It wasn't that long ago that shudders and derisive guffawing greeted the mere suggestion that a company place its precious financial information into the public cloud. With cloud-based core financial systems, IT and finance executives have historically fretted over perceived shortcomings in areas such as security, availability and vendor viability.
No more. While it would be hyperbole to say there's a mad rush to migrate legacy financial systems to Software as a Service (SaaS) environments, it's fair to say interest in doing so is on the rise.
In fact, according to a recent Forrester Research survey of nearly 1,400 software decision makers in North America and Europe, 26% had either already replaced their companies' core financial systems with SaaS alternatives or were planning to do so within two years, up from 13% a year earlier. Similarly, just 39% said they had no plans to use financial SaaS applications, down from 63% the previous year.
Bill McNee, CEO of market research outfit Saugatuck Technology, called finance the third wave of SaaS adoption, after customer relationship management and human resources. McNee estimates that about 15% of enterprises have made the shift to core SaaS financial systems so far, and he expects that number to grow as high as 50% within the next couple of years "as companies realize that the disjointed islands in finance are holding them back."
As for those early concerns, they've not only evaporated but have pretty much been turned upside-down, experts say. Most executives are quick to admit that the market's most mature financial SaaS providers -- NetSuite, Workday, Oracle and SAP -- offer a degree of security and availability the bulk of organizations can't match. Instead, they want to talk about the business value and agility cloud providers' systems deliver, a sure sign that the technology has matured.
Moving from legacy core financial systems to SaaS worth the pain
Count Amrith Nambiar, vice president of IT at software vendor ServiceSource, among those in that latter camp. Nambiar joined the San Francisco-based company, which happens to market and sell a SaaS-based revenue management application itself, right after it went public in 2011. He was immediately tasked with identifying a replacement for the company's Microsoft Dynamics environment.
The reason? The company faced a Dec. 31, 2012, deadline for compliance with the Sarbanes-Oxley Act, and the CFO wasn't satisfied with the reliability and consistency of financial data being used by ServiceSource's various departments.
So Nambiar set a goal. His team was spending about 80% of its time managing servers, hardware and infrastructure, and just 20% on managing and optimizing business processes, and he wanted to reverse that ratio. The company's operations in North America, Europe and Asia Pacific had all established their own separate business processes in the legacy Dynamics environment, making it hard to get a consolidated view.
Ultimately, Nambiar selected Workday Financials because, of the major financial SaaS application providers, it was the one that provided what he called "the vision of ERP," or enterprise resource planning. He said the move to Workday has enabled ServiceSource to eliminate the friction among the separate regions' processes, replacing it with one global journal entry process.
"It gives you that end-to-end view of the transaction, including the approval flow," Nambiar said. "It gives you a governance layer."
Plus, from a security perspective, Workday's "integrated audit trail is a pretty significant piece," he said.
It's also given the company a new level of flexibility, as it's now much simpler to make changes to financial processes without having to go in and make changes to everything that process touches.
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But none of this should suggest the transition was simple. "With any system change like this, anyone who says it's not hard or not a meaningful effort is not being truthful," Nambiar said.
What has made things easier, however, is that there's much less fear of doing something wrong, compared with system migrations in the pre-cloud era. For instance, whereas business requirements often drove legacy implementations, Nambiar suggested that companies preparing to move to cloud-based financial systems reduce the amount of time they plan to spend on requirements by 80%, because the inevitable last-minute change is much less of a headache.
"The answer to that now is, 'No problem, let me update it,'" he said. "It's an ongoing collaborative process. In the old world, you had to get it right."
And as for Nambiar's resource allocation goal? That 80% of time spent managing infrastructure is now down to approximately 50%, and he's been able to shift IT staff toward IT program management and business applications support. What's more, ServiceSource has kept headcount in its finance department flat, even as the company continues to grow.
SaaS financial system streamlines processes
Whereas ServiceSource made the move to SaaS after establishing itself on a legacy financial application, Thrillist Media Group, headquartered in New York, made the jump much earlier in its development. With its fast-growing collection of male-targeted lifestyle websites, the eight-year-old company has seen revenue jump from $6 million in 2009 to $83 million in 2013. Along the way, it outgrew the Intuit QuickBooks system it relied on as a startup.
For instance, the company developed two of its four sites as independent companies before gradually combining them with the other two, but each had its own sets of books that had to be manually merged for quarterly closings -- a process that took 45 days using QuickBooks.
Monthly budgeting and forecasting weren't exactly a cinch, either.
"Every month, we had to go into the system, update the forecast, compare what we had in the budget, take it to financial personnel and then show them what we originally forecast," said Anish Patel, director of accounting and planning. "It was extremely messy when doing various analyses of forecast versus actual."
When it became clear that the company had to transition to more scalable technology, Thrillist's leadership focused exclusively on SaaS options. They eventually selected NetSuite, not only because it was less expensive than the bigger-named vendors' offerings and could support both inventory functions and the media industry, but also because the CFO ranked its technology higher than that of its rivals, Patel said.
Naturally, there were hiccups along the road to adoption. Thrillist worked with a third-party integrator, but Patel said the consultants never had a clear understanding of the business, which led to some unexpected restarts. Additionally, the company chose to implement certain pieces first, including general ledger, but chose to wait on others, such as the fixed asset module. Had the company tackled it all at once, it would have saved a few months' time, he said.
Even so, it's hard to argue with the results. Those disconnected books are now automatically merged in NetSuite, and that's contributed to the 45-day reporting process shrinking to just 10 days.
Patel hopes to squeeze more value from the software in the next few months by creating a system that will automatically book purchase orders regardless of invoice status, a process that will make the company's finances that much more accurate.
Granted, companies such as ServiceSource and Thrillist represent aggressive SaaS adoption curves. But their experiences -- and their confidence in the reliability of SaaS-based core financial systems -- stand to be echoed in many companies in the coming years.
"The concerns still exist, and companies still need to do their due diligence around security and reliability," said Paul Hamerman, vice president and principal analyst at Forrester. "But the market has become much more comfortable with the fact that financial SaaS performs."
About the author:
Tony Kontzer has been writing about technology and business for nearly 20 years and currently freelances from his home in the San Francisco Bay area community of Albany. A 1988 graduate of the University of Missouri-Columbia School of Journalism, Tony spends his spare time relaxing with his wife, playing with his three sons, tinkering around his home and when time allows, playing saxophone and traveling. His somewhat infrequent Twitter posts can be found at @tkontzer.
This was first published in February 2014