There’s little doubt that cloud computing can return both cost and operational benefits to organizations that do it right. However, as is often the case, hype has led to irrational exuberance (see “Sounds Great! [But What Is It?]” Topline, March).
One refrain sung by the cloud-computing choir is that because it’s a pay-as-you-go proposition, it moves IT costs from capital expenditures to operating expenditures. But opinion is divided on the true value of that shift. Matt Kellerhals, Microsoft’s general manager for IT finance, believes that there is a big difference between “a capex world,” where “we would simply ask the CIO, ‘How much hardware are you going to buy?’” and an operating-expense world, in which finance does “very close planning with IT” because “if demand spikes, the CIO has to make sure that’s reflected in his financials.”
But Bruce Schuman, group controller for IT at Intel, finds the whole “opex-is-better-than-capex” argument to be a “strange” one. As far as Schuman is concerned, “It doesn’t matter if it’s capex or opex — it’s all cash to us. We try to cash-optimize.” CFOs will need to lead the way on this debate.
Together at Last?
That said, there is broad consensus that cloud computing will save money. But Schuman adds that, while Intel has saved tens of millions of dollars, the prime motivation was not just about cost but also about flexibility and agility. Before the cloud, Schuman says, “an internal customer would come to us and say, ‘We need support for a new application.’ And it would take us three months to load the application on a server, test it, and then add security. That’s pretty horrible customer service. Now, with our private cloud, in some cases we can do it in less than three hours.”
That changes the very nature of the conversation between the CFO and the CIO: it’s no longer about the time and cost of loading the new application onto the server, but about the business utility of the application — its ability to deliver competitive advantage or a measurable return on investment.
If cloud computing can greatly reduce the complexity of implementing new computing services, the relationship between CFO and CIO becomes — at long last — centered on financial strategy. As Christopher Koch, associate vice president of research for the Information Technology Services Marketing Association, puts it, “Price is determined by complexity. Remove the complexity, and pricing becomes an issue of business performance. What are we really getting [in terms of business improvement]? Now [IT choices] are business decisions rather than technical decisions, such as factors like which application will integrate better with a legacy system.”
Schuman says there was a time when Intel “did a lot of IT for IT’s sake, or because it was interesting. Now we ask four questions for every key initiative: Will it increase employee productivity? Will it facilitate growth? Will it lower costs? Will it deliver service more efficiently to the company?”
CIOs and CFOs need to work through these questions together, because there is general agreement that in the cloud environment, IT investments can be made with a full understanding of the value they bring to the business. There is no magic formula for making that happen. But if it does, it may feel as if the spell cast over the CFO-CIO relationship has finally been broken.
David Rosenbaum is the former editor of CIO magazine, and writes frequently on business and technology.