It's time for a serious talk with the CFO

As the move to cloud-based services gathers pace, the time has come to have a serious discussion with the CFO about implications for IT finances and budgeting. The theory of the move to cloud and other OPEX-based services is sound. Paying for technology on an as-needs basis should be a lot simpler than big capital-intensive projects. However, it would be a mistake to assume any sourcing alternative will come without its own challenges. The latest developments are no exception.

The time has come for change. Information technology could very well be one of the last parts of the enterprise to transition from CAPEX-based ownership of assets to more flexible service arrangements through OPEX. Today’s enterprises have already stripped many non-core assets from the chart of accounts, in order to free up investment funds and drive agility. Today, it is common to find enterprises that no longer own their buildings, plant, equipment and car fleets. Indeed, as we walk into the foyer of most corporate headquarters, most enterprises do not even own the potted plants and flowers adorning their office!

IT outsourcing provided the first opportunity to truly operationalise infrastructure assets in the enterprise; however, many IT outsourcing contracts simply transferred the rigidities of internal IT to a new supplier and did not fully realise the potential advantages.

Asset ownership has provided some comfort for some cash-strapped CIOs as audit rules make it difficult to remove assets or the provision for depreciation, without formal processes. However, this dubious advantage is diminishing as CFOs look more closely at these fixed assets and the financial rigidities that come with them.

The time has come to look beyond asset ownership as the best way of delivering efficient and effective IT solutions and focus more on financial management’s Holy Grail of outcome-based pricing.

For years, CIOs have struggled with the difficulty in proving the business value of IT. Large, capital-intensive projects require big upfront cash injections. Cloud offers the potential to finally fix this problem by spreading the costs and linking cost more directly to business activity.

The transition to cloud services has revived memories of earlier sourcing transitions such as the shift to IT outsourcing in the late 1990s and 2000s. Such big transitions are an inevitable part of the ongoing evolution of information technology in the enterprise. However, inevitability should not mask the need for care and prudent attention, particularly in managing the transition. Financial management is an issue that is easily forgotten, but one that can become the source of significant problems if not managed properly.

*Kevin Noonan is a Research Director in Ovum’s Australian government practice. Prior to joining Ovum, he was head of consulting at an industry research firm, working with executives from more than half the top 100 IT companies. Before moving to the private sector, he spent more than 28 years in various government management roles.