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CFOs get argument for moving on-premises ERP systems to cloud

Cloud services can boost the nation's productivity by making advanced tech widely available. The cloud will be the major conduit to AI and other tools, a new report says.

Businesses that believe their on-premises ERP systems are a cost-effective option may be wrong. Cloud-based ERP systems promise productivity, with access to advanced capabilities, such as artificial intelligence tools, according to a new report.

A problem in increasing productivity is getting businesses access to the advanced tools they need. That's something cloud services can do, which is part of the argument made in the report by Michael Mandel, senior fellow at the Mack Institute for Innovation Management at the Wharton School in Philadelphia. Mandel has a doctorate in economics from Harvard.

"Productivity has been doing terribly," Mandel said in an interview. Productivity declined in 2016 and increased by 1.2% in 2017.

"That's sort of the big problem at this point," Mandel said. "We've had all these advances in technology, and we haven't moved the needle on the overall productivity number."

Mandel's paper was sponsored by Oracle, which is working with its customers to shift, for instance, on-premises ERP to a cloud service. Indeed, Mandel's report, titled "Intelligent Finance: How CFOs Can Lead the Coming Productivity Boom," is aimed at finance executives who will play a leading role in arguing for a shift off an on-premises ERP system or for adoption of more automation.

Tech's role in productivity debated

[Cloud services] serve as a conduit for these new technologies.
Michael Mandelsenior fellow at the Mack Institute for Innovation Management at the Wharton School

There has been much debate about the reasons for weak productivity growth. Some of the blame has fallen on the tech industry for overselling the impact of its products.

Critics like Robert Gordon, an economist at Northwestern University, have argued that the tech industry is producing "smaller, smarter and more capable products," but is not changing productivity or the standard of living in the way electrification or automobiles changed it. Gordon's book, The Rise and Fall of American Growth, argued that productivity growth faces a number of challenges.

Mandel disagreed, and he said he believes tech is about to have a much different impact on productivity and that a major shift is underway. The report sees cloud services contributing $2 trillion in gross domestic product growth over the next decade.

For this growth to happen, two major things have to occur. First, advanced technologies have to be widely available and accessible to a broad range of businesses. Second, these technologies have to be easy to use and adopt.

Attacking the 'diffusion' problem

Cloud-based services address the "diffusion or distribution problem" in technology. This means advanced technologies, such as artificial intelligence and machine learning, are not widely used because firms don't necessarily have access to these tools. This problem is solved, in part, by making those technologies widely available through cloud services. 

Cloud services "serve as a conduit for these new technologies," Mandel said. That means as more firms adopt cloud services, they should see productivity gains.

But another problem is these advanced tools have to be easy to use. HR departments, for instance, have been struggling with new technologies. Mandel said he believes firms should be able to deploy them without having to hire a staff of data scientists.

"This is a difficult process," Mandel said. The early automobiles almost required a mechanic to operate, but as they improved, "it became easier and easier for ordinary people to operate," he said, noting that the same dynamism will occur in tech.

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