executive report

MomentumShiftingto theCloud

sponsored by

FINANCIAL MANAGEMENT

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Financial Management

Momentum Shifting to the Cloud

Executive Summary

David Pleasance, senior partner at Deloitte Consulting LLP and a member of FEI’s Committee on

Finance & IT (CFIT), believes the shift to digitally-enabled business models is both a CFO issue and a

CFO opportunity. He says, “First, CFOs are the stewards of corporate value. Second, they can act as

catalysts of business model change. And most importantly, digital transformation provides CFOs

with a significant opportunity to be leaders and strategists.”

Over the past several years, a consensus has grown among CFOs and IT executives about the

viability of Cloud-based finance systems. After successfully implementing Cloud-based functions

such as e-mail, CRM, human capital management, expenses, procurement, and collaboration

applications, increasing numbers of organizations are moving core finance systems to Cloud-based,

Software-as-a-Service (SaaS) solutions.

This report provides an overview of the current state of legacy finance systems and insights behind

the increasing shift to the Cloud.

The Postmodern ERP Era

Changing Times, Changing Business: Why Finance Management is Moving to Cloud 1, a research

report released by Saugatuck Technology in June 2013 based on a survey of 270 financial and IT

executives, concluded that:

Finance needs more and better ways to deliver value to the enterprise;

Legacy finance systems are seen by both finance and IT leaders as unable to keep pace with

current business demands, let alone cost-effectively adapt to expected market, compliance,

usage, technology and management changes;

Consideration and use of Cloud for core finance is growing much faster than had been

previously seen; and

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Finance and IT leaders have clear expectations regarding how Cloud can and does deliver

value – and what Cloud solutions and providers must deliver.

These insights, combined with the ever-changing business landscape, have driven the need for a

new breed of Cloud-based finance technologies that deliver data in real-time, are more agile, mobile

and provide a modern user experience. Cloud-based financial management applications are

increasingly replacing on-premises financials. In November 2014, Workday engaged Saugatuck

Technology to execute a “pulse” web survey to gauge levels of change regarding consideration,

adoption, and value of Cloud-based financial management applications.2 Over 200 Finance and IT

executives participated in this survey.

The survey results indicate the climate for financial management systems change continues to

improve. Over 60 percent of firms surveyed are unhappy with the current financial management

systems. Over half (57 percent) of firms surveyed are in the process of, or planning to, replace their

legacy finance systems. Only four percent want to change, but lack the budget to replace their

existing systems.

Forces Behind the Shift to the Cloud

In their latest research, Saugatuck refers to a new Master Architecture (a.k.a. Postmodern ERP) that

has emerged to address the needs of today’s finance organizations. 3

Saugatuck describes three sets of factors driving the need and desire for change: 1

Finance must deliver more value to the enterprise. Executives overwhelmingly indicated

that finance does not deliver up to its potential as a strategic enterprise asset. They believe

Indicated they are not satisfied with current financial

management systems and the majority are in the process

of, or planning to, replace their legacy finance systems. 2 60%

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that the value of finance depends on providing useful business data and guidance; and that

existing systems limit its ability to deliver this value.

Finance systems are not up to today’s needs. When asked how, where and why existing

systems hindered finance’s abilities, Saugatuck found that systems are too fragmented,

disassociated, and expensive to maintain or upgrade. They lack speed and timely access to

financial and performance information, which results in a lack of visibility and insights to

drive decision-making. Recent innovations in finance systems from true Cloud solutions

include in-memory computing technology and real-time consolidation at their core which

can significantly improve the speed of information available to finance and business decision

makers.

Meanwhile, the business changes. Saugatuck found that significant business change is

closely correlated to the consideration of and switching to Cloud-based systems. The relative

frequency of change drives most enterprise Finance groups to rethink what they have, and

how they use it.

In addition, finance is being asked to rise above traditional transaction processing and play a more

strategic role to the business supporting activities such as performance monitoring, strategic

decision making and identifying revenue growth opportunities. Yet there are considerable gaps

between these finance priorities and the effectiveness of today’s systems to support such activities.

The chart below illustrates these “effectiveness gaps” as identified by Saugatuck’s study, further

illustrating the need for modern finance technologies.

