Juliette Welch: Thanks for joining us for today's call: Is the Cloud For Real For Accounting Systems?
Shawn Windle is going to be our speaker for today.
Shawn is the Founder and Managing Partner of ERP Advisors Group based here in Denver, Colorado. ERP Advisors Group is one of the country's top independent enterprise software advisory firms.
Shawn advises mid to large sized businesses on selecting and implementing business applications from enterprise resource planning, customer relationship management, human capital management, business intelligence, and other enterprise applications which equate to millions of dollars in software deals each year across many industries.
Prior to ERP Advisors Group, Shawn helped establish a successful technology practice with the top 50 accounting firms in Denver.
There are only a few people in the world with the practical experience that Shawn has gained with helping hundreds of clients across many industries with selecting and implementing a wide variety of enterprise solutions.
On today's call, Shawn will talk to you about using the cloud for your accounting systems. Is it safe to keep your accounting data in the cloud? And what happens if the cloud goes down?
Shawn will discuss these not-so-simple answers as well as share some practical insights gained from helping many clients go through this exact evaluation.
Let me introduce you to Shawn Windle.
Shawn Windle: Thank you, Juliette, and thanks everybody for joining the call today. As we have been holding these calls the format is I'll talk to the topic that's at hand and if you have any questions, feel free to email them on to us. You can send them on to firstname.lastname@example.org or directly to me at email@example.com. So, we appreciate you dialing in here.
So, the cloud. Is it real for accounting? I like to give some anecdotes. I think that's what's most helpful as we do these different discussions.
And in 2005 I was working with a nonprofit that was going through a selection process and what was interesting with that organization was they had a controller who was about to retire and he had been with the organization for maybe 20 plus years.
So had a nice long career and one of the last things he needed to do on the way out was to get a new accounting system in place.
They had outgrown it. And so, he had engaged our firm to help take a look at his software, the options for basically for general Ledger, accounts receivable, accounts payable, and core financials you could call it.
And at that time — this again is 2005 — he said, look, I don't want there to be any problems. I want this to be safe, I'm worried about security and I'm worried about vulnerability and all that stuff, so I'm only willing to buy an accounting system in the cloud. And at that time not a lot of clients were saying that.
And I had — actually, we've been doing quite a bit of work with some of the apps in the space, but it wasn't quite as prevalent, certainly as it is now.
And so I asked him, I said, well, what do you mean safe, you're a controller kind of account, aren't you worried about your data in the cloud? And he said no, you don't understand.
And then he walked me over and showed me his server room and it was on premise there in the nonprofit space in their building and he opened the closet and there was the server that had a lot of dust and really didn't have a lot of kind of care and feeding that had been done to it over the years and he said, you know, look any at any moment this thing could go down.
I mean, I just walked in and opened the door. We keep it locked, but when somebody needs to work on it, they can't get in there if it's locked. So, we have to actually leave it open even though there is a lock, so it's not secure.
And we haven't upgraded this server for a long time, and the reality is that this isn't my job.
I don't want to worry about the security of an application and the server and the heating and the cooling and all that stuff.
And I'll never forget that because that was really — I think maybe seven years before the pervasiveness of cloud really kicked in. And with that said, I've seen a big evolution with business enterprise applications to the cloud since then, but I think that was a little fortuitous of that conversation.
So, for today I'll do a little bit of an overview of what cloud-based software means in general and talk about exactly what it means to have software in the cloud.
We're going to break that down to some pretty technical stuff, but pretty straightforward — we're not going to get too techie here. But then we'll talk to accounting systems and what it means for accounting systems to be in the cloud. What are some of the benefits? What are some of the drawbacks?
And then we'll answer the question — which I think by the end you'll know the answer to the question — is it real for accounting systems to be in the cloud?
