Who's blocking the adoption of cloud financial accounting software?

Emma Snider

It's no secret that finance executives are generally leery of the cloud, but is IT creating a barrier to the adoption of cloud-based financial accounting software as well?

TechTarget's 2013 IT Priorities Survey, which surveyed more than 3,000 IT professionals around the world, shows cloud adoption on the rise: 29% said their organization plans to implement cloud computing using an external provider in 2013, and 43% are considering working with a specialty cloud provider, such as a Software as a Service (SaaS) vendor. But with cloud-based financial accounting software, the numbers decreased. In a question about which applications respondents' organizations will provision with external cloud providers in 2013, financials got the lowest response, with 24%.

While experts named privacy concerns and conservative outlooks among the reasons CFOs aren't exactly hustling to adopt SaaS core accounting systems, some said the IT department might be standing in the way at some organizations. But they also said that cloud-based software for tangential finance functions is being adopted more readily than core accounting systems.

Privacy risks and changing roles sour IT on SaaS financials

CFOs often cite data privacy and security fears to explain their hesitance toward SaaS, and, considering the finance function's heavy compliance responsibilities, such worries are not easy to shake. IT shares these fears, judging from the survey results: "Security" and "protecting company data" were the top two concerns about external cloud providers.

But although finance and IT might agree on the predominant risks, some experts say when it comes to moving core systems to the cloud, IT managers may also be looking out for their best interest. "IT often raises concerns about migration to the cloud, some of which will be valid and some of which will be more about preserving the status quo," said Rob Livingstone, principal and owner of Rob Livingstone Advisory, based in Sydney, Australia. "Undoubtedly, IT departments in certain organizations are more interested in preserving their own infrastructure."

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Steve Player, founder and managing partner of the Player Group located in Dallas, expressed a similar opinion. "My sense in talking to IT is they're fairly conservative, and they don't want to see any more of their base erode," he said. "The cloud shifts their roles dramatically, so it could be quite a threat to them."

Paul Hamerman, vice president and principal analyst at Forrester Research Inc., based in Cambridge, Mass., said that at this point, the reluctance can be attributed more heavily toward IT. "We have [done] surveys of IT professionals, and some of the information, in terms of interest in the cloud, doesn't jibe with what we're hearing from buyers on the business side," he said. "If you survey business people in the finance domain, I think you'll find a more positive picture."

And if the finance department is ready to adopt a cloud system but IT is against the idea, Player said IT managers run the risk of being subverted. "Often, finance requests [have been] lowly prioritized, and finance has always had the [option] of creating a surrogate 'little IT' organization," he said. "Cloud gives a subversive way [for] little IT to run past 'big IT.' You can pop [in] a cloud vendor without IT knowing about it hardly."

Also, because financial management systems are central to the business, they're not easy to replace. "In midsized to large organizations, the finance system has generally got deep integration with systems such as payroll [and] other logistic systems. They're not isolated, so they would probably be last to move to cloud," Livingstone said. Contrasting this with the high adoption of SaaS in the sales function, he added, "CRM systems can essentially run independently."

Player said the hybrid model that megavendors SAP and Oracle have started to market, which combines cloud and on-premises deployment, will be an attractive option for large organizations. A hybrid approach allows companies to continue deriving value from on-premises systems they have often invested in heavily, which makes the cloud transition smoother than a "rip and replace" scenario.

Lastly, Livingstone said that cloud-based financial accounting systems have a ways to go in building out multinational capabilities. Since accounting standards vary from country to country, financial accounting products must have strong multinational support to be feasible for global companies, he explained.

Tangential finance functions moving to cloud faster than core accounting

Moving to the cloud or not, financial management systems are a high priority among IT professionals responsible for packaged business applications. According to the survey, 48% of respondents said accounting systems are on the docket to be upgraded or implemented in the coming year. Hamerman said it could be during an upgrade that the benefits of cloud-based financial accounting software come into focus. "If you're two to three versions behind, you have to justify a significant investment to upgrade to the latest release, and you may find alternative systems can be implemented more quickly and at roughly the same cost," he said. "At that stage, cloud alternatives become pretty attractive."

Several of these experts noted that while adoption of cloud-based core accounting systems is still relatively slow, SaaS products for tangential areas of finance are picking up speed, such as treasury and disclosure management software and tools for budgeting, planning and forecasting.

"The number one thing I'm seeing in finance right now is people wanting to move to better ways to plan," Player said. "The hottest thing is to move to rolling forecasts."

Hamerman pointed to SaaS disclosure management software vendor WebFilings as evidence that cloud-based tools are up to the task of handling sensitive data. "It's a platform for creating and filing external reports -- 10-Ks and 10-Qs -- [and] look at the levels of adoption they have," he said. "This is the most trusted data you can imagine, [so] this is an indicator to me that financial data is not incompatible with the cloud."

While these experts agreed that wide adoption of cloud-based financial accounting software is likely a few years away, they also said that when push comes to shove, finance will move -- but it might have to be shoved.

"Over time, if cloud becomes the lower-cost way to do it, you will see a shift," Player said. "[But] typically, finance doesn't like to lead the market." Bill McNee, founder and CEO of Saugatuck Technology Inc., based in Westport, Conn., predicted that finance will represent the third wave of cloud adoption, following sales and human resources.

Player said it's important for companies to think not only about potential value and risk, but also about opportunity costs, when considering cloud-based financial accounting software. "When you make a decision to upgrade, you are locking yourself into future costs and future capabilities, [but] when you're not choosing something, you're locking yourself out of that [option]," he said. "You have to think, what's going to make us better five years from now, and tomorrow?"

Emma Snider is the associate site editor for SearchFinancialApplications.com. Follow her on Twitter: @emmajs24.

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