The Future of the Cloud for Finance – a CFOs Guide

6th September 2016

By all accounts the cloud has made a profound impact on the business landscape.  Few CFOs doubt the wisdom of eventually moving to the cloud - for the most part it is just a matter of time.  Yet many CFOs are unaware that not all clouds are the same. “Hosted”, “managed” and Software-as-a-Service (SaaS) or “true cloud” are markedly different options and for the unwary, the wrong decision could lead to a dead end by simply replicating the limitations of their on-premise solutions in a new cloud environment. 

So what should the modern CFO consider when moving to the cloud?




Hosted and Managed Cloud Offerings

In an effort to make their products offerings attractive most software vendors have clambered aboard the cloud bandwagon, claiming cloud credentials regardless of how their solutions have been developed.  And in theory any on-premise product can be thrust into the cloud as a managed, hosted or even a private solution.  The supplier simply contracts with one of the many providers of infrastructure and uses that infrastructure (servers and communications) to host their customers’ application software.

Typically, in this scenario each customer has a different instance of the software running on a unique server dedicated to that customer, although there are occasions in which several customers may be sharing a server, a particularly common occurrence for e-commerce sites. Where the customer manages the hardware this is often described as a “hosted” cloud environment and where the software vendor manages the hardware operations this is frequently described as a “managed” cloud environment. In either case the software provider manages and maintains the software environment, i.e. the databases, applications, middleware and operating system. 

But there are no hard and fast rules and each deal can be struck according to the needs, skills and capabilities of the customer organisation.

(Some organisations even opt for an entirely ring-fenced solution, the so called ‘private cloud’ where none of the infrastructure is shared and the customer retains responsibility for maintaining and operating the entire environment).


Software-as-a-Service (SaaS) or “true cloud”

The true cloud offering is quite different.  In this case there is only one instance of the application software (and feasibly only one database) which is shared amongst all of the customers using that software. Since there are in effect multiple ‘tenants’ sharing the same infrastructure and software, the true cloud offering is often described as multi-tenanted.

It’s the environment that is most often used for consumer facing applications, such as airline reservations, e-commerce channels and retail banking, which is why the true cloud is sometimes dubbed the “Public Cloud”.


Why does “true cloud” matter?

Uniquely, multi-tenanted software has to be developed that way and, most notably, it is not

really feasible to convert a typical on-premise application designed to be used by one organisation at a time into a multi-tenanted solution.  This is why unscrupulous vendors with ageing on-premise products are tempted to describe their hosted or managed products as cloud-based solutions. Furthermore, by charging a monthly subscription rather than an upfront perpetual licence fee some attempt to disguise a hosted or managed environment as a true cloud solution. 

All of this matters because most of the benefits that accrue from cloud computing vest in the true cloud, rather than managed and hosted solutions.


What are the benefits?

There are really two levels of benefit.  At a basic level, organisations of all sizes can take advantage of

• the immediacy of the cloud, i.e. the ability to log onto a configurable application that is ready to go.  (No need to wait for hardware and software to be installed as is the case in managed and hosted environments.) In fact, a 2014 study by IDG (quoted in Forbes), confirms that the ability to get up and running quickly with cloud-based applications is the most popular reason why enterprises are transitioning to the cloud.

• the scalability of the cloud, i.e. the ability to upscale or downsize in sympathy with organisational needs and demands - the cloud application vendor takes responsibility for provisioning the capacity on demand and in most cases hardware can even be added without interrupting operations.

• supplier maintained applications and operations. The supplier takes responsibility for all of the ‘heavy lifting’, for example, upgrading application and systems software to the current version, enhancing functionality, ensuring backup and security as well as ensuring a high level of reliability. This means that smaller organisations do not need to maintain in-house IT skills and for larger organisations the IT function is relieved of the need to maintain new applications and to provide help desks.

• fixed costs on a subscription basis. Costs are spread over multiple customers (‘tenants’) and are reduced to an affordable fixed monthly sum that can be accounted for as operational expenditure rather than capital expenditure that has to be amortized.

Taken together, the costs of provisioning hardware, software, consulting and in-house resources for an on-premise solution can be immense.  It has been described as “total madness” by veterans of the business software market who have worked on both sides of the fence (cloud and on-premise) such as Jarle Sky, founder of the Xledger, a provider of modern accounting and financial management solutions in the cloud.

