CLOUD COMPUTING:

A silver bullet for finance?

CFO Webcast sponsored by Workday

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Contents:
About this Report: Executive Summary: Part One: Information Needs of the Modern CFO Part Two: Parting the Cloud Part Three: Countering Misperceptions Part Four: Implementing Cloud-Based Solutions 2 2 3 4 5 6

CLOUD COMPUTING: A silver bullet for finance? | workday

About this Report:
Cloud Computing: A Silver Bullet for Finance is drawn from research, interviews and comments made by panelists at a November 2011 Web cast sponsored by CFO Publishing and Workday. CFO Publishing is an award-winning media business that reaches over 400,000 corporate executives in the United States, and includes CFO magazine, CFO.com, and CFO Research Services. Workday is a leader in enterpriseclass, software-as-a-service (SaaS) solutions for Human Capital Management, Payroll and Financial Management.

Panelists for the Webcast were:

Craig Butler Chief Information Officer AAA Northern California, Nevada and Utah Michael Mitchell Principal, Emerging Solutions Deloitte Consulting LLP Mark Nittler Vice President, Financial Applications Strategy Workday Moderated by: Russ Banham Contributing Editor CFO magazine

Executive Summary
The benefits of cloud computinga high return on investment, greater staff efficiencies, optimization of IT resources, and enhanced visibility and access to informationhave piqued the interest of CFOs and finance leaders who are actively evaluating the risks versus the rewards of the cloud delivery model. Although a steady migration to the cloud is happening in many areas of the enterprise, finance professionals still have questions regarding the security, performance, privacy, risks, and the actual cost and value of cloud computing. This white paper discusses the benefits and challenges of Finance in the Cloud, why the cloud may be an appropriate platform for Finance, and how a move to the cloud has the potential to transform business operations.

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Part One: Information Needs of the Modern CFO

CLOUD COMPUTING: A silver bullet for finance? | workday

Figure 1: Traditional ERP System Shortcomings

The drawbacks of the traditional systems can be boiled down to the following: 1. Since their architectures were not built for modern governance and analytics, these issues tend to be addressed with functionality that is layered onto the core system, i.e., not part of the core system; The development and delivery cycle is very slow, resulting in new releases that are typically 18 to 36 months apart; The upgrade process is frustratingly difficult and expensive, compelling many companies to delay it, which results in the organization being three to four years behind the current vendor release.

The role of the Chief Financial Officer has evolved over the past decade to be a strategic partner to the CEO and other crossfunctional leaders in steering the organization forward to drive improved business results. While CFOs still manage corporate expenditures, endeavor to improve profitability and assure compliance with far-reaching and constantly shifting financial and accounting rules and regulations, they must also be able to manage corporate risk and help steer the strategic direction of the business. Many CFOs are hindered in this quest by inefficient financial processes and ineffective on-premises ERP (enterprise resource planning) systems that cause a state of disconnection between them and the rest of the business. Legacy financial applications are often outmoded and ill-equipped to deliver timely information, and the cost and time involved in upgrading on-premise ERP systems tax patience and steal focus. These challenges can cause undue anxiety for a CFO, who in the post-Sarbanes-Oxley environment must sign off on the accuracy of the companys financials. While traditional ERP technology systems were created to process transactions, they were not designed for planning and decision support. Enabling these systems to support the new ways of governance, decision support and planning is elusive, requiring the implementation of add-ons and upgrades that are timeconsuming, costly and frustrating (See Figure 1). As Mark Nittler, vice president of financial applications strategy at Workday, describes the legacy systems, Theyve become a hindrance for finance as it tries to transition from a steward of value preservation to a business partner in the value-creation end of the business, he explained. The traditional systems are doing what they were designed to dotransaction processingand they do this well. But, when it comes to control, analytics and reporting, they just werent designed for that. More modern cloud-based ERP systems, on the other hand, have these vital features designed in from the beginning.

