Cloud computing is one of the biggest tech trends in a generation. It’s changing IT strategy for just about every business on just about every level, and is driving a huge shift in spending. The global cloud market is expected to grow to $390bn by 2020, according to research by Bain & Company, and one of the biggest areas of impact is how it presents a new landscape for CFOs to work within.
Cloud asks businesses and their finance leaders to reevaluate some long-held approaches to IT, and how it is accounted for. Any time an organisation wants to make a significant technology change, the CFO needs to ensure the long-term business model supports the investment. Making heavy CapEx investments up front – think expensive data centre hardware – always brings with it the risk that the hardware won’t be fully utilised down the road.
In contrast, cloud offers the flexibility to move technology resources and not be tied into one big investment at the beginning of an operation. Take Software-as-a-Service (SaaS), for example, where third-party vendors provide software to organisations, but store and manage it within their own IT infrastructure. This is a form of cloud. This model removes the need for businesses to install and run software and applications on their own hardware within their own physical infrastructure, which also removes the associated expenses. In this OpEx model, instead of taking a cash hit on the P&L right away, it can be paid over time as the business gradually grows the investment.
In the past, if IT teams needed additional hardware, software or connectivity resources at certain times of the year – for seasonal reasons, perhaps – investment to cover that requirement may have resulted in over-provisioning after the busy period ended. And it’s a double hit – the company subsequently owns depreciating technology assets that aren’t being used most of the time. This approach has never been popular with CFOs, but before the arrival of the cloud, there was little alternative.
In contrast, moving from old-school tech CapEx to cloud-powered OpEx offers the ability to spread the cost as it is utilised. Cloud investments require shorter commitment and, in many cases, can be turned on and off, up or down, according to need.
This ability to scale as fast as required is possible with a SaaS model because someone else outside of the organisation is planning, building and maintaining the technology. Market leading cloud infrastructure and service providers are geared for growth and businesses are now approaching cloud as a long-term technology option for this reason.
One important thing to keep in mind is that an ecosystem will more than likely be a hybrid mix between on premises and cloud (off premises), as well as that the move to or from the cloud could occur in multiple layers and with multiple providers. Companies are going to be moving elements of their business IT, and the question will be what to put where. Will they keep crucial applications on premises? Security and accessibility will be overarching considerations for the placement of key assets.
When companies are considering cloud services such as AWS or Microsoft Azure, they should test workloads while moving between different providers at the same time to leave their options open and ensure flexibility. Organisations should put themselves in a position to leverage the increasingly diverse ecosystem of on premises and public cloud solutions hitting the market. The strategy will not be just all on premises or all in the cloud, so companies should spread their bets for the long-term goal of achieving true IT resilience.
A procurement revolution
Amid the opportunities, there are also challenges. The inherent flexibility offered by cloud has, in many organisations, created a kind of procurement democracy, where IT investment is no longer under the control of the IT department or subject to the limits of the IT budget.
Cloud service providers have begun to significantly erode the role of IT in the choice of technology, using the accessibility of their services as a way to cut IT out of purchasing decisions altogether. Marketing teams are a great example of a key business function taking greater control of tech procurement. They are able to choose from a huge variety of cloud-based products and increasingly pay for it from non-tech budgets.
This is a fundamental change, and one that CFOs need to embrace and manage in equal measure – IDC, for example, predicts that by 2020, more technology investment will be made outside the IT department than within it.
Two heads are better than one
At the end of the day, making the most from the cloud opportunity will mean that the CFO and CIO will have to find common ground on what technology is needed, where the money will come from and how it will be allocated. In particular, there are several key areas for joint consideration:
- Cybersecurity – ensuring the business is protected and making any adjustments to environments that could be vulnerable.
- Consolidation – a lot of departments have their own little empires and procurement habits.
- Efficiency – leveraging the technology that best answers the business need and identifying technology on the cutting edge that has the business model to prove it.
The key, though, is not to take baby steps if there are significant growth plans. If in two years the business wants to grow to 1,500 people, the CXOs need to ask – how do we scale? How do we build the efficiency for global operations? How do we protect from cyberattacks? How do we make sure the data for running the business is adequate and always accessible?
From an IT infrastructure perspective, if the business has downtime, no Internet or can’t get data – it will dramatically hurt the growth of the company. To avoid this, CFOs and CIOs both need to be deeply involved in the business plan to show the efficiency that comes with OpEx, but to also ensure that efficiency doesn’t compromise the accessibility of data crucial to business operations. This partnership and discerning eye are essential to leveraging cloud successfully; in a way that both saves cost and keeps company data safe.