“Driving demand is not only the power of the new Master Architecture to deliver better,

cheaper and faster outcomes – and addressing the highly fragmented nature of today’s

finance system deployments – but enabling the finance function to provide greater agility,

flexibility and value to the business.” 3

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Source: Saugatuck Technology’s 2014 CFO / CIO Survey: Cloud Financials – The Third Wave Emerges, December 2014. 3

The largest gaps exist for planning, budgeting and forecasting; strategic decision making, managing

risk, and improving revenue growth, indicating a significant opportunity to improve the finance

function. A recent 2015 report from KPMG states that “while CFOs might already recognize the need

to create enterprise analytics and unlock critical business insights from their data, this is often easier

said than done. Insights generally are buried in disconnected, aging enterprise resource planning

(ERP) platforms – replete with bolt-on customizations and manual workarounds – struggling to keep

pace with the business.” 4

0% 20% 40% 60% 80% 100%

Managing shareholder information / relations

Processing transactions

Drive continuous enterprise cost reduction

Improve revenue growth opportunity …

Managing / mitigate business risk

Managing compliance / internal controls

Providing input for strategic decision making

Monitoring / measuring performance

Effective planning, budgeting and forecasting

The "Effectiveness Gaps" Between Finance Priorities and System Effectiveness

Relative Priority Relative System Effectiveness

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Reimagining Finance

Recent studies among senior-level finance executives show that the Cloud has the most

transformative potential for their organizations. KPMG suggests taking a proactive approach: “Now

is the time to reinvent the finance department, but organizations often lack the incentive to break

the vicious cycle of finance merely meeting expectations.”4

By leveraging the Cloud, many industry leaders are already realizing better business outcomes:

Recommendations

Here are a few recommendations to prepare your finance organization for the shift to the Cloud.

First, familiarize yourself with the new breed of Cloud-based systems for core financial management

and the evolving landscape of Postmodern ERP technologies. Gain an understanding of how modern

financial management applications can close effectiveness gaps, and allow finance to be more

efficient and strategic. Second, formulate a plan to replace aging finance systems when catalysts for

change exist within your business. Current systems may no longer be able to adapt quickly enough

to meet changing business requirements (e.g. new compliance mandates, new processes). If your

company is experiencing significant growth (i.e. expanding into global markets, going public, adding

new business entities or product lines, etc.), this may be another compelling reason to consider

Real time access to data for smarter

decisions.

Improved agility to keep up with

business changes.

Simplified cost structure, moving

capital expenditures to operating

expenses.

Automated governance, risk and

compliance.

Instant software updates.

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making a switch to the Cloud. Third, follow best practices for success. In The Cloud How-to Guide 5,

FERF offers finance executives seven steps to success to effectively move core business operations

to the Cloud:

Evaluate your existing and future business process needs

Define your requirements

Define the vendor selection process

Identify key security and compliance issues

Make the decision

Negotiate a favorable contract

Organize and plan the implementation effort

Citations

1. Changing Times, Changing Business: Why Finance Management is Moving to Cloud, June

2013, Saugatuck Technology.

2. Cloud Business Software - Finance Pulse Survey, November 2014, Saugatuck Technology and

Workday.

3. CFO - CIO Survey: Cloud Financials – The Third Wave Emerges!, December 2014, Saugatuck

Technology.

4. The Finance Organization of the Future: How Cloud is Driving Finance Transformation, 2015,

KPMG.

5. The Cloud How-to Guide – Seven Steps to Success, 2014, Financial Executives Research

Foundation (FERF).

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About this Report

“Stamford, CT-based Saugatuck Technology, an ISG business – as a research partner of FERF – has

authorized FERF to leverage some of its intellectual property for purposes of this paper."

About the Sponsor – Workday Workday is a leading provider of enterprise cloud applications for finance and human resources. Founded in 2005, Workday delivers financial management, human capital management and analytics applications designed for the world's largest companies, educational institutions and government agencies. Hundreds of organizations, ranging from medium-sized businesses to Fortune 50 enterprises, have selected Workday.

About Financial Executives Research Foundation, Inc. (FERF) FERF is the non-profit 501(c)(3) research affiliate of FEI. FERF researchers identify key financial issues and develop impartial, timely research reports for FEI members and non-members alike, in a variety of publication formats. FERF relies primarily on voluntary tax-deductible contributions from corporations and individuals. This and more than 140 other Research Foundation publications can be ordered by logging onto http://www.ferf.org. Questions about FERF can be directed to bsinnett@financialexecutives.org.

The views set forth in this publication are those of the author and do not necessarily represent those of the FERF Board as a whole, individual trustees, employees, or the members of the Research Committee. FERF shall be held harmless against any claims, demands, suits, damages, injuries, costs, or expenses of any kind or nature whatsoever, except such liabilities as may result solely from misconduct or improper performance by the Foundation or any of its representatives.

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