ERP in the Cloud: CFOs See the Value of Running Enterprise Applications as a Service - Financial Executive: Jan/Feb 2013

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ERP in the Cloud: CFOs See the Value of Running Enterprise Applications as a Service

Heading into 2013, it’s time to clear up some lingering misconceptions about chief financial officers and technology, starting with the belief that CFOs don’t “get” the cloud. The reality is that CFOs not only understand the cloud’s benefits, but are embracing it faster and more broadly than many originally thought possible, including new services such as enterprise resource planning (ERP) in the cloud.

The skepticism and uncertainty finance executives felt at the beginning of this decade about moving their mission-critical enterprise systems to the cloud is fading, replaced with a growing enthusiasm for the financial flexibility and freedom that comes from using the cloud’s modular, pay-as-you-go approach to accessing the latest technology innovations.

Several recent surveys detail why CFOs are increasingly open to moving their enterprise applications into the cloud. For example, a 2012 survey by Financial Executives Research Foundation (FERF) and technology advisory firm Gartner found that 53 percent of CFOs believe that more than half of their enterprise transactions will be delivered through software-as-a-service over the next four years, up from 12 percent today.

In addition, almost 70 percent of CFOs surveyed in 2012 by Oracle Corp. said they would consider moving to a cloud-based version of their core enterprise software.

Some of the reasons CFOs cite in favor of cloud-based ERP services include the resource allocation flexibility that comes with avoiding large upfront investments in the early phases of an ERP deployment, the ability to avoid fixed capital investments during periods of corporate or economic uncertainty and timely access to the latest software capabilities.

The fact that traditionally risk-averse CFOs are open to moving their mission-critical ERP systems into the cloud should be a clear indication to all companies that ERP cloud services are fast becoming the go-to strategy for finance executives looking to access the latest technologies quickly and cost-effectively to support their corporate objectives.

Can ERP Cloud Services Deliver on Expectations?
CFOs are becoming more actively involved in the selection and deployment of ERP cloud services because both they and their management teams have high expectations for the benefits they can achieve with the cloud. The Oracle survey of CFOs supports that finding, with 68 percent indicating that they or their CEOs were responsible for the acquisition or deployment of cloud services.
However, along with that increased responsibility comes greater accountability, especially when CFOs decide to move core ERP systems into the cloud.

Though cost is clearly a primary driver for looking at ERP cloud services, other CFOs may be more concerned with scalability, operational efficiencies, compliance or access to cutting-edge technologies such as embedded business analytics and social collaboration. When building the business case for moving to ERP cloud services, it is important to determine upfront the exact benefits and specific goals the CFO aims to realize.

For San Francisco-based Lending Club, the decision to use ERP cloud services was tied to the need for a robust technology platform to support its fast-paced growth. The online financial community — which puts lenders together with low-risk borrowers — more than doubled the amount of loans it facilitated in the past 12 months, to more than $1 billion.

The ERP cloud service not only needed to scale, but also to integrate seamlessly with Lending Club’s own internally-developed online lending platform, which won the World Economic Forum’s Technology Pioneer Award in 2012. The firm wanted open architecture, scalability, highly intuitive user interface and high data security and disaster recovery features.

"We were looking to improve decision-making and workflow, implement robust reporting and take advantage of the inherent scalability and cost savings provided by the cloud," says Carrie Dolan, chief financial officer of Lending Club.

"Since Lending Club’s online lending platform is internally developed, we also needed a cloud ERP service that would integrate with current systems easily, keep IT resources focused on the organization’s own platform, and reap the benefits of cloud scalability with lowered costs and the high data security and disaster recovery features.

“Lending Club is creating a more efficient model, and the cloud is supporting our efforts through automation, communication and collaboration features that help us achieve better workflow, increased efficiency, and greater insight into our financial data," says Dolan.

Enterprise-Grade ERP Cloud Services
Not too long ago, headlines proclaimed that ERP was dead, and that suites of integrated ERP applications were too expensive and cumbersome to survive in today’s nimble, more modular IT world. Now, the advent of ERP cloud services has sparked renewed interest in integrated ERP suites among small and large firms alike. They see the ability to access enterprise-grade functionality and best-practice business processes through the cloud with less cost, risk, time and labor than ever before.

Smaller firms that traditionally viewed ERP software as too expensive and labor-intensive to install and manage can take advantage of preconfigured templates in cloud ERP solutions. These solutions are built based on industry-specific best practices and country-specific requirements, thus reducing project implementation time and addressing specific business process requirements.

Large global enterprises can adopt a hybrid approach to ERP cloud services where it makes sense. They can deploy specific ERP modules in bite-sized chunks to address specific pain points, or run entire divisions or subsidiaries using ERP cloud services while keeping their core ERP systems for the corporate office.

Minnesota-based Land O’Lakes Inc. is an example of a company using this type of hybrid approach to cloud services to address strategic opportunities for the business. The $13 billion dairy and agricultural services company recently upgraded to centralize and optimize its procurement processes. The new procurement solution will co-exist with its current ERP systems.

“We are running our new procurement solution in a managed cloud fashion because we think that it is better to have our resources focused on strategy and our core competencies and let our vendor manage the hardware and software for us,” says Land O’ Lakes Chief Financial Officer Dan Knutson.

The company has targeted millions of dollars in savings by automating process flows across the procure-to-pay cycle, improving negotiation capabilities and increasing visibility of company spend across categories and suppliers.

Shift More IT Resources To Innovation
Land O’Lakes’ Knutson is one of many progressive CFOs who see the value in using cloud services to free up IT resources to focus more on IT-led innovation. He and Chief Information Officer Barry Libenson are redirecting IT resources into transformational projects at their firm that use Big Data and business analytics to gain insights into solutions for major global problems, such as how to feed the world’s growing population in the face of increasingly scarce water and arable land.

They are on the leading edge of the new technological shift being wrought by the cloud and other emerging technologies that are converging to change how we do business now and in the future.

Savvy CFOs will follow their lead, leveraging the cloud and new ERP cloud services to tap into these game-changing technologies and help finance set the agenda for their organization’s success.


What Functionality Should an Enterprise-grade ERP Cloud Vendor Comprise?
•  Subscription-based (SaaS) deployment model with easy, predictable pricing.
•  Complete ERP services, including financials, planning and budgeting, risk and controls management, procurement and sourcing, inventory and cost management, product master data management and project portfolio management.
•  Applications engineered for global enterprises, with multi-GAAP, multi-currency, multi-language and multi-subsidiary capabilities.
•  Modern user experience and socially-enabled business processes, optimized for today’s collaborative, hyper-connected and mobile workforce.
•  Business intelligence for everyone with pervasive, in-context
analytics.
•  Global data center coverage using compliance-certified “Gen 4” data centers, for improved security and performance.


Steven Miranda (steven.r.miranda@oracle.com) is executive vice president, applications product development for Oracle Corp. in Redwood Shores, Calif.