Transforming ERP: Insights from Claus Jepsen
In 2020, he was appointed Chief Technology Officer, and in September 2023, he also took on the role of Chief Product Officer. Earlier this year, he relinquished the CPO role when Jennifer Sherman joined the company.
As CTO, he is once again responsible for delivering on the roadmap and ensuring the engineering organisation works. Unit4 has four major development teams: Poland (since 2009), Spain (since 2013), Portugal (since 2019), and the most recent, Indonesia (2021).
Jepsen is balancing activities across each centre to mitigate against high attrition in one location. Jepsen noted, “Our view is that between those four hops, we will have equal-sized development capacity that then works across all our product portfolios.”
However, there are also smaller specialist pockets. Jepsen added, “A lot of our AI research is done in the Nordics, out of Norway, Sweden and Denmark.” He is also spending time with the research team developing the AI platform for Unit4. As Jepsen said himself, “I would say I’m back where probably best (suited).”
Jepsen also revealed that they may consider another site in the Americas to support a greater presence in that region. As the architect of the Unit4 multi-tenant, microservices-based ERPx, it will be interesting to see what emerges from Unit4.
During the analyst day, Unit4 revealed an MCP service that opens its AI platform to LLMs beyond Microsoft. Jepsen explained its nuanced approach to MCPs.
He stated, “We still have a clear vision around opening up through the MCPs. The interesting thing is what’s in them and how they differ from traditional APIs. MCPs are more like an agent-driven orchestration.
“What we are currently doing there is building the machinery within those MCPS that then can become specific MCPs for specific domains, a procurement MCP, a project MCP. Then, through the metadata, you can execute different logical elements of the application, and we will make those available to customers.
“One of the things that we think about is how we make sure that we, as a system of record, become a system of reasoning. There is also this concept of a system of action. Meaning, where do users go and do their work? They may not go into the ERP in the traditional sense.
“We are using the conversation experience as a system of action. We need to open up to them, to some degree, as well. Then we have to find a way to value it such that the value creation is reflected in the monetisation of the MCP services. But we do have a plan to make it open and available.”
Jepsen shared that 90% of its customer base uses Microsoft Teams. Interestingly, he has not ruled out adding the natural language interface to other platforms such as Slack, but it will be customer-driven.
Many companies are talking about zero-copy data capabilities for their data stores. I asked Jepsen, What is Unit4’s data strategy?
Jepsen replied, “Our market, mid-sized customers may have our ERP and some other solutions. We are building a data lake house. That is what will feed into the different algorithms. Some of these will feed into an LLM through RAG. Everything that happens in the system of record gets moved into the data lake house.
“There we are designing a medallion data framework, so you have raw, refined and more refined. That’s where we draw from that data set; we’re going to drive or refine our input to the algorithms to make decisions based on it.
“Previously, we talked a lot about purpose-built data stores. I have to do X, which needs data, so I build a data store that represents a subset of the data that fulfils that use case. This is an extension of that idea, and we are expecting to come up with something next year.
“Today, we already have a data hub. We now need to refine it to match the use cases. We’re not directly going into the production data, but we are taking this additional copy. That’s where we are driving this off, because it also gives us better scale.”
On data sovereignty. Jepsen revealed that Unit4 has eight data centres. One in APAC, one in North America, and two in Oslo on Azure. There is also an Azure data centre in Sweden, alongside its own private Colo, as well as Amsterdam and Ireland.
I asked about the UK and Germany, which may have their own data sovereignty requirements for some organisations.
Jepsen answered, “There hasn’t been any push for having a local one in the UK. In Germany, Microsoft do have a specific data centre. I think the German public sector is more about cloud sovereignty than actually about data sovereignty. They think about it in terms of who owns the data and who has access to it.
“The programme SAP is running is really to eliminate any American companies that give jurisdiction over your data through whatever act the United States can go in and get access to the data. That is the big challenge.
“France is working on a similar thing with Project Bleu. It’s essentially about establishing European-owned data centres with no link to any American entity to avoid jurisdictional issues.
“This is something we are looking into. We can do data residency and sovereignty. Cloud sovereignty is a separate topic we need to address. The geopolitical situation drives this.”
During the analyst event, it was revealed that no one buys through the marketplace. Jepsen confirmed this, saying, “No, it has not been as successful as we hoped.”
He believes that a successful marketplace should have a comprehensive fulfilment system that enables customers to deploy and pay through a single platform. This is why most vendors have what is effectively a storefront, which displays the applications, but customers cannot actually buy them.
There is still a need for partners to build applications on the Unit4 platform, but now these are being sold through a more traditional sales engagement. Unit4 will assist by introducing partner software when they see a client’s need.
The flagship product of Unit4 is ERPx, which was launched in 2021. It now has a major release every six months. In the early days, it had some issues that any new product faces. Did you learn any lessons from that experience?
Jepsen replied, “I would do a little more and better testing. Don’t ship a full-blown ERP without spending a little longer in battle testing and hardening. With hindsight, the timing wasn’t perfect and may have influenced a few challenges along the way. The good thing is that most of the early adopters are still with us as customers, despite what some went through.”
The Unit4 approach to integrations seems to have evolved. A few years ago, Unit4 announced its industry mesh, which was an integration platform. According to Jepsen, the concept still exists, but it is now called Infrastructure-as-a-Service. That’s because customers don’t want another solution that needs updating whenever a software vendor changes an API.
What they need is a service that keeps integrations working. Rather than being a product SKU, it now delivers ARR to Unit4. What is interesting is that, in some regions, it is the partners who are delivering this service. In Norway, Tieto has successfully delivered Integration as a Service for several specific systems.
There seems to be no agreed-upon pricing model among vendors for Agentic AI. I asked Jepsen what his thoughts are on this. His answer was honest and direct.
“We don’t know how to price it. I don’t think anyone knows. Currently, it is bundled in.”
Jepsen believes that it will be table stakes. He equates it to the time when vendors wanted to charge for a browser-based UI; that idea died quickly.
“Today, we have different pricing models that are based on FTEs or users. The first journey we had to take customers on was from a perpetual licence to a SaaS subscription. The next step is to go to a consumption-based pricing module with bands. I think we will succeed in that because many customers are used to consumption-based pricing from the hyperscalers.
“The next step is going to be a transactional model, and then outcome-based. The problem is: how do you explain to a customer what the value of your software is? We’re not there yet.”
According to Jepsen, its PSA product is no longer a strategic product but a cornerstone one. He argues that larger organisations have a large financial solution and then add a PSA solution on top of it.
“What we hear from our customers is that they want one solution, where this is included. We have pretty strong product capabilities, project pricing, and costing. There is some work we need to do to improve functionality, but this is really what our customers want.”
Jepsen also had an interesting thing to say about the future of business applications. Like the ERP, which Jepsen believes people tried to kill as soon as it launched, he believes people are trying to kill the idea of the suite.
However, the suites are not going away. Customers really like this notion of one solution that does everything for you, and you don’t have to go through these different components together to get them to work.
“In the future, the application may become invisible to the user as the UI is a conversational experience.” Jepsen argued, “Could there be an argument that best of breed is going to have a harder time surviving in that environment, because customers won’t know, they don’t really know what they interact with, and do they really care?
“No, they don’t care. They want their workflows to work. They want the business processes to work. The way to think about it is more in terms of how you build the business processes; whatever they run on becomes second.”
Jepsen also pointed out that if the future UI is a natural language interface, how do you price the business process engine that sits beneath it when no one interacts with it? Is the future of software pricing changing?
The post Transforming ERP: Insights from Claus Jepsen appeared first on Enterprise Times.
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