“CLOUD COMPUTING – it’s all nonsense,” and now, “[the] computer industry is more fashion-driven than women’s fashion”. Sound familiar? No? This is a 2008 rant from IT giant Oracle’s CEO Larry Ellison – but he was more annoyed at the jargon surrounding the software than the technology itself. However, he did add, in that same speech, that he wouldn’t fight it. He is the leader of a technology empire and if cloud is in then so is he. At the 2011 Oracle OpenWorld conference, he introduced Oracle’s exalogic elastic cloud, or private cloud product, which gives users the ability to run their own data centre.
Since it came onto the scene ten years ago, cloud has gone from strength to strength, culminating in a series of new product launches from online accounting providers including Sage, Talentia, Twinfield, as well as the tie-up between Iris and KashFlow. In October, financial software in the cloud providers, Xero, managed to raise £90m in investment, while cloud management platforms are only now reaching their peak, according to IT analysts Gartner’s hype cycle (see graph).
The analysts look at all online technology and assess its life cycle. The hype regarding software as a service (SaaS) has fallen away as the technology has reached a plateau. Think of cloud as a way a company can hire a section of the internet, similar to a warehouse, through a third-party supplier that will hold the data and allow access while providing security to that data. But SaaS, in diluted terms, is where a company hires the service over the internet and the information isn’t held in the cloud – it just allows users to access their own server through the internet.
The finance function can, quite understandably, develop a nervous twitch at the thought of handing over what is possibly the most important asset of the company, the financial data, to a new and complicated technology. Nevertheless, finance has made that leap, and there has been an influx of existing cloud providers offering upgraded products, as well as the launch of several new players into the market.
“In the coming years, some form of cloud will play a role in the finance organisations for many companies,” PwC’s US CFO Carole Sawdye wrote in the accounting firm’s latest Finance Effectiveness Benchmark survey.
Government decisions to force finance functions to move substantial chunks of important information online have acted as a catalyst for the sudden leaps of faith. In the last two years, HM Revenue & Customs mandated that all corporation tax filings must be filed online using a tagging software known as iXBRL. Meanwhile, the whole of finance has geared itself up for the move to real-time information, in which all payroll data must be filed online and in real time – no more waiting until the end of the financial year to file payroll information to HMRC.
“As a result, companies had to make choices, to outsource or to bring in a system that would enable them to do the work in-house,” explains Julie Windsor, managing director at online IT business Talentia.
Translating the numbers
In the last year, hundreds of products have been upgraded, or produced to enhance the finance function’s flexibility and agility.
While many people assume that cloud technologies are riskier, Sawdye points out that too many businesses jump to the conclusion that their data is safer within their own walls – “but as many cyber security breaches have shown us, that is not always true”, she says.
The side effect of the cloud settling over the finance function is that it is helping to enlighten the rest of the organisation’s understanding of the department, explains Talentia’s Windsor: “The technology is enabling the finance function to engage more across the business.”
Now the initial products have been launched and the technology has become more mature, allowing a lot of the kinks to be addressed, the products are starting to bed in and some of the benefits are starting to take shape and change the way a company works with finance as a result. Cloud is acting as a “translator” for the finance function across the whole business, says Windsor.
“Annual reporting is now a thing of the past and cloud is allowing that instant critical communication to take place,” she says. “You can’t change line managers into finance managers, but you can present the information in a tangible transparent way so that those managers can understand the financial direction of the business.”
It is critical that the issues in finance are translated across to the rest of the organisation. “Objectives throughout any business almost always start with money. Technology can bring finance into the heart of the business,” she explains.
With the accelerating move towards integrated reporting and more scrutiny on narrative reporting in financial reports, having better communication from the finance function and through the rest of the business, allowing everyone to be on the same page, could prove invaluable.
The finance function under cloud has become more agile and approachable, adds Steve O’Neill, CFO of strategic operations for EMC Europe. Previously, only the really tech-minded directors could create the bespoke software they wanted, whereas it is now all done through the cloud, which allows companies to have bespoke software cheaper and more easily, he explains.
However, O’Neill argues that “you won’t see many large enterprises putting all their financial information into the cloud”. It seems likely that they will still rely on Excel spreadsheets, he says.
This opinion is echoed by research published by PwC, which states that just 6% of senior finance figures at large organisations are comfortable with their current technology – yet most of them are not looking to make any changes over the next two years, according to the attendees at its Finance Leaders Summit.
Concerns about security could be the reason why large organisations are not taking up cloud, according to the PwC research. Among those surveyed, 58% believed their organisation faces substantial or critical cyber risk, while 53% said they have very little or insufficient data to manager cyber risk well.
Other problems that could hinder the progress of cloud include the responsibility of finance to ensure the firm doesn’t overload its staff. It is one thing to have access anytime and anywhere, but that should not translate to all day, every day, with no chance of escape.
“That’s more a cultural issue, rather than a fault of the technology, but it needs to be addressed and the message must come from the top,” says Sanjay Parekh managing director and co-founder of WebExpenses.
“When there are no boundaries, problems can occur – 24/7 technology does take over your life and that is when it becomes counter-productive and defeats the benefits.”
That’s not the only problem with the proliferation of cloud. “Now there is so much choice that you can become paralysed. The ability to choose badly also increases with greater choice,” Parekh says.
Although Gartner analysts roll off a list of the pros of using cloud – such as no up-front capital expenditure, operating and subscription expenses that allow predictable costs, no hardware expenses, etc – they also warn that “these are short-term cost savings; CFOs must also look at both the short-term and long-term financial implications” in their CFO Advisory: Are you ready for cloud ERP finance and economics? report.
Gartner adds that CFOs must be aware cloud may seem less expensive in the first few years, but still end up being as expensive, or more so, as comparable options. The lease versus buy break-even is in the neighbourhood of three years. Also take into account an increase in subscription models, through M&A, broadband prices, complicated IT needed to interact with multiple systems, disruptions between upgrades and any cost of customisation.
Customers need to consider the cloud provider they will be working with and look into the company’s background, financing and strategy, warns Barbara Kroll, UK MD of online web service provider Twinfield.
“Who is backing the company, a single founder or a professional investor? Are they stock market-listed? How much money do they have? Will they be able to maintain the product effectively? These are all questions that need to be asked before you embark on rolling it out across the company,” she says.
All companies that are using cloud or are about to embark on it should be aware of the strategy and risks, although communication will be better across the business – forewarned is forearmed.