Five things the CFO needs to know about cloud computing
by Minda Zetlin
For business managers, the technology department’s talk of “the cloud” can be a bit foggy. A recent survey conducted by CFO Magazine (March 2011) found nearly 35 percent of CFOs couldn’t explain cloud computing. Interestingly, nearly half also said the cloud would significantly restructure their IT strategies.
“My initial perception of the cloud was that it was a conduit to get to a service, application, or technology,” says Steve Ayala, senior vice president of accounting operations at LPL Financial. “It’s shifted to being an opportunity for enablement. The security services we receive, the technical expertise, and the ability to have our systems managed effectively has all been possible through the cloud.”
Indeed, the finance department has particular needs—funding departmental budgets, investing the company’s cash, and adhering to strict compliance rules. And since finance often has the final say on major IT investments, it stands to reason that finance pros should know how to evaluate the benefits of cloud computing. Here are five ways the cloud can benefit finance organizations as they build an IT strategy around business goals.
With economic instability and reductions in capital expenditure (CAPEX) budgets, CFOs are keen to trade owned IT costs for solutions that can be logged as operating expenditures (OPEX). Booking a predictable, periodic IT expense for guaranteed service levels is more appealing to finance than writing a big check for a big IT implementation.
With cloud computing, instead of making a large up-front investment in IT infrastructure, staff, and resources, customers rent computer capacity, saving CAPEX budget for revenue-generating efforts. Cloud offerings such as Oracle Cloud Services, for example, offer a manageable operating cost that can be scaled up or down based on need.
Facing a major IT overhaul, management at Morpho Detection took this rationale to heart. The US$300 million company with double-digit yearly growth and 800 global employees sells explosive, chemical, and narcotics detection products.
In September 2009, General Electric sold Morpho to Safran—and Morpho had to build an entire IT department from scratch to support 900 computers and 600 mobile devices. “We needed a system that could manage our cash flow,” says Jeremy Avenier, CFO and CIO of Morpho Detection. “We also wanted to keep our costs down after the initial investment.”
Management avoided asking the company’s new owners for an infusion of funds to invigorate the IT department. Instead, they turned to the managed cloud services offered through Oracle Cloud Services to host an enterprise resource planning (ERP) system, including Oracle Financials, Oracle Order Management, Oracle E-Business Suite supply chain applications, and Oracle Hyperion applications. Now, IT is an operating expense—and employees can continue to focus on their work.
According to Mike Hutchinson, vice president of cloud service delivery at Oracle, this is a common strategy. “Our cloud services offer many of our customers the ability to look at the trade-off between CAPEX and OPEX, and make investment that will move the business forward,” he says.
There’s tremendous benefit in relying on experts to manage IT infrastructure. The lines of business reduce requests to the already-busy IT department and avoid hiring, training, and managing their own IT staff. Also, managers reduce their spending on tech solutions—offerings like Oracle Cloud Services often proactively address them. In the end, this means managers spend less time working on IT and more time thinking about the business.
LPL Financial is the United States’ largest independent broker/dealer, with US$3.1 billion in annual revenue, delivering proprietary technology, brokerage, and investment advisory services to more than 12,500 financial advisors around the country. It also provides comprehensive clearing and compliance services for the advisors and supports these services with independent research, practice management programs and training, and technology.
For the past 10 years, the company has seen tremendous success, making an initial public offering in November 2010. In advance of the IPO, leadership made a large investment in the company’s internal systems, including general ledger, human resources, and procurement systems. The finance organization wanted to have the systems ready within six months (to correspond with the IPO) and to use a team with necessary depth of expertise.
Historically, back-office applications had been supported internally, but the capacity of the support team was limited. LPL management wanted to add new modules to an existing footprint of Oracle’s financial applications, but with the IPO on the horizon, they had to take a hard look at how to best maintain these systems.
LPL’s Ayala says support was key to getting a return on investment. “What does it take to hire a few individuals internally to support a system that isn’t a core competency for the organization? And how do you keep them trained, keep the level of technical knowledge that the business needs?” he says. “With an Oracle cloud partnership, we could obtain the level of security and technical resources the finance organization needed.”
Morpho Detection’s Avenier agrees that having a cloud services team handle technology management creates a stable, secure environment. “The expertise from Oracle Cloud Services has helped us focus on core competencies, rather than building expertise around managing an ERP system,” says Avenier.
On-premises IT solutions can require valuable hours and investment for hardware and software setup and maintenance—and changing the environment can involve significant effort. When enterprise IT is managed by a cloud service such as Oracle Cloud Services, it’s faster to implement and easier to change. This helps companies go about their business more quickly and reduces long-term costs.
Morpho Detection reduced system implementation time by 60 percent with the help of Oracle’s managed cloud services, allowing managers to quickly start bidding on major, time-sensitive U.S. government projects representing hundreds of millions of dollars of revenue. “A technology project that would have taken 18 months was completed in 4 to 5 months,” says Avenier. “Had we used our own internal expertise, I don’t think we would have been able to do it.”