But more profoundly, organisations that have moved to the cloud are finding that in addition to the basic advantages, the cloud imbues them with considerable agility which translates into the ability to compete and respond to market changes in a fraction of the time of it takes to procure and install traditional on-premise solutions.

For businesses operating in a constant state of flux, for example, acquisitions, reorganisations, entering or testing new markets the true cloud option provides unaccustomed flexibility, particularly for large multi-nationals that have been held back by legacy systems.  


No compromise

The charge that cloud software is not as functionally rich as on-premise software could have been levelled at cloud vendors a few years ago but now many products are the equal if not better than their on-premises counterparts.

Much depends on the roots of the organisation. Some so called “born in the cloud” products were brought to market too quickly but there are also born in the cloud accounting and financial management products that have been developed by organisations that have been steeped in financial applications for decades, albeit on-premise. These organisations are the ones to watch since they have capitalised on everything they learnt on-premise to create a new generation of accounting software that takes businesses to the next level in terms of automation and sophistication.  And the new tools available in the cloud have assisted in that journey.

Most benefit from the extensive capabilities of new browser technologies such as HTML 5. These are used to build a more engaging user experience (more akin to consumer applications) and provide the ability to handle voluminous and complex data sets in real time without suffering degradation of response times.

The cloud is also a great leveller.  Applications such as Xledger’s financial management, with its unified data model, brings ‘industrial strength’ analytical capabilities within the reach of mid-sized businesses – something previously only available to large public and private sector entities with deep pockets.


Avoid the hybrid cloud

It is a commonly held view that hybrid environments (in which some applications reside in the cloud and others on-premise) are set to become the norm as organisations transition to the cloud over the next decade. For instance, Gartner the analyst firm says nearly half of large enterprises will have hybrid cloud deployments by the end of 2017.1 But for the unwary this presents a significant risk to data integrity and reporting. 

Gartner also offered an alternative vision by announcing the era of “post-modern ERP” in which it is envisaged that organisations will move to ERP suites of more limited scope with core financial processes at the centre, supplemented by a variety of Best of Breed applications in the cloud or on-premise. Gartner predicts that by “2020, less than 20% of multinational organisations will continue to plan and adopt an ERP strategy based on a single-instance megasuite2.”

But all of this raises the spectre of more complex systems architectures in which accounting processes, transaction data and metadata (data about data, for example, organisational hierarchy, chart of accounts, currencies) is scattered across multiple applications, vendors and cloud platforms. For some, the hybrid cloud is a compromise too far, leaving the formidable challenge of integrating processes and data in its wake. Of course few organisations start with a completely clean sheet of paper and a move to a hybrid arrangement may be unavoidable in the short term.

But CFOs should recognise that a partial shift to the cloud presents risks to data integrity, core financial processes and operational effectiveness.  It is not a decision to be taken lightly and organisations that are early adopters of the hybrid approach may find it unsustainable in the longer term.  



CFOs face a bewildering choice of options in the cloud but very few can be considered to be true cloud offerings. 

Ceding responsibility for the ‘heavy lifting’ to a true cloud vendor allows businesses to simplify their IT operations and accelerate their move to standardised and automated processes. And with shared visibility into a sophisticated and modern financial management systems such as Xledger, built around a single data model, businesses can quickly take advantage of more dependable and consistent management information as well as exert a higher level of control than was possible in the on-premise world. 

By leveraging fully this capability, CFOs can transition from the mundane responsibility for transaction processing and focus on being business partners at the top table.







Note1 Press release Gartner Special Report Examines the Outlook for Hybrid Cloud, Gartner October 2013

Note2 Strategic Road Map for Postmodern ERP by Alexander Drobik, Nigel Rayner, Gartner 25 February 2015 



About the Author

Gary Simon, is rated by Linkedin as one of the UK’s top 10 business leaders in 2015 and is leader of the FSN Modern Finance Forum on Linkedin with more than 44,000 members.  He is a graduate of London University, a Fellow of the Institute of Chartered Accountants in England and Wales and a Fellow of the British Computer Society with more than 30 years’ experience of implementing management and financial reporting systems. He is the author of four books, many product reviews and whitepapers and as a leading authority on the financial systems market is a popular and independent speaker on market developments.  Formerly a partner in Deloitte for more than 16 years, he has led some of the most complex information management assignments for global enterprises in the private and public sector.





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