There was a time where each department in a large business would use its own software in complete isolation. You can imagine how inefficient this situation was, resulting in a complete inability to synchronise inter-department processes, negatively affecting the productivity, performance and potentially impacting the speed of growth of the whole business.
The introduction and evolution of Enterprise Resource Planning (ERP) changed that – now you could purchase business management software which your IT departments could integrate into an enterprise’s core processes. It allowed us to take information from across a company and view it as a whole, so we could transact and make decisions in a more effective way.
And for the last 25 years or so we’ve become comfortable with how these systems have worked for us. They’ve sat in mainframes or servers, carefully maintained by our trusty IT teams, keeping the company going by completing important tasks such as supporting end-to-end record to report processes, supplying up-to-date information, such as inventory and working capital control, and providing human resource calculations.
But it has to be said, with the spread of internet, open source and real time computing, the world has dramatically changed, and it cannot be ignored. The pressure on the bottom line that companies face today is increasing all the time and old business models are being challenged. The cost of IT in this respect becomes one of the areas where companies need to be more creative and open to new technologies in order to minimise the operating line of expenses, and invest into innovation wisely.
Transformative Cloud Technology
We’ve been looking carefully at cloud computing for some time. We’ve long realised that it’s a transformative technology, where companies big and small could rely on a trusted vendor to do the ‘heavy lifting’ needed with an ERP system, such as the provision of best-in-class security, seamless and automatic upgrades and patches, and the flexibility to configure functions and processes.
And from the perspective of a CFO the cost benefits look extremely attractive! You’ve got subscription-pricing where a whole service is included in the set fee – think hardware and middleware, infrastructure, data security and the software development needed. This leaves the IT and Finance departments with time to be more present in the Board room, and focus on actions which can really help the growth of a business.
Sounds good, right? But like all new transformative technology, I preach calculated risk. Each business is unique and has its own challenges – for example, integrating a new cloud-based ERP system in your existing legacy infrastructure could be a problem. Your IT department could be resistant to change or not quite enough open-minded and forward looking, and you as a finance leader need to be aware of this. Or you may have understandable concerns about security and performance in handing over your data to an external vendor. Or maybe you are not quite there yet.
This is why some companies have gone for the ‘hybrid-cloud’, which put simply is a mix of on premise and cloud ERP. And this makes perfect sense – changing your ERP systems will be such a massive investment and undertaking, that executives will rather hop from cloud to cloud (so to speak) rather than make the whole trip in one go.
If you decide to go on this cloud journey, realise that whatever vendor you pick to work with it’ll be a long-term relationship. Make sure you’re doing it for the right strategic business technology reasons, and that you have the right skill sets in your organisation (including legal, financial and project management of a transformation nature) to deal with the whole process.
What are your thoughts on this topic? I would love to hear from you in the comments section below – or connect with me on LinkedIn.
You can also discuss the evolving role of the CFO and the finance function on a free webinar with SAP and Deloitte November 19th, sign up here to attend or receive the recording.
Lena Shishkina – CFO, SAP UK & Ireland