So, an overview of cloud-based software. So, when you think about interacting with your bank with Wells Fargo or Chase, or USAA, whoever it is that you do your banking with, you think about going onto Facebook when you place an order through Amazon or really interacting with just about any kind of a business online where you're purchasing something and there's a financial transaction, that is an example of cloud-based financial software.
Now it's not general Ledger software. We'll get to that in a minute, but it's important to see that the economics — the eCommerce it's called where we're transacting business online is happening. And it is only increasing at extremely rapid rates right now.
If you think about — I was reading an article earlier today about what's going to happen to malls because as y'all might be aware of, retail like the brick-and-mortar stores are actually taking quite a hit on their sales right now, so where's — I think people are still buying a ton of stuff, at least we are.
And where are they getting that stuff from? Well, they're buying it in the cloud and that just means going to a vendors website identifying to their product catalog what it is you're looking for using your credit card to buy it.
You say that the transaction’s done from your end, but then the vendor, the retailer, will take that order and take it through their fulfillment system and ship it out, or they may even drop ship that order; they might send it to their vendor to say, hey, just send that vacuum cleaner directly to the consumer, don't even send it to us, we don't have to put it in inventory.
So, when we think about cloud-based software, it's everywhere — I mean really is the way that we're interacting with most software applications and even if you look at one of the most prevalent on-premise software solutions called Microsoft Office, that's even moved to the cloud with Office 365.
Or QuickBooks is another example where we see QuickBooks move online and some of these applications that have been really close to us just from a consumer perspective are also moving to the cloud.
So, we know that it's happening and it's here, but what exactly does it mean to have software in the cloud like what does that exactly mean? Maybe from a little bit of a technical view.
And this is where it gets kind of interesting, right? Because it's not as if all the normal stuff like I mentioned, the controller at the beginning of the call, security, cooling for his servers, the hardware, the servers themselves, all the networking cables, and all the operating system software, and the app itself, it's — those still exist. That’s not on premise.
But they do exist basically in a data center someplace. And if you can imagine for a minute a building, and you can usually spot these buildings — they're around towns, I've seen some pretty prevalent ones in Dallas and Philly, and really, throughout the country, there's these buildings that look very nondescript, and they usually don't have windows.
Maybe it's an NSA building, I guess. But most likely it's a data center. And in that data center — well, even before we go into it, if you come to the outside of it, there's doors of course and they're locked, which is good. But you can get in with a security card. Or maybe you go into a lobby.
I've been in several data centers, and they will make you fill out information about who you are, your social security number, your criminal record — like you really have to provide a ton of information before you can even get into a data center.
So, there's — the security is really important when you think again about having a server in the corners somewhere and it's not just competitors coming in and stealing your secrets, it's more like somebody coming over and spilling a cup of coffee on it and the machine fries and now you can't run your business.
So, security is really the first thing that you think of as you do an imaginary tour here of a data center.
You have to have secure access. So great, now you got secure access. Now you go and the first thing you notice right is you step up, usually on a layer — on a level — where under the ground you have special heating and cooling systems that are that are optimized for servers.
I mean it's a little science fiction-y because it's like lots and lots of black servers. It's like, what's going on here? Maybe there are different colors in that, but there's computing equipment everywhere. And the atmosphere of the actual building and the room is optimized for computers.
As well as like I said is, there's an electrical flow, too, that comes into the building that is optimized at higher wattages in that for servers. So, you have, as I was saying, heating and cooling, electrical security — that's just the building, the data center itself, and I don't want to lose anybody here on the call by getting too technical, but those are the first components that you have.
Somebody has to provide that. Then they have to provide the software that runs the servers like operating system, like Windows kind of stuff or Linux and others. And then there's the actual application itself that is run on that server. And there may be some other kinds of software that plugs into it.
So, if you think about what I just said and you are the guy or gal responsible for providing all that and you happen to be a controller or a CFO and you have a director of IT and maybe he or she has one or two other people in their group, do you really want to be spending your time providing all of that capability, which is basically just to get the application so that it can be accessible, much less maintain the application and enhance it and then use it for the business.
