The recent financial crisis that rocked the global economy has placed huge pressure on CFOs. The good news: There are practical, cost-effective solutions that provide enterprises with instant access to the latest innovative business tools and at a lower cost.
Or so proponents of cloud computing say.
You might have heard of this new computing model, where data and business applications reside in third-party data centres and accessed through computers and other Internet-connected devices. The software and IT infrastructure may be shared only by units in the same organisation (this is known as private cloud computing) or by various companies in different places around the globe (public cloud computing).
In theory, cloud computing could become one of the CFO’s favourite tools for managing costs because of its pay-as-you-go approach and the low initial investment required to get going. “The financial benefit of paying by the month rather than upfront is great when times are good, but especially important during a downturn,” says Ted Schadler, vice president and principal analyst at U.S. business and technology research organisation Forrester.
But there are caveats. “The cloud computing advantages as I see them are: access from anywhere, secure backup, redundant systems in the event of national disasters, and limited upfront investment,” writes U.S. management consultant Jim Wilkinson, in a post on CFO Blog. “The disadvantages . . . are control, security, and control. (Did I mention control?).” He adds: “I'm not sure I want our financial information floating around. Furthermore, what do we do if [the provider goes] out of business or mess up our information?”
Asia in the Cloud
These are issues that are increasingly being hashed out in Asia’s executive suites. A survey by global research group IDC last year of 696 IT executives and CIOs across the Asia Pacific (except Japan) found that 11% of companies were already using cloud-based solutions. Another 41% were either evaluating or already piloting cloud-computing services. This is perhaps not surprising. Cloud computing is particularly attractive to companies that don’t have legacy systems in place, which describes many enterprises in Asia.
Those in China, for example. “China is a very unique place when it comes to cloud computing,” notes Reuven Cohen in a blog post on the Cloud Computing Journal. “It's in a sense a greenfield opportunity where the Chinese have the opportunity to choose the latest and best technology solutions without regard for how it may affect legacy systems -- since there really isn’t any.”
Others in Asia that are newly globalizing are trying cloud computing too. The Philippines’ Jollibee Food Corporation, which now operates 300 fast-food outlets across Asia and the U.S., has opted to subscribe to a cloud computing solution from U.S.-based NetSuite to manage its burgeoning global operations.
“NetSuite OneWorld gives us a way to deliver a standard platform across the organisation in a time frame and at a cost that supports our continued growth and development,” said Jollibee CFO Ysmael Baysa in a statement. After going live last year in five Jollibee subsidiaries in Vietnam, the company will roll out NetSuite OneWorld across its Chinese operation before the end of the year, followed by Taiwan, the U.S. and other markets in Asia.
In Singapore, the Ministry of Education purchased an entire suite of Google applications, including word processing and chat functions, for its 30,000 teachers. Meanwhile, Avago Technologies, also in Singapore, says it has shaved US$1.1 million from its expenditure budget— that’s 65% off from what it used to spend—by turning to cloud computing in 2008. Avago’s infrastructure manager Stanley Toh says that the need to renew costly application licences was the compelling reason behind the move to turn to cloud computing.
Most cloud computing clients are mid-sized businesses that are rapidly growing across borders. The bigger and more established multinationals are typically still on the on-premise model – they would have spent tens of millions of dollars on their IT infrastructure and could be locked in for long periods on the licenses for their on-premise business software, on which they would have spent another mini-fortune to customise.
That’s not to say MNCs are not looking at cloud computing. Some divisions or units in emerging markets, for example, may subscribe to cloud-based services while waiting to be hooked up to the mother MNC’s systems. The cloud service is cheap and can be terminated any time, and because the software is typically compatible with the most widely used business applications, the data generated and processed can be integrated into global reports relatively painlessly, though perhaps not to the same granular level and customised way as the MNC’s on-premise system.
The main worries centre on security, although the industry is working mightily to counter perceptions that cloud computing can compromise sensitive company data. “Cloud computing is providing businesses with the ability to securely access enterprise level IT solutions that are transformational for businesses,” writes John Leese, CFO of UK-based cloud computing services provider Star, in the European publication FDE. “What this means to the CFO is that they are now able to plan their budgets better with none of the unwelcome surprises they are used to when in-house solutions go wrong.”
Leese says that Star’s own research suggests growing confidence in the security of third-party data centres among UK business managers. In a recent survey, a plurality of respondents (44%) said they believe their data is safer and more secure in a professionally managed data centre, with round the clock support, rather than in their own hardware based at their office. Additionally, says Leese, by placing company data into a data centre, businesses benefit from instant business continuity and resiliency as data is backed up and protected in accordance with strict service levels.
Some IT specialists agree. “Generally, the level of computer security, data privacy practices and the expertise of major cloud service providers are likely to be greater than those provided by an in-house IT staff and systems,” writes Ajit Kambil Global Research Director of Deloitte Services LP and author of the white paper entitled CFO Insights: Heading for the Cloud. “This makes the security concern less salient.”
But Kambil has some sage advice for companies that are looking at cloud computing solutions. They should make sure that the cloud provider has strong security and privacy policies in place. Companies should also verify whether the cloud provider has adequate policies, procedures and resources in place for recovering from failures.
Kambil recommends that they should consider the use of clouds for mission-critical applications with care. Many companies typically start out with sales and marketing applications rather than, say, accounting and financial reporting. Cloud services for data storage and occasional high-performance computing capabilities may be good starting points. In general, says Kambil, cloud or managed services should be tapped only for tactical, not strategic, applications.
Chris Curran of the CTO Forum Team recommends that senior leadership explore a number of questions relating to the cloud to uncover the hidden costs before inking a contract for the service:
- What are the viable paths to move (or replace) legacy applications into the cloud?
- What architectural changes are required to integrate cloud and non-cloud applications?
- How should we change our technology and operations processes to take advantage of different procurement, provisioning, and management models?
- How will a private cloud—built for the sole use of one enterprise—give us more flexibility than current hosting or public cloud models? What are the cost trade-offs?
“Answers to these questions will change the mindset from leveraging cloud-based applications to managing complex systems, which will help to reveal the true costs of making the switch,” says Curran.
Applications and Providers
The growth of cloud computing today is driven by the business applications made available by software-as-a-service (SaaS) providers. The software that companies can subscribe to include accounting systems, sales force automation, customer relationship management, human resources systems, messaging and collaboration, and enterprise resource planning, to name a few.
For financial applications, San-Jose based Intacct offers accounting, contract management, revenue recognition, inventory, purchasing, vendor management, financial consolidation and financial reporting applications, all delivered over the Internet via SaaS. NetSuite also offers cloud-based business accounting software.
Companies whose in-house or proprietary applications no longer provide strategic differentiation can consider offering them as software-as-a-service product on the cloud, suggests Deloitte’s Kambil. This move could help fulfil a business need while creating incremental revenue for the company. Big industry names such as Oracle and Microsoft also offer SaaS applications, although these tend to be the lite versions of their on-premise products.
For small and medium-sized companies, enterprise applications such as customer relationship management and accounting are already moving to the cloud. Both salesforce.com and Netsuite provide robust applications using a cloud infrastructure. “We also anticipate that a variety of collaborative work and knowledge management applications may move to the cloud environment,” says Kambil.
It seems that the future of computing will have a cloud-like lining. The challenge for today’s CFO is to make sure this emerging IT infrastructure and business applications provisioning model is reflected in the company’s planning, budgeting and execution.
About the Author
Melba-Jean Bernad is a contributing editor at CFO Innovation.