While a Chief Financial Officer (CFO) has become ubiquitous in almost every organization, it is hard to imagine this role barely existed in mainstream corporate governance a few years ago. According to an article on Strategy+Business, less than 10 percent of the major companies in the U.S. had CFOs before 1978, compared to 80 percent or more each year after 2000.
The CFO’s role and responsibilities have also undergone a massive evolution. From controller of finance and bookkeeping, to a more expansive role, driving business growth, managing risk, streamlining operations and beyond. A lot has changed, and this evolution will continue to accelerate as we step into the digital era.
In our fast-paced digital world, all aspects of business are disrupted and interlinked with technology. CFOs are compelled to make investments in technology and the underlying infrastructure to not only keep the lights on, but also accelerate the pace of innovation and growth. Yet the CFOs may be forced to slow down, due to the capital investments in technology infrastructure, manpower requirements and obsolesce. Use of cloud services in such a scenario offers a better strategic option with increased agility, flexibility and scale.
A company could want to use data analytics, leverage the Internet of Things, or have bursts of IT intensity while launching new products, services or managing business volatility. Cloud, with its pay-as-you-go model, allows business strategies to be flexible and efficient.
How Cloud Services Enables Business Agility
Cloud services provide access to infrastructure services, such as servers, storage services, databases and IT applications, run by third parties. Access-flexible pricing (without having to invest in large sums in infrastructure) makes this an agile investment model. Moreover, there are a host of options CFOs can choose from. There are public clouds such as Microsoft’s Azure or Amazon Web Services, or private clouds based on institutional preference. Hybrid cloud models, which use both public and private clouds, are also popular.
Irrespective of the model, cloud services can substantially reduce capital requirements and help CFOs divert their funds to strategic options that bolster business growth. While variable costs can sometimes be more expensive, at least the business avoids the ever-present burden that comes with high fixed costs. It also allows executive teams to be more aggressive in their growth strategy, knowing they can scale back the investment if they need less IT support.
At the same time, what will also interest CFOs is how outcome-based contracts are becoming more common. With these contracts, users compensate cloud service providers based on actual gains achieved, such as increased revenue, speed of customer acquisition, or cost savings. CFOs can contract with the service providers directly linked to the performance of these business indicators.
To be certain cloud investments are paying off, CFOs can look to various performance metrics. Tangible gains include savings from capital expenditures in infrastructure and operating expenses as well as reductions in staffing, among other benefits. Intangible benefits speed in innovation, increased scale and improved time-to-market for new products or services.
Although measuring the performance of IT has always been elusive, linking technology implementation to improvements in operational metrics, and then linking operational metrics back to financial performance can results in a more holistic change in the company rather than simply calculating savings in one area.
Not all journeys to the cloud yield desirable cost savings. This may be due to a variety of reasons, such as presence of legacy applications that are not compatible with the new environment. On the other hand, CFOs can’t ignore the eventual benefits of cost savings and increased agility, which makes it worth the switch especially in more volatile times.
Want to learn more? You can start by reading The CFO Imperative: Leveraging the cloud for business innovation and growth our latest paper with Knowledge@Wharton. Synthesizing in-depth perspective from our experts and Wharton faculties, the paper offers insights on why CFOs should consider cloud today.
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Post Date: 3/1/2017