NetSuite's new partnership with the Institute of Management Accountants is a real opportunity to understand how cloud based ERP is perceived by finance organizations, as well as get a clear perspective about some of the concerns (and myths) that still remain.
Recently, I moderated a panel discussion of CFO's at businesses that had adopted NetSuite's cloud ERP (rather than choosing to plough the traditional on-premise ERP road). The topic of the webinar was "What the Cloud Means to Finance", and it was clearly a subject of great interest to accounting organizations, judging by the attendance. The panel discussed the challenges facing their finance organizations that drove their move to SaaS ERP, the evaluation process they went through, as well as objections that had to be overcome internally. They also discussed the benefits that their finance organization experienced from making the move - such as improved reporting, a faster financial close through improved real-time collaboration, and a reduction in manual processes. And they talked about the broader business benefits - around IT cost reduction, and being able to grow the business while keeping the corporate's cost structure under control.
During the event, we asked the audience what their perceptions were around cloud ERP. And it's probably one of the largest cloud ERP surveys of its type - with around 800 responses from all levels of finance. With nearly two-thirds of the audience running solutions of all sizes like SAP, Oracle Financials, Microsoft Dynamics - whether GP, AX or NAV, or QuickBooks, there is clearly some dissatisfaction (the remaining third running some other on-premise app) with the state of traditional ERP solutions.
We asked the audience what they saw as the key benefits of cloud financials:
The Perceived Benefits of Cloud ERP
While low CapEx is often discussed as an important benefit of a SaaS based solution versus a heavy weight, up front on-premise deployment, it ranked pretty low on the perceived benefits. The top driver for cloud ERP, was to lower TCO. With many IT budgets in some cases allocating 90%+ to simply maintaining existing systems, and only the small amount that's left over to being allocated to innovation (and returning value to the business,) it's often a source of key frustration within finance departments. They have big goals to transform their finance processes, but are stuck on aging account systems. Cloud based ERP can cut the cost of ownership by 50%+, freeing up IT budget to focus on the projects finance needs.
The second driver was anytime anywhere access. This is an often under reported benefit of the cloud. With web based ERP you can securely access financials from anywhere, it's as accessible as your Gmail or Amazon account. So it enables distributed finance departments to collaborate in a way that is typically very hard to achieve. Whether you're a remote receivables person, or in an accounting different division - you have clear, real time visibility into the latest financials - all from a single version of the truth. You're not waiting for spreadsheets to get mailed to you with out-dated financials, or held back by financial information being buried on people's local PC's or on a server under the desk at a remote office - you can access everything through the web browser, any time anywhere. And it has profound implications for finance's productivity, on everything from strategic planning, to daily financial activities.
The third driver is seen as around streamlining business processes. The fact is that cloud ERP systems are often more modern than their old on-premise counterparts. They take a more comprehensive view of the business - integrating with the sales department to streamline the order to cash process, or providing web based time and expense entry (so the finance team doesn't have to content with inbound time and expense spreadsheets that they then have to rekey into the accounting system). And because they're build on modern, web services based foundations rather than proprietary 1990's technologies, they're often much easier to integrate with the broader business.
But with the adoption of any new technology, comes concerns. So we asked the audience what worries they had about running their financials in the cloud:
...And the Concerns
The main concern voiced was around security. And it's an important one to address: "Is my data less secure if it's in a data center, versus in my own server room?" The key thing to recognize that even if your data is held at your own office, it's still probably by some means still connected to the internet, whether directly or indirectly. So the real consideration is what are the dedicated personnel resources and technologies in place to maintain security and proper controls and to monitor and counter against potential attacks? And the sad fact is that in many organizations there are very few, if any resources allocated 24x7 to maintaining security. And fewer still that have achieved important internal security certifications around data stewardship such as PCI DSS compliance. In contrast, cloud providers can achieve the scale to invest substantial amounts in security - that's typically much higher than an organization can typically invest on its own. For example, at NetSuite on top of application based security we have third party scans and penetration tests, we're 100% International Information Systems Security Certification Consortium (ISC2) CISSP-certified, PCI DSS compliant, and adhere to US Bureau of Industry and Security, Department of Commerce Export Encryption compliance. Together with 128-bit SSL security (the same level as online banking), the kinds of security that a cloud ERP solution like NetSuite can deliver would be prohibitively expensive for a Small to Medium Sized to achieve by themselves.
The second area of concern was reliability versus an in-house system. When this comes up in conversation, I often ask - "So what was your in-house systems % availability?". Often the answer is a pause, and then "I have no idea". For many mediums sized businesses, continually monitoring an internally maintained business application's availability, and reporting it to the line-of-business is often atypical. When it goes down, there is often little transparency to the business on when it will be available. And even fewer organizations maintain any level of service level commitment to the business. It once again goes to the amount of dedicated resources a cloud vendor can bring to bear for application monitoring and availability versus an internal IT staff. For example, at NetSuite we provide a service level commitment of 99.5% - with penalties if we don't meet if (so NetSuite is clearly highly aligned with its customers to maintain high availability!). And NetSuite's availability is transparent - we report it at status.netsuite.com. When was the last time you saw that with an in-house system? In fact, I've spoken with a number of business's that when faced with everything from power outages, hurricanes, floods - were able to keep their business running *because* they were running in the cloud! Sure, when a cloud system does go down, it makes the news - but a well managed cloud deployment is typically much more available than its on-premise counterpart.
The third area or concern was customization."Will I be able to tailor a cloud based ERP system as much my on-premise?". We know that about 75% of NetSuite customers customize NetSuite to some extent - whether it's custom script, customer reports, custom workflows, field changes, integrations etc. That closely matches with the level of customization applied to traditional ERP systems. However, the key difference is in the upgrade. According to a recent analyst report, about 75% businesses are running old versions of their on-premise ERP system - because customizing an on-premise ERP often means version lock, and hugely expensive upgrades. So while businesses are paying maintenance year in and year out, its too disruptive and cost prohibitive to upgrade to the latest version with the latest features. At NetSuite, 100% of our customers are on the latest version. So you can customize all you want, but unlike on-premise ERP, you're not left with the version lock hangover
Of course, these concerns should be addressed in any diligence process (because all cloud providers aren't created equal, and not all purported cloud providers are even true cloud) - however if you do your diligence, these concerns can actually turn into additional benefits of taking your financials to the cloud!
With a substantial part of the audience using SaaS in some part of their organization, or planning to evaluate SaaS over the next 12 months, it's clear that SaaS is going to play an increasing role in finance departments - and as you'll hear on the webinar, the benefits can be substantial.
Paul Turner, @pauljturner99
Posted on Fri, November 5, 2010
by Paul Turner filed under