In Den's Workday Q2 FY 2014 analysis, he notes that Workday Rising (Sept. 9-12) should offer more insight into the Workday's financial SaaS adoption numbers, which many see as a bellwether of the enterprise market for cloud financials. But in the meantime, there are a couple of interesting reports to chew on.
Information Week recently released its Cloud Software: Where Next? survey results, with an intro and analysis from Doug Henschen (the survey is free for site registrants). Information Week compiled data from 312 respondents, whose reported job titles counted 42 percent in IT Director or above roles, another 34 percent IT staff, and 11 percent in executive or line of business management.
Though the sample size was not large enough for absolute conclusions, one strength of the survey was the ability to contrast this year's findings with 2012 survey data from a similar sample size (note that the most recent survey was completed in June 2013, prior to the PRISM developments, so the data on cloud security is 'pre-PRISM'). A full 60 percent of those surveyed came from enterprises with 1,000 or more employees, with 25 percent hailing from companies with 10,000 or more workers.
Information Week cloud survey - notable findings
A couple data points from the survey struck me. One was the increase in public cloud and platform-as-a-service (PaaS) in year-over-year numbers:
The public cloud and PaaS adoption increases are significant because they reflect a growing buy-in to the 'economies of scale' and platform-based apps models that take the conversation well beyond 'virtualization' (see Phil's VMWorld piece for another take on how the conversation is shifting away from virtualization and pulling in the public cloud).
Adoption of SaaS applications of the multi-tenant variety (Workday, SAP SuccessFactors, and Salesforce.com, Microsoft Dynamics CRM, etc) is also up year-over-year by a similar percentage: 46 percent reported they are using a SaaS application this year, as opposed to 38 percent in 2012.
The other striking numbers from the survey were security-related. When asked about the barriers to cloud options, security took first place, and it wasn't close:
In this pre-PRISM survey, data security concerns had dropped 2 percent year-over-year, but at 34 percent, cloud security concerns make the other oft-cited concerns like long-term subscription costs, data ownership and integration issues seem miniscule by comparison.
Security concerns carried over to mobile devices as well:
Even with a modest sample size, the impediment of security from cloud to mobile stands out as a clear obstacle to adoption.
Cloud is a trend, not a given
Henschen's interpretation of the data strikes a balance between noting cloud benefits and putting the kibosh on cloud hype. On the benefits side, a quote cited by Henschen from Cast Aluminum, which chose Plex Systems for cloud ERP, underscored the point. He shares the views of Cast Aluminum CFO Linda Kelleher:
Cast Aluminum chose Plex in part to avoid the up-front expense of system hardware and software, as well as an on-site system administrator. The company also wanted the advantages of true multi-tenant SaaS, Kelleher says. "When Plex updates its applications, the up- dates are immediate and shared," she says. "It’s all covered by the subscription fees, and there’s no need to buy upgrades or worry about versions."
On the flip side, Henschen also cites analysts who speculate that cloud-only vendors like Salesforce.com might consider a private cloud or even an on-premise version due to cloud resistance in certain regions and industries. Ray Wang of Constellation Research provided a contrast between Salesforce.com and Microsoft Dynamics:
'For every 100 CRM deals that we saw last year, about 43 went to Microsoft Dynamics and about 38 went to Salesforce,' Wang says. Dynamics edges out Salesforce, he maintains, because Microsoft can offer both on-premises and cloud deployments. Even though cloud software is gaining momentum, companies in the financial services and government sectors, as well as in the Asia-Pacific region and pockets of Europe, still prefer on-premise deployments, Wang says.
Questions about cloud financials
One area that surprised me on the Information Week survey were the relatively close numbers between the planned enterprise adoption of cloud ERP, CRM, or HCM solutions. In my own work, it's pretty commonly accepted that CRM and HCM are the leading areas of large enterprise cloud adoption, with core ERP areas like cloud financials lagging behind, and manufacturing even further back.
