Cloud Q&A: Putting Financial Data in the Cloud?

In the second of this series on common cloud application questions: Should firms put their financial applications and data on the cloud?

“Should anyone put their financial applications in the cloud?”

This is another cloud-based question I get with some frequency.

Lots of financial applications exist in the on-premise world and the numbers of solutions for the SaaS, multi-tenant, cloud world are growing quickly. Four vendors I’ve spent a lot of time with include: FinancialForce, Workday, NetSuite and Intacct. Each of these has customers running their financial applications in the cloud. Another vendor, Corefino, uses applications like these to provide cloud-based accounting/finance and bookkeeping services in the cloud for their clients. So, are companies using the cloud for financial applications? Absolutely. Will more do so? Absolutely.

First, few technologies ever really go away completely and few, if any, ever achieve 100% market share. On-premise applications are not going away. Cloud solutions won’t completely replace on-premise solutions. Zealots for either position aren’t happy with a mixed bag but that’s the reality of the software world. So, the argument is not will either delivery method crush the other. No, the questions should be focused on the eventual uptake/market share for cloud/SaaS financial software and the time needed to achieve this. Cloud/SaaS financial applications will continue to gain market share (99+% probability) and on-premise solutions will lose market share, if only due to superior economics of the former. Timing is the key issue.

For the sales people trying to get customers to move their on-premise financial applications to the cloud, these sales are often tough to complete. The reasons for this are varied and sometimes subtle. Finance software buyers (that is, Controllers and CFOs) are usually a risk-adverse, ROI focused lot. Any new (on-premise or cloud-based) financial accounting software sale must overcome a number of concerns. These include: - Will the new solution generate a positive return on the investment? - Will the new solution’s benefits outweigh any potential implementation risk the customer might face as part of the installation/conversion?

Those hurdles are significant regardless of the delivery method being pitched.

For cloud-based financial software products, additional questions will arise:

- How can GRC (governance, risk and compliance) be effectively managed in a cloud? (Answer: Pretty much the same way they do with on-premise solutions. The same workflow, controls, approvals, etc. logic is present in these solutions, too.)

- How will auditors react to documents that exist on someone else’s data centers and may be stored with the data of other firms? (Answer: Not much differently than they do with on-premise solutions as long as appropriate SAS 70 Part II and/or ISO compliance standards are met.)

- Why would a company expose itself to the risk of a data or systems outage that it cannot fix or repair? (Answer: No system, even on-premise solutions, are immune from catastrophic failures, acts of God, etc. Every software customer, on-premise or cloud-based, needs to have a robust disaster recovery plan. Don’t do any new software implementation without one.

Cloud solutions are getting better daily. The functionality is getting more robust, more powerful, etc. Functionality will not be a reason to ignore these solutions. Governments may be a problem, though, that could restrain the growth rate or market penetration of these products. For example, it is unclear where the EU stands on the subject of whether certain business and employee data records can reside on non-EU based cloud servers. This is a subject that shows how technology is running ahead of policy makers. Will this be a show-stopper? I seriously doubt it as larger cloud software providers will open new data centers closer to users as demand increases. We will likely see many cloud centers in Europe soon and this data location issue may naturally fade away.

Bottom line: Functionality is becoming a non-issue for selecting cloud-based financial software. Likewise for controls and recovery. The economics are definitely favoring cloud solutions and will permit greater market share growth over time. The speed with which cloud solutions will displace on-premise applications may be more a factor of when companies can afford to switch (or are faced with a mandate to change (e.g., a major acquisition relegates the current on-premise solutions as obsolete)). The change is coming.

If you're looking at new financial accounting software, you need to be looking at cloud offerings, too.