The cloud threw CFOs a digital curve ball. Once upon a time, ancient accounting practices depreciated IT projects in nice neat straight lines. But this type of amortising makes no sense when any new appliance bought today, could be worthless in months. So, to avoid being replaced like old hardware, finance teams are rapidly updating their accounting practices and financial models.
Today the average CFO’s tenure is just five years. Yet even as recently as five years ago, a typical IT project budget might break down as 40-45% of spend, accounted for as capital expenditure, CapEx. Back then, this CapEx was mainly hardware and so-called ‘perpetual’ software licences. The rest, some 55-60% of total budget, was ‘invested’ operating expenses like maintenance and renewals.
This commercial model, with businesses owning assets on their books just so they can write it off like their grandparents did, is obsolete. It was one of the big stumbling blocks that held many companies back from proper cloud adoption.
Today we are in the ‘OpEx era’, where CFOs want to spend, at most, 15% of their total IT budget on the sunk costs of capital expenditure. Quite often 80% or more of a new project’s budget is ‘off balance sheet’ web services. Increasingly we are asked for zero CapEx plans, with clients looking at leasing everything they need over the multi-year duration of a project.
This turnaround, thanks to cloud computing and software as a service consumption models, is a massive opportunity for savvy CFOs. They can liberate, with no immediate detriment to the business, cashflows which can immediately be re-invested in the business today and not tied up in kit depreciating faster than a crypto coin.
Now just recently, some of the equations have changed. With interest rates rising, it pays to be more diligent and avoid the ‘cloud sprawl’ which attractive hosting deals and easy-to-trial software has spawned. We have seen instances where credit cards have been used to spin up and clearly this can lead to major cash flow issues when interest rates rise. A simple solution? Audit what you have against what your business needs. This is the balancing act which CFOs are being increasingly asked to perform.
Zero vendor lock-in
The good news is we can help. At Axians, as a technology services partner, we want to build flexibility to suit our clients. We are not tied to any specific vendor for hardware, software, or cloud services.
Savvy customers are increasingly looking to use finance to increase the agility of their businesses, in ways unimaginable until recently. We love it when CFOs call our work ‘the silent network’ because, just like a perfectly honed financial model, it just works as expected.
That way finance becomes not just the department who pays, but the role which suits its skills perfectly. Finance becomes a digital enabler.
CTA: Want to know how we delivered a Silent Network to a global recruitment organisation? Read the case study here.