The much-hyped market for cloud services has been building exponentially since "cloud computing" became a buzzword. According to research firm Forrester, investment in the cloud topped $18.6 billion last year, and Bank of America Merrill Lynch estimates that corporate spending on cloud services will reach $117 billion per year over the next three-to-five years.
The explosive growth of cloud computing is generally seen as a welcome extension to existing accounting processes.
"We've been building solutions in the cloud for the last decade," said CCH North America president and chief executive Mike Sabbatis. "and they're working well for CPA firms supporting mobility, streamlined work processes, and a paperless, work-anywhere environment. It's a critical intersection of professional productivity, data security, and accessibility for the accounting industry."
For Jim Bourke, partner in the New Jersey CPA firm of WithumSmith+Brown, the value of cloud computing is reinforced by the natural and man-made disasters of the past year. "We've seen the effects of tornadoes and fires on companies and their CPA partners," he said. "When Hurricane Irene struck in the summer of 2011, our 15 offices and 500 professionals were literally able to weather the storm due to our investments in cloud computing. It is a technology that secures data, and ensures that your company data is there when you need it. We are a big advocate of the technology for ourselves and our clients."
And yet, many are either not convinced or have no clear understanding as to what cloud computing is, its benefits, or how to maximize those benefits.
A survey of 30 multinational firms in December found that a fourth currently have no cloud computing plans, and that half of the companies plan to invest in their own internal data centers along with or rather than relying on the cloud. Most cited concerns over data control and security, among other things.
THE CLOUD'S SILVER LININGS
Cloud computing is sometimes referred to as Lego for grown-ups - a system that allows you to create virtually anything you can imagine from a standard set of building blocks. While this may be true in theoretical terms, the benefits for accounting firms often differ from those of their clients, and of businesses in general.
The five general benefits are:
Reduced IT costs. Cloud computing can reduce the costs of hardware, software, networking management and overall IT investment. With cloud computing, you pay for what you use.
Scalability. In real terms, the IT resources can be expanded or reduced according to the needs of the company. This is particularly true of storage space and computing power.
Automatic updates. Software and hardware are updated by the cloud vendor. While these costs may be reflected in monthly or annual fees, they are implemented automatically - reducing implementation costs for the user.
Accessibility. Accountants and their clients can access and update information wherever they are, and meet where they need to meet, with full access to applications and data. This is also true of client employees, who can self-manage their data within the system for payroll and other applications.
Disaster relief. With your company's data safely stored in secure data centers, instead of an on-premises server, getting back up and running in a disaster is faster, easier and less expensive.
The benefit of accessibility is one of the driving forces behind the adoption of cloud computing for accountants, and one that is seen as offering the greatest potential for cost savings and revenue growth.
"We've seen that the ability to access applications from anywhere is transforming business, particularly when it comes to globalization and outsourcing," said Paul Turner, senior director for product marketing at cloud ERP provider NetSuite. "For companies with multiple locations, this means they can use their best people from where they are, and don't have to move them to a single headquarters or location. This is a major factor in the velocity of a business - the ability to rapidly shift resources to where they are needed without having to staff up in every location."
But experienced cloud vendors and users note that all of the benefits do not necessarily accrue to all companies.
"It isn't about moving to the cloud," said Rene Lacerte, chief executive and founder of online accounts receivable concern Bill.com. "You have to develop the applications for the cloud if the accounting firm or company is going to realize the potential and benefits. The synergy of online tools working together is what maximizes productivity and visibility for the firm. What we hear consistently from clients is that the use of newly developed tools like cloud-based client portals enables them to gain more visibility, which translates into bottom-line revenues in new services and expanded levels of business."
"The value proposition is clearly different for the typical small accounting firm than it is for firms in the 10-40 professionals range, and different again for the enterprise-level CPA firms," said Roy Keely, director of marketing for Xcentric, a company that focuses on IT support for the accounting profession from its headquarters in Alpharetta, Ga. "In small firms, the benefit is in not having to spend critical administrative time fooling around with software patches and servers. Mid-range firms also gain from a reduction of administrative time spent on IT problems. Honestly, mid-range firms seldom do well on IT by themselves, and use of cloud resources allows the administrative and management teams to focus more of their time on generating revenues."
"Large CPA firms are better able to take a long-term view, and to leverage the cloud resources for higher productivity and greater revenues," he said. "Those productivity gains may seem intangible, but they are real, and they do accrue to the firm's bottom line."
SOME THINGS TO CONSIDER
Cloud computing is not without its baggage and problems that accounting firms and their clients are wise to bear in mind. Here are some of the most critical:
It relies on an Internet connection. For many rural areas, this makes cloud computing a non-starter. If the Internet connectivity is not secure and reliable, cloud computing will bring massive headaches for data recovery and for simply keeping the firm in operation.
Security is an issue. In a cloud services industry that still does not have a code of conduct, there is little outside of a legal contract to ensure that client data is secure from hacking and other probing eyes. Interestingly, for companies outside of the U.S., the major concern is not hackers but the U.S. government. Under the Patriot Act, data housed on a U.S. server - where most global companies prefer to have their data warehoused - can be accessed or even seized by the government without a warning or a warrant. The government has issued a statement that such concerns are unwarranted, but many companies remain wary.
Size matters. Seeing value from the cloud is all about optimization of resources. If yours is a large enterprise firm, the value of using the cloud may be diminished because your IT is already optimized. Conversely, small firms with only one or two servers and a good external backup service may see value in using Software-as-a-Service and online portals, but not necessarily a full shift to the cloud for the IT needs. As always, careful planning is critical.
What happens if ... ? Cloud computing has been around for a while, and many of the players are familiar names. But others are not. What happens if the company housing your data goes bankrupt and departs in the middle of the night?
BUILDING A CLOUD STRATEGY
While cloud computing has become a major trend this decade, there are clearly both benefits to be attained and issues to be concerned about in making a shift. A shift, leaders in the cloud movement believe, is inevitable.
"The cloud allows firms to change their client service model," said Scott Fleszar, vice president of strategic marketing for the Tax and Accounting business of Thomson Reuters. "Today's emerging generation of young businesspeople have higher expectations for service and consider working over the Web with their service providers as standard. They don't have time to be tethered to a time and place to meet. The cloud is about un-tethering, and it is about the transformation of the accounting firm to being far more than a computational professional. As clients have more opportunities to do their own bookkeeping and tax work, cloud computing gives accountants the tools to elevate their services and become more of a trusted advisor."
Rod Drury, chief executive officer of the online accounting service Xero in New Zealand, agreed that the industry is in transition. "Disconnected desktop software causes friction as data is moved around and re-entered, chewing up billing hours. This cost has trained small-business owners to use their accountants sparingly," he noted. "Cloud computing is really all about allowing businesses and their advisors to collaborate on a single version of the data, the time spent on business management, allowing the accountant to become the trusted business advisor."
