Finance has been much slower than other sectors and other business departments to move to the cloud. Let’s explore this topic in a two-part series to better understand the hesitation and why it makes sense to overcome it.
- Finance Industry’s Security Concerns
- Finance Departments Used to be the Tech Trendsetter
- 15 Reasons Cloud Makes Sense for Finance Departments
Both the finance industry and finance departments at companies have been slower than their counterparts to adopt cloud computing. Let’s look at what’s holding things back and why it’s worth tackling the challenges and moving forward – specifically, a.) security concerns of financial firms, and b.) reasons finance departments benefit from cloud.
Finance Industry’s Security Concerns
Finance has been slow to switch over to cloud computing because of concerns with security and compliance. However, more finance companies are adopting cloud every day, replacing their legacy approach with the easy adaptability, high performance, and multigenerationally approved interfaces of cloud.
What’s basically holding financial firms back is that they want to make certain that user data and business processes can be safe within another organization’s datacenters. Finance companies have expansive and intricate computing systems that depend on core on-premises software, and it’s absolutely critical that they must meet strong security and compliance standards. It’s understandable that these companies, like those in the healthcare sector (for similar reasons) have been slower than other sectors to make this technological leap.
Cloud is actually incredibly secure, though, assuming that the company providing the cloud service knows what it’s doing. “Indeed, cloud services should be at least as secure if not more secure than their in-house equivalents,” notes CloudTech. “All it takes is some careful planning to create a secure and reliable cloud solution that provides financial enterprises, and their customers and clients, peace of mind.”
Now that the flexibility of cloud services has become more pronounced, as with hybrid clouds, finance can get beyond these challenges, knowing that they are protected within a secure and compliant setting.
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Finance Departments Used to be the Tech Trendsetter
Since we often point a finger at finance these days as a sector that seems to be “stuck” technologically (and to its detriment), it’s interesting to look back at the days when these departments were at the forefront of technological adoption. By the late 90s, almost all enterprises had implemented some form of enterprise resource planning software, explains Karen dela Torre in Forbes. “Even small and midsize companies relied on finance or accounting software installed on their desktop PCs,” she says. “[T]he global economy had reached a tipping point where the risk of doing nothing was greater than the risk of change.”
These systems quickly became clunky, intricate, and high-maintenance as the vast majority of businesses decided to go into the source code and alter it to meet their specific needs. Here’s a very telling statistic from a poll of ERP users conducted by Panorama Consulting Solutions in 2014: 90% of respondents said that they had customized to some degree.
These systems resisted change because business processes became dependent on their specific capabilities (making the idea of moving to a standardized environment more disruptive). Also, there was an certain attachment to a system that had taken substantial time, energy, and resources to build.
However, when the Internet started to become a bigger part of business, and when the Y2K bug occurred, businesses upgraded their ERP programs – and it wasn’t easy. “All of their custom-coded changes disappeared and had to be reprogrammed,” says dela Torre. “This involved hiring teams of developers from consulting firms, spending a lot of money, and then waiting 18-24 months for the new system to come online.”
Basically, finance departments don’t want to go through that same madness again – so they stick with their legacy approach.
15 Reasons Cloud Makes Sense for Finance Departments
The business drivers pushing finance toward the cloud are of three basic types:
- Changing business models – Various innovative business models have been on the rise in recent years, including product digitization (Netflix), sharing (AirBNB), and social (Twitter). The companies that are using these models need sentiment analysis, data modeling, and other functionality for which traditional ERP software was not designed.
- Subscription billing – Now companies can provide products and services online, but they need billing and collections to allow for subscriptions.
- Employee satisfaction – The workforce, especially those in the younger generations, increasingly expect sleek, mobile-optimized, consumer-friendly interfaces at work.
- Revenue management – An accounting standard released in 2014, IFRS 15 / ASU 2014-09, outlined guidelines to more tightly monitor contract revenue. “Especially if your business creates complex sales contracts with multiple and distinct performance obligations (aka deliverables), there will be new calculations to perform and processes to follow.” Again, on-premise ERP applications were unprepared to meet the expectations of that new standard.
Check out Part 2 here!