The  Economics  of  the  Cloud…    ‘Cloud  9’  for  the  CFO?        

 

 

 

 

 

 

 

 

 

The  Economics  of  the  Cloud…  ‘Cloud  9’  for  the  CFO?      

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Table  of  contents    

Executive  Summary   3  

Methodology  and  the  Survey  Universe     4  

Survey  Findings   5  

Appendix:  Respondent  companies  list   10  

 

                                                         The  information  contained  in  this  document  represents  the  current  view  of  Microsoft  Corporation  on  the  issues  discussed  as  of  the  date  of  publication.  Because  Microsoft  must  respond  to  changing  market  conditions,  it  should  not  be  interpreted  to  be  a  commitment  on  the  part  of  Microsoft,  and  Microsoft  cannot  guarantee  the  accuracy  of  any  information  presented  after  the  date  of  publication.    This  report  is  for  informational  purposes  only.  MICROSOFT  MAKES  NO  WARRANTIES,  EXPRESS,  IMPLIED  OR  STATUTORY,  AS  TO  THE  INFORMATION  IN  THIS  DOCUMENT.  Complying  with  all  applicable  copyright   laws  is  the  responsibility  of  the  user.  Without  limiting  the  rights  under  copyright,  no  part  of  this  document  may  be  reproduced,  stored  in  or  introduced  into  a   retrieval   system,   or   transmitted   in   any   form   or   by   any   means   (electronic,   mechanical,   photocopying,   recording,   or  otherwise),  or  for  any  purpose,  without  the  express  written  permission  of  Microsoft  Corporation.    Microsoft   may   have   patents,   patent   applications,   trademarks,   copyrights,   or   other   intellectual   property   rights   covering  subject   matter   in   this   document.   Except   as   expressly   provided   in   any   written   license   agreement   from   Microsoft,   the  furnishing  of   this  document  does  not  give  you  any   license   to   these  patents,   trademarks,   copyrights,   or  other   intellectual  property  

The  Economics  of  the  Cloud…  ‘Cloud  9’  for  the  CFO?      

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  Executive Summary "The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency"

- Bill Gates

 

"Any sufficiently advanced technology is indistinguishable from magic."    

- Arthur C.Clarke

 

"Once a new technology rolls over you, if you're not part of the steamroller, you're part of the road."  

- Steward Brand

"We're changing the world with technology.”  

-­‐ Bill Gates

The advantages of cloud-computing are commonly known: You donʼt need upfront infrastructure investment; scaling up is relatively easy; and the service provider is likely to be more efficient than your company. The ability to pay as you go from a service provider rather than spending upfront feels natural to a CFO — thereʼs nothing new about buying services. Whatʼs new is that cloud-computing offers a delivery and financing alternative to one of the bastions of corporate capital expenditures: IT. If a CFO can see better cash flow, lower risk and visibility, he or she will likely become a cloud-computing convert in no time. It is, however, not always a bed of cash flow for everyone. Service level agreements, increasing monthly costs and data ownership are all potential trouble spots that will need to be resolved. While it may not make sense for a company to apply a cloud-computing model to every enterprise service, smart CFOs should seriously examine the trend for some of their services. The big question now isnʼt whether to adopt cloud computing, but rather, where and when to adopt it. The CFO Institute, in association with Microsoft, conducted a survey amongst CFOs and senior finance professionals to gather their perceptions and understanding of cloud-computing, and its potential economic and efficiency benefits. Our CFO Survey revealed the following:

• The majority of CFOs consider investment in technology as a means to cut costs.

• Reduced up-front costs, increased flexibility, and competitive advantage are the key benefits of implementing a cloud computing solution.

• Over 30% of CFOs surveyed are already using or are considering to use a cloud computing solution, indicating a keen interest in cloud technology.

• A concern regarding security and compliance was the number one impediment to large Indian corporations in adopting a cloud computing solution, followed by loss of control and compatibility.

