many different types of companies that ought to consider FinancialForce to address their needs. One group is midsize companies that are looking for a financial management system in the cloud like California Blue Shield Foundation that we have previously awarded our Leadership Award. A second comprises professional services organizations that are looking to automate time-consuming administrative functions as well as enhance the effectiveness of their project staffing. A third is companies that need to connect their sales processes with finance and SCM capabilities to support more effective execution of these processes. These acquisitions should help FinancialForce serve all of them.

Regards,

Robert Kugel – SVP Research