When Jeff Epstein joined Oracle as CFO in August 2008, he found 287 IT projects underway to improve finance automation. When the global financial crisis hit one month later, Epstein knew he needed to be very strategic with his IT investment portfolio, focusing precious resources on projects with the highest ROI.
To help prioritize these projects, he engaged the Oracle Insight program’s lead executive, Harry Ghuman. Over six weeks, Ghuman helped Epstein and his team rank projects based on ROI, risk, and strategic value. The result: an IT roadmap for Oracle finance and a strategic partnership with Oracle Insight that can help other CFOs better understand and leverage the value of technology.
To that end, Epstein and Ghuman designed 12 questions to promote a strategic dialogue between CFOs and CIOs and align finance with the IT function. In this exclusive interview for Profit, Epstein and Ghuman give readers a glimpse of the strategies behind their CFO playbook.
Ghuman: Your 12 questions were a result of our engagement, and you first presented them at the fifth annual Oracle CFO Summit in April 2010. How did the CFOs there react?
Epstein: The feedback was excellent. We’ve had numerous CFOs tell us they’ve used the questions to initiate a strategic dialogue with their CIO counterparts. That was exactly the result we had hoped to achieve—to align the finance and IT organizations around key goals and raise awareness about the performance improvements that can be attained through technology.
Ghuman: The first question encourages CFOs to ask CIOs about plans to expand self-service. Why is this first?
Epstein: My predecessor, Jeff Henley, said that a large percentage of the US$1 billion annual savings Oracle enjoys today is from adopting self-service. Oracle Support started rolling out self-service at Oracle 10 years ago and saved more than US$200 million annually just by getting customers to move to the internet. Today, more than 84 percent of our human resources functions are self-service, as are 100 percent of our expense reporting, 85 percent of our travel processes, and 78 percent of our online support requests.
We like to use Amazon’s customer experience as an analogy that CFOs should think about when it comes to adopting self-service: is your internal customer experience as good as your employee’s experience when buying a book on Amazon? If not, it can be improved. Any low-value, high-volume interactions should all be moved to self-service.
Ghuman: Your second question challenges CFOs to learn about custom code in their business applications. Why is custom code a problem?
Epstein: If you customize your applications, then you have to upgrade and keep the customizations. That creates enormous complexity and expense. Up to 65 percent of IT maintenance budgets are allocated to integration. I bet much of that integration cost involves making your custom code work with other applications.
Oracle spends US$4 billion on R&D annually to make our products better every year. For instance, in Oracle E-Business Suite 12, we incorporated 2,300 enhancements in response to user feedback. So rather than taking our products and trying to make them better, customers should think about joining our CFO and CIO advisory boards and telling our development teams about key features they would like included in the product.
Ghuman: Your third question is about data security, a subject that may not be at the top of CFOs’ minds. Why should CFOs find out what CIOs are doing to simplify identity and access management?
Epstein: Security should be a top priority for CFOs and CIOs. The question is, how can you be both secure and efficient? For example, how many different security systems do you have? If you use modern technology, you can use standardized security processes and systems throughout your entire data center. A simple place to start is with single sign-on. There’s no reason for employees to struggle with multiple passwords today.
At Oracle, we’ve centralized identity and access management passwords and simplified them down to two per employee for all internal systems. We’ve adopted a single-sign-on policy, automated password resets, and automated provisioning and deprovisioning to strengthen security and protect our intellectual property. We’ve also adopted modern identity and security management technologies, making identity functions available as Web services to centralize security infrastructure and allow it to be woven into applications instead of being bolted on.
Ghuman: Why should CFOs care about maximizing server utilization?
Epstein: When demand for computing increases, you can buy more servers or increase utilization in the servers you already have. At many organizations, server utilization averages 15 percent.
The best companies utilize their servers 40 percent of the time. Oracle’s goal was to achieve a 70 percent server utilization rate for select class servers and workload. We achieved that goal by standardizing our technology platform, virtualizing at the database level using Oracle VM, moving to a shared database services environment, and moving to a cloud model to meet the demand for new services.
Ghuman: You also ask a related question about the need to cut data storage costs.
Epstein: We all know through Moore’s Law that the cost of storage is coming down. There is a big financial difference between passively letting your storage build up versus actively managing your storage. Oracle’s Global IT Department saved [US]$10 million in 2009 just from storage optimization.
One way to achieve similar savings is to store less data. You can remove your old logs, reduce your retention time from a year to six months or three months, and reclaim unused space. You can use modern compression technologies, which reduced Oracle’s storage unit costs by 15 percent last year. You can buy low-cost storage for things you need infrequently and reserve high-cost storage for data requiring immediate access. Smart CFOs and CIOs can collaborate, review, and reoptimize this storage mix over time.
Ghuman: What can CFOs do to optimize IT ROI?
