White Paper | The Economics of the Cloud: ‘Cloud 9’ for the CFO?
The Economics of the Cloud… ‘Cloud 9’ for the CFO?
The Economics of the Cloud… ‘Cloud 9’ for the CFO? 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 2
The Economics of the Cloud… ‘Cloud 9’ for the CFO? Executive Summary "The first rule of any The advantages of cloud-computing are commonly known: You donʼt need technology used in a upfront infrastructure investment; scaling up is relatively easy; and the service business is that provider is likely to be more efficient than your company. automation applied to an efficient operation The ability to pay as you go from a service provider rather than spending will magnify the upfront feels natural to a CFO — thereʼs nothing new about buying services. efficiency. The Whatʼs new is that cloud-computing offers a delivery and financing alternative second is that to one of the bastions of corporate capital expenditures: IT. automation applied to an inefficient If a CFO can see better cash flow, lower risk and visibility, he or she will likely operation will magnify become a cloud-computing convert in no time. It is, however, not always a the inefficiency" 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 - Bill Gates resolved. While it may not make sense for a company to apply a cloud-computing "Any sufficiently model to every enterprise service, smart CFOs should seriously examine the advanced technology trend for some of their services. The big question now isnʼt whether to adopt is indistinguishable cloud computing, but rather, where and when to adopt it. from magic." The CFO Institute, in association with Microsoft, conducted a survey amongst - Arthur C.Clarke CFOs and senior finance professionals to gather their perceptions and understanding of cloud-computing, and its potential economic and efficiency benefits. "Once a new Our CFO Survey revealed the following: technology rolls over • The majority of CFOs consider investment in technology as a means you, if youre not part to cut costs. of the steamroller, • Reduced up-front costs, increased flexibility, and competitive youre part of the advantage are the key benefits of implementing a cloud computing road." solution. • Over 30% of CFOs surveyed are already using or are considering to - Steward Brand 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 "Were changing the computing solution, followed by loss of control and compatibility. world with • One third of CFOs consider themselves responsible for taking the technology.” lead in implementing a functional and cost effective cloud computing -‐ Bill Gates 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. 3
The Economics of the Cloud… ‘Cloud 9’ for the CFO? 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 4
The Economics of the Cloud… ‘Cloud 9’ for the CFO? SURVEY FINDINGS The majority of CFOs It is not surprising that a consider investment in majority of CFOs consider technology as a means to investment in technology as cut costs… 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 The majority of respondents considered reduced up-front costs, increased competitive advantage were flexibility, and competitive advantage as key benefits of implementing a cloud considered to be to prime computing solution. Surprisingly, however, most did not consider its ability to benefits of cloud computing… enable a company to react quickly to changes in market conditions as a key advantage. … helping the company INSIGHT: Michael Schrage, Research Fellow, MIT Sloan Schoolʼs Center for react quickly to markets Digital Business explains that the cloud can accelerate and compress both the conditions is a benefit that development and the test times for innovation and change… “you can do this CFOs are not aware of with suppliers and customers. It is a big deal!”, he says. About 10% of respondents Over ten percent of the respondents had already implemented a cloud had already implemented computing solution, while another twenty percent are planning to implement in cloud computing. 20% are the near future. A large portion of the respondents had no plans to install cloud planning to implement... computing solutions, a thought echoed by Robin Banerjee, CFO, Suzlon who 5
The Economics of the Cloud… ‘Cloud 9’ for the CFO? 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 ... those that are not planning to implement addressed explicitly is "Are the business unit heads satisfied with the flexibility should seriously consider offered by their existing IT infrastructure, as they are the ones that need to be the needs of those that require flexibility from the IT responsive and adaptive to the market changes. Just because youve spent a infrastructure lot of money on something doesnt mean youre getting value. Theres 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 What is your standpoint on adopPon of cloud compuPng? 60.0 50.0 50.0 40.0 30.0 23.1 20.0 15.4 11.5 10.0 0.0 Already using it Plan to use or are No plans Dont know considering using it Concerns regarding security Currently, a concern regarding security and compliance was the number one and compliance are the impediment to large Indian corporations in adopting a cloud computing number one impediment to solution, followed by loss of control and compatibility. implementing cloud computing... SN Mukherjee explains “when we send an email, we dont know where it goes… it goes into a cloud. We are moving from data abstraction to infrastructure abstraction, which can be unsettling.” 6
The Economics of the Cloud… ‘Cloud 9’ for the CFO? 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. 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 7 1.3 6 3.8 5 5.1 4 11.5 3 5.1 2 0.0 1 1.3 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 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 7
The Economics of the Cloud… ‘Cloud 9’ for the CFO? integrate the innovation with your existing ERP system, Michael says. The majority of CFOs have The majority of companies have placed a high priority on reducing their capital placed a high priority on expenditure to operating expenditure ratio, which is all the more reason to reducing their capex to opex consider cloud computing as an effective means to reduce capital expenditure ratio... 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. 8
The Economics of the Cloud… ‘Cloud 9’ for the CFO? The majority of CFOs feel One third of CFOs consider that it is the CIO that should themselves responsible for take the lead in taking the lead in implementing a cloud computing solution... 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 A high percentage of CFOs aware that cloud computing were not aware that cloud is a green technology... 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/ 9
The Economics of the Cloud… ‘Cloud 9’ for the CFO? 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 10