So, there's just a reality of software that there's a ton of infrastructure that has to be supported, and so if you can do that through a centralized place where a company is maintaining many servers and the operating system and everything else on behalf of lots and lots of customers, you benefit from that one service.
So, when we talk about software in the cloud, that's really what we mean is that a software application — let's pick on Intacct which is a really good financial application that we look at for our clients and it runs on all about that stack of technology that I just told you about in a couple different data centers throughout the country, so that's what we mean by Intacct or an accounting system running in the cloud.
Now, there are a couple different types of cloud deployments and the software salespeople might not tell you all the specifics because this is a very technical discussion — oh, our software is in the cloud.
Okay, well it turns out though that that means a couple different things, so again with that background of going to the data center that we just did. What that can mean is that the instance of your application, let's say it's Microsoft Dynamics AX which is a bigger accounting system, does a lot more than just accounting. We do a lot of business with Microsoft as an example.
A company can buy Microsoft Dynamics AX and then they can work with a hosting company who provides all of those stacks from the bottom up of the security, cooling, and electricity all the way up through the servers and operating system. They do all that stuff, right?
Then you just install your software on their servers and now we have a hosted version of Microsoft Dynamics AX where we don't have to worry about all that infrastructure. That's one deployment model.
Now another deployment model, which Epicor even 10 and Sightline, which is called Infor CloudSuite Industrial. They are maximizing their deployment models around what is called a single tenant — single tenant software as a service deployment model.
And what that means is you're not responsible for your instance like you were with Microsoft Dynamics AX. They're still responsible for your instance, but you have a — there's one instance of that code that runs and it's for you.
So, that's a single tenant software as a service deployment and then the final deployment option — option three is called multi-tenant software as a service and NetSuite or Intacct, Salesforce, Plex — all applications that we work with are deployed in this manner and what that is, is there's a — so, we get all of the hosting and all of that technology infrastructure we talked about, you get the application, too.
But then you also are sharing the instance of the code with multiple clients, which I know sounds terrible, but I'll come back and talk about that in a minute.
The benefit of a multi-tenant solution is that the vendor is taking care of everything for you — every upgrade, every enhancement, every change to that software happens for you, as well as all the rest of the customers that are in that instance.
Whereas even a single tenant software-as-a-service deployment, it's still just — it's your instance and they're taking care of it for you also. But it's a single instance of the code.
It's almost as if you have to replace a roof and you need to go to an individual house to replace all the roofs in a neighborhood after a big hail storm like we had in Colorado yesterday versus going to an apartment complex where you need to replace the roof and you replace one roof and it benefits a lot of people.
So — and the hosted model is they don't even touch the roof. You still have to go out and maintain that application. So, there's some nuances that we can get into and more detail on additional calls — if that's interesting, just let us know. But there's basically those three deployment models and it's important to understand those.
Now, what does all of this mean for accounting systems?
You have to think about some really important things here. When you look at cloud specifically for accounting systems. And like I said, when I talk about accounting, we're talking core HR, AP, AR financial statements, you know, procure-to-pay, order-to-cash, all of that.
The accounting systems are a little bit different than a CRM — a customer relationship management system — or some of the other enterprise applications that are run because it's the financials of the entire organization.
So, there's additional things we need to think about, but probably the first issue that we need to make sure is okay for an accounting system to be in the cloud is accessibility — can you get to the app?
Especially because accountants have a tendency at the beginning of the month to close the books, and they better. And so that means that a lot of people want access to their application at the same time, so that drives into the second issue of performance, that accounting systems in the cloud really have to be tuned so that they can handle a lot of performance, a lot of load balancing where they're having a lot of people hit their application during specific weeks of the month and then other weeks it’s less.
Now, it still can be significant during the other times but the performance of the application really has to be tuned to handle the loads that are coming up against it.