Epstein: The IT roadmap our team created with Oracle Insight gives us a single, transparent process to evaluate all IT projects in our finance line of business. We also automated the project management process by replacing [Microsoft] Excel with Oracle’s Primavera ProSight—a lightweight tool that was easy to deploy and helps us manage the portfolio and track benefits against goals. Our team uses it to hold our managers accountable for delivering promised benefits.
Ghuman: Given the economic volatility of the past few years, many CFOs are no doubt interested in building a more profitable supply chain. How can CFOs and CIOs work together in this area?
Epstein: This is an interesting subject for us because until we acquired Sun, Oracle didn’t have a supply chain. Now we’re in the process of optimizing Sun’s supply chain as part of our goal of achieving US$1.5 billion in operating income from Sun.
Walmart, for example, has used supply chain technology to create a substantial competitive advantage. Our plans for Sun’s supply chain are similar to Walmart’s: speed up information flows and simplify and automate as many processes as possible—in our case, using solutions like Oracle’s value chain planning and execution. This will allow us to move from a build-to-stock to a build-to-order process that is responsive to demand. We’re centralizing the supply chain, using fewer build locations and suppliers, and significantly reducing the number of product permutations. Finally, we’re minimizing inventory in our distribution chain and implementing 100 percent direct ship for all Sun products.
Ghuman: Oracle has centralized data storage and reporting with great success. What should CFOs be talking to CIOs about here?
Epstein: Our technical team has a helpful saying: “Thin GL [general ledger], fat data warehouse.” Many of our customers try to do reporting from their GL, which was designed to be a fast transaction processing system and is not optimized for reporting. The best-designed systems export data from the GL into a data warehouse, and then report out from the data warehouse.
At Oracle, we established a single global data warehouse for real-time business intelligence [BI] reporting, using standardized processes for data reconciliation and analysis and aligning employees around common goals and metrics. That has reduced costs in areas such as travel and expenses, and boosted revenues by processing and recognizing license contracts faster. It has also reduced reporting headcount while delivering hundreds of new reporting dashboards to users across all lines of business.
CFOs should work with their CIO counterparts to build an effective BI and master data management strategy, because finance leaders are in a unique position to understand key business value drivers and know the sources of data needed to support them.
Ghuman: How can CFOs engage IT to save money and embrace green computing by lowering IT power costs?
Epstein: It usually costs more to power a server than to pay for the server itself. Several years back, our data center power costs were growing at alarmingly high rates. Today our power consumption is much more efficient because we virtualized and clustered our IT infrastructure and centralized our data centers in locations where power costs and temperatures are low.
Also, [Oracle CEO] Larry Ellison gave [Oracle CIO] Mark Sunday a fixed power budget. It turned out to be an important discipline in keeping our power costs under control. Mark replaced old servers, updated our architecture, and optimized for power.
Ghuman: Another question addresses a similar topic: the need to reduce the number of data centers to drive down IT costs.
Epstein: Ten years ago, we had 40 data centers running 65 ERP [enterprise resource planning] instances. Now we have two operating data centers, running a global single instance of our enterprise applications. And we’ve done this even as we’ve acquired more than 60 companies, most of which operated their own data centers as well.
So as CFO, you need to ask, why does your organization have so many data centers? You can reduce the number of existing data centers, and you as the CFO can require personal approval to open up a new data center.
Ghuman: Is reducing ERP instances another strategy you suggest?
Epstein: Absolutely. A new Hackett Group study found that the best-performing companies have an average of 20 applications per 1,000 users, compared to run-of-the mill companies that have an average of 39 applications. More applications means a more complex technology environment—which hurts flexibility and the ability to scale in response to business change.
At Oracle, we not only moved to a global single instance of our Oracle E-Business Suite applications, but we’ve also standardized on a single instance of Siebel CRM [Customer Relationship Management] and our Oracle business intelligence applications. In combination with efforts to simplify, standardize, centralize, and automate global processes, a single-instance strategy per application can enable real benefits—such as the speed with which Oracle can integrate acquired companies or roll out new processes globally.
Ghuman: Your last question addresses the need for CFOs to invest in technology to reduce IT labor. Won’t CIOs rebel at the prospect of cuts to the IT organization?
Epstein: Today a typical organization spends 60 percent or more of its IT budget on labor—on employees, outsourced labor, contract labor, or systems integrators. The remaining 40 percent is shared between hardware and software.
By reducing labor costs through more automation and IT-enabled efficiencies, CFOs can give CIOs more budget to spend on moneymaking projects that can drive competitive differentiation and profitability. And that’s an opportunity to influence the business and become a trusted advisor.
Efficient and effective use of technology is one of the most powerful assets in a CFO’s toolkit. We all have an opportunity to strengthen the alignment between finance and IT—two critical functions for increasing profitability in a slow-growth global economy. We hope these questions serve not just as a conversation starter but as a catalyst for true IT and business transformation.