Corporate Finance

Cloud giving CFOs something to think about

Cloud computing solutions have introduced another element for chief financial officers to consider when evaluating a potential application manageme...
A CFO InterviewSeptember 17, 2013

Cloud computing solutions have introduced another element for chief financial officers to consider when evaluating a potential application management outsourcing arrangement. That’s because applications that reside on the cloud can be less expensive and can be managed remotely, said Peter Marston, applications research manager for International Data Corp. in Framingham, Mass. Cloud solutions are changing the minds of some chief information officers as the CIOs are increasingly pressured to reduce their costs, as a business goal, by the CFO or chief executive officer, Marston said. “CIOs are trying to investigate ways of how they can do more with less, and seek alternative technologies that not only can help reduce the costs, but at the same time meet the business needs of the users that are going to be using the systems and consuming the systems,” Marston said. Outsourcing companies can use cloud tools to help them be more efficient and to standardize their service, helping provision faster and get an application up and running faster, for example. So one challenge of the app world is that in the past, applications have been highly customized for each customer, Marston said. Now service providers are trying to figure out better ways to standardize and automate the maintenance activities. With packaged application suites, companies typically don’t deploy full capability right away, Marston said. That’s partly because of the heavy lifting involved in the early stages of deployment, with the company’s users figuring out how to configure it or customize to support certain functionalities. One item that a company should seek assistance from the application manager about is any balance sheet issues that can arise if the company chooses a move to the cloud that accelerates depreciation, said John Parkinson, an affiliate partner of Waterstone Management Group. “CFOs care about that stuff,” Parkinson said. “CIOs care less about it, so they sometimes go that route that will have a balance sheet impact that didn’t occur to them up front. The CFO is going to care a lot about that. It helps to have a partner that understands those issues and has options to help you do the transition.” In some cases, application management service providers, including systems integrators, are starting to compete with software vendors, Marston said. When application managers or integrators are able to create intellectual property created by a customized solution for a client with an integration problem with standardized software, for example, they can then take that to other customers in same industry, using a cloud solution for more efficient distribution and installation. Clients and service providers using cloud tools find it easier to ratchet resources up or down, he said. “These newer type of technologies are giving either the service provider or systems integrator or cloud provider better agility to respond to respond to changes” and buyers, Marston said. “It’s not to say that the cloud is better than traditional on-premises applications,” Marston said. Customers that tend to stay on premises tend to do that over concern about security. “Take for example a financial services company,” he said. “They have a lot their own, custom, home-grown trading systems or securities accounting systems. Trying to take that system and put it out into the cloud I think generally is a culture shock for them, because they’ve built up their own IT groups and their own IT infrastructure.” The cloud can be very useful as a test and development environment, and then for the software production environment, Marston said. As one financial services firm stated, he said, a company should rent before buying and buy before building (in-house).

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