CFOs, Fiscal Cliff, Cost Transparency and The Cloud

CFOs probably look at the business very differently than IT  … that's what I thought joining our CFO John Rex for the Breakfast at the CFO Summit a couple of weeks ago. I was eager to listen and learn what's on a CFO’s mind and how Cloud Strategy plays a role in their thinking.

A couple of things shouldn't come as a big surprise.

1. CFOs mostly face the same problems we're all facing. Only few problems are finance-centric, but many of the bigger business problems have a finance perspective, just like they have an IT perspective.

2. CFOs don't think about technology or about The Cloud in particular all that much, even though cloud computing can ease or even solve some of the problems they are thinking about.

Familiar topics that came up during the discussion were

• the shortage of skilled labor
• understanding the true cost of different areas of the business and
• the need to be prepared for change.

The exclusive group of financial leaders of Dallas also discussed more finance-centric topics, for example the financial cliff and cost control measures.

The surprise was the realization that The Cloud can play a vital role addressing some of the challenges.

Escape the Labor Shortage

Take the labor shortage for starters. It was interesting to hear that finding skilled workers isn't a problem unique to IT. It affects all business areas. Just in IT, the shortage was cited as a blocker for growth. It's ironic that the resistance to moving to the cloud in IT often stems from fear of losing work when at the same time business leaders complain about trouble finding skilled workers.

We've  been promoting shifting workloads to the cloud as a way to increase focus. Free up the skilled workers you’ve already hired to focus them on what differentiates your business instead of deploying them on tasks that are merely keeping the lights on – like running your email system for example. Rely less on hiring new workers to manage growth. Instead focus (re-using the word) your existing workforce on enabling growth and new business.

Moving to the cloud is definitely a way to escape labor shortage in IT.

Cost Awareness

Another, surprisingly open discussion was about cost hidden in different areas of the business. There were some examples about how the country's obesity problems were contributing to higher cost for employers due to increases in healthcare cost, but also loss of productivity, etc.

The attendees didn’t think about the cost of IT -- yet. With attention shifting to cost in all areas of the business, It's just a matter of time until we get asked for more transparent accounting in IT. Public cloud offerings make accounting for the true operational cost of an app extremely transparent. If you want to see the full operational cost of running your app every month, just take a look at your Amex bill. For a more detailed view, you can go to your cloud provider’s portal and get cost broken out by compute hour, storage, bandwidth, etc. Those numbers include all the cost that's so easily hidden in shared cost buckets, e.g. power, cooling, data center real estate, shared support teams, etc.

Not many companies have invested in infrastructure or processes to support this kind of transparency because it requires equipment deeply embedded in the data center infrastructure. With workloads moving to the cloud they don't have to make that investment and get all the accounting transparency benefits of the cloud. The monthly report Windows Azure customers receive breaks out true cost by application, location and resource utilization.

Cloud Computing to avoiding falling off the Fiscal Cliff

Then there was the conversation about the fiscal cliff that the US is heading towards and other factors that cause a lot of uncertainty. The response to this uncertainty is to be very conservative with cash on hand. That means that it’s getting harder for businesses (and IT) to get capital for long term projects and investments. In the past this would have meant the death for many big projects.

Here's where the cloud is going to make a difference. Big projects no longer require the same level of up-front capital. The cloud dramatically changes the financial profile for projects and innovation. In the past, getting projects off the ground required CapEx. Servers, racks, network gear, security equipment, etc. had to be purchased for dev/test/staging and production environments for example. Those costs alone could run in the million dollar+ range for decent sized projects. The cloud moves all of those costs to a pay-as-you-go model, which is pure OpEx - there is no CapEx required. With the pay-as-you-go model, you get to chose when and how much you want to spend. If having larger environments on hand help you move faster (and you can articulate the ROI), then you can get larger environments for the time you need them – but you’re only paying as long as you need them.

Likewise, companies don't have to delay upgrade projects or hardware-end-of-life projects that wouldn’t qualify as innovation, but under the circumstances, companies might opt to ride the risk of outdated hardware and out-of-date software. Why deploy new capabilities if the business is used to the old functionality by now? Staying current business trends isn’t all that important seems to be a rather prevalent mindset.It’s not a healthy mindset, because the aggressive adopters will seize the moment, especially now, when moving to the cloud not only addresses the out-of-date software and the unsupported hardware problems. Again, it changes the cost profile entirely to predictable, adjustable pay-as-you-go pricing, that's all OpEx.There's  no CapEx required for purchasing new hardware or licenses to new software  licenses.

In the current financial climate, adopting cloud computing is the way to avoid stagnation. The cloud keeps expenses low and predictable while allowing adopters to continuing to innovate and stay on latest software and hardware in times where others may simple shelf project to conserve cash.

CFOs may not think about the cloud all that much yet, but the cloud is a readily available answer to deal with problems that are top of mind for financial decision makers. It's only a matter of time until finance drives cloud adoption.