CFOs Definitive Guide to Cloud Transformation

Feb 16, 2023

Infor | 4 min READ

At its heart, cloud transformation is a business-led process, and CFOs, sitting at the core of the operating committee, are the gatekeepers of their organization's ticket to the cloud. Here’s everything they must know to lead an impactful transition.

As cloud becomes an increasingly crucial component of digital transformation, CFOs are now playing a strategic role in steering key business portfolios. But to rise to this challenge and emerge successful, sanctioning cloud strategies alone will not work. Instead, CFOs need to plan an active role in questioning, strategizing, and leading cloud transformations. Here’s how.

Joher Aurangabadwala

Global Practice Director –

Infor

Birlasoft

Cloud transformation from a CFO’s perspective: Key challenges and myths

While CFOs are under short-term pressures, 81% now feel responsible for cloud investment decisions. This, however, is a positive shift as cloud transformation requires extensive involvement of the finance organization.

At the same time, the concerns of the CFO surrounding the shift to the cloud differ strongly from that of the CIO’s. Here are some key apprehensions:

1. What is the payoff and how can it be successfully realized?

While IT infrastructure savings are significant (up to 37% reduction over on-prem), they represent only a menial fraction (8%) of cloud’s overall benefits. The largest areas of impact are improved business agility, better workforce productivity (up to 86% improvement), and higher resilience (from reduced outages). The key to realizing this value lies in building a credible business case with the CIO, CTO, and other stakeholders.

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2. How to measure effectively the RoI on cloud investments?

This is a genuine concern as many CFOs struggle with tracking the costs of cloud (which often exceed budgets by up to 40%) and measuring resulting benefits. One approach to overcome this is to adopt cloud FinOps (more on this below). But more importantly, devising a plan to make sense of granular cloud bills, and tracking the RoI across isolated projects is crucial.

3. How will the shift to cloud impact capital and operating expenses?

Moving to the cloud turns IT into a major contributor to operating expenses. This has tax implications – and more importantly, treatment of these expenses varies across jurisdictions and is different for various types of cloud expenses. That’s why the tax department and your auditors must be involved in the conversation from the get-go.

4. Is it possible to bring predictability to cloud spend?

In the early stages, cloud expenses will ramp up rapidly as you migrate more and more applications to the cloud. However, these will become more predictable as your IT teams figure out ways to optimize cloud bills for their applications. Forecasts will become more accurate over time, and modernization will open doors for significant cost savings.

5. Is the cloud secure? Will it reduce my control over business-critical data?

This is mostly a dated concern, as 48% leaders undertake cloud migration for improved cybersecurity, and 61% experts consider data and apps in the cloud more secure. Moreover, there are multiple strategies to gain better control of your data, which include the hybrid cloud and private cloud models.

Funding the cloud transformation

Considering that cloud transformations incur the cost of migration, a rapid increase in operating expenses, and talent costs associated with the cloud operating model, they require significant working capital. Therefore, tapping into your cash reserves or short-term borrowing will be crucial to make this room in your cash flows. Later, decommissioning your data centers will facilitate a partial recovery of funds.

CFOs Definitive Guide to Cloud Transformation

CIO-CFO collaboration holds the key to value

Vetting your cloud transformation plans in the early stages will result in more targeted outcomes later on. In this journey, CIO-CFO collaboration is crucial, because it holds the key to building the business-technology synergy which is critical for success. However, only 25% CFOs feel that they have an effective collaboration with the CIOs today.

Building transparency in cloud costs
Vetting the anticipated costs of transformation
Extending IT-Finance collaboration beyond expense reporting

Some of the key steps to kick-start this collaboration include

Finance teams play a key role in contracting

Contracts for cloud services can be negotiated, especially if you bring sizable requirements to a cloud service provider (CSP). In this process, the CIO and the CFO can form cross-functional teams with legal, procurement, finance, and IT expertise to build a shared understanding of contract terms. These teams will be instrumental in negotiating the most favorable contract terms with the providers.

Eliminate the blind spots with FinOps

One of the leading ways to build greater transparency and accountability in cloud finances is FinOps. Organizations can implement this approach by bringing DevOps and finance expertise together to build cost dashboards, alerting mechanisms for budget overruns, and tracking under use and wastage. FinOps can be instrumental to the success of cloud transformations, as cost-transparency is a key ask of 73% CFOs in cloud models.

Moving ahead

Cloud transformation can greatly improve the alignment between business requirements and technology spend if done strategically. However, CFO’s involvement in this evolution is important to de-risk and vet the viability of the planned transformation. By building a shared vision with the CIO, and bringing financial excellence to the cloud journey, CFOs can lead their organization to assured success in the cloud.

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