And then of course with financial data, we have this added layer of security that we don't want financial data to get lost and pushed out through some kind of a corruption or some kind of a fraud or whatever issue can happen with data being in computer systems.
And it's interesting as a little bit of an anecdote there, we've heard about different websites being penetrated and information being stolen, like credit cards or even — I think there was something several years ago about stars or maybe some famous folks posting some pictures up on some of the photography sharing sites and those pictures being taken. Or there's some weird things that have happened with security on the internet.
The interesting thing is you don't hear about applications like Workday, which is another software-as-a service-based application, has financial data and you don't hear about data being taken from those apps.
Now, if it did happen, would they tell everybody? I don't know, but the reality is the way the news works, somebody would find out about it and report it.
So, very rarely in my experience, I've never heard of a vulnerability issue with security of financial data at all.
The last kind of specific to accounting systems with cloud issue that we need to think about, too, is functionality and future functionality. So, the app — to be a sustainable application, just in general, the application has to provide functionality that meets your business and provides you with the ability to run your books. You might have multiple companies. You might have multiple currencies. You might have multiple ledgers that all have to be brought together and consolidatef.
That functionality needs to exist in any application for it to be viable for a larger company.
Not only that, but as the rev rec rules — the revenue recognition rules — are changing and as lease accounting is changing and as the financial accounting standards boards and generally accepted accounting principles change, we need to have vendors — software vendors — that are changing their software to meet those needs.
And in a cloud deployment, it's much easier to roll out new functionality for vendors than it is when everybody has their own instance of the software.
So, when we look at, again just to just to recoup on those or summarize on those last four issues, accessibility of the application, performance, security and functionality, and future functionality.
It's pretty real that vendors can meet those needs and do it very well and can scale their businesses and provide the support services behind that to not only provide these four areas, but you know, make Wall Street very happy with coming up with a recurring revenue stream that Wall Street likes.
So, these business models and the products and the businesses provide for accounting in the software is extremely viable right now. The economics make sense, the security, the technology infrastructure makes a ton of sense and from a customer viewpoint not having that responsibility of technology areas that really a lot of folks don't want to get into it makes a ton of sense.
So, bottom line is yes, the cloud is very real for accounting systems and for our clients we absolutely look at cloud-based solutions and make sure that we've looked across the whole spectrum of solutions in deployment models and can help folks really spot what exactly is perfect for them for their current situation, as well as into the future.
And with that said, we also have clients where we are absolutely putting them into hosted solutions for various reasons, the biggest of which is — and they need more control over their application on the back end than they can do with a cloud-based solution.
So, the cloud is real. The cloud is here. It's not going away.
But again, there's a lot of technical nuances that you need to look at as part of your evaluation process to make sure which deployment model is best for you.
Juliette, that was the content that I wanted to cover on the call today.
Juliette: Okay, great. We wanted to say thank you so much for joining us today. We appreciate you taking the time out.
Let us know if we can answer any questions you have. Email us at erpadvisorsgroup.com or firstname.lastname@example.org. If you'd like a summary of today's talk, definitely reach out to us and we can send that to you. Also, we'll be sending out a survey, so keep an eye out for that. We'd appreciate your feedback.
Our next call is Tuesday, June 6th, about leveraging a reporting and analytics tool to fully realize the potential of your ERP.
Go to our website erpadvisorsgroup.com for more details and to register.
Erica I think is there. Can I turn it over to you?
Erica Windle: Yeah, just momentarily. Thank you, Juliette.
Hi, my name is Erica and I'm the operations manager here at ERP Advisors group. And Shawn, thank you so much for that great talk that actually really sorted out a lot of details for me, that I didn't totally have down for myself.
So, if anybody on the call would like to talk further about any questions that they have, I'm very willing to get an introductory call set up and you can email me at email@example.com. And we can just see what kinds of help that you're needing and get you pointed in the right direction.