But the survey data didn't support this point decisively. Some of that may have had to do with the 1-5 point scale that was used. For examples, when asked to rate their plans to implement a cloud solution on a scale of 1-5, social networking/collaboration was highest at 2.6 followed by CRM at 2.5. However, ERP and SCM (supply chain management) were not that far behind on the scale at 2.2 and 2.1 respectively. The year-over-year shifts were negligible.
The numbers didn't contradict the standard cloud CRM > HCM > Financials > Manufacturing adoption assumption, but they didn't reinforce it strongly either. I went looking for another source to clarify, and found it in a recent ZDNet piece by Brian Sommer that digs specifically into his research on cloud financials adoption.
Vital Analysis cloud adoption findings
In a pretty deep dive, Sommer brings the reader up to speed on his years of Vital Analysis research on SaaS adoption. Sommer frames cloud adoption terms of five types of buyers in the TALC (Technology Adoption Lifecycle) popularized by Geoffrey Moore. The five personas are: innovator, early adopter, early majority, late majority, and laggards.
Based on Sommer's summer 2013 research, he puts forth this hypothesis: cloud CRM is so widely adopted even laggards are starting to make the move. He places cloud HR in the early majority category, moving to late majority, with cloud financials firmly in the early adopter category. But Sommer, siding with Moore, believes there is a chasm between the early adopters and early majority. So he put forth a final hypothesis for his summer research: 'is cloud financials ready to cross the chasm?'
From his interviews with (mostly) finance executives, Sommer concluded that cloud adoption is widespread:
What these overwhelmingly financial/accounting executives said surprised me. They could rattle off all kinds of cloud solutions in use at their firms. These solutions ran the gamut from CRM, Marketing Automation, Sales Compensation, Financial Planning, Payroll, HR, Talent Management, Office Automation and storage to name a few. Salesforce.com was a fairly common component and appeared to be a gateway application that gets businesses comfortable with the on-premises to cloud transition.
Sommer is convinced this adoption is not a fad:
It was the tone that some of them used that indicated to me that this shift from on-premises to cloud deployed solutions was not a fad, a short-term phenomenon, or an experiment. Cloud solutions are a long-term, structural change that will profoundly affect IT organizations for many years to come.
After his latest research, Sommer concludes that cloud financials is indeed crossing the chasm, at least in the SMB space:
Financial accounting software appears to be crossing the chasm today and for the SMB (small to medium business) market, it absolutely appears to be crossed. I spoke with customer after customer of NetSuite, FinancialForce.com, SAP, Intacct and other solutions.
But as for cloud financials adoption in the large enterprise, count Sommer amongst those looking for more data:
For the large enterprise cloud financials space, I still need to do more homework. At present, Workday's multi-tenant solution and some hosted/private cloud solutions are picking up steam. I’ll reserve judgment as to whether these have crossed the chasm once I get access to additional CFOs who are replacing large enterprise financial software.
Sommer provides a number of customer examples from his research and goes on to ponder the implications of these trends in detail. He concludes that after cloud financials, 'expect supply chain, manufacturing and other sectors will cross the cloud chasm, too.'
I don't expect any cited concern - even security - from blocking progressive SaaS adoption in the large enterprise, but it will be important to revisit these types of reports after PRISM is baked in (see Phil's recent post on six myths of on-premise security). If security concerns do go (modestly) down, I would expect cloud integration issues to go up, along with more frequent uses of that dreaded 'multi-cloud' terminology.
In future reports, we should keep an eye out for concerns about vendor lock-in that we often hear from the on-premise world - at least from those customers who choose one vendor for their expanding cloud ERP footprint.
That said, the regional and industry variations in on-premise versus cloud adoption cited by Wang are not going away. In that sense, we are back to security again, but often with regulatory teeth as well. Neither Information Week nor Brian Sommer got into international variation in cloud adoption in detail, but it's an area where data should be cultivated. On Sommer's ZDNet piece, there is a reader comment zeroing in on regulatory barriers to cloud adoption in EMEA. Those issues are not outside of scope if we want a full understanding of where this is all headed.
Disclosure: Workday, Salesforce and SAP are all diginomica premier partners as of this writing.