On November 14, 2012, in conjunction with the co-located SapphireNow and SAPTechEd events in Madrid, Spain, SAP announced the general availability of SAP® Financials OnDemand. The new offering is a stand-alone financial management solution, a derivative of its SAP Business ByDesign suite, now powered by HANA for speed and power. It targets medium to large enterprises and represents SAP’s desire to compete for mind share (and deals) in specific lines of business – in this case the business executives who manage the money within an enterprise. Based entirely in the cloud and offered exclusively as Software as a Service (SaaS) it makes two important assumptions: these enterprises are willing to entrust their financial transactions to the cloud and a good portion of them want to “mix and match” applications rather than run a single tightly integrated business suite.
What is it?
SAP describes SAP® Financials OnDemand as “a real-time, insight-driven financial management solution designed for the cloud.” However in spite of the fact that SAP describes this application as one that manages money (versus people, customers or suppliers), the breadth of the solution extends beyond strictly accounting. Unlike other stand-alone accounting applications that capture those all-important financial transactions, but nothing more, Financials OnDemand expands to also include sales orders and purchase orders. This is important in that it means it can support end-to-end processes like order-to-cash and procure-to-pay and provide a system of record for all business transactions.
Mint Jutras defines Enterprise Resource Planning (ERP) as an integrated suite of modules that provides the operational and transactional system of record of the business. So in providing this system of record, is SAP Financials OnDemand really ERP in disguise? The answer to that: Not really.
Although at its core, ERP provides a system of record, in fact the functional footprint of ERP has grown steadily over the years, becoming far more complex. In manufacturing organizations it supports the planning and scheduling of production, the movement and storage of inventory, engineering and product definition and perhaps the servicing of products. It might also extend to managing the engagement with prospects and customers. It might support employees with human resource functionality. This list could go on and on. As a result, it is becoming more and more difficult to tell where ERP ends and other applications begin and it is this complexity that often presents a barrier to adoption.
The scope of SAP Financials OnDemand is more constrained, thereby reducing the complexity. But the solution also represents a different approach to enterprise applications. While ERP is tightly integrated, SAP Financials OnDemand takes a more modular approach (often referred to as “Best of Breed”) with cloud-based financials as a foundation. Using this approach, it is engineered either to stand alone or to play nicely (integrate) with other applications.
In the past, the trade-off between the two approaches was between functionality and ease of integration. Over the years the pendulum has swung between preferences for the two approaches, and as ERP has become more robust, the pendulum has tended to swing in favor of the integrated suite. But as integration technologies have matured, these trade-offs are no longer as easy to evaluate as they once were and perhaps the pendulum is starting to swing again. And while the preference for a single integrated suite has been most prevalent in smaller enterprises (with limited Information Technology (IT) resources), SAP sees the target market for Financials OnDemand as medium to large enterprises, particularly those operating across a global, distributed environment. But then, very few medium to large enterprises are not global and distributed today.
SAP has long been a powerhouse in terms of providing financial management applications for large multi-national enterprises. So it has the expertise and experience necessary to provide a robust financial application that will support a global enterprise. And the company is also smart enough not to reinvent the wheel, but instead base the solution on one that already exists. With the goal of providing a cloud-based solution, SAP Business ByDesign was the logical choice.
SAP Business ByDesign is most often referred to as a “business suite”, but it fits the Mint Jutras definition of ERP, as a tightly integrated suite of modules that provides an operational and transactional system of record, which of course, includes financials. It is also SAP’s newest ERP solution, designed for the cloud and offered exclusively as a multi-tenant Software as a Service (SaaS) solution.
Because it was designed and developed as a tightly integrated suite, accounting modules within Business ByDesign assumed other Business ByDesign modules to be the source of transactions that are ultimately recorded in the general ledger. So part of the process of bringing Financials OnDemand to market was to decouple the financial processes from that tight integration, creating a more “loosely coupled” and “pluggable” architecture. To integrate with Financials OnDemand, other applications simply need to map to its model of financial objects. For the layman, those financial objects might be customers, suppliers, orders, accounts, etc.
So we see that SAP Financials OnDemand is indeed a cloud-based financial management system, capable of standing on its own legs or fairly easily integrate with other applications. But what about the claim that it is “real-time” and “insight-driven?”
SAP Turns to HANA for Real-time Insights
To meet this goal, SAP turned to HANA. HANA represents some game-changing new technology. It has been described in the past as a database and also an in-memory computing engine and a platform for development. But to the business executive making a decision about a financial management solution, the underlying technology is only of interest in terms of the value it brings. The value of HANA is primarily speed and speed supports real-time data and decisions.
