Does cloud computing demand new relationship between finance & IT?

8th May 2011

As businesses are increasingly putting information technology resources into the cloud, the relationship between those in the finance and IT functions must also go through a transition. FSN writer Lesley Meall explores the implications.

Cloud computing has put ‘big ticket’ software and systems at the fingertips of individuals and organisations that would otherwise have struggled to access them, but it has also put words into the mouths of those who would otherwise never have uttered them. Terms of reference that were once the preserve of accountants, analysts, economists, investors and very senior executives, are now being bandied about by every man and his dog. Witness the great CapEx versus OpEx debate. 

This rarely gets as far as issues relating to financial reporting, financial management and tax, because CapEx and OpEx seem to have been hi-jacked by the hype merchants to propagate a ‘received wisdom’ that best serves their needs. So, cloud computing is good because it shifts capital expenditure to operating expenditure, and the latter is always preferable to the former. ‘This is rather simplistic from a finance point of view,’ says Richard Anning, the accountant who heads up the IT faculty at the Institute of Chartered Accountants in England and Wales (ICAEW). 

Gary White agrees. The chief executive of White Springs, who is both a provider and user of cloud-based systems, and a trained accountant says: ‘Different people hold the purse strings for capital expenditure and operating expenditure, and they are holding the strings to very different purses,’ and the potential financial impact of dipping into them depends on many factors, viewed from many perspectives. But whatever your perspective on the great debate, it highlights an unarguable (and for some uncomfortable) truth: IT spending patterns are changing, significantly. 

Decisions about which software and hardware to spend money on are moving out of the hands of the IT experts and into the hands of departmental budget holders and individuals (who increasingly use their own devices for work). Likewise, decisions about how much money to spend on systems, and the most effective way to spend it, are moving out of the hands of both the finance function and the IT function. But all of this creates a host of thorny issues, ranging across finance and data governance, to corporate strategy and statutory compliance, which may best be handled by finance and IT pulling together (on which more, later). 

It’s no accident that cloud computing has gained traction during a period of great economic uncertainty, when capital spending has been shelved in all sorts of areas, including IT. Nor is it a coincidence that its popularity has mushroomed during a period that has been characterised by the widespread democratisation of IT: people are increasingly comfortable making decisions about technology and its use in their personal lives, and this was bound to make them feel more empowered in the workplace. But not everybody who can make decisions about which software and systems an organisation uses should necessarily be making those decisions. 

‘One of the most important lessons learned in the aftermath of Sarbanes-Oxley was the need to have strong control over your IT assets,’ says Robert Kugel, senior vice president and research director, financial performance management, at Ventana Research, and not only for compliance reasons. ‘The cloud can give you a protected, integrated operation, without having to own the hardware and all that goes with it,’ says Tony Chauhan, an analyst with the Hackett Group, a global consulting and finance strategy firm, ‘but the data integration challenges must be met,’ as FSN has previously highlighted here and here. Then there are myriad security and privacy issues. ‘Our research has shown that many organisations are not prepared for the new risks associated with putting their applications and data into the cloud,’ reports Amichai Schulman, the chief technology officer Imperva. 

Despite their growing empowerment, it seems unlikely that individuals and departmental heads are going to be aware of the very many risks that can accompany their leaps into the cloud – particularly in areas such as finance and data governance, to corporate strategy and statutory compliance. They will require some well-informed guidance, and policies and procedures will need to be either created or updated to reflect this. So after years of going head to head in the pursuit of power, finance and IT have some very good reasons to bury the proverbial hatchet (in somebody else’s head, perhaps), and work together for (their own and) the greater good. Chanting the mantra ‘My enemy’s enemy is my friend’ might be taking it a step too far; but you get my drift. 

‘In many organisations, the CFO and CIO already work together daily to finance IT and to provide information that supports financial processes,’ says Bill Sinnett, director of research at the Financial Executives Research Foundation (FERF), yet they could do more. ‘There is also an opportunity for them to form a powerful alliance,’ he suggests, ‘because the CFO and CIO are well-positioned to work together at generating superior performance from the enterprise.’ And don’t let the job titles fool you into thinking that this alliance is relevant only in the very largest organisations, because the power shift that is taking place, and the need to apply some structure and control to it, are just as relevant and necessary in the small and medium-sized enterprises (SMEs) that make up the bulk of the organisations out there. 

Yet in 2010, when FERF and the analyst Gartner got together to research the changing relationship between finance and IT, they found some barriers to its future development. These included: poor perceptions of IT, a parochial CFO or CIO perspective, or a failure to invest in the CFO – CIO relationship. But for organisations to get beyond the hype of the cloud computing model, decide if it can deliver competitive advantage or a measurable return on investment, and ensure that it doesn’t create unintended and unwanted compliance, governance, and strategic management problems, finance and IT will need to overcome these barriers and put their differences behind them. Whether they can do it or not, remains to be seen.