• One third of CFOs consider themselves responsible for taking the lead in implementing a functional and cost effective cloud computing solutions. The majority feel that it is the CIOʼs responsibility

• A high percentage of CFOs were not aware that cloud computing is a green technology.

In conclusion. Given the CFOʼs belief that cloud computing can offer substantial savings, process flexibility and competitive advantage, they would be keen to explore its implementation provided issues related to security and compliance and loss of control are managed effectively. CFOs also need to be convinced that cloud computing is a proven and tested technology, which they expect will happen in due course of time.

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Methodology and the Survey Universe

The survey was conducted by the The CFO Institute, in partnership with Microsoft. The results are based on approximately 30 individual CFO responses.

(Please refer to the Appendix for the complete respondent companies list)

Respondent companies by sector Respondent companies by size

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SURVEY FINDINGS The majority of CFOs consider investment in technology as a means to cut costs…

It is not surprising that a majority of CFOs consider investment in technology as a means of cutting costs. Those that thought otherwise considered investment in technology as a means to improve processes. “The fact that costs are reduced is simply a side effect”, says SK Joshi, Director Finance, Bharat Petroleum Corporation.

Reduced upfront costs and competitive advantage were considered to be to prime benefits of cloud computing…

… helping the company react quickly to markets conditions is a benefit that CFOs are not aware of

The majority of respondents considered reduced up-front costs, increased flexibility, and competitive advantage as key benefits of implementing a cloud computing solution. Surprisingly, however, most did not consider its ability to enable a company to react quickly to changes in market conditions as a key advantage.

INSIGHT: Michael Schrage, Research Fellow, MIT Sloan Schoolʼs Center for Digital Business explains that the cloud can accelerate and compress both the development and the test times for innovation and change… “you can do this with suppliers and customers. It is a big deal!”, he says.

About 10% of respondents had already implemented cloud computing. 20% are planning to implement...

Over ten percent of the respondents had already implemented a cloud computing solution, while another twenty percent are planning to implement in the near future. A large portion of the respondents had no plans to install cloud computing solutions, a thought echoed by Robin Banerjee, CFO, Suzlon who

The  Economics  of  the  Cloud…  ‘Cloud  9’  for  the  CFO?      

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... those that are not planning to implement should seriously consider the needs of those that require flexibility from the IT infrastructure

explains that having already invested heavily in infrastructure, they would consider it as an option when the time comes to update hardware infrastructure. His concerns about cloud computing not being a proven technology would hopefully get addressed by then, he says.

At IL&FS, their internal security policy does not allow the use of wifi networks, thus making it difficult to even consider cloud computing as an option, says SN Mukherjee, Chief Operating Officer.

INSIGHT: Michael Schrage emphasises that the question that needs to be addressed explicitly is "Are the business unit heads satisfied with the flexibility offered by their existing IT infrastructure, as they are the ones that need to be responsive and adaptive to the market changes. Just because you've spent a lot of money on something doesn't mean you're getting value. There's a saying in America that goes "where you stand" depends on "where you sit". The CFO may be happy with how things are going, but the business unit heads may think otherwise. Cloud computing can offer low cost flexibility with quick turn around times.”, he says

Concerns regarding security and compliance are the number one impediment to implementing cloud computing...

Currently, a concern regarding security and compliance was the number one impediment to large Indian corporations in adopting a cloud computing solution, followed by loss of control and compatibility.

SN Mukherjee explains “when we send an email, we don't know where it goes… it goes into a cloud. We are moving from data abstraction to infrastructure abstraction, which can be unsettling.”

11.5  

23.1  

50.0  

15.4  

0.0  

10.0  

20.0  

30.0  

40.0  

50.0  

60.0  

Already  using  it   Plan  to  use  or  are  considering  using  

it  

No  plans    Don't  know  

What  is  your  standpoint  on  adopPon  of  cloud  compuPng?  