But there are several aspects of speed. One is the sheer computing speed. Volumes of data have increased exponentially over recent years. At the same time companies need to deal with a finer granularity of detail. For example, it is no longer sufficient for many companies to plan, forecast and manage at aggregate levels. Revenue and cost forecasts previously identified at a business unit or a regional level, must now dive down to the individual product or customer level, or perhaps even by customer and product. Think about how this inflates the volume of data and the granularity of the forecast and the speed at which the basis for decision-making changes. With traditional methods of storing and analyzing data we often measured elapsed time in hours and days. HANA has the potential of reducing that to minutes and even seconds.
But how does speed provide insight and support insight-driven financial management? If you can effectively deal with vast volumes of data, you can analyze performance that much more quickly and also more iteratively. First pass analyses often produce the need to dive deeper and possibly slice and dice the data a different way. When those iterations take days, decisions are made with the analysis at hand. There simply isn’t time for another cut, another way of looking at the detail. Insight is limited.
In the past the only way this type of analysis could be done in the proper timeframe was to anticipate how it would need to be summarized – by business unit, region, product line, etc. That meant more files and file structures. But what happens when that changes? How do you cope when the organization is restructured, the market changes, you introduce new products, or you experience a merger or acquisition?
If you have the technical power and speed to calculate what you need on the fly (ad hoc) then you don’t have to anticipate the levels of summarization, the different ways you might want to analyze the data. If all you have to do is capture the raw transaction and decide later how to summarize, slice and dice, then it makes it reduces the complexity of the setup, (no need to build in hierarchies that are hard to change later) and the file structures.
Admittedly, the elimination of the files is more value to the developers. But by making the developers more efficient, you can ultimately deliver more value to the consumer of the technology. And if you take it one step further and make it truly self-service for an astute business analyst, you remove an entire layer of delay and disruption in meeting new and changing needs of the business. This is what financial management solutions powered by HANA can deliver.
Are companies ready to put this in the cloud?
The willingness to consider SaaS and cloud based solutions has lagged the hype cycle that industry observers have created. Front office applications such as sales force automation (SFA) and customer relationship management (CRM) solutions led the way. These “engagement systems” lent themselves easily to a shared environment where instant access and collaboration are the keys to success. Yet accounting and other back office “transaction systems” seemed to be the antithesis, where control, privacy and security are paramount. But the resistance to putting transactional system of records in the cloud is disappearing and interest is not limited to small companies.
In a 2011 Mint Jutras enterprise solution study, the willingness to consider a Software as a Service (SaaS) deployment option for transaction-based systems of record increased steadily from 42% in small companies (those with annual revenues under $25 million) to 59% in large enterprises (revenue over $1 billion). The 2013 study results are now coming in and it looks like the interest in SaaS based solutions continues to grow.
Why is it that these companies are now more likely than small companies to consider a cloud-based solution? Chances are these companies are not single, monolithic organizational structures. Instead they are multi-divisional and multi-dimensional. What better way than a cloud deployment to get them all on the same financial page? While divisions or business units might have been left to their own devices in the past, today medium and large enterprises are defining standards and holding operating locations to these standards.
But will “Mix and Match” Work?
In taking this modular approach, SAP has made the assumption that customers will want to “mix and match” and pick cloud solutions that best fit their specific business problems. The further assumption is that customers will increasingly call for a cloud-based, modern financials “engine” to tie all these cloud solutions into a loosely-coupled suite with a common financial core. This approach won’t be for everyone. There will still be those that prefer the tightly integrated business suite approach. Those that find the financial management functionality of Financials OnDemand appealing but are looking for a single, tightly integrated suite might prefer the full Business ByDesign suite.
This approach is most likely to be viewed favorably in enterprises that have already ventured into the world of cloud-based solutions but not for all their needs. Perhaps they are running a cloud-based solution like Salesforce.com as a result of the sales organization feeling the enterprise solutions did not address their (sales force automation) needs. So they circumvented the IT department all on their own. Or perhaps it was with the blessing of IT. Either way, they already have experienced the (typically) lower costs, easier upgrades and better support for remote work forces that a SaaS solution can provide.
Now might be the time to offer them an alternative to existing legacy solutions or predominantly on-premise based solutions. In this case a cloud-based solution, particularly one that is loosely-coupled, might fit well into their existing environment without causing a complete rip and replace of all existing solutions. Add to that the speed and power of HANA for real-time insights and you might just have a perfect storm that results in a significant step forward for the progressive business.