Oracle executive vice president of corporate operations Doug Kehring and senior vice president and corporate controller Scott Gawel discuss how the enterprise software maker’s pivot to the cloud transformed its business model and how finance operates.
Six years ago, Oracle launched an enterprise-wide transformation, shifting to a subscription-based service delivery business model and migrating finance, HR, supply chain, and other key departments from on-premise systems to the same suite of cloud-hosted applications used by its customers. That integrated cloud deployment for ERP, general ledger, payments, and other core functions is reshaping how the finance organization operates and creates business value, says Oracle executive vice president of corporate operations Doug Kehring.
In this conversation with Ajit Kambil, global research director with Deloitte LLP’s CFO Program, Kehring, who leads Oracle’s cloud business and finance transformations, and Scott Gawel, Oracle’s senior vice president and corporate controller, discuss the business model shift and how cloud transformation has helped make finance more customer-oriented and responsive to the business. They also draw on Oracle’s transformation to discuss cloud implementation considerations, challenges, and lessons learned for CFOs.
Kambil: What drove the move to the cloud for the business model and for finance?
Kehring: Our previous technology-driven transformations allowed customers and our own finance organization to run all business processes on a single platform. That enabled us to establish a single, common source of data for all our global operations and helped us save over $1 billion annually through operating efficiencies. But those transformations didn’t fundamentally change our business model, which was still largely based on selling perpetual licenses and hardware products, or affect how we functioned internally, because we still used on-premise systems to run our processes in finance and other core functions.
As cloud computing emerged, Oracle’s founder and chair Larry Ellison saw its potential to deliver the efficiency, speed, and agility that our customers were asking for in response to changing business conditions. He also saw what cloud-based applications, infrastructure, and the delivery model could mean for our market and our product-oriented businesses. So, from a business standpoint, we embarked on this new cloud-based transformation journey six years ago to address those emerging opportunities and changing market expectations. We began investing in developing enterprise cloud applications, such as Oracle Fusion Cloud ERP and Human Capital Management (HCM), for example, and acquiring complementary cloud-based assets to expand our overall cloud applications, infrastructure, and platform offerings.
Gawel: Looking at the transformation from an organizational perspective, finance and other functions at Oracle had the same challenges our customers were having with adapting legacy systems to changing business needs. Finance’s on-premise systems weren’t flexible enough to handle integrating new cloud-based acquisitions, which operated on a completely different business model. The same was true for responding to new requirements triggered by the business lines’ pivot to the cloud, such as needing a different revenue recognition process for customers invoiced on a subscription model. We quickly realized we had to run the same cloud applications we developed for our customers, both to provide the necessary agility and to demonstrate to customers that our cloud systems and applications could address their needs.
How has the shift to the cloud transformed how finance operates?
Kehring: I see four key interlocking benefits of operating finance in a fully cloud model in which ERP and all finance applications are delivered as a service and are hosted and maintained on Oracle Cloud Infrastructure.
First is efficiency. Rather than having to depend so heavily on in-house IT to stand up, customize, and maintain all the hardware, software, and management to run finance applications, that’s now handled on our secure Oracle Cloud Infrastructure, the same public cloud our customers use. Automation eliminates manual transaction-based tasks, freeing Scott’s team for higher-value work. For example, our payroll systems manage nearly 200 operating entities in almost 100 different countries. Historically, each had its own data inputs, outputs, account structures, and processes. It used to be a very labor-intensive and piecemeal process to gather and reconcile the different staff, statutory, and financial information at a global level. By integrating our Oracle Cloud HCM systems with our payroll systems and establishing a global chart of accounts with all payroll output housed in a single Oracle Cloud ERP instance, we got the consistency and completeness of information we needed to increase speed and accuracy for our processes and analyses while reducing error-prone manual tasks and reconciliations.
Second, the analytic model provides much richer data. We built these applications as decision-oriented processes that make finance a more effective partner to the business. Our focus now is much more on helping them do their jobs more efficiently and make better decisions with data-driven insights.
Third is the focus on user experience. The earlier transformation to centralize and automate was a huge shift, but our key performance indicators remained cost driven. This cloud-based transformation has brought the voice of the customer to the forefront for finance. Cost still matters, but we also measure our performance based on whether finance is delivering a better user experience and service and what we are continually doing to improve it. Today, over 90% of contract transactions are touchless—from the way sales reps configure quotes to customer acceptance and validating transactions. Even wet signatures and paperwork, when requested, are eliminated and handled electronically. Finance is now figuring out how to further automate supplier invoicing, eliminating manual transactional accounting tasks, such as writing contract terms.
So the shift to cloud has not only modernized the back office, it’s also made it possible to seamlessly integrate its operations with those of the front office, significantly improving our ability to engage, service, and deliver value to our customers. And that effect follows down the chain—those customers, using the same cloud-based software, see the same benefits enhancing their relationships with their own customers.
Finally, the cloud model allows for easier upgrades and new enhancements. With an on-premise system, you might upgrade functionality only once every two or three years because of the expense and time. All those customizations have to be upgraded too. We used to do that kind of monumental lift. Now, instead of customizing, we focus on leveraging our Oracle Fusion Cloud’s integrated suite out-of-the-box functionality and then decide whether and how to use the seamless, quarterly technology updates to innovate our processes.
Gawel: The way we’ve been able to steadily shorten our quarterly financial close process using cloud applications illustrates Doug’s point. Since we began this transformation, we’ve been using the quarterly updates to help us steadily reduce the time it takes to close, so now we’re more than a week faster compared to running on our former on-premise environment. We are now filing our quarterly and annual financial statements faster than any other company in the S&P 500. That enhanced speed to close means we can put the close process behind us and direct our efforts toward improving the experiences of our customers and employees.
For CFOs thinking about cloud-based finance transformation, what are some lessons learned, challenges, and business case considerations?
Gawel: One major challenge is that change on this scale is difficult. You can’t understate the importance of the people part of transformation, especially when it’s so technology focused. If your people are resistant to change, it’s very hard to realize all the benefits of transformation. Even at a company like Oracle, which is all about driving value and innovation with technology, this transformation was tough for a lot of people to get their heads around at first. That makes it critical that CFOs either have a strong change management strategy and top-notch change management capabilities or get the help to do so.
Kehring: I’d add that as a transformation leader, I learned that it’s not enough to just have a good plan with clear objectives and steps to get there. I had to walk some people through that journey because the customer experience and customer service focus requires a different mindset from one that’s transactional and cost driven. Processing contracts may be a back-office function, but it can be improved to make it instrumental in helping the sales team ensure that customers have an easier experience transacting with us. Changing that focus can be as simple as learning to ask who you’re serving and then asking them what they need from you. Once people understand the value they can create with cloud apps and are given the liberty to do so, transformation occurs quite rapidly.
When it comes to the business case, it’s important that CFOs consider the opportunity investing in cloud transformation offers to get the innovation they need to run their organization better and create more business value, and weigh that against the costs and benefits of a ‘lift and shift’ approach, which tries to retain old processes and technologies and make them work with cloud applications.
It’s important to consider the two approaches from the perspective of how they deliver long-term sustainable savings and value-creation benefits. The decision to migrate finance to the cloud aligns to many CFOs’ strategic role and perspective, because the focus is on how technology delivers value to finance, and how it enables finance to deliver value to the enterprise.
—by Andy Marks, Deloitte Services LP, senior writer, Deloitte Insights for CFOs