Science-fiction legend Arthur C. Clarke famously wrote that “any sufficiently advanced technology is indistinguishable from magic.” For many years that dictum had a corporate manifestation, with the IT function a seeming source of magic, officiated by a priest-class of techno-wizards who uttered arcane charms and knew far more about machines than customers.
But here comes cloud computing, promising to transform IT into something no more mysterious than electricity: flip a switch and access all the computing power and applications you need.
The promise of cloud is that there will no longer be any need to purchase and maintain servers and applications and all the other expensive hardware and software modern businesses require. That may prompt CFOs to believe that IT departments themselves will vanish, or at least shrink to the point where the long-standing tension between chief financial officers and chief information officers will become moot.
But the reality is far more complex: if anything, cloud computing is more likely to bring CFOs and CIOs closer together, for several reasons. For starters, it will take both parties to penetrate the hype surrounding cloud computing, which has replaced “innovation” as the hot consulting concept of the moment. Despite television commercials showing happy folks solving problems by shouting, “To the Cloud!” there’s no such place. The “Cloud” simply describes a system for accessing computing capabilities at a distance via the Internet. There are several approaches (public clouds, private clouds, and hybrid models; see “Your Cloud or Mine?” July/August 2010), but none of it is magic, and most of it — despite the hype — is not new.
A Whole New Economy
The model for cloud computing is also not as simple as it is typically presented, and that’s where a closer working relationship between finance and IT becomes critical. All those cloud-accessed servers need to talk to your legacy systems, and that requires business-process mapping and integration, not to mention a whole new approach to security — all complex activities that demand IT expertise. The sooner CFOs come to terms with that, the better their relationship with their CIOs will be, because a wholesale cut-over to “cloud-based everything” is not viable, technologically or financially.
While CFOs need to understand the technical challenges of embracing new cloud options with minimal risk, they also need to lead the way in parsing the value of the underlying business model. Before the cloud, IT buying decisions hinged on unit costs: x computers or software licenses at y cost. Now the calculations involve a combination of seat licenses, bandwidth, storage volumes, and related measures of processing power and applications capabilities. That’s not an advance in technology; that’s a whole new economy.
CFOs are, understandably, enthusiastic about cloud computing for its potential to lower costs. A recent Booz Allen Hamilton report, “The Economics of Cloud Computing,” estimated that over a 13-year life cycle (3 years to prepare, 10 years of operations), the cost of “implementing and sustaining a cloud environment may be as much as two-thirds lower than maintaining a traditional, nonvirtualized IT data center.” This may be one reason why a 2010 IDG survey found that 67% of enterprises with more than 1,000 employees were planning to increase the percentage of their IT budget allocated to cloud-based computing, spending an average of $2.2 million this year.