“How are we performing compared to our closest competitors?”…. is a constant concern for CFOs seeking to drive growth and profitability. Yet it is a stubbornly difficult question to answer. Traditional benchmarking services are expensive and time-consuming, added to which they frequently ‘straight-jacket’ businesses into a narrow range of performance measures that leave nagging doubts about the validity of any conclusions drawn. But the advent of ERP and other financial applications in the cloud seems set to transform finance functions – and possibly the cloud software industry as well.
1. Cloud vendors are sitting on a gold-mine of data
“True” cloud vendors that offer a single application that is shared by thousands of businesses (so called multi-tenanted software) have a treasure trove of anonymised, real-time data about how their application is being used. But this runs deeper than which are the most popular features, functions and reports
2. Cloud vendors can tell you objectively whether your processes are efficient
An ERP vendor could tell you, (compared to other companies of similar size in your business sector and geography) whether you take longer than average to, for example, turn sales quotes into orders, or whether your ratio of staff deployed in the ‘quote to cash’ cycle relative to your annual turnover is below or above average.
3. It opens up new vistas of comparative performance and KPIs
Some cloud vendors are thinking very creatively about generating a new era of benchmarking and KPIs. Jo Sutton, of Xledger a popular cloud-based ERP and financial management system suggested to me that they could use anonymised data from their customers to provide comparative benchmarks about the supply chain in different industries/countries, for example, which are the dominant suppliers, who delivers on time and the average days of credit taken.
One could also imagine a situation in which other cloud vendors with significant user bases such as Xero, NetSuite and FinancialForce could deliver information about the behaviour of retail banks, such as which banks levy the highest bank charges on transactions or average IT costs as a percentage of turnover by industry sector.
4 .It’s already happening in real-time
Last month, BlackLine a leading provider of cloud-based finance controls and automation software, announced what is believed to be the industry’s first cloud analytics software designed to give CFOs, controllers and accountants the real-time data needed to benchmark, analyse and improve the efficiency of the financial close process. For example, Blackline Insights gives the average number of reconciliations per user, average rejection rate, average number of completed reconciliations and average number of days to completion for selected reconciliations which could be used to compare relative performance during the financial close with other competitor organisations.
5. It puts benchmarking within the reach of SME businesses
Traditional benchmarking services have been largely limited to large enterprises that have the time and financial resources to participate in complex benchmarking surveys. But with new KPIs and benchmarks virtually ‘falling out’ of cloud vendors’ databases in the normal course of business then this raises the real possibility of providing affordable competitive benchmarking services to SMEs for the first time.
It is fascinating to think that benchmarking services could transform the IT industry as well, turning software vendors from purveyors of business applications into valuable providers of business information as well.
Of course some of this could be highly contentious and in the short term there could be significant legal and privacy hurdles to overcome as these services emerge, but in a world obsessed by performance, the cloud software industry could leave the on-premises world stuck on the starting grid.