- CFOs are increasingly looking at the cost benefits of the cloud.
- The strategic reasons for digital transformation have two pieces, the finance piece and the technology piece, on which CFOs have been advising CEOs and working closely with CIOs.
CFOs help define a cloud strategy
According to Deloitte cloud adoption traditionally has been driven by chief information officers (CIOs).
But as companies explore the cloud’s various potential impacts and business uses, chief financial officers (CFOs) have an opportunity to help define and drive their company’s cloud strategy.
Specifically, CFOs are uniquely qualified to address two areas:
- Accounting and financial impacts should be considered, as to how different cloud models may affect them.
- Communicating those cloud impacts to analysts and investors.
According to the KPMG report ‘Your Business in the cloud: Metrics that matter’, leading CFOs have ushered in extensive acceptance of the recent wave of enterprise technology development and other supplementary financial systems, along with advances in database and communications technology.
And with this adoption, they have gained new authority – not just within finance but across the enterprise.
This milestone in finance has come at a time of renewed digital transformation.
Additionally, advancements in artificial intelligence (AI), machine learning, and advanced analytics are redefining the role and potential of the corporate finance function.
“Cloud makes your cost a variable. Cloud contracts are about cost-saving and efficiency, this is where a CFO comes in to see if the cloud infrastructure, platform, and software is being used efficiently,” says Divya Kumar, Group Digital CFO at IKEA Retail.
Views on Cloud
Bhaskar Anand Rao – CFO of Bangalore International Airport Limited (BIAL) says:
“We use mixed solutions based on the criticality and the business need of the service in the airport.
Some services are critical and local to the Airport operations, critical data is hosted on the BIAL campus.
For services that have mixed access use and need for collaboration like emails, internal digital processes, B2B and B2C, we prefer to use the Cloud services from the tier-1 cloud service providers.”
He adds that “Cloud Platforms give BIAL airport agility, accessibility, scalability, resilience, centralized security, and governance capabilities.
It also enables us to reduce our capital expenditure by enabling a pay-as-you-use option.
However, in order to get the best benefits, we need to have a professional cloud management team that continually ensures optimal utilization of the resources,” he cautions.
As a part of its Digital Transformation, BIAL is setting up its own private cloud which would be used for various services which are currently hosted on-premises.
The total cost of ownership analysis for hosting on Private or Cloud models is reviewed by the Finance team of the airport and the technology team makes the decision in selecting the model for the various services based on a robust adoption criterion factoring all the necessary aspects such as risk, scalability, security, access, and governance.
Vikas Wadhawan – Group CFO of Elara Technologies which owns PropTiger.com, Makaan.com, and Housing.com says:
“All our platforms – housing.com, makaan.com, proptiger.com are fully on the cloud.
Our internal tools and some of our accounting data are on local servers but clearly, we have a roadmap that we will be moving 100 percent to the cloud.
I feel that the cloud is the way to go. This space is evolving quickly and the business requirements are becoming dynamic gradually.
Cloud is the feasible option since it gives me the flexibility where I can scale up, scale down, shift to the next version of the technology very quickly and easily.”
Saurabh Gupta – CFO at Dixon Technologies India Limited says:
“The cloud offers an affordable alternative for ERP and that lowers both Opex and Capex because it eliminates the need to purchase software and hardware or hire additional IT staff.
Cloud allows us to have an integrated storage facility, which the company can access at any time from any location.
It allows all demand availability of storage and computing power and therefore makes it easier to scale up as per requirements.”
Cloud computing’s impact on a company’s accounting and financials
Divya Kumar: Group Digital CFO at IKEA Retail says,
“Cloud is an amazing tool. It’s about how you use it.
Like every other technology it can either be used in a good sense or by putting too many restrictions, by not utilizing it properly, we can also get exposed to a lot of risks.
At the same time if you don’t control cost and if you are not on top of it how you utilize the cloud effectively, you’ll soon find the variable cost to be much greater than what your fixed cost used to be earlier.
You must have the right guardrails and understand the technology enough, then it would make sense to move to the cloud.”
Agreeing with Divya is Vidhya Srinivasan, CFO of Bata India.
“It would be irrational for a company to not take advantage of the developments that are taking place in this space.
With the cloud, we can certainly explore much more creative business-friendly tech endeavors without investing as much as we need to.
That being said, one needs to take into consideration the kind of infrastructure that a company has and its various constraints. Directionally, you do not want to throw out investments that you have already made.”
This is where the IT team takes the lead in terms of determining what makes the best sense in accordance with a company’s IT policy, its global framework, and what is required locally.
Cloud computing can have a variety of subtle impacts on a company’s accounting and financials.
Carefully considering these impacts can help CFOs understand and communicate the positive effects while addressing any negatives.
It is important to know that accounting for cloud computing services costs can be complex and challenging. The structure of the cloud and the cloud model selected by a cloud customer may significantly affect pricing, costs incurred, and the related accounting treatment for both the cloud service provider (CSP) and the customer.
However, cloud computing’s demonstrated benefits are compelling in many situations.
Its cost-reduction potential and perhaps its ability to give organizations access to greater IT capabilities than they could justify maintaining on their own are compelling parts of a business case for the cloud.
Cloud adoption enables organizations to focus more time and resources on their core business activities outside of IT while providing the flexibility to scale computing resources up or down in response to changing market needs.
E&Y asks CFOs to be aware of the following
- Data quality and data governance issues: Many companies don’t fully appreciate the level of effort required to address data quality and data governance issues prior to making a move. While the cloud environment allows speed to value and shorter implementation times, it also requires a fair amount of discipline to prevent customization of the system.
- The cloud is an enabler, not an end state: Cloud capability is just one piece of a digital transformation. It’s an important piece, but without attention paid to other elements of the finance operating model, a move to the cloud will fall well short of expectations. It is critical to optimize processes and enables important technologies like artificial intelligence and robotics, which must be properly coordinated.
More than ever, CFOs must reconsider their priorities. How should they invest in advanced analytics?
How can they better align analytics with business strategies for finance as well as the entire organization?
How should they work with business partners to enlist new digital technologies to better capture enterprise performance?