It’s been said time and again that progress in industry is driven by technology and the people who make it happen, something I personally believe. If you look at history, the most successful companies are those that are able to incorporate technology into their overall business, make it work, and have people who are capable of utilizing it effectively.
Aside from competition from old or new players, as well as changing market and customer behavior, these enterprises are also faced with one challenge that comes with success: complexity. Their growth requires them to manage resources, from supplies, utilities, deliverables, to manpower needs.
The challenge levels up when a company decides to expand to other countries, thus requiring the ability to manage remotely in different time zones. Keeping track of operational performance and making decisions become even more daunting. I’ve seen many companies having difficulty in achieving operational efficiency and financial excellence.
This is where an enterprise’s CFO has to make critical decisions. Finance has the difficult but key task of doing operational budget, cost-benefit analysis, and predictive analysis. Many CFOs look to information technology, investing in infrastructure that would improve not just the company’s internal functions and operational facilities but also to heighten its competitiveness and customer relevance.
Traditionally, enterprises will focus on building their own IT infrastructure to streamline their growing operational demands, save on costs, and ultimately expand their business. For some time, investments into building IT infrastructure have also resulted in some problems as it becomes an operational expense on its own.
That is, until cloud services came to the fore.
The Cloud Awaits
Cloud services aren’t new. By and large, cloud services is the collective term for sets of IT applications that are actually running from a remote server but are accessible via the internet. They’ve taken different forms over many years.
One of these early forms was email, which provided a new communications platform between business owners, executives, their employees, and clients. Eventually, that gave way to other back-office services such as payroll, customer relations management, and supply chain management applications.
There is also pay-per-use infrastructure wherein a company does not need to build an IT infrastructure from the ground up. One needs only to pay a fixed regular fee for the use of an IT infrastructure that would have otherwise cost thousands of dollars to build.
Cloud services offer a number of benefits beyond having to build in-premise IT facilities, one of which is the reduction of operational expenditure. By just having only a few servers run critical applications within the company, and “renting” additional computing remotely (e.g. storing and running customer database from a cloud service provider), the cost of running an IT infrastructure is considerably minimized. What’s more, the company isn’t financially tangled.
The last couple of years have shown the integration of cloud-based solutions among major corporations, be it in the form of internet-as-a-service (IaaS), software-as-a-service (SaaS) and storage, among others. Research firm Gartner says that the majority of IT spending by 2016 will be for cloud services. International Data Corporation (IDC) says overall IT cloud services may have a compounded annual growth rate of 23.5%, reaching US$107 billion by 2017.
Looking far into the future, the impact of cloud technology could go up to US$6.2 trillion until 2025, according to a report by McKinsey & Company. Of this figure, US$500 billion to US$700 billion could come through productivity improvements for enterprise IT. But US$1.2 trillion to US$5.5 trillion could come from what McKinsey identified as “surplus” from use of cloud-enabled internet services.
Big Data, Social Media
What makes cloud services more compelling now is the growth of big data. By definition, “big data” refers to a collection of information – from company performance to customer behavior to predictive data that is used to make business decisions. As an aside, many do not seem understand what big data is and how it can be used. I suspect they’re actually using it in the wrong sense and not fully utilizing it for their own good.
Adding to the mix of commonly acquired customer data is social media, which also plays a role in putting together relevant data information for improving customer services, building new applications, and finding new markets. With people now using personal devices such as smartphones and tablet computers to access online services, companies will have to step up in making sense of all the information they are collecting.
I’m more concerned with how CFOs will be able to put together the value of cloud services and the tremendous complexity of big data. I’ve come face to face with CFOs asking me what is the best course of action in these situations and how to have a better understanding of cloud services. Companies will have to do three things or the 3As – Adopt, Adapt and Adept:
- Adopt: Have the right cloud services to implement
- Adapt: Make the necessary changes to ensure that cloud services work with current processes
- Adept: Utilize big data and have it contribute to building more compelling services at lower cost
Trends show that usage and integration of cloud services amid an explosion of big data are inevitable. But some companies might still be wary of adoption for a number of reasons, such as long-term cost, fear of data leaks and even high-tech industry espionage, and – perhaps the most obvious of all – scarcity of the right amount of information to make informed decisions.