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While Mitchell agreed with Nittler that traditional ERP systems remain useful for transaction processing, they fall behind when it comes to data analysis. The transactional data has to be re-aggregated by BI (Business Intelligence) systems to accomplish the analytical decision-making, he said. Youre bolting on layer upon layer of new ancillary systems, a process that is expensive, eats up time and creates an inability for finance to react quickly and authoritatively to the transactional data from an analysis standpoint. Nittler brought up another frustration with traditional on-premises ERP systems. A recent release of software will be eighteen to twenty-four months old by the time it is implemented, and by then there are only a fraction of potential users on the release, he said. You can be years behind the current upgrade, which is frustrating when you are in a volatile accounting environment that can create expensive governance and control risks. Even if the desired functionality is delivered in the latest release, most customers are not in a position to take advantage of it. As an example, Nittler cited upcoming Financial Accounting Standards Board regulations mandating new accounting treatment for leases on the balance sheet. The new rules, expected to be in place by the year 2015, require vendors to update their current lease accounting treatment in their ERP systems. Those updates will likely come at a rate of two or three a year, and there will be a rush just before the rules kick in to implement them, Nittler said. The likelihood of receiving usable lease accounting capability from traditional suppliers by the deadline is slim, and even if Finance is able to implement the update in time it will cost a lot of money.

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As a result, many organizations will be compelled to address the lease accounting treatment outside their on-premises ERP systems. Said Nittler, Companies will be dis-integrating their enterprise technology once again, pulling one more thing out of the system of record and putting it on spreadsheets. There needs to be a better way. The benefits of cloud computing helps explain why research organization Gartner predicts that by 2012, 80 percent of Fortune 1000 enterprises will use cloud-computing services. For now, though, Finance lags other corporate entities like HR, IT and sales in cloud adoption rates. According to a survey by Deloitte and CIOnet in May 2011, only 10.4 percent of respondents had implemented cloud solutions for finance (See Figure 3). Although the survey only looked at adoption rates within the European CIO community, the findings are likely similar to U.S. statistics.

CLOUD COMPUTING: A silver bullet for finance? | workday

Part Two: Parting the Cloud

The better way is cloud-based finance applications. Cloud computing is the descriptor given to technologies that provide computation, software, data access, and storage services, in which the end-user does not require knowledge of the physical location and configuration of the system that delivers the services. A parallel concept is the electricity grid, whereby end users consume power without needing to understand the component devices or infrastructure required to provide service. In the software-as-a-service (SaaS) cloud model, the vendor supplies the hardware infrastructure and the software, and then interacts with the user through a front-end portal. Since the provider hosts both the application and the data, the end user is free to use the service anywhere. SaaS has touched nearly every industry, changing the way countless organizations do business. The benefits are straightforwardcost reduction, greater flexibility, quick deployment, lower implementation risk, better functionality than existing solutions, and a high return on investment. According to a 2011 survey by the Institute of Management Accountants (See Figure 2) on how finance views cloud-based solutions, the desire to streamline cross-functional business processes is the primary reason companies moved finance applications to the cloud.

Figure 3: Which business units within your company are currently using cloud computing solutions
IT Sales HR Finance Marketing Service Production Logistics Other Controlling 5.4 5.4 4.5 5% 10% 15% 20% 25% 8.5 8.1 6.8 10.4 13.1 17.1 20.7

Figure 2: What is your primary driver to move your current accounting/ERP system?
Improve business visibility 9% Need a system with better scalability 7% Require more sophisticated functionality:12%

Reduce overal IT maintenance costs: 23%

Indeed, Finance may be the final frontier for SaaS applications. Given the benefits, it is expected to catch up soon. Finance systems in the cloud provide unique and powerful opportunities for Finance to enhance current ERP system experience for compliance, governance and process controls, as well as data updates and audit trails, said Mitchell from Deloitte. From an audit perspective, this means a better auditing framework. Details are captured, and comments explain the `why behind each step in the business process.

