In a year where there is instability in the global economy and key regions have already fallen into recession, sound businesses are keeping an eye on the bottom line. During times like this, CFOs play an even more important role.
It is important to realise that a CFO’s financial responsibility goes far beyond simply saying “no”. Responsibility means being prepared with solutions that do more than just manage costs for frugality’s sake.
It means looking to pare costs without impacting operational health, while at the same time seeking to promote innovation without breaking the bank.
Simply stated, it means looking for ways to do more with less. And it means having better understanding and control of business processes, while remaining flexible and open to new opportunities.
Unfortunately, establishing sound business strategy is not always easy, especially in turbulent economic conditions. Gathering the intelligence required to make these important decisions is a huge undertaking as most businesses store information in different silos and IT applications, as is the task of integrating this information to a state where it can inform corporate strategy.
The traditional approach for financial analysis involves a battalion of accountants, large spreadsheets and the process of cataloguing every investment, asset, inventory item and so on. This can take weeks to compile, costs a great deal, and is clearly not suitable for business agility. At the end of the day, speed matters when the downturn is biting at your heels.
Some businesses are looking to costly integration or business applications to help make sense of this data. This can provide more transparency and agility. However, both are time-consuming to implement, potentially very expensive and don’t easily allow for the possibility of business or process change.
Look to the Cloud
When change has to happen now, costs need to be kept down and extensive infrastructure investments are out of the question, there is another way. A new breed of integrated applications delivered in the ‘cloud’ has matured since the last economic downturn at the turn of the century, and with near-universal broadband for businesses, are increasing in appeal.
These applications are helping to catch business book-keeping up with modern business processes, whilst driving down sunk costs and freeing up staff.
By serving customers, finance, marketing and other data from a single database accessed via the web, there is scope for a real-time dashboard for all business operations – from inventory levels to profits by region.
With traditional enterprise software, growing revenues and profits brought with them less desirable growth – bigger server rooms, larger IT departments, and the associated bureaucratic and administrative headaches. When a business grows, a good business management system needs the capability to grow with it, without the physical overheads.
Flexible subscription pricing models and lack of IT footprint make cloud computing offerings easy and quick to implement, and it is possible to add new employees and partners in any location at any time, without the need for a visit from technicians, trainers, and security experts.
If business realities demand a headcount reduction, unused seat subscriptions can be allowed to lapse.
Another appeal of the cloud is that, as these web-based services are commonly paid via monthly subscription, they can be booked as operational instead of capital expenditure.
What’s more, depending on the need of the organisation at the time, offerings can be added or dropped as required. Compare that freedom to the front-loaded fees associated with seat licenses for on-premise software. Those licenses become wasted, sunk costs, compounding a difficult situation with the pain of an unwise investment in ‘shelfware’.
Asahi Kasei Spandex America is one company that experienced this cloud dividend, switching from an on-premise IT solution that cost three per cent of its revenue per year to maintain to a cloud-based system that took the cost down to 0.1 per cent - a real impact on the bottom line from a baseline costs perspective before they even accounted for their newfound responsiveness and business transparency.
Challenges Yield Opportunities
Change can also bring expansion and exploration. Just because there is a global slowdown doesn’t mean a global business must go into retreat. On the contrary, challenging times can spur inventive and timely pushes into new markets. Imagine, however, if an organisation is primed to enter a new market, but cannot smoothly manage new currency conversions, or lacks native support for country tax laws. The cost to meet these requirements can sometimes prohibit corporate expansion.
This doesn’t have to be the case: a business management system should be designed to provide all businesses – from established multinational concerns to those just about to dip a toe into foreign waters – with comprehensive language, currency, reporting, and tax support to streamline international sales. A system based in the cloud is updated in real-time with any changes in international tax systems.
In the current environment, there is a need for more agility from businesses in order to identify opportunities and weaknesses and rapidly develop strategies for success that take them into account. At the same time, there is immense pressure being placed on organisations to rationalise their fixed and recurring costs.
Not without reason has Gartner placed cloud computing at number two in its ranking of Top 10 Strategic Technologies for 2009, praising the built-in elasticity and scalability it offers. And Merrill Lynch has estimated that 12 per cent of the worldwide software market would go into the cloud within the next five years.
The fact that this ‘holy grail’ of corporate accounting is no longer a pipe dream, and actually saves money in real terms as well as through streamlined work processes are reasons why CFOs will continue to put pressure on their IT departments to look to the cloud.
Zach Nelson is CEO of NetSuite