The CFO (finance executive) guide to cloud

Now or later

Our CIO wants to move to the cloud. Should we do it now or wait until things settle down?

We see few companies today that don’t have some kind of cloud initiative underway, so there’s a good chance your business has already begun moving. Cloud represents a fundamental shift in how technology solutions are developed and delivered. It’s increasingly becoming the new standard.

Many companies today are working on cloud pilots, some are pressing ahead with full migration, and countless others are somewhere in between.

Cloud benefits are real, but that doesn’t mean cloud is easy. Companies that make the move now can get a jump on competitors in terms of innovation, agility, and cost.

The cloud value proposition

Is cloud mostly about cost-savings or are there other advantages? How can we realise sustainable savings?

CFOs are often skeptics when it comes to spending based on the promise of savings. So when your company is building the business case for any type of cloud implementation, make sure you’re looking at the bigger picture. Finance needs a seat at the table. No one else is likely to bring up the tough questions that need to be asked.

Bottom line? Some companies are achieving returns of more than 10X on their cloud investments when they account for all the costs and benefits. These companies push hard to build a compelling business case—and even harder to deliver exceptional value. That’s a high bar, but we’ve seen it cleared by many businesses and in many functions.

Accounting treatments

I’m having a hard time getting my head around the accounting and tax implications of moving to the cloud. What are others doing?

Reporting and tax regulations for the financial treatment of cloud investments are complicated and have changed significantly in the past year. They will likely continue to evolve. You can find the latest technical information on our website.

Highlights:

• When a company moves to the cloud, those hardware costs can become operating expenses instead of capital expenses. Cloud software is typically—but not always—bought and paid for on a monthly or annual basis.
• Infrastructure services, on the other hand, can be billed in real time based on usage.
  
• Current tax structures can be affected by moves to the cloud. The devil is in the details, so make sure your tax department is involved in discussions from the outset.
  
• Look at the phase-out of on-premises technology depreciation and the phase-in of cloud services expenditures at the same time.
  
• The regulatory landscape may continue to change with new accounting rules for cloud investments.

Contracting

What cloud-specific issues should we be thinking about?

In contract negotiations for cloud services, there are many new methods and considerations to watch out for. Volume discounts, service levels, security, and customisation are just the beginning. Other issues such as lock-in, liability, indemnification, and intellectual property can also be considerations. Finance—as a partner to the business and a steward of the company—has a unique and indispensable role in working through all these issues. Even when Finance won’t be the user.

Keep in mind that cloud vendors typically build their services and pricing models around standardisation. This extends to the way they do contracts. Requests for significant changes to standard agreements will likely be met with resistance. However, cloud providers are in a race for market share. That means you may be able to negotiate for additional benefits and service capabilities. With standardised approaches at the core, how companies use these additional tools can be a key source of competitive differentiation.

Security and risk

I’ve heard the risks associated with cloud aren’t better or worse—they’re simply different. How so?

Every technology comes with unique risks, and cloud is no exception. Here are several broad areas of risk to keep in mind as you contemplate cloud migration:

• Data security and privacy. The risk management practices of major cloud providers are often more sophisticated than those of their customers—companies like yours. Just be sure appropriate controls are established and enforced.
• Lock-in. Migrating a large IT portfolio from one cloud platform to another provider can be challenging and costly. Being locked-in can mean significant financial penalties for terminating services early—or an inability to adjust pricing if commercial costs change.
  
• Compliance and regulatory risks. Cloud-related compliance requirements can involve a broad range of regulations. CFOs should approach cloud in a way that preserves their good compliance and regulatory standing.
  
• Cost savings and other benefits don’t materialize. Large providers, particularly those offering IaaS, say they can deliver computing at a price point that on-premises solutions simply can’t match. As with most large programs, however, diligence and sustained effort are required.

Talent model

What skills are needed to run a cloud-first organisation? How are they different from what we have now?

You may have read about how cloud adoption can upend IT talent models. That’s often true. When companies migrate to the cloud, IT people often do find themselves spending less time on routine maintenance and “keeping the lights on.” This is true for users of the platforms and infrastructure as well, including those in Finance.

Additionally, the raw supply of talent is another area where companies may face challenges. Major cloud service providers are attracting many of the best developers and analysts, leaving other companies hard-pressed to get the people they need. Make sure you’re looking at your operating and talent model in conjunction with any cloud migration.

Finance opportunities

We’re looking at a new core finance platform. Are cloud versions of ERP software ready for prime time for a company like ours? What else should we be thinking about?

Major ERP providers are favoring the cloud-optimized versions of their software, while some offer only cloud-native options. Though they’ll likely continue to support on-premises technology for the next ten years or so, much of their investment in innovation is now tied directly to cloud services. As a result, cloud solutions should be the default starting position for most companies looking at core finance platforms today. There may be specific components that need to remain on-premises for now, but that need won’t likely last long.

It’s crunch time

Like so many important projects, the key to effectiveness with the cloud is to have a workable plan and keep moving. Ramping up pilots can be a smart way to go. It gives you a taste of what’s possible while allowing time to bring other parts of the business along. And with Finance at the table, you can be sure that new initiatives can be extended across the enterprise when the time is right.

Explore other "Crunch time" reports and case studies

Explore other reports and guides in our Finance in a Digital WorldTM "Crunch time" series, and read case studies about digital transformation in the finance function. Whatever your interest, one thing is clear: From cloud computing and robotics to analytics, cognitive technologies, and blockchain, a new class of digital disruptors is transforming how the work of Finance gets done.