Is the finance function turning to Performance Management in the Cloud?

11th November 2011

The principles of Cloud-based computing are now well established and, for a variety of philosophical, technical and economic reasons the tide appears to be turning in favour of hosted finance solutions.  But the transformation from traditional on-premises solutions to applications managed by a third party somewhere in the Cloud has been slow coming to the relatively conservative financial reporting and performance management space. Gary Simon, FSN’s managing editor talks to the CEO’s of Anaplan, Adaptive Planning and Host Analytics to assess whether the market has reached a tipping point.

Hardly a day goes by without the announcement of a new cloud-based application or platform.  The Cloud has made tremendous inroads into corporate systems but despite the sometimes compelling advantages of Cloud-based offerings, accounting and performance management applications have often-been side-lined. Traditional vendors appear to be clinging onto more remunerative on-premise licensing models and some customers remain wary of placing – financial data – in effect their ‘crown jewels’, in the hands of a third party  somewhere in the stratosphere.

So the Cloud has taken off for CRM systems, Expense Management and a whole host of traditional ‘office-style’ applications but is less visible in ERP, Business Intelligence, budgeting, financial planning and consolidation.  Cloud-based ERP is making its mark in the SME market, buoyed by keen pricing and small to medium sized accounting practices that can provide a more responsive service to their clients if they are permanently connected. And at the lower end of the market SME’s have been more willing to migrate to Cloud based budgeting, planning and forecasting.

John Herr, CEO of Adaptive Planning told FSN, “The smaller enterprises which are currently spreadsheet-based have little difficulty in migrating to the Cloud. Larger organisations which are heavily invested in legacy systems and have large IT shops supporting, say, Oracle or SAP are clearly going to have more of a problem”.

So larger organisations have been slower to transition to the cloud, even though with highly distributed finance functions operating across the world in different time zones they stand to benefit the most from Cloud-based performance management. But this hasn’t been uniformly the case.  Some vendors are making inroads into larger enterprises. For some organisations the 24/7 environment of the Cloud, instantly accessible from anywhere in the world provides the basis for collaboration on an unprecedented scale, unencumbered by IT operations and clumsy infrastructure.

Guy Haddleton, CEO of Anaplan puts it succinctly. “We didn’t quite realise at first how much of a premium users place on IT independence.  It’s a win/win for end users and the IT function. The IT professionals can leave the introduction of, say, a new sales planning system to the end users and reduce their project queue. By the same token end-users can get on with building the applications without waiting for IT resources.”

On a recent trip to London Haddleton told FSN, “The emphasis in Anaplan is to empower users to build the applications for themselves. What we have found is that the applications spread rapidly from one process or function to another as users discover more and more ways of automating business processes.”

Jon Kondo, Host Analytic’s CEO also sees movement in the upper reaches of the mid-market. “We target companies in the US$ 100m to $ 1bn bracket and believe we can make a compelling case in the in the centre of this range.  Three years ago we faced significant opposition to cloud based solutions – perhaps as much as 70 percent of the cases.  Now it’s down to around 15 percent.”

But all three CEO’s agree that it is not the Cloud per se that gives them a competitive advantage but the functionality and service they can offer. Adaptive Planning’s John Herr points to the increasing breadth of functionality that they can offer, whilst Jon Kondo of Host Analytics highlights his organisation’s ability to offer budgeting planning and financial consolidation as well as innovative data benchmarking services.

On the other hand Anaplan points to several technology innovations such as a unified computing environment, ‘in memory’ computing and multi-threaded processing that in combination with simple logic allow users to build enterprise-scale applications in very large organisations.

As a result Cloud vendors these days are likely to see themselves in contention with traditional on-premises vendors although there is no consistent pattern. Interestingly none of the CEO’s see any evidence that on-premises vendors are offering cloud-based solutions, despite promoting the ability to offer customers a choice. In fact Jon Kondo highlights almost the reverse, with Host Analytics, recently announcing a strategic partnership with ERP Logic (an SAP partner), to provide a complete, on-demand CPM solution for SAP Business ByDesign – SAP’s on-demand ERP offering.  

But there is long way to go before the cloud vendors dominate or even take the majority share of the performance management market. It is this opportunity which fuels their optimism for the future.  All three vendor’s are experiencing very high growth rates, but as private companies are coy about their profitability.

Jon Kondo of Host Analytics which has around 200 customers told FSN, “Our focus right now is on going for growth – even at the expense of profitability.  We could show profitability but it would mean sacrificing growth which is not our strategy. Growing is more important.”

Adaptive Planning’s John Herr expresses similar ambitions. “We now have 1,000 mid-market customers and are experiencing growth of around 50 percent per annum. The economics look good and we are financially stable.”

So is Cloud coming out on top? John Herr believes the market is still at the early stages but is on the cusp of a major change.  “The cloud is a major technology revolution and we are approaching the tipping point. If you look at technology advances in the past they have been led by business. This time around you have the combination of cloud developments in the consumer space at the same time as developments in business uptake of the cloud. This is going to dwarf anything that we have seen before,” he says

The other cause for optimism is the rapid spread of applications from the finance function to other functional areas in the enterprise such as HR and Product development. Guy Haddleton told FSN, “Our solution lends itself to a more collaborative approach which means that organisations can start to join up different parts of their planning process.”

So it seems that the Cloud vendors are over the hump in terms of educating the market about the benefits of the cloud and in terms of market acceptability.  Anecdotally, there appears to be growing confidence in cloud-based solutions and a palpable sense of inevitability that it will ultimately come out on top.  It may be just a question of time.

OTHER NEWS

SECTORS

CATEGORIES