What is Happening?
As 2012 marches to a close, a new focus on the enterprise Finance function is clearly taking place – with a range of viable and powerful Cloud-based solutions coming to market in support of upper-mid and large enterprises.
As our ongoing buyer demand research has consistently highlighted, Customer Relationship Management (CRM) and Collaboration (and to a lesser extent Social Networking) have clearly led in terms of early Cloud customer adoption (Wave I as shown in Figure 1). Following this flow, upper-mid-sized and large enterprises have begun to steadily embrace Cloud-based Human Capital Management (HCM) solutions over the past two years (Wave II), as the first of several“core” systems of record being adopted in the Cloud.
As Figure 1 highlights, Saugatuck believes that we are now entering the third wave of Cloud-based business solution adoption that help manage critically important corporate functions. While Cloud-based Financial applications have gained traction among SMB buyers for several years now (with solutions from competitors such as Intacct, NetSuite, Sage Software, FinancialForce among others), Saugatuck believes that the conditions are finally ripe for adoption of core Financial applications among upper-mid and large enterprises.
Figure 1: Wave I-III Cloud Solutions – Potential Impact on Corporate Performance
Source: Saugatuck Technology, Inc.
Why is it Happening?
Three key market conditions have delayed broad adoption of core Financial applications among larger enterprises thus far – all of which have largely been resolved. First, large-enterprise business, Finance and IT executives needed to become comfortable that critical corporate data assets would be completely safe and secure in the Cloud – a learning curve that has largely been achieved over the past 18 months.
Second, there has been a lack of credible alternatives to choose from – as until recently, few viable large-enterprise core Financials options existed. However, in a perfect storm of competitive energy, four significant players have recently (or are about to) come to market with comprehensive Cloud solutions targeting the large enterprise Office of the CFO:
- NetSuite: It is very clear that NetSuite is moving up-market and targeting the enterprise. We have had several clients who have deployed its’ Cloud ERP / Financials at a divisional or regional level, which then typically rolls up into an existing on-premise corporate set of Financials, as part of a 2-tier accounting architecture. One of these clients recently shared with us that they have plans to displace the existing on premise corporate footprint within 3 years.
- Oracle: As recently announced, Oracle is now aggressively marketing its Oracle Fusion Financials Cloud Service to midsize and large enterprise customers. While we anticipate that this solution set will primarily appeal to a portion of the existing Oracle customer footprint, rather than taking share from competitors, it is embedding some strong mobile and social capabilities that should help it gain traction.
- SAP: As one of the four pillars associated with its loosely-coupled Cloud portfolio, we anticipate SAP to unveil its new large-enterprise targeted Financials On Demand (or under some new branding) at its upcoming Sapphire conference in November (Madrid, Spain ). As a carve-out from its ByDesign suite, we anticipate that SAP will emphasize its long heritage / leadership in this space, with additional new functionality added to make it a robust stand-alone offering.
- Workday: After a couple of years of building out a 2nd major line of business (beyond its highly successful HCM offering), Saugatuck believes that Workday’s core Financials and associated functionality are now fleshed out enough to begin leading a customer sale cycle, rather than merely being sold as an add-on to happy HCM customers.
Third, it is clear from our discussions with a variety of Cloud Financial providers that they understand that it is not just about cutting cost (as this is typically not enough of a business benefit to displace highly entrenched financial system footprints). In Saugatuck’s view, it is instead mostly about delivering a modern set of capabilities that help support the broader roles and responsibilities that CFOs now have, and which their current systems are challenged to deliver.
As we have written in the past, the role of the CFO has grown well beyond its historical mission as the “Score Keeper” who monitors and reports on the financial health of the company. Over the past ten to fifteen years, a variety of additional roles have been added, from Portfolio Manager, to Certifying Authority, to Owner of the Truth, to Risk Manager – and now increasingly as a key Strategist and Decision Enabler responsible for driving company-wide business performance improvement.
In this sense, we believe tomorrow’s solutions need to bring a fresh new perspective that maps to these expanded responsibilities – no doubt delivering on the key “table stakes” associated with core accounting, but enabling a much broader vision of what the Office of the CFO is all about. In fact, unlocking financial data and providing much broader and more relevant real-time access to financial information for non-financial executives should be a key goal for all of these systems.
At the same time, as Finance orgs tend to be a risk-averse functional group, we believe the most effective solution marketing will emphasize:
- Starting small (thus the emphasis at the divisional or regional level first – as “big bang” is out);
- “Business improvement” (with an emphasis on insight creation) over the now tired “business transformation” messaging prevalent 5-7 years ago; and
- Delivery in a non-disruptive
With the emergence of these large-enterprise solutions, combined with the bevy of SMB-targeted offerings, it is not surprising that the expected use of Cloud-based core Financial apps will grow dramatically over the planning horizon, as evidenced by data from our March 2012 buyer-demand survey, presented in Figure 2.
Figure 2: Enterprise Finance / Accounting Cloud Software Purchase Plans, 2011 – 2015
Source: Saugatuck Technology, March 2012, N=228
Given the risk-averse profile of large enterprise Financial leaders, we are cautious about forecasting large enterprise adoption at quite the adoption pace suggested by the survey data; reality often changes the plans of CFOs and others, despite current high levels of enthusiasm.
But we do believe the intent behind these expectations is extremely strong, and the real-world growth curve will follow the trend in Figure 2. As such, we offer our readers the following two Strategic Planning Positions (SPPs):
By YE2015, customer adoption of Cloud-based finance and accounting solutions will exceed 40 percent of enterprises – as the office of the CFO looks for solutions that support its evolving role as “score keeper” to lead-enabler of business performance improvement.
Through 2015, Cloud-based financial deployments by large enterprises at the divisional and regional level will equal or exceed corporate headquarters deployments, as part of a 2-tier accounting architecture.