The COVID crisis has seen an acceleration of digital transformation across a range of business sectors, but will the post-pandemic period see that activity boost the long-anticipated shift of finance systems to the cloud?
That was one of the predictions made by Aneel Bhusri, co-CEO of Workday, last week during the firm’s quarterly financial analyst call, when he said he could see such an uptick already:
We actually saw companies that were struggling with their legacy finance systems during the pandemic, just actually accelerate their requirements to go to a cloud-based solution.
This was a theme Bhusri expanded on during a session at the Morgan Stanley 2021 TMT Conference yesterday when he argued:
There's no question the average CFO coming out of the pandemic is saying, ‘I need to be more agile, more flexible. I need to get to the cloud’.
The past year has seen shifting priorities, he added, with the needs of the finance function becoming more prominent:
During the pandemic, it was a tale of a few worlds. Planning exploded. Gartner told us there were 28% more or 30% more Planning inquiries during this past year. Core accounting dropped, I think, 13% or 14% in terms of inquiries.
But what they told us, when we talked to CFOs at the next level, was while people had punted on the projects for core accounting for the calendar year '20, they had actually accelerated their need of bringing it in. Instead of '24, '25, it was now '22, '23.
I think that's the reality. I think digital transformation across the board is going to accelerate post-pandemic. HR really didn't see a blip [during the COVID crisis], it just continued to thrive and continues to thrive. But I think in finance, maybe in the second half of this year, the core accounting piece will really get going.
Certainly Gartner’s data appears to back up such an assertion. The firm polled 167 finance organizations back in November for a report, Gartner’s Digital Future of Finance - 10 CFO opportunities to accelerate digital transformation - (Registration needed for download). The findings set out a number of key objectives for the finance function, including a need to reduce waste and redundancy to free up capacity from repeatable and transactional finance processes.
The report also points to an objective to invest in financial tech that enables finance to deliver value, noting that less than one-third of CFOs are currently confident that their tech is aligned with their strategic requirements for success:
Many organizations continue to run unwieldy finance processes using outdated technology.
Among the potential areas for tech investment over the next three years, a shift to Cloud ERP is most popular option, cited by nearly two-thirds of poll respondents (64%), ahead of advanced data analytics (57%). At the opposite end of the scale, there’s far less buyer-intent around ‘fashionable’ tech, such as AI (13%) or Blockchain (3%), indicating a clear preference for more proven offerings.
Dan Garvey, Vice-President in the Gartner Finance practice, observes:
As with many business functions, COVID-19 has accelerated the pace of finance investment in digital transformation…It’s not surprising to see Cloud ERP as the top choice for finance organizations because it is a maturing technology with clearly established benefits that offer an escape from the bloated ‘monolithic’ ERP systems of yesteryear.
So conditions would appear to be right to support Bhusri’s expectation of accelerated finance transformation. It’s a part of a wider set of changes that have been, at least in part, influenced by the pandemic, he suggested:
At the end of the day, if you're changing your business model, you're changing your plan. Think about what happened with COVID and every retailer having to rethink e-commerce or curbside pick-up. That all has to get reflected in the accounting system. That has to get reflected in the way the systems are able to take on revenue and monetize that revenue.
If you're on a legacy system, well, those change every four or five years; they don't work in a world of COVID and rapid change. So if you want that flexible accounting system and, more importantly, the flexible analytics system around it, I think that's really what core accounting systems in the cloud enable. They enable ready access to data, ready access to change, but then a rich set of analytics that help you make better decisions.
They also meet some common, cross-functional needs, he added:
When you sit down and talk with CEOs, CFOs, CHROs, they all just want to automate their transactions and that is table stakes. The next push is, how do we use all that data to make better decisions? And that's where [you need] a next-generation core accounting system with a flexible accounting model versus a very structured, unmovable code block. I know from my time at PeopleSoft, that just doesn't work today. You’ve got to get to this flexible accounting system to meet the needs, as our marketing people would say, of a changing world.
Workday’s strength here includes being able to offer an integrated solution, he went on:
What customers want today, what our large enterprise customers want, [is] they want unified planning and transactions. They don't want to have to come up with a new plan and then have to go change the transactional system to reflect that. Not all customers want that - maybe it's 70-30 [where] 70% [want] more unified [solutions] and 30% are happy with stand-alone planning, but in that 70% world we're really a great solution.
What we can do in terms of having a shared data structure or unified data model and effectively, over time, a shared user experience - although the users of planning systems are different than transactional systems - is a true unified system. It comes back to our vision of planning, execution, analysis being unified under our security model and data model.
If you talk to any large customer, that's what they want. They spend way too much money and time trying to integrate all those different pieces together. It means that we don't actually have to be absolutely best-in-breed in planning, although I think we are or close in some areas. The value of the integration to the core accounting systems and HR systems is so much more value than a standalone provider could ever deliver.
As more capabilities are integrated into the Workday solution, B2B payments is one area of future interest. As Phil Wainewright noted when the firm acquired source-to-pay vendor Scot RFP in 2019, that focus on spend plants Workday on the same turf as the likes of Coupa. Bhrusi confirmed:
It's definitely on the long-term road map, for sure. We first want to flesh out the entire P2P - Procure-to-Pay - applications that Scout was such a key component of. We still have some more work to do around areas like contract management. But there's no question that B2B payments is something that's on our radar. It's something that we should have a good place in in the market down the road.
For now, as the Vaccine Economy begins to emerge and the anticipated finance transformation acceleration gets underway, Workday is, says Bhsuri, well-positioned:
In the interim, Scout for procurement and Adaptive Planning for financial planning, they're doing really, really well right now. We’ve got our leg in the door and then hopefully, when a customer makes a decision to change out their core accounting system, we're already in the door with HR, we're in the door with planning, we're in the door with Scout and we're the natural choice for core accounting.
As Bhusri himself noted last week, the presumed digital transformation of finance systems has been a long time coming:
I’ve been talking about finance for probably a decade at this point - but I really think that finance transformation is upon us.
Certainly the digital acceleration seen across sectors as a result of what might be seen as a corporate ‘survival instinct’ suggests that conditions are ripe for these expectations to be realised. The need for a modernized finance system at the heart of any organization has never been more obvious.
For its part, Workday has played a pragmatic long game with the expansion of its finance offerings over time. As such, it stands well-positioned to tap into that increased Cloud ERP uptake that Gartner’s research indicates is on the cards.