The  Economics  of  the  Cloud…  ‘Cloud  9’  for  the  CFO?      

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The majority of CFOs surveyed were fairly neutral when it came to their impression of reduced time to impact compared to regular investment in IT hardware/infrastructure.

“Although the time to implement a cloud computing solution may be fast, additional time will be required to prove that it works”, says Robin Banerjee.

INSIGHT: “Time to Impact” - if a business unit has a new and interesting idea, it can be easily tested on the cloud. It can give a customer the ability to customize an order, which would otherwise take forever on traditional ERP systems…You use the cloud to prototype the template with a few customers... learn from that, and that becomes your gateway. You then use middleware to

1.3  0.0  

5.1  11.5  

5.1  3.8  

1.3  

0.0   2.0   4.0   6.0   8.0   10.0   12.0   14.0  

1  

2  

3  

4  

5  

6  

7  

Can  Cloud  CompuPng  substanPally  reduce  the  Pme  required  to  implement  an  IT  soluPon,  as  compared  to  a  typical  upfront  CAPEX  

based  IT  project  decision?    1  =  Strongly  disagree  and  7  =  Strongly  agree  

The  Economics  of  the  Cloud…  ‘Cloud  9’  for  the  CFO?      

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integrate the innovation with your existing ERP system, Michael says.

The majority of CFOs have placed a high priority on reducing their capex to opex ratio...

The majority of companies have placed a high priority on reducing their capital expenditure to operating expenditure ratio, which is all the more reason to consider cloud computing as an effective means to reduce capital expenditure and increase IT infrastructure flexibility.

INSIGHT: Cloud computing and traditional computing (ERP etc) are not necessarily rivals. If you collaborate with the CIO and business unit heads, you can have the best of both worlds. You can have the cloud give agility, nimbleness and responsiveness to business process and business units, and have the existing infrastructure provide centralized support, Michael says.

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The majority of CFOs feel that it is the CIO that should take the lead in implementing a cloud computing solution...

One third of CFOs consider themselves responsible for taking the lead in implementing a functional and cost effective cloud computing solution. The majority feel, however, that it is the CIO who should be held responsible for taking the lead, and changing ITʼs internal charging model to a pay-as-you-go type framework. Over ten percent felt that the CEO should take the lead.

Many CFOs are not yet aware that cloud computing is a green technology...

A high percentage of CFOs were not aware that cloud computing is a green technology. Cloud computing can save energy and money. When an organisation requires additional computing power, a cloud computing set up can draw on its additional computing power and resources, just when itʼs needed. Energy and other associated costs for running servers the rest of the time can be avoided. Cloud resources provide a reserve that can be allocated without the need to pay for the resource sitting idle in one fixed location. Therefore, cloud computing enables an organisationʼs IT infrastructure to be far greener than it is currently.

To  know  more  about  cloud  computing  please  visit:  http://www.microsoft.com/india/cloud/

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Appendix List of respondent companies

1. ABB Limited 2. Abu Dhabi Commercial Bank (ADCB) 3. Alok Industries Limited 4. Bharat Petroleum Corporation Ltd. 5. Bosch Chassis Systems India Ltd. 6. Ceat Ltd 7. DCM Shriram Consolidated 8. Ericsson India 9. Essar Projects (I) Ltd 10. General Insurance Co. Ltd 11. Govt. of India 12. HCL Infosystems Ltd 13. Infosys Technologies Limited 14. Infrastructure Leasing And Financial Services Ltd 15. Ispat Industries Limited 16. JSW Steel Ltd 17. Maharashtra State Electricity Distribution Co. Ltd. 18. Mother Dairy 19. Punj Lloyd 20. Reliance Comm 21. Suzlon Energy Ltd 22. Tata Chemicals Ltd. 23. Tata Consultancy Services 24. The New India Assurance Co Ltd 25. Toyota 26. Voltas 27. Wipro