bptu - Fotolia

Wave after wave: Cloud financials cresting next

Amid security fears, many CFOs remain cautious about replacing their on-premises financial systems even in the face of major issues they have with existing systems.

A third wave of cloud software is emerging that targets the domain of the CFO.

Following on the heels of strong demand for cloud-based software in CRM, then HCM and marketing, demand for cloud financials is growing rapidly. However, the move to cloud financials continues to be thwarted by security fears, according to a recent survey of finance and IT executives by Saugatuck Technology, a research and consulting company based in Westport, Conn.

As conservative buyers of technology, it isn't surprising that many CFOs remain cautious about replacing their on-premises financial systems even in the face of major issues they have with existing systems. According to the 51-page report, titled "Cloud Financials – The Third Wave Emerges," three powerful motivators are driving an appetite for system replacement, upgrade or enhancement:

  • Gaining access to big data analytics
  • Moving away from current systems that are too fragmented
  • Saving costs with systems that are too expensive to run or upgrade

In addition, staying compliant with an array of complex regulatory requirements and federal mandates has only added to the burden that CFOs have in staying functionally up to date.

In an interview, Bill McNee, founder and CEO of Saugatuck Technology, said the "next major revolution" will be cloud financials. "Most of these CFOs realize that their current systems are very dysfunctional. The older systems are often out of sync, with islands of automation all over the place."

In addition, the role and responsibilities of the CFO "have evolved significantly over time, and yesteryear's solutions just don't meet their needs very well," McNee added. "It is no longer just about closing the monthly books."

The report stems from a web survey that was conducted in November and December by Saugatuck with 317 North American finance and IT leaders. Only 33% believed that their existing systems are effective for strategic decision making and cost reduction, 35% for improving revenue growth, 41% for planning, budgeting and forecasting and 44% for measuring performance.

Given the results, it might be expected that cloud-based software for planning, forecasting, analytics, performance management, payroll and expense management show the strongest demand today, with desire for core accounting, treasury and revenue management likely to lag.

"Cloud-based financial planning and analysis tools are clearly leading the charge through 2017," McNee said. "They are easy to adopt and provide a strong ROI. The good news is that there are some very credible players in the market, including Adaptive Insights, Anaplan, Host Analytics and Tidemark, among others."

At the same time, McNee believes that cloud-based core financial accounting is likewise poised for strong growth. "While FP&A solutions are the darlings today, cloud-based accounting solutions are clearly moving from early-adopters to early-mainstream buyers, with strong and viable solutions now available not only for small-to-midsize companies, but for large enterprises as well," he said.

At the high end, "several players are gaining significant traction, including NetSuite, Workday and SAP, and to a lesser extent Oracle," he said.

McNee added that demand for these complex large-enterprise systems, however, will likely take off "in the latter part of the decade, as finance and IT leaders realize that the cost of upgrading yesteryear's solutions just [doesn't] make sense anymore."

According to McNee, 70% of new CRM deployment decisions today are cloud based, and probably in excess of 40% to 50% for new HR systems. In contrast, cloud-based core financials are earlier in the adoption cycle, with 15% to 20% of new decisions cloud based, although greater than 40% of FP&A decisions are already cloud based today. By the end of the decade, McNee believes that virtually all new FP&A decisions and greater than 60% of core accounting decisions will be cloud based.

The survey said 74% of respondents identified data privacy and security as the main concern in moving to the cloud. Executives are terrified by high profile breaches at big companies such as Home Depot, Target and JP Morgan, McNee said. "Everybody is paranoid about security," he said. "We have been doing surveys like this for 10 years. Security is always at the top of the list, regardless of the survey topic."

However, McNee said that cloud-based software is actually more secure than all but a handful of on-premises systems. "This is one of the reasons, among many, that IT leaders have increasingly become advocates for the cloud," said McNee.

The Web survey was designed to help understand how companies will acquire and use cloud-based business software to help improve management of their companies over the next two to four years. Readers can view a summary of the report here.

Next Steps

See analyst 2015 cloud predictions

Learn how to choose cloud-based financial software

Decide if you're ready for cloud financials

Dig Deeper on Cloud-based ERP systems