At a glance
Australia’s SME accounting software market is one of the most competitive software spaces in the world.
It was the first big market for cloud software provider Xero, now a global force. US giant Intuit has set up shop to more effectively sell QuickBooks Online, its answer to Xero. Long-time local player Reckon is selling its newly built Reckon One product, and UK giant Sage is trying to make inroads with its own Sage One.
In the middle of this shootout is the Australian-based MYOB, long the dominant player in the market and now trying to retain its position in the evolving online accounting software market. How would you like to be steering the strategic course through all that?
The man doing just that is John Moss, MYOB’s chief strategy officer since 2012. He says the company is rapidly winning online customers in the Australian and New Zealand markets. He also admits that MYOB could have benefited from committing more energy and resources to online software during the years before Xero emerged as a force around 2012.
“It’s probably not a question of not having developed a tool,” he says, “but more we just missed the timing. The reality is that we had online tools in the early 2000s. I know when I came to MYOB in 2007 there was a tool that had been sitting there for some time, and we made the decision not to release it back then, because we didn’t think the market was ready for it.”
MYOB faced the classic strategic problem of a market leader in a changing environment: invest its limited resources in a range of new products or use those resources to support and retain existing clients? Famed Harvard professor and consultant Clayton Christensen calls this “the innovator’s dilemma”.
In the years around 2007, as Xero built its product in New Zealand, MYOB experienced a classic case of innovator’s dilemma. At the time, the company felt it needed to prioritise its base of about 1.2 million desktop clients. Now it is working hard to make up lost ground online.
“We’ve really shifted ourselves from what was a desktop-only company to primarily an online company now,” says Moss, pointing to a 46 per cent growth in online subscriptions in 2015. “I think in the second quarter, 78 per cent of our SME clients chose online solutions rather than desktop. We’ve now got 170,000 online customers and it’s growing pretty rapidly.”
Yet a powerful historical legacy remains: MYOB also still has 375,000 paying offline SME customers, with 56 per cent of its revenues coming from desktop users. In comparison, cloud provider Xero has signed up more than 600,000 subscribers globally, including more than 425,000 in Australia and New Zealand.
Moss says he is confident MYOB now has the right strategies and culture in place to complete its transformation to a serious online player. “We have many more product managers who have spent their entire career on online solutions and tools, marketing team members who are digital first, who think quite differently to the team we had four years ago. Internally, there’s been a very large cultural change.”
From drill rigs to data-driven strategy
A native of Coventry in the UK, Moss read engineering at Oxford, then joined Deloitte, Haskins & Sells. But he only lasted a year as an accountant before leaving for energy services giant Schlumberger.
He spent the next nine years on oil and gas projects across Europe and Africa, including stints on oil rigs in the North Sea. Moss says this experience has equipped him with essential quantitative skills for data-driven strategic thinking, plus invaluable soft skills in stakeholder management and influencing organisational change.
By the mid-1990s he was ready for a change of scene. After marrying a New Zealander, he accepted an MBA scholarship at the University of Melbourne. Roles at Sensis and Booz Allen Hamilton followed, before he joined MYOB as group manager, strategy. “Within nine months, I took on a global product role,” he says, “then I moved into the SME business … running the largest P&L in the organisation.”
It’s a move he recommends to anyone seeking to build a career in strategy. “I’ve got a lot of experience and knowledge as to how things actually work in the front line and within operations. That really helps shape my thinking.”
Where discipline meets art
Moss says his diverse chief strategy officer (CSO) role has evolved as the company’s needs have changed. “There are some organisations that create a CSO-type role and build a team that focuses on M&A, so they’re quite specialised in what they do,” he says. “Other CSOs may come in from strategy consulting firms, and they’re there to try to drive coherency and strategy and to drive the thinking. My role involves all of those areas.”
While strategy may be an art, Moss says that effective execution calls for a disciplined process. “We build a strategic plan every three years,” he says. “We launch that to the team internally … we take them through the strategy, what we’re trying to achieve, the key actions to get us to that end point.”
Moss often uses themes in this process. “There are very visible symbols and terminology that we create that help align people toward that strategy,” he says, “then every year we create the annual plan that sits within that. Once that’s in place, every quarter we check back in on how we’re performing against that strategy.”
