Is the CFO the last man standing when it comes to the cloud?

The use of cloud technology by corporations has mushroomed in recent years. As the concept of cloud has gained greater acceptance at a consumer level, companies have increasingly recognised the benefits that cloud-based systems can bring to their businesses.

As a result, many have moved away from technology which is installed in-house and instead have adopted systems like Salesforce.com for customer relationship management and NetSuite for ERP.

Yet while the use of cloud technology has become mainstream elsewhere in the corporate environment, the areas of finance and treasury have tended to lag behind. All too often the CFO is the last person in the organisation to take their technology into the cloud.

Barriers to adoption

With cloud technology becoming a mainstream option for other corporate functions, why are CFOs holding back?

For one thing, they tend to be more risk averse than their peers across the organisation. The CFO’s role is necessarily focused on risk management and compliance and, as a result, they are often relatively conservative when it comes to adopting new types of technology.

At the same time, CFOs have many demands on their attention, particularly in light of the difficult economic conditions of recent years. With so many competing concerns, many CFOs have simply not had time to develop a fuller understanding of cloud technology and how it can benefit their businesses.

The alphabet soup of cloud terminology is another stumbling block. Confusion is widespread regarding the differences between ASP, SaaS, private clouds and public clouds. This has not been helped by some vendors who, keen to jump on the cloud bandwagon, claim to provide cloud technology even though they do not offer a pure web-based solution.

The net result? CFOs are frequently left with the impression that cloud technology is inaccessible and has no real benefit for them, or that putting sensitive financial data outside the company’s firewall incurs unacceptable levels of risk. With so many differing demands on their time, few have the inclination to educate themselves further and overcome these misconceptions.

A brief guide to cloud terminology

Cloud technology is delivered via the internet and consequently users can access it from anywhere, as long as they have an internet connection. Cloud solutions are scalable and are set up in a number of different locations to minimise the risk of disruption to service.

Cloud technology comprises three service models: Software as a Service (SaaS), Infrastructure as a Service (IaaS) and Platform as a Service (PaaS).

Cloud solutions can take the form of the following deployment models:

Public cloud – the software can be accessed using an internet browser.
Private cloud – a system which is specific to a single organisation.
Community cloud – a semi-private system which is shared by a group of organisations.
Hybrid cloud – a combination of the above models.

SaaS solutions are not to be confused with Application Service Providers (ASPs). ASPs are a precursor to SaaS, but they are not the same thing. While ASPs are accessed via the internet, they are hosted by the software vendor specifically for a particular client and are therefore configured and upgraded individually for each customer.  

ASPs also tend to be set up in a single geographical location, which increases the likelihood of downtime if a problem arises. SaaS products, on the other hand, are typically hosted on multiple, mirrored servers in different locations. So, even in case of an outage to one location, there is no interruption in service.

Overcoming the obstacles

Security concerns tend to be the greatest stumbling block when it comes to adoption of cloud technology. However, vendors are aware of the importance of robust security and many have invested heavily in this area in order to offer the securest level of data protection, both in the configuration of the platform and the location where it’s hosted.

The data centres used by cloud technology vendors use incredibly stringent security measures to protect their data. In addition to extensive physical security measures, such data centres are also typically protected by the most robust and up-to-date IT security available.

As corporations have grown more comfortable with the concept of cloud, their concerns have subsided and the use of cloud technology in the corporate environment has become the norm. However, CFOs and treasurers often feel that financial information requires a greater level of security than other company data and that it is therefore not appropriate to put financial data in the cloud.

Financial data is of course highly sensitive and companies are right to demand high levels of security. However, it is worth bearing in mind that other corporate data, such as sales or HR information, is also highly sensitive – and in many cases is already commonly kept in the cloud using solutions like Salesforce.com or SuccessFactors.

Indeed, in all likelihood the CFO has signed off on cloud systems for other parts of the organisation at some point in the recent past and may already be using cloud solutions outside of treasury, such as NetSuite’s payroll software.

One size fits all

Another misconception relating to cloud technology is that this type of technology is only suitable for small and medium sized companies and is not appropriate for the largest corporations.

This perception dates back to the development of the first SaaS applications ten years ago. When vendors were building their first SaaS solutions from scratch they tended to focus on delivering relatively simple capabilities. As a result, the earliest cloud-based treasury solutions were more suited to smaller organisations with less complex needs.

In the intervening years, however, vendors have steadily built up their capabilities and today cloud platforms, including treasury systems, are able to support the needs of a £30 billion turnover company as effectively as a company with sales of £20 million.

As a result, many companies – from SMEs to large multinationals - have continued to rely on spreadsheets for their treasury processes – a strategy which is associated with well-documented risks. Inputting errors are so common that some estimate that as many as 90% of spreadsheets contain at least one mistake, which can have far-reaching consequences if the errors pertain to key financial figures. For companies which have been unable to afford dedicated treasury technology until now, cloud offers a more affordable alternative.

