Cutting costs with the Cloud
Posted by AccountingWEB on 4488
By Zach Nelson, CEO, NetSuite
At a time when the global economy is full of uncertainty and no one knows how long U.S. recession conditions will persist, businesses are watching the bottom line closely. At times like this, no one in the company plays a more important role than the CFO.
One must remember that a CFO's financial responsibility goes far beyond simply saying "no." He or she must be responsible and prepared to offer the company solutions that not only cut costs but also are wise investments. A CFO must try to encourage frugality without impacting the health of the business, and to promote innovation without breaking the bank. In a word, it means looking for ways to do more with less. And it means having better understanding and control of business processes, while still remaining flexible and open to new opportunities.
Unfortunately, walking this tightrope is not always easy, especially under difficult economic conditions. The effort of gathering the intelligence that's required to make these important decisions is a monumental task, since most businesses have their information stores in many different "silos" and software applications. Then, the task that can really be daunting is integrating this information to a state where it can inform corporate strategy.
The methods for financial analysis have traditionally involved a throng of accountants, unwieldy spreadsheets, and also the process of having to catalogue every investment, every asset, every inventory item and so forth. This approach can take weeks if not months to compile; it usually costs a great deal; and it is clearly not suitable for business agility. When all is said and done, when the downturn is at the doorstep, speed matters most.
The method of some companies is to turn to costly integration or business applications to get a handle on all this data. It's true this can provide more transparency and more agility. However, both of these methods – integration and buying new applications – are time-consuming to implement, potentially very expensive to purchase, and they don't easily allow for the possibility of business or process change.
Look to the Cloud
When change has to happen right now, costs have to be controlled, and extensive investments in infrastructure are out of the question, there is a better way. A new breed of integrated applications delivered via the Internet, or in the Cloud, has matured since the last economic downturn in the early 2000s, and in the wake of nearly universal broadband access for businesses, this breed of applications is increasing in appeal. They help to catch up business bookkeeping with modern business processes, while at the same time driving down sunk costs and freeing up staff. And by serving customers, finance, marketing, and other data from one single database, accessed online, it is possible to have a real-time dashboard for all business operations – with everything from inventory levels to profits by region.
Traditionally with enterprise software, growing revenues and profits were accompanied by less desirable growth – bigger server rooms, larger IT departments, expanding costs, and the associated bureaucratic and administrative headaches. When a business grows, a good business management system needs the capability to grow with it, yet without all the physical overhead.
Having flexible subscription pricing models and lack of an IT footprint make Cloud computing offerings easy and quick to implement, and this way it is possible to add new employees and partners in any location in the world, at any time, without the need for a visit from IT technicians, trainers, and security experts. And if business realities demand cutbacks in headcount,, unused seat subscriptions can be allowed to lapse.
One other appeal of the Cloud: As these Web-based services are commonly paid via a monthly subscription, they can be booked as operational instead of capital expenditure. In addition, depending on the need of the organization at the time, offerings can be added or dropped as required. Go and compare that freedom to all the front-loaded fees associated with seat licenses for on-premise software. Those licenses become wasted, sunk costs, which compound a difficult situation with the pain of an unwise investment in what the industry knows as shelfware.
One company that experienced this Cloud dividend is Asahi Kasei Spandex America, a company that switched from an on-premise IT solution that cost as much as 3 percent of its revenue per year to maintain, to a Cloud-based system that took the cost down to 0.1 percent. That's real impact on the bottom line from a baseline costs perspective, and that's before they even accounted for their newfound responsiveness and business transparency.
Challenges yield opportunities
Change also can bring expansion and exploration. Just because there is a global slowdown doesn't mean a global business has to go into retreat. On the contrary, it is well documented that challenging times often spur inventive and timely pushes into new markets. Imagine, however, if an organization is ready to enter a new market, but can't smoothly manage new currency conversions, or lacks native support for a country's tax laws. The cost to meet these requirements can sometimes prohibit corporate expansion. But this doesn't have to be the case; a business management system really should be designed to provide all businesses – from established multinationals to those just getting started overseas – with comprehensive language, currency, reporting, and tax support to streamline international sales. A system that is based in the Cloud is updated in real-time every time a change is made in international tax systems.
In the current difficult economic environment, there is a great need for more agility from businesses so they can identify opportunities and weaknesses and rapidly develop strategies for success with them. At the same time, immense pressure is being placed on organizations to rationalize their fixed and recurring costs. For good reason the analyst firm Gartner placed Cloud computing at number two in its ranking of Top 10 Strategic Technologies for 2009, praising the built-in elasticity and scalability that it offers. And Merrill Lynch has estimated that 12 percent of the worldwide software market will go into the Cloud within the next five years. The fact that this holy grail of corporate accounting is no longer simply a pipe dream, and actually saves money in real terms as well as through streamlined work processes, is reason enough why CFOs will continue to put pressure on their IT departments to look to the Cloud.