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SaaS ERP gains may ease fears of moving core financials to the cloud

Three surveys show CFOs are comfortable with “edge” applications that benefit most from cloud deployments, such as T&E and SEC reporting.

Chief financial officers (CFOs) might be intrigued by cloud computing’s money saving potential, but they’re still being cautious about moving core financials to the cloud, according to market researchers.

But that will soon change, these experts predict, as finance organizations shake their outmoded fears about cloud security, and Software as a Service (SaaS) financial applications and cloud ERP reach parity with on-premises financial systems.

CFOs appear to be lagging other department heads in riding the cloud computing wave. A March survey of cloud and SaaS adoption plans by Westport, Conn., consultancy Saugatuck Technology Inc. showed organizations are rapidly moving away from on-premises systems toward a hybrid approach, which will be followed by a decisive shift within four years to “pure play” SaaS or cloud across industries. The survey also indicated broader adoption of SaaS implementation strategies and best practices for ensuring cloud technology delivers value to the business.

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But Saugatuck said that “traditional enterprise business management IT,” especially what it calls “closer to the money” applications such as finance, accounting, budgeting, and reporting and planning as well as governance, risk and compliance (GRC) will be slower to migrate to public and private clouds, especially in larger enterprises.

“CFOs are very conservative,” said Bill McNee, Saugatuck’s founder and CEO. “There have been concerns around security and protection of data -- [regardless of] whether these are right or wrong or whether it’s more psychological.” Many organizations have essentially locked down their on-premises core financial systems and grown comfortable with them, he said.

SaaS financial applications haven’t offered comparable features, either. “Until recently, there has been a lack of sophisticated and flexible solutions,” McNee said. But now, he said, “credible” multi-tenant SaaS and hosted cloud ERP products from independent SaaS vendors and large on-premises players are competing in core financials, especially as the second tier in two-tier ERP systems of upper-midrange companies and those with divisions suited to SaaS ERP

McNee predicts many large companies will be ready for SaaS financials in the next few years because their current on-premises systems were installed in the late 1990s to address the Y2K scare. These legacy systems will then be 20 years old and overdue for replacement, which means companies will have little choice but to consider new options. “The idea that this is going to get locked down is absolute nonsense,” McNee said. By 2016, SaaS core financials could reach the “early mainstream” phase. “This is something that’s going to play out between now and the end of the decade,” he said.

Cloud ERP security perception versus reality

Craig Schiff, CEO of BPM Partners, an advisory services firm based in Stamford, Conn., agrees CFOs are holding tight not just to core financials, but other applications like GRC and budgeting, which have high business value and associated risk.

“What we’re finding in the larger companies is a reluctance to move any of that to the cloud environment,” Schiff said. “Anecdotally, the primary reason is perceived security risk with that data. It’s a misperception, but it’s an entrenched reaction. Where we do see interest is mainly from a cost perspective in smaller companies,” which are more swayed by the shorter implementation times, subscription pricing and cash-flow advantages of SaaS financial applications, he said.

A May BPM Partners survey of finance, IT and operations managers gives further clues into why many companies aren’t ready to move their sensitive financial data to the cloud. The study focused on performance management -- also called corporate performance management, or CPM -- defined as budgeting and planning, financial reporting and consolidation, GRC, operational analytics and performance dashboards. In it, 57% of respondents  -- more than two-thirds of which were from large companies with more than 2,500 employees --  said they would consider cloud-based performance management, which could include SaaS, on-demand, or hosted software. The number was 10% higher at small companies, which have fewer than 100 employees.

Cloud security was the No. 1 reason to not consider cloud computing for performance management, cited by 40% of the respondents. Around 20% said they instead preferred the licensed ownership of on-premises applications, while 18% named corporate policy and culture.

Schiff said he was surprised to learn a client’s reason for not running performance management in the cloud. After a bad experience with a prominent SaaS sales application, “they felt like their data was being held hostage. They gave this guy that right to hold their data, and now they’re paying them for access to it. You have to pay for different levels of access to your own data.”

Like McNee, Schiff said improvements in SaaS ERP financial applications are making such fears about cloud computing obsolete, and he usually steers clients to SaaS because of the cash-flow advantages and near feature parity. “A couple of years back, there was a huge functionality gap,” he said. “This year, at this point in time, they’ve largely caught up.” Schiff said some of the leading analytics vendors that specialize in CPM are cloud-based, but the more established large vendors have stuck with their on-premises architectures, which still offer larger feature sets.

Schiff said some features of SaaS CPM are being adopted faster than others. “Many of these solutions are used by public companies who use it to report,” and the security of cloud delivery is a settled issue, he said.

SaaS ERP financial applications take off at ‘edge’

CFOs have become the top IT influencers in most companies and view cloud computing not just as a way to relieve IT of the burden of legacy financial systems, but as an enabler of improvements in business processes, according to new research from Gartner Inc.

“Companies overall are just sort of tired of the costs of supporting on-premise solutions and the upgrade process you go through,” said John Van Decker, research vice president at the Stamford, Conn., company. Van Decker led a study of CFO technology plans and perceptions that Gartner concluded last month with Financial Executives International (FEI), an association of senior finance managers. In the survey, 53% percent of respondents say they expect more than half of their companies’ transactions to be conducted over SaaS in the next four years.

“What they’re moving to the cloud now tends to be the edge-type processes,” Van Decker said. “Expense management is probably the best example where it should be built in the cloud” because it has strong social media, mobile, and “big data” aspects that are well-suited to cloud delivery, he said.

While SaaS CPM didn’t take off as fast as Gartner predicted, all of the leaders in the company’s Magic Quadrant ranking of CPM vendors understand the importance of SaaS, and the ones that deliver primarily on the cloud are experiencing double-digit growth, Van Decker said.

Reconciliation management is another financial process that has transitioned well to SaaS, and disclosure management -- mandatory reporting such as transmitting 10K forms to the U.S. Securities and Exchange Commission -- has taken off, according to Van Decker. In the Gartner-FEI survey, 41% of CFOs plan to implement a system for handling the required tagging in Extensible Business Reporting Language (XBRL), while another 31% will outsource the job. XBRL tagging services are often cloud based.

While he agrees that SaaS financial applications are maturing and becoming more configurable, Van Decker urges caution in deploying them. “SaaS has a certain amount of commodization,” he said. “The process [being automated] can’t be too complex. You can’t do this without the help of IT. You can’t just run these applications as complete standalones. IT needs to get its arms around all these probably one-off SaaS applications and come up with a strategy.”

He recommends first getting clarity on what the company’s ERP megavendor is planning. SaaS and other cloud options can then be a way to augment the ERP suite without having to tap capital budgets.

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