The current generation of cloud technologies is equally suited to corporations large and small and in fact scalability is one of the defining characteristics of cloud solutions. While some software vendors have decided to focus on a particular segment of the market, others are successfully offering the full breadth of cash, risk and treasury solutions for companies of any size.

Benefits of cloud

Once CFOs and treasurers have set aside their misconceptions around the topic of cloud computing, it should become clear that such technology can bring enormous benefits to the treasury and finance functions.

Today’s treasury technology is expected to do three things: provide visibility; boost efficiencies and productivity; and standardise controls and workflow in order to become more compliant and audit friendly. In other words, treasurers are looking to understand their financial information more thoroughly, spend less time getting it, and ensure that they are meeting internal and external audit compliance.

Cloud-based treasury solutions can fulfil these requirements as effectively as an in-house installed system – and they also bring a number of additional benefits to the table.  The most important of these are:

  1. Cost effectiveness. Unlike a treasury system that is installed in-house, cloud technology does not require a large initial outlay. The technology is typically billed for on a ‘pay-as-you-go’ or subscription basis, enabling companies to spread the cost. Upgrades take place automatically and frequently, requiring no additional investment of time or money. In addition, in-house IT support is no longer required either to support the technology on a daily basis or to carry out upgrades, eliminating an often significant internal cost.
  2. Ease of implementation and maintenance. A cloud solution is easier to acquire than a hosted system and easier to roll out across the organisation. The implementation time for cloud treasury technology can be as little as three months. For legacy systems, implementation usually take two to three times as long. The benefits do not end once the system has been installed: upgrades and updates happen automatically and new users can be set up directly via the website without difficulty.
  3. Performance. Financial applications typically carry a lot of data and internal networks can get overloaded, particularly at month-end when multiple people in multiple geographical locations are all trying to access the same information. This can adversely affect the performance and timeliness of non-cloud based systems.  Even ASP solutions are not optimised for high performance given the limitations of their architecture and development.
  4. Sector profitability. Wall Street and the City value cloud providers at a multiple of two to three time of traditional software providers, simply because their profitability and viability are better.  While this relates to the viability of the provider rather than performance, cloud vendors are typically much more profitable than legacy or even ASP vendors. There is a recognition that cloud vendors can be more efficient, develop software more quickly and operate more cost effectively, meaning that their ability to generate profit margin is greater – and that they are more likely to be around in five or ten years’ time.  In treasury, there is significant benefit to having your provider perform better financially and invest more in growing the business, including the very product you are relying upon for your daily cash and treasury management.

While the benefits are considerable, companies which have already made the move to cloud are not doing so only in order to take advantage of cloud. New technology provides new opportunities to become more efficient and CFOs are more likely to undertake a move to cloud as part of a wider overhaul of the company’s technology infrastructure and processes.

Within the last five years it has become clear that treasury is no longer seen as an island: it is an integrated department within the organisation. As such, the information flows relating to treasury need to be integrated as fully as possible with the rest of the company.

Companies adopting cloud technology in treasuries are investing time and effort to ensure that they get the information, reporting and analysis they need in order to be more effective going forward. Rather than aiming to replicate their existing processes using a cloud system, they are using cloud as a platform to boost overall efficiencies.

Moving forward

Cloud technology has enormous potential in the area of treasury and finance and this potential is only just beginning to be realised. The obstacles that have until now impeded greater adoption will naturally dissipate as awareness and understanding of this type of technology grows.

Industry analysts such as IDC predict that by 2015 cloud will become the standard delivery model, taken as a given by the industry.  In the meantime, cloud vendors can play a role in educating companies about cloud technology and the benefits it offers.

Adoption may have been slower in treasury so far – but the tide has been shifting steadily in the past five years and the popularity of mobile devices is a key factor that will continue the rapid growth of cloud technology. Increasingly, CFOs and treasurers want to be able to work when they are away from their desks – whether at a meeting in another part of the building, or on the way to the airport.

Now that everyone has a smartphone or tablet, finance and treasury professionals are keen to use that technology for everything from viewing account balances to approving payments. Only cloud-based treasury management system can offer his type of functionality.

As a result, while treasury and finance functions may have been slower to adopt cloud technology than their counterparts across the organisation, all this is likely to change. Indeed, the fact that treasury has lagged behind other departments until now means that the growth curve in the next couple of years is likely to be that much steeper. Within five years’ time it is unlikely that there will be any treasury systems on the market which are not fully cloud-based.

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jimdaddario
27 Apr 2013, 2:15 a.m.

This is an excellent article about some of the CFO adoption barriers and how vendors solve them. One other aspect I would point out is the audit standards for "service providers" namely cloud vendors. SSAE 16 and ISAE 3402 replaced SAS 70 type II a couple of years ago. Here's a blog post I write on the subject if anyone's interested. http://scn.sap.com/people/jim.daddario/blog/2012/01/19/can-finance-people-learn-to-love-the-cloud

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