It’s quite understandable that companies would have reservations about using cloud services, especially with the amount of big data they have. Such information is closely guarded, and in so doing, is very expensive to secure. Yet big data cannot result in value to the company unless it is processed in a way that would be useful.
Using cloud services shouldn’t be driven by the fact that it’s a trend, but rather because of the long-term cost benefits that it brings to a company. From the outset, cloud services free you up from several, often costly, operational expenses such as maintenance, upgrades and replacements, and security.
There is also that issue of IT manpower. In the cloud, it’s the service provider that manages the infrastructure, ensures that uptime doesn’t fall below 99.99%, and extinguishes potential security problems before they happen.
If your company has already made a conscious decision to apply cloud computing on your big data analyses and business intelligence platform, it is always best to be motivated by discernment of what’s necessary to the overall development of a company. Know what you need and be ready to accept that the market will always be changing and you have to be a step ahead.
As a final note, I’d like to highlight corporate pillars where cloud services have shown positive results and examples of companies that have succeeded in their cloud service implementations. Perhaps these will help you decide the best course of action for you:
Human resource management. HRM is one of the biggest internal processes that a CFO has to manage. Often, it is here the operational efficiency has to begin. It’s hard enough to consolidate all performance-based reports and make evaluations for employees; it becomes even harder when you have different remote offices. Bank Mandiri of Indonesia and Plantronics are good examples of companies that realigned their human resource strategy to their business strategy and found the solution in the cloud.
Customer relations and enterprise resource management. CRM and ERP are two crucial aspects of businesses that require long-term skills based on sound data analysis and business intelligence. If one has implemented an IT system through the years, it would be here that a huge chunk of expenses go because disparate legacy IT systems become more expensive to maintain.
Pharmaceutical and health information systems distributor McKesson is among the oldest corporations in the US. In recent years, its focus on improving customer relations and enterprise resource has resulted in its shedding its legacy system in favor of cloud-based CRM and ERP solutions. This has ultimately helped them come up with one version for all customer data that they can use not just for increased productivity but also for improved customer experience.
Sales and marketing. Proseed, an online marketing firm based out of Hanover Germany, has adopted a cloud-based solution that strengthens its core business by ensuring mobility of its people and their ability to generate more value to the company. With it, its salespeople are able to quickly exchange best practices and do sales collaboration on the go. Not only does this makes it easier for their sales team to focus on marketing campaigns, but it also allows the company to find its best personnel resources and move them about in areas of improvement.
Another company, rubber and plastic company ContiTech AG, also utilized a cloud-based application for integrating sales data, along with product design, production and marketing, to efficiently develop products targeted at specific customers. In a sense, they are able to identify customer behavior that serves as useful input for the overall product development and manufacturing cycle.
Mobile devices and security. Security is a huge concern because sensitive data is being stored remotely in data centers that only the service providers would know. That being said, a lot of heavy investments are happening in the area of security. It is predicted that by 2015 cloud-based security services will be worth US$3.1 billion, according to Gartner. These investments also go into mobile devices as companies start adopting to the bring-your-own-device (BYOD) model. Telecommunications giant Verizon provides a mobile device management (MDM) platform that enables its corporate customers to build a cloud-based MDM that is both secure and efficient.
The future of how we work in a network economy calls for a change. So as a CFO, accept the reality that times are changing and move forward. If you are delaying a foray into online, mobile applications or the cloud, delay no longer. The more you wait, the more it would cost you and the business in the long run.
About the Author
Andrew Pitcher is General Manager and Senior Vice President, Financial Services and Strategic Industries, at SAP Asia Pacific Japan.
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