Magazine article Strategic Finance

Why Cloud Computing Matters to Finance

Magazine article Strategic Finance

Why Cloud Computing Matters to Finance

Article excerpt

When was the last time you upgraded your ERP system? If the answer is "not in recent memory," then you aren't alone. About two-thirds of mid-sized businesses are running old versions of their enterprise resource planning (ERP) system--in some cases, it's software that's three or more versions old. This is the legacy of decades of on-premise (in-house) software deployments, incremental releases that never seemed worth the pain of a major upgrade migration project, and fear of losing critical customization.


But in the midst of rapidly changing revenue recognition rules and a constantly evolving regulatory environment, it's more important than ever to have your business systems reflect the current business environment. At Net-Suite, at the time of this writing (December 2010), we're running the company on the current version of NetSuite's cloud ERP solution--2010.2--that was released in October 2010. In fact, every other business running its financials on NetSuite's cloud ERP--from the smallest business that started using it more than 10 years ago to the largest enterprise that signed up last quarter--is also running on the latest version of the software. In contrast, the fact that the bulk of finance organizations are running traditional, on-premise accounting systems that are too painful to upgrade is just one data point that the era of cloud computing promises to transform for the finance organization.

What Is Cloud Computing?

No doubt you've heard the buzz about cloud computing. It's a way of using business applications over the Internet, just as you use online banking or Gmail. No more expensive, capital-intensive hardware and infrastructure and no more expensive, time-consuming, staff-intensive upgrades. You pay as you go and get your finance, human resources, sales, or service applications through a Web browser. According to IDC, this software delivery model is experiencing dramatic growth, and the market for cloud-based solutions is set to grow six times faster than the overall software market.

More than likely your sales organization is running a cloud-based sales force automation application, such as one provided by Or maybe your HR function is deploying an employee performance management cloud application, such as SuccessFactors. These applications were designed from the ground up to run in the Internet era. This not only transforms how employees who use them collaborate, but it also significantly lowers the costs to deploy, run, and maintain the applications. For some types of applications, software-as-a-service (SaaS) is already the default architecture. When was the last time you heard of a monolith on-premise Siebel CRM (customer relationship management) implementation? No modern enterprise writes a request for proposal (RFP) for CRM today without considering a cloud-based solution.

Now the cloud application wave has reached the finance organization where it promises the same impact--lower cost, easier collaboration, and faster innovation. But as with any new technology, preconceptions and myths abound. At NetSuite, a $1 billion+ market cap public software company, we run all of our business applications in the cloud. From tracking a sales opportunity to a sales order, through to invoicing and revenue recognition, and from management reporting and generating GAAP (Generally Accepted Accounting Principles) financial statements, through to managing the most complex service and renewal processes, everything is done through a Web browser. The impact on finance and our broader organization has been profound and far reaching--and a sharp contrast to companies where I've worked that ran traditional financial applications such as Oracle Financials, SAP R/3, or Microsoft Dynamics.

So why would a finance organization move its financial processes from on-premise ERP to a cloud-based model? Before I answer that question, it's key to define what cloud computing or software-as-a-service is (I use these terms synonymously). …

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