Tenon is not your average accounting firm, and not just because it is an accountancy consolidator. Even when it began its shopping spree in 2000, it declared its intention to take the road less travelled.
‘Our aim is to change the way professional services are offered in the UK,’ said Ian Buckley, then chief executive. He suggested Tenon would focus on ‘building up its e-commerce and net-based services’.
It was the obvious thing to say at the time, but back then we were all more optimistic than realistic about the internet’s potential to change the way accountants do business – and the speed with which this could be accomplished.
Today we know better. After the dotcom bubble burst in 2001 the profession’s brief flirtation with e-business quickly turned into born-again pragmatism and very few practices went any further than creating an electronic shop front online.
Five years on, many members of the profession are barely on nodding terms with the internet and the promise of developments such as online accounting remain largely unfulfilled. But Tenon has stuck by its guns.
Slowly, but surely, it has increased its focus on the web-based delivery of software and services – and has even got involved in the development of an online accounting application.
In its infancy, Tenon was a reseller for Microsoft Great Plains. But there is a delicate balance of power between software resellers and authors and Tenon found the reselling model difficult to sustain in a professional services environment. ‘Selling any boxed software is fraught with problems,’ asserts Grant Sayer, operations director with Tenon Outsourcing. In 2003, the Microsoft Great Plains unit of Tenon Technology was sold off to IT services group Touchstone. ‘We wanted to sell services that we could interact with,’ says Sayer. ‘So Tenon decided to commit to the online model.’
Complex issues
A strategic review of the various approaches and opportunities offered by the online model quickly revealed that this was also a potential nightmare of complexity.
‘We discovered that with hosted products that are not supported by their authors, you end up having to deal with lots of client-related legal issues,’ recalls Sayer, ‘so we looked at the online model with IT Inside Out.’ ITIO hosts and supports online users of its Online 50 product, which is based, as the name suggests, on Sage Line 50, and is a service that Tenon offers to some of its smaller clients. But it wants to sell software as a service to a broader range of clients, so it is also investigating other opportunities.
Tenon sees the market in terms of small, specialist clients and larger clients, says Sayer, so it needs a range of online offerings that can meet the needs of a very diverse range of potential users. It has chosen Sage, NetSuite and Microsoft Dynamics (formerly known as Great Plains). Although this will eventually give Tenon Outsourcing the breadth and depth of functionality it needs to service its chosen user base, the transition has not been simple, straightforward or speedy. This is because the software authors for each of these products all provide their online offerings in slightly different ways.
This situation illustrates the layers of complexity that can be hidden beneath even the most innocuous technology abbreviation. In all three instances, Tenon will be offering its clients something the technology industry refers to as Software-as-a-Service, or SaaS. But to do so, the organisation will need to grapple with three sets of problems relating to issues such as client ownership, data protection, licensing, support, revenue generation and even software development.
‘Tenon is the largest Sage reseller in the UK, so Sage asked us to pilot the Sage Online product it has been working on,’ says Sayer. The organisation has become involved in actually developing the system it will soon be offering to its clients. ‘It will be interesting to see if it is all up and running for the January 2007 deadline,’ he says, ‘because we’ve been working directly with Sage getting the product ready to go to market.’ That’s something that hasn’t happened with NetSuite or Microsoft. ‘Our dealings with the three companies have led us down very different paths,’ reflects Sayer.
End user contracts
Tenon clients who opt for the Sage online offering will sign an end user contract with Sage. ‘You will only be able to use the system if you have signed up with an accounting partner,’ he explains, so Tenon will be a reseller, once more. ‘Resellers will be given a recommended pricing structure, and we will all charge the same rate,’ says Sayer. He adds: ‘The money we make will depend on the margins.’ But this will not deprive Tenon of very many revenue-generating opportunities. ‘At this level, the client doesn’t want to spend a lot anyway,’ he says, of the sector of the small business marketplace where Sage Line 50 dominates.
The relationship between Tenon, its client base and NetSuite is not the same – nor is the product. The NetSuite offering is aimed at growing small and medium-sized businesses. Its finance capabilities range from basic accounting to enterprise resource planning; its e-commerce capabilities range from site building to shipping; and its customer relationship management solution includes customer support and service, sales force and marketing automation and more. The business model linking NetSuite and Tenon also has more to offer.
‘We pay NetSuite for the software rental, then absorb it into the monthly outsourcing cost we charge clients,’ says Sayer, ‘but when a client signs up to NetSuite, we get a 30% margin.’
Tenon is also a NetSuite referral partner, so when it identifies a potential NetSuite customer and refers them to NetSuite representatives, it receives a revenue share on referred accounts. ‘Because of this, we get money even if they leave NetSuite,’ he adds.
The situation with Microsoft is different yet again. The Dynamics product is also aimed at mid-market organisations, but it offers a lot more than NetSuite in terms of specialisation and vertical market functionality, making it potentially more appealing for growing organisations in industries such as construction, distribution, education, manufacturing and retail. There is more than one way in which an organisation like Tenon can use the online model to provide clients with access to Dynamics.
In the case of Sage and NetSuite, the end user has a direct relationship with the end user, if only on paper; this is not the case with the Dynamics product. ‘Microsoft doesn’t care who the end user is,’ says Sayer, ‘because it expects the reseller or the hosting company to pay their license fees.’
Microsoft offers a subscription-licensing model, so service providers can license the hosted Dynamics software on a per-user, per-month basis from Microsoft and provide it to their customers – along with the necessary support. This adds a layer of cost and complexity to the online approach, but it is balanced by the fact that Tenon can set its own end user prices. As Sayer adds: ‘What we decide to charge is up to us.’
Adding value
Most of the money accounting firms generate from the sale of software and systems has less to do with the actual product, or their mark up on it, than it has with the associated value-added services they offer.
With the traditional approach to software acquisition and support, a firm can need a significant amount of expertise in-house if it wants to get involved, even if it sticks to entry-level products for small businesses. But the web-based provision of software and services can help organisations to punch above their weight, particularly if they develop mutually beneficial relationships with other specialists.
‘We have built strategic partnerships around the NetSuite and Dynamics products,’ says Sayer, ‘so we can add technical layers.’ Taking the online a pproach has also enabled Tenon Outsourcing to move up the value chain. ‘We are starting to do advanced technological solutions for larger corporate firms,’ he adds. For example, it has worked on the development of a system that can reconcile 240,000 direct debit mandates in 30 seconds, and another providing a call centre with real-time information on web transactions.
Because the software Tenon’s clients are using is hosted, the organisation no longer needs to be able to match the scale of the operation in its own environment. ‘We can provide advanced technological solutions without being technologically advanced ourselves,’ comments Sayer, ‘so we are no longer restricted by our own capabilities.’
Lesley Meall is a freelance business and technology journalist
