By Kevin Sullivan, Partner, PwC
A few weeks ago, I had the pleasure of sitting next to Dr. Michael Mandel over dinner at Modern Finance Experience in New York. Dr. Mandel is a senior fellow at the Mack Institute for Innovation Management at the Wharton School, and the author of a new research report entitled Intelligent Finance: How CFOs Can Lead the Coming Productivity Boom.
I was immediately drawn into a conversation with Mandel about the study, which asserts that cloud services are poised to boost U.S. GDP by $2 trillion over the next decade. Furthermore, CFOs will be key to creating this massive value generation.
Now, $2 trillion is a huge number, so I asked him to break it down. In a nutshell, the study shows that cloud services give underperforming companies equal access to world-class business capabilities, empowering them to close the productivity gap with the market leaders—or frontier firms—in each industry.
By the end of the dinner I was convinced. We’re really on the cusp of a cloud-driven productivity surge of historic proportions. I see this playing out every day in the industry I specialize in—high technology—where companies with the vision and leadership to embrace cloud have gained the agility to innovate faster, capture new markets, and chase down the front runners.
I also see companies that, for a variety of reasons, remain stuck in the on-premises world—and many are hurting because of it. Often, these are companies that have made large investments in legacy technologies and are determined to make them work in an industry that is rapidly shifting to new subscription-based, agile business models.
I can sympathize with the on-premises dilemma; legacy IT systems are massively expensive and heavily customized. Treating these investments as sunk costs can be a hard pill to swallow. But I firmly believe high-tech companies will need to make the transition to cloud or face growing headwinds in their markets.
The reason is simple: only cloud offers the kinds of capabilities that allow companies to make the necessary transition to next-generation business models. For example, the next generation of configure-price-quote (CPQ) systems (which enable new pricing and bundling models) are only available in the cloud. More crucially, the cloud puts a constantly evolving set of innovative technologies at your fingertips—everything from predictive analytics and artificial intelligence to machine learning and game-changing IoT applications.
Remember, the cloud is not just about cutting costs or implementing more efficient processes. It’s about differentiating, about enhancing your ability to enter new markets, and about seizing growth and profit opportunities.
What’s more, as new capabilities are pushed to the cloud, businesses can further separate themselves from the pack. The cloud, as we often say, is a journey; it’s not about what you can do today, but what you can do in six months, a year, or five years from now.
Some enterprises start their journeys around the “edge” of the business, choosing to move selected applications to the cloud in piecemeal fashion. They might start by connecting Oracle EPM Cloud to their existing ERP system, letting them run better reporting, analytics, planning and budgeting.
But I see companies reaping even bigger productivity gains when they take a bolder course by transforming all of their core business systems. One of our high-tech clients recently decided to forego upgrading to the latest on-premises technology and instead moved the whole enterprise to the cloud—including sales, finance, pricing and quoting, supply chain, and HR—in a single leap. As one of their executives said, “If we can get to the cloud faster than the competition, we can outpace them.”
More and more, I find that companies that choose to cut their ties to legacy environments are rewarded with higher growth and profitability. And Dr. Mandel’s research bears this out.
According to Mandel, CFOs can play a leading role in driving the coming productivity boom—and I agree. Almost every day we talk to finance executives who are stepping up to champion their firm’s cloud transformations. Many started their journey with the aim of making finance more efficient, harnessing the power of cloud services to speed up reconciliations and cut costs. But as they automated many of these manual processes, they discovered that they could reassign their finance staff to more value-added tasks, such as helping the business perform better and targeting profitable new ventures.
The result: CFOs today are becoming powerful catalysts for change across the enterprise. And they are embracing that role with fervor, taking the finance function beyond its traditional role of “book closer.” Many are extolling the virtues of new cloud-enabled technologies such as intelligent process automation—not just for finance, but for the rest of the enterprise. In their new role, CFOs have become true strategic partners with the business.
Of course, when it comes to moving to the cloud, not everybody will be as passionate as the most progressive CFOs. Change can be painful for the business. It requires entirely new ways of doing things that can come as a culture shock to the workforce. Skillful change management will help smooth the transition, and CFOs can help with that. Often, once you show the business what’s possible with cloud services—and the pain it can eliminate—you can win people over pretty quickly. No longer are they trapped in a rigid legacy process that can’t evolve fast enough.
Some IT organizations may be threatened by the shift to cloud services, believing—mistakenly—that it means people will lose their jobs. That’s because over the years, traditional IT organizations have become very efficient at “keeping the lights on” in legacy environments and they see that as their primary value. The cloud forces a shift in IT’s value proposition. Instead of keeping the lights on, IT can now work directly with the business to uncover and exploit opportunities for driving efficiency and innovation. At the end of the day, that’s a far more rewarding job to have.
When it comes to adopting cloud services, Mandel says that high technology has been outpacing industries like retail, healthcare, and manufacturing, which have farther to go to close the productivity gap. Oracle, for example, decided several years ago to transform itself into a cloud company. It revamped its entire business model, switching from selling licensed software to delivering pay-as-you-go services and helping customers realize value as quickly as possible. Perhaps alone among its rivals, Oracle relied exclusively on its own technologies to make the transition, implementing Oracle Cloud services for nearly every aspect of its operations and orchestrating a massive cultural shift in the process.
Although high technology firms are setting the pace in terms of productivity, I think there’s tremendous potential to achieve even higher levels of output in our industry. Cloud services accelerate the diffusion of advanced technologies and industry best practices to all companies. Indeed, if frontier firms like Oracle continue to raise the productivity bar, Mandel’s estimate of a $2 trillion GDP boost could turn out to be an understatement.
How could cloud services help boost productivity in your business? We’d love to hear from you.
Kevin Sullivan is a Partner with PwC specializing in high technology, media and telecommunications industries. He leads the firm’s Oracle technology practice in the United States. Visit pwc.com/oracle for more information on PwC’s Predictable Value Services, outcome driven transformation enabled by Oracle technology.