The challenge of incumbency
MYOB may now be focused on building its online presence, but its strategy continues to be influenced by its legacy as a desktop software company. “We’re trying to build solutions for clients who have got slightly different needs and desires,” explains Moss.
It’s a problem the new generation of online-only players simply don’t face. “If you’re a complete new entrant with no base, you can behave quite differently,” he says.
While competitors such as Xero invest all their resources in a single online offering, MYOB has developed both the AccountRight Live tool – which Moss says is designed largely for the desktop base – and the Essentials tools, focused on entrants coming into the market for the first time.
MYOB’s legacy continues to influence its products, even as the company seeks to move clients into the cloud. “Whilst we’ve moved all our tools online,” he says, “there are slight nuances in those just to recognise the fact that we’ve got different client segments and they want different things.”
Yet Moss believes that the company’s decision to focus exclusively on the Australian and New Zealand markets gives it an important competitive advantage. “There are some global players out there that are trying to build global platforms, and they invest effectively across multiple jurisdictions,” he says. “We know from having been a global player a decade ago that it’s quite costly doing that.”
In contrast, over the past year MYOB devoted A$47 million to R&D spending on new features designed especially for the Australian and New Zealand markets. “We are very comfortable with our ANZ focus,” says Moss. “We believe in delivering solutions for them and we believe that we’ll compete very strongly in that space.”
Building an online ecosystem
Moss says that a key part of MYOB’s approach has been to build its software capabilities through strategic acquisitions, such as the purchase of BankLink in 2013. The aim is to expand the capabilities of MYOB’s products and better serve changing client needs through rapid access to innovative solutions.
“We want to understand how best to provide and service those needs – sometimes it’s an acquisition, sometimes it’s a partnership and sometimes we build it ourselves,” he explains.
Moss adds that partnerships have helped make MYOB’s products more attractive by creating a flexible ecosystem of integrated solutions that clients can adapt to very specific needs.
“There’s specific functionality that certain industries require, and we could never go out and build all of those very specific bespoke solutions,” he says. “So we try to create a platform that our clients can then access on the applications and have developers build on top of that to make it a seamless experience for our customers.”
That platform is also designed to give accountants a rich dashboard of client information for a higher level of service. “We try to help accountants to be advisers to their end customers, not just transaction processors and compliance agents,” says Moss.
Evolving at speed
Moss continues to map future scenarios and potential strategic responses in a rapidly evolving market.
“We look at our environment, we look at how things may change from a technology perspective, and we create a number of scenarios,” he says. “We’ll discuss and debate those. How likely are those to occur? What are the sorts of events that need to occur to create that end point? How can we shape those going forward?”
In one recent exercise, Moss and his team asked themselves what would happen if a new player adopted a “freemium” model – giving away accounting software free of charge.
“You have to think about how things will look in five or 10 years’ time. Will your own industry exist? There’s probably a lot more future thinking required now than in the past, just because of the sheer breadth of potential disruption.”
Three trends in accounting software for 2016
- Automation: Moss says advances in automation and software integration will continue to help reduce data entry, simplify workflows and reduce compliance tasks.
- Data analytics: Providing the right information at the right time, in a form that helps SMEs genuinely understand their business.
- Support for value-added advice: Providing advisers with rich, up-to-date data to power more insightful client conversations.
Who are your favourite business thinkers?
Michael Porter, author of Competitive Strategy
"Porter creates a framework for understanding markets through the interaction of five forces - industry rivalry, the bargaining power of suppliers, the bargaining power of buyers, the threat of new entrants and the threat of substitutes. I always go back to the five forces framework to understand a market."
John Hagel, author of The Only Sustainable Edge
"Hagel says most strategies are strategies of terrain, looking from the present out to the future. In contrast, strategies of trajectory start with a view of the future and work back to the implications for action in the present. We use his thinking about future scenarios in our strategy process."
Eric Ries, father of the lean start-up method
"We've adopted the lean start-up terminology from Ries...we think about individual elements within [our strategic plan] and we look at whether we pivot, perish or persevere around those elements. Businesses can apply the same approach to all of the elements in their strategic plan."