According to Gartner Research1, by the end of 2012, 80 percent of Fortune 1000 enterprises had paid for cloud computing services. In these austere times, the ability to save costs (a big driver for cloud computing) is particularly welcome but as some organizations are discovering, the cloud offers transformational qualities for certain business processes that extend well beyond the simple advantages originally envisioned by the transition to the cloud. Chief among these is the budgeting process, and even ERP seems set to benefit disproportionately from what many commentators often dismiss as simply a change of delivery platform.
The advantages of the public cloud are well established. The ability to selectively hand off applications to a cloud vendor can be liberating. The host assumes all the obligations of overseeing, managing, operating, and supporting the computing environment as well as the responsibility for securing the confidentiality and availability of the user’s data. In marked contrast to traditional on-premises solutions, the user organization does not need to retain any dedicated IT infrastructure (server capacity, networks, and the like) or the in-house IT resources that usually accompany it.
The cloud subscription model also removes a layer of cost uncertainty, and the ability to pay only for what you need allows organizations to avoid the high up-front costs of on-premises solutions (which are fixed) and to align computing costs more sympathetically with growth. Recent research2 confirms that companies that have ventured into cloud-based ERP have enjoyed a total cost of ownership (TCO) that is 30 percent to 50 percent lower than on-premises ERP.
Yet more vitally, the cloud not only promises the prospect of cost savings but also the ability to transform processes. Take the budgeting process, for example. For historic reasons—principally systems performance, high-data volumes, and local needs—it has been common practice to distribute budgeting systems on a regional or divisional basis to spread the processing burden. But the high use of spreadsheets and number of physical layers in this process hierarchy can have a profoundly detrimental effect on the efficiency of data capture, budget modeling, consolidation, scenario planning, and reporting.
By contrast, cloud-based budgeting applications offer the potential for a single centralized budget model for the whole organization. Rather than deploying separate instances of the budgeting system to different geographical regions, every budget holder is able to access the same model at any time using just a Web browser on a PC or laptop. This provides the ideal environment for collaboration and negotiation, driving up data quality, forecast accuracy, and control while simultaneously driving down the number of budget iterations.
ERP processes also benefit from a centralized model, scalability, and the ease of deployment that comes with a move to the cloud. According to Accenture2, investing savings into ERP process improvements as well as driving organizational efficiencies can unlock long-term benefits. Yet not all cloud-based ERP solutions are equal. The best have been designed from the ground up to bring the breadth and depth typically found in on-premises systems while taking full advantage of the latest breakthroughs in embedded analytics and social collaboration. The ability to affordably support large numbers of users encourages knowledge sharing and helps to break down functional silos. Furthermore, the coalescence of cloud and mobile computing offers advantages such as the ability to cater easily to mobile workers and to offer richer integrated business intelligence capability for busy executives on the move.
The cloud has undeniable advantages but it is not for everyone. As the number of cloud-based applications proliferate so do the challenges of integration between different vendors’ offerings—especially where processes straddle the cloud and the on-premises world. Additionally, not all cloud vendors encourage customization.
There are also a number of alternatives to the public cloud; for example, private clouds and hybrid arrangements. Some organizations can therefore take advantage of the opportunity for process improvements in the cloud without ceding control to a third party. Or, they can employ a two-tier approach by adopting cloud-based solutions in smaller subsidiaries alongside traditional on-premises ERP in their major operations.
Nonetheless, the transformative potential of the cloud is appealing. Even for core financial processes such as accounting and budgeting, it offers new ways of working that would be economically or operationally impractical in the on-premises world. It is this ability to elevate the capabilities of a traditional business process to new heights that is so compelling. The discussion is no longer about the wisdom of moving applications to the cloud but rather how to fully leverage its transformational qualities.