Finance Is Moving to the Cloud – How and Why?

There is encouraging news that correlates with surveys of Finance executives on the adoption of and interest in cloud-based applications.  Adoption appears to be accelerating as Finance departments are becoming more confident in the security of cloud applications and more aware of the benefits.

Gartner Sees the Tipping Point

So what did the Gartner research note say? Gartner clients can access the report on Gartner’s website, but here’s a quick synopsis.  The report – authored by Gartner analysts Nigel Rayner, Chris Iervolino, and John Van Decker – stated that, “After years of lagging behind other domains in cloud adoption, cloud is hot in all areas of financial applications. CFOs and IT leaders need to understand how to capitalize on the opportunities of transitioning finance systems and processes to the cloud without being caught out by the challenges.”

The Gartner report goes on to recognize that, while financial management applications have been slower to move to the cloud than other domains, such as human resources and procurement, the market is at a tipping point.  Gartner expects that spending on cloud or SaaS-based applications will increase from 30% of the total market spend in 2015 to 47% by 2020 – and that cloud will become the dominant deployment model across all areas of financial management applications by 2025.

Why Is This Happening? 

There are a number of reasons for the accelerated adoption of cloud-based financial applications. 

  • Maturity – One reason is the increasing maturity of cloud-based core financial management applications for medium and large enterprises. In fact, most of the vendors in this market are now focusing their efforts on cloud vs. on-premises applications.
  • Replacement Cycle – Another factor is the replacement cycle. Many organizations have had their current core financial management applications in place for 10 or 15 years, so it’s time for an upgrade or replacement.  And many organizations are now adopting a cloud-first strategy for new applications, favoring them over on-premises solutions.
  • Confidence – We’ve been seeing this ourselves in recent years, that CFOs and other Finance leaders are less concerned about the potential security risks of cloud-based applications. The increasing maturity of cloud solutions and proven track record on security is making CFOs more confident in the cloud option.
  • Transformation – Maybe most importantly, many Finance executives see the opportunity to replace legacy applications with new, cloud-based solutions that can truly improve or transform key Finance processes. This is especially true in corporate performance management (CPM, a.k.a. EPM), where Finance leaders are replacing spreadsheets and manual processes that are being used for budgeting, planning, and reporting processes.

What Are the Benefits?

While acknowledging the challenges of transitioning well-established Finance processes and systems to the cloud, Gartner cited a number of potential benefits, which are similar to the ones we have cited in other blog articles.  Here’s some of those benefits:

  • Cost Savings – on subscriptions vs. license and maintenance, as well as reduced infrastructure and upgrade costs.
  • Faster Adoption of New Functionality – quarterly feature releases with automatic upgrades
  • Improved Usability – including reporting, analytics and mobile support
  • Opportunities for Process Improvement and Agility – e.g., faster reporting, shorter planning cycles
  • Enabling Growth – the ability to start small and expand over time, grow big
  • Supporting Business Transformation – upgrading finance systems and processes

On the last point above about Business Transformation, Gartner suggests that organizations group their financial applications into two segments – Mode 1 and Mode 2.  Mode 1 consists of core financial applications, and Mode 2 consists of add-on applications, such as budgeting & planning, financial consolidation & reporting, account reconciliations, and travel and expense management.  Gartner recommends taking a structured approach to migrating Mode 1 applications.  But if an organization is not quite ready to move its Mode 1 applications to the cloud, moving Mode 2 applications to the cloud can provide rapid process improvement benefits, with lower risk.

Recommendations and More Information

The Gartner report goes on to provide a number of recommendations to organizations considering the move to cloud-based financial applications.  Gartner clients can learn more about these by accessing the report directly.

The findings of this report align well to what we are seeing in the market through other surveys and customer interactions.  This was highlighted in the recently announced results of a survey run by Radius Global Research.  Here, we saw that cloud-based EPM interest and adoption continues to grow as 41% of respondents currently have a cloud-based EPM solution, 29% are evaluating them, and 23% plan to move to the cloud in the next few years.  Only 2% reportedly have no intentions to move to the cloud.

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