The Cloud Wave Comes to Finance. What You Need to Know.
No doubt you’ve heard of cloud computing – the ability to access your applications, “as-a-service”, rather than having them installed and maintained on your own site. The buzz is hard to ignore. IDC estimates that cloud applications stand to be adopted at four times the rate of conventional software, while Gartner states that it’s the number 1 technology affecting IT organizations.
In the first wave, the cloud was mainly a front-office and HR phenomenon, with CRM and HR applications being consumed this way. Finance continued to run traditional on-premise applications like Great Plains or Sage, while the rest of the business made the move. Concerns around maturity, security, and flexibility meant corporate finance held out. But, in the next wave of adoption the cloud wave has come to finance.
Earlier this year, IDC asked about 600 decision makers which applications were most suitable for the cloud. ERP averaged as #2, out of 15 different application categories, across all company sizes. That’s quite a leap in just a few years, so why now, and what does this mean for finance?
The Drivers Behind the Shift
Without a trusted alternative to on-premise ERP, finance departments (and IT), have struggled with a number of fundamental limitations with their existing systems:
- On-premise ERP systems are aging. According to Forrester Research, over half of ERP customers are two versions behind the current release – a system that may be four or more years old. The reason is that they’ve often been customized, and are expensive and risky to upgrade. It leaves finance running a system that’s out of date with current accounting requirements.
- Often costly to run. ERP is often one of the most expensive systems within the business. Estimates vary, from maintenance costing 5X that of the original license, to maintenance typically consuming 90% of the IT budget. It means there’s often little left over for business improvement and innovation.
- They’re typically a poor fit to meet the challenge of globalization and outsourcing. Globalization means ERP often needs to be deployed quickly in new markets, and it often takes time, substantial capex and resources to install on-premise systems in new countries. And with outsourcing and increasingly mobile workers, centralized ERP is increasingly hard to access, when employees are used to using their web browsers and mobile devices.
Finally, cloud technology has reached a maturity where it can be a fitting alternative to on-premise systems for meeting the needs of the finance organization. It’s a deployment model that offers the potential to cut costs, provide automated upgrades, and fit more readily with the self-service oriented and distributed nature of today’s organizations. It’s the reason companies like Qualcomm, Groupon, RightNow have moved their corporate, or subsidiary ERP deployments to the cloud.
But it’s important to cut through the hype on the cloud, and for finance teams to be informed. With all the choice out there, it’s important to keep a few things in mind. Not all cloud vendors are cloud – some are hosted versions of on-premise software, and different cloud or hosted application vendors often differ dramatically on their terms of service. So what are some important considerations?
- Will the cloud provider be with me for the long haul? Because they’re providing an on-demand service, you need to make sure that they have a long track record, strong cash flow, and verifiable history.
- Does the provider have adequate controls, and will my data be secure? At the most basic level the provider must be SAS 70 Type II compliant. Preferably, they should have specific security and privacy certifications such as PCI DSS, or EU-US Safe Harbor compliance. Make sure they have a dedicated security team, not just part timers, and that there is a clear separation of responsibilities,
- How will my data be managed? Drill down into the provider’s data center or centers. Do they have more than one for redundancy, do they perform offsite backups?
- Get down into availability. Closely inspect their availability track record, over not just a few months, but a few years. Ensure they provide a Service Level Agreement (SLA), and understand their penalties if they don’t meet their commitments.
- Will it be flexible enough? Early on, cloud solutions got a reputation for not being as flexible as there on-premise peers. While much has changed since then, it’s important to ensure you can customize the cloud ERP application to your business processes. Make sure the vendor shows you how, and be sure the customizations migrate automatically with each upgrade.
- Is it hosted or cloud? Hosted vendors run software designed to run on-premise in their data centers, whereas cloud providers are built to run over the internet. It’s important to get acquainted with the pro’s and con’s of each – when implemented, the differences can be stark.
And finally, number 7….listen to peers who have made the move, find out their experiences and lessons learnt. An upcoming webinar on November 15th provides the opportunity to do just that – titled “Why Make the Move From On-Premise ERP to the Cloud?” three executives Brad Kugler, Owner & CEO, DVA, Jim Feeney, Controller, Booth Creek Resorts, and Allison Musgrave, Controller, at Spandex America discuss the move at their organizations, the payoff and their best practices.
The cloud wave has come to finance – now it’s time to understand what it brings, and to get informed.
This blog post was provided by NetSuite, a Gold Sponsor of the CFO RoundTable. For more information about NetSuite, please visit their site at www.netsuite.com.