Ayala says putting the finance applications in the cloud gave LPL Financial’s finance organization stronger ownership of system implementation and use. “In our prior shared-service model, there was functionality in the applications that we weren’t taking advantage of,” he says. “Now, we’re really maximizing the usage of the tools.”
“One of the key things about cloud services at Oracle is we don’t necessarily want to dictate to you only one way that you can run in the cloud. So we have flexible deployment options,” says Oracle’s Hutchinson. (See sidebar “Oracle Cloud Services.”)
Security and compliance are top priorities for companies looking to invest in the cloud. Sensitive customer and business data must be protected, and regulatory and reporting requirements must be rigorously met. With the right solution, CFOs must have confidence that these are top priorities for cloud services and technology providers.
To work on projects with the U.S. government, Morpho Detection’s systems must satisfy the highest levels of security and compliance. As CFO and CIO, Avenier is ultimately responsible for the company’s data security, which includes credit card information and details about government security.
“That is one of our highest priorities, both for our customers and our company,” says Avenier. “Working with Oracle and being in the cloud has made me, as CFO, a lot more comfortable with what I am approving. I can trust the people I’m working with. Had we been using our own infrastructure and database, I would have been spending a lot more time reviewing security and compliance details.”
The highly regulated financial industry makes security and compliance vital for LPL Financial. “We had to make sure we had a cloud services partner that could meet the requirements we already had internally,” says Ayala. “That’s what we were able to achieve with Oracle’s cloud services, from the robustness of the data center that we’re utilizing to the private cloud between LPL Financial and the data center. We found that it met all our requirements.”
“Security is key in the cloud,” says Hutchinson. “It’s one of the top areas of investment for Oracle Cloud Services. We serve industries with various requirements for certification, regulation, and auditing. Our cloud solutions provide the tools to meet those requirements.”
The right cloud services solution can offer CFOs in-depth technical expertise, lower IT costs, faster business returns, and peace of mind. But how does a CFO choose the right provider? Hutchinson says executives should look for a vendor that has spent considerable energy and resources in making its cloud solutions enterprise-ready.
“To be in the cloud services business in a real way takes a tremendous amount of investment,” says Hutchinson. “The right provider is constantly investing in the ability to support applications of enterprise-level size and scale.”
Hutchinson says more customers are looking to support their businesses as a whole—including their manufacturing, customer, and financial systems—in the cloud. They choose Oracle because the company’s cloud offerings are enterprise-ready—scalable, highly reliable and available, highly secure, interoperable with the rest of the IT infrastructure, and centrally manageable. “We have more than 5 million users running mission-critical business applications in the Oracle cloud,” says Hutchinson. “That has come about from a large amount of investment over time.”
Monica Mehta is a frequent contributor to Profit.
To offer true customer value in the cloud, Oracle offerings must be broad, complete, and able to fully integrate with other environments. For more than 12 years, Oracle has provided complete end-to-end managed cloud services for hardware and software across the entire operations lifecycle. With more than 5.5 million users, Oracle Cloud Services are part of Oracle’s overall cloud strategy—enabling products, technology, hosting, and application management services for public, private, and hybrid clouds. The combination of these capabilities puts Oracle in the best position to satisfy the needs of customers looking for cloud-based solutions.
Building on Oracle’s managed cloud services track record and operational expertise, Oracle recently announced Oracle Public Cloud, a broad set of integrated services that provide customers with subscription-based, self-service access to Oracle Fusion Applications, Oracle Fusion Middleware, and Oracle Database.
Customers can quickly launch and maintain critical business applications on Oracle Public Cloud, which provides a high-performance, reliable, flexible, and secure infrastructure. Since Oracle Public Cloud is the only public cloud that offers customers a complete range of business applications and technology solutions, it avoids the problems of data and business process fragmentation commonly found in multiple siloed public clouds.
For CFOs, Oracle Public Cloud means a reduction in IT costs. IT staff can quickly develop, test, deploy, and scale new mission-critical, enterprise-class applications on Oracle Public Cloud, without building a platform or infrastructure. With Oracle Public Cloud they have access to the top enterprise technologies, including the top database and Java application server as platform services.
Since Oracle Public Cloud is built on open standards, companies can integrate a cloud-based application with their other applications and eventually move it in-house or to another public cloud. And it’s hosted, managed, updated, and supported by Oracle, which means that businesses don’t have to pay for the resources traditionally needed to build and manage applications. Customers can instantly and easily provision resources based on a monthly subscription that is transparently and predictably priced.
“The Oracle Public Cloud is a little different,” Oracle CEO Larry Ellison said at Oracle OpenWorld in 2011. “The Oracle Public Cloud is both a platform as a service and applications as a service. The key difference is the Oracle Public Cloud is based on industry standards and supports full interoperability with other clouds and your data center on premise.”