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Streamline cross functional business processes: 32%

Better support a distributed organization: 17%

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CLOUD COMPUTING: A silver bullet for finance? | workday

Figure 4: Cloud-Computing with Workday

Economic Advantage
Decrease cost Predictable cost No depreciation Faster implementations Liberate IT resources; easier maintenance & updates Lower training costs Higher adoption

Enterprise-Grade Security
Workday proactively certifies on the leading and strictest security standards: SAS-70 Type II SSAE 16 Type II ISO 27001 Safe Harbor SelfCertification Workday also provides enterprise-grade protections for: Physical Security Database Security Network Security Data Backups Data Segregation Disaster Recovery Delegated Authentication

Always Current
Leverage the most advanced technologies available Better compliance controls; Lower financial and regulatory risk System is always current Automatic upgrade to current version Latest capabilities available immediately Regularly delivered innovation

Global Consistency
Better compliance controls Single, global source of truth Unified platform for faster business-driven insight

Partnering Relationship
Workday earns business & renewals Integrations ecosystem Shift operational responsibility to vendor

Please ensure that you take out the lines horizontal in the WP as shown above

WORKDAY CONFIDENTIAL

Finance is further assisted by a cloud-based model to efficiently and effectively stay abreast of regulatory changes. Newer cloud systems were developed in the post-SarbanesOxley, post-IFRS world, meaning that the technology and the engineering were created with these regulatory challenges in mind, Mitchell explained. The functional capability of cloud finance solutions also warrants attention. Mitchell noted that newer cloud systems have an intrinsic workflow component that controls transactions, preventing users from going off-script on a business process. Some object-oriented cloud-based finance systems further allow BI reporting capabilities, Mitchell added. Theyre coming online quickly with a broad enough spectrum of functionality to make them viable alternatives to on-premises systems. (See Figure 4)

As key financial processes migrate to the cloud, other benefits include:

A much faster closing of the books, freeing up finance to invest more time in analyzing the results than processing them. A single repository for up-to-date information, Easing of distribution of data to end-users, thereby enhancing collaboration and reporting capabilities. Computing capacity scaled to shifting IT needs, thus eliminating large, upfront infrastructure costs.

Despite these many competitive plusses, why has Finance been slow to migrate to the cloud? The next section mulls some possible reasons.

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Part Three: Countering Misperceptions
At present, the global cloud computing market is worth an estimated $40.7 billion, according to Forester Research. Many analysts predict exponential growth in cloud-based financial applications in the next few years. A recent study sponsored by AT&T and conducted by independent research firm Verdantix indicates that companies plan to accelerate their adoption of cloud computing from 10 percent of their IT spend to 69 percent by 2020, a good proportion of it invested in finance applications. A pulse survey taken during the Webcast sponsored by CFO Publishing and Workday seems to back up these expectations: Another reason why Finance has not moved quickly to implement cloud-based finance applications is a misperception of its value and risk. The latter includes concerns over data security, compliance and legal issues, the risk of losing governance or control, and performance/reliability worries. These are fair concerns, but for the most part they have been resolved, Nittler said. This is `mission critical to us and we have very tight controls. (See Figures 5 and 6) Data in Workdays cloud-based finance solution is encrypted at Department of Defense-type levels, Nittler said. There is no backdoor to the systemno database administrator can go in and change data or pull data out. Everything has to go through strict control processes, involving data at rest, data in motion or data access. From a transactional processing standpoint, everything is datetime-stamped. Craig Butler, CIO of AAA Northern California, Nevada and Utah, a federation of 69 automobile clubs, stated another reason for the slow adoption of the cloud by Finance. Many people perceive the cloud as just another iteration of an Application Service Provider, Butler said. ASPs were a model where you had a particular application, but didnt want to invest in the infrastructure to host it. So, you went out to a provider and what they did in their data center was build a single instance of that application and then hosted it over the Internet. As the cloud gained momentum, the perception developed that it was just a new version of ASP. Its not; its so much deeper than that. The next section will explore how Finance can best leverage the value of the cloud.

