Finance departments are increasingly moving to the cloud. What does it all involve? How much does it cost? And what are the pitfalls?
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Finance departments are generally not keen to put their head in the clouds. The world of finance is highly structured, and driven by facts and hard figures. That’s why CFOs and finance staff like to keep their feet firmly on the ground.
And yet, finance departments seem to be increasingly interested in moving to the cloud. Compared to other functions, they may be lagging behind a bit, but they are clearly catching up rapidly. There is an unmistakable trend to move finance applications to the cloud, both within companies and with software suppliers. What is driving CFOs and finance departments to take this step now?
Research carried out by TechVentive among some 30 CFOs and controllers has shown that, over the past five years, finance professionals’ image of cloud computing has changed. Whereas in 2010, they tended to take a suspicious “wait-and-see” approach, their familiarity with and trust in the cloud has grown fast in the past two years.
As a result, software supplier Oracle is expecting adoption of finance cloud applications to double in the coming year. Three-quarters of the organizations surveyed expect to move financial applications to the cloud at some point in the future. Research carried out by KPMG confirms this development: 57% of CFOs who took part in the research wish to move applications to the cloud.
Big Data Analytics
The popularity of the cloud fits in with one of the focus areas of the finance function: big data analytics. However, the successful deployment of analytics requires a great deal of processing capacity.
In addition, volume requirements related to data collection and the analysis of large sets of data are considerable. For the finance function, report generation and complex calculations are daily tasks. To make sure the required data becomes available as quickly as possible, fast data processing is crucial. Moreover, the demand for processing capacity is not uniform. At specific times during the year, the workload for finance departments and systems peaks. At such times, cloud computing offers clear benefits.
Traditional data analytics solutions are requiring ever more computing power and storage space, putting great demands on physical servers. The cloud, on the other hand, is based on virtualization technology, offering seemingly limitless capacity and resources on demand. This enables companies to smoothly increase or decrease demand for processing capacity (elastic computing). As a result, the computing power and storage space required to perform hassle-free analyses is always available. This gives the finance department more flexibility, making it more efficient and simplifying its role as “architect of business value”.
It is relatively easy to plot software applications on a line, ranging from tactical to strategic functionality. Tactical applications are those that streamline a process, whereas strategic applications offer concrete competitive advantages.
Cloud applications tend to lean towards the tactical side, as companies purchasing cloud solutions are usually aiming for uniformity. The cloud offers ready-made products that follow standard processes. From the point of view of the finance department, these processes facilitate the generation of reliable data. The tactical nature of cloud solutions forces the finance function to make sure its way of working is increasingly in conformity with standard processes.
Within these processes, there are often specific configuration objects; for instance, to comply with local legislation. Cloud implementations also promote standard processes on a global scale. This makes it possible for finance departments to tighten their grip on processes and improve transparency worldwide.
Globally standardized processes make it easier to outsource finance tasks. Transactional finance activities in particular are relatively easy to outsource. A cloud solution facilitates such outsourcing initiatives, because the outsourcing party can work with the same systems and processes for all subsidiaries. In addition to cost benefits, this approach may contribute to improved quality and greater process transparency.
Total Cost of Ownership
Another well-known advantage of cloud applications is the fact that it gives the finance function better insight into and control over costs. As cloud applications run on the cloud provider’s servers, the organization does not need to invest in more infrastructure. These costs then shift from CapEx to OpEx.
In addition, cloud computing is often based on a pay-per-use model. An organization pays exclusively for the capacity it actually uses. Costs are therefore always in line with activities, which makes it easier to allocate them to different departments. Managing more variable costs increases budget flexibility. This flexibility and the insights gained are very useful in times of economic uncertainty and reduced profitability.
An additional advantage of the cloud is that you no longer need to carry out certain IT maintenance activities yourself. Cloud providers maintain their own infrastructure, such as maintenance of servers and databases, creating back-ups, and patching and upgrading systems. These operational costs (OpEx) shift from the user to the cloud provider. Furthermore, cloud providers have access to economies of scale that could not be achieved by organizations on their own. This results in better quality and/or price advantages, and the freed-up IT resources for maintenance can be used for innovation and improvement initiatives.
Of course, there are some things to be aware of when moving to the cloud. For instance, cloud solutions send data via the internet, placing high demands on connections and security. In addition, data are no longer stored on local servers. For companies, this may lead to a feeling of insecurity as they believe they will be extra vulnerable to hacking attempts.
This fear is largely unfounded. As cloud providers take care of security issues for all their customers, they are able to invest in technology and specialists that ensure the highest possible level of security. For instance, they deploy high-quality encryption techniques to secure data sent over the internet. Nevertheless, we highly recommend that you enter into clear agreements with cloud providers about the security of data and connections.
Another point of attention is the ownership of data stored in the cloud. When you move data to a cloud server, you may lose ownership of or control over these data. Once the data are stored on a server owned by the cloud provider, the provider has, in some cases, the right to publish these data.
It is also important to be aware that when you use a cloud solution, it is not always clear where the data are stored. In principle, when in the cloud, your data could be anywhere in the world. This may raise questions about the regulations that apply. You should bear in mind that strict laws and regulations apply to data storage, particularly with respect to the storage of personal details. We therefore recommend that you include clear agreements regarding your data in the service contract with your cloud provider.
In principle, cloud solutions are a good match with the finance function, mainly because of the largely tactical background of finance. Advantages such as advanced standardization, unlimited analytics capacity, and high availability of real-time information could contribute directly to improved standard global processes. This opens up the way for outsourcing activities, which will reduce costs, improve the quality of service, and increase the value of the finance function’s output.
Furthermore, the pay-per-use model of the cloud requires fewer initial investments, and the almost unlimited access to the cloud’s computing capacity gives the finance department increased flexibility, with real-time data and applications being accessible at any time and from any location. To make these benefits come true, however, it is essential that companies carefully consider the security aspects when selecting a cloud solution. Entering into clear agreements with regard to security, control and the storage location of data will also be indispensable. Once they have ticked all these boxes, finance departments will certainly be able benefit from the cloud – with both feet firmly on the ground.
By Tom Lenaerts, Senior Manager of Accenture Strategy CFO & Enterprise Value and Mark de Jong, Analyst of Accenture Strategy CFO & Enterprise Value. This article was published previously in Financieel Management, September 2015 (in Dutch).