CLOUD COMPUTING: A silver bullet for finance? | workday

Figure 5: Votes received: 117 Which of the following describes your organizations cloud adoption?
We already adopted the cloud in one or more areas of the business 41% We will probably adopt the cloud in the next two years 30.8% We have no plans to adopt the cloud in the next two years 28.2% Despite this somewhat optimistic prognosis, Finance has been slow to join the parade. Part of this has to do with relative immaturity of cloud solutions. A June 2011 survey of 413 end users and vendors by North Bridge Venture Partners indicates that 26 percent of respondents were awaiting market maturity before adopting a formal cloud strategy. A slightly higher percentage in the Webcasts second pulse survey also is waiting in the wings:

Figure 6: Votes received: 94 In five years, what will be the future of finance in the cloud?
Finance in the cloud will be standard fare in most organizations 36.2% Finance in the cloud will move slowly toward becoming the standard 47.9% The cloud will be standard in other areas of the business, but not in finance. 7.4% Finance in the cloud will be supplemented by some other technology 8.5%

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Part Four: Implementing Cloud-Based Finance Solutions
Inferior data breeds inferior decisions, yet many organizations often doubt the accuracy of the data used to create performance metrics and indicators. Moving finance applications to the cloud can alleviate these concerns. They did for AAAs Butler. We were in a unique situation at AAA, where we were going through a significant change in the business that offered the opportunity, from a technology perspective, to hit reset and look at things in a different way, he said. I had recognized that over the past couple years, AAA was stacking up more and more on-premises applications, and all the areas this affects, from infrastructure to networks to databases. I was spending more and more time taking care of the applications and keeping them up and running, and less time actually partnering with the business. To alter the paradigm, Butler contracted with Workday to implement its cloud solution for Human Capital Management and Finance. For me, the greatest benefit has been the ability to spend more time now with the business, Butler said. Overall, were happy with where were going. As I made this journey, one of the things I didnt realize was the change in the kind of employee skill set I needed on my IT team. As we became more immersed in the cloud and started to make more investments there, I realized that I was starting to hire more people that were slightly less technically oriented and more business-focused. And that is a good thing. Regarding the aforementioned concerns over data security, consistency and access, Butler said he addressed these issues by educating himself on the vendor marketplace, and then put forth contract terms and conditions to assure these issues were resolved. The key is to understand how a vendors business model works, he explained. In our case, the amount of security Workday has in place far exceeds anything that I would have been able to secure on my own. It may seem a bit uncomfortable at first not to see any servers on-site, but you get used to this fast. Of course, it is the servers that pile up costs for companies. If you add up the technologythe databases, servers, rooms and storageand combine this with the people doing all of this work, it can be exorbitantly expensive, Nittler said. SaaS takes that all off the table and puts it onto the vendor. Certainly its not all freethere are licensing fees involvedbut its much more economically efficient. To become a world class Finance organization leveraging the cloud, CFOs must ride herd on the establishment of a single set of data definitions and business process definitions. You can then assure you have quality data, which permits the delivery of quality analytics, said Nittler. This isnt easy with a traditional on-premises model because in large-scale implementations, every location in your organization often has a separate instance of that system. With a global SaaS deployment, however, you can more easily align your business because they are all using the same system. You set up your chart of accounts, your process and your data definitions, Nittler explained, and then everybodys on the same page. Down the line, there will still be a role for on-premises software in the Finance shop, but on a bespoke or special purpose basis. SaaS is a mass-customization model; its not a custom software market, Nittler explained. Some will continue to build their own systems or use traditional ones, but the trend is definitely toward Finance in the cloud. Mitchell agreed: It will move slowly on the uptake, due to the need to adopt standard business processes, but once we see greater functionality this is the way it will go.

CLOUD COMPUTING: A silver bullet for finance? | workday

In our case, the amount of security Workday has in place far exceeds anything that I would have been able to secure on my own. It may seem a bit uncomfortable at first not to see any servers on-site, but you get used to this fast.
- Craig Butler, CIO, AAA Northern California, Nevada and Utah

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