How Your CFO Will Learn to Stop Worrying and Love the Cloud

If the campaign for cloud infrastructure keeps failing, it’s time to try a new strategy. Too many IT heroes fall because they don’t know how to talk to a CFO. IT and finance employ languages as different as C++ and Ruby. Virtualization and cloud IaaS may be exactly what your organization needs, but you must be able to explain why in finance language.

In The Art of War, Sun Tzu says that “Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.”

If you’ve been going to war first, don’t blame the CFO or other skeet-shooters who took out your idea in mid-flight. Instead, if you want your organization to become more productive and cost-efficient, you need to win to before going to war. Here’s how:

 

“To know your Enemy, you must become your Enemy”

 

Empathy is an unspoken motor of change and transformation within organizations. If you want your CFO to understand and love the cloud, you must think from the CFO’s perspective.

The Chief Financial Officer is traditionally responsible for financial risk, planning and record-keeping. For a CFO, cash flow is king.

However, the CFO role is changing. According to Ernst & Young’s “The DNA of the CFO” report, the CFO is evolving from “scorekeeper” to “strategic partner.” “The CFO as a Catalyst For Change,” a 2013 report co-sponsored by Oracle and Accenture, found that 71 percent of CFOs say their level of strategic influence has increased over the past three years, with 65 percent of respondents citing an increase in responsibility over setting and determining strategy, and 47 percent claiming a larger role in business transformation. These numbers are likely to increase.

McKinsey & Company divides CFOs into four categories. To craft the right pitch on virtualization and the cloud, you should know what type of CFO you have.

  • The finance expert

usually an internal hire who has rotated through roles in controlling, treasury, audit, financial planning and analysis, or business unit finance. He or she focuses heavily on standardization and compliance.

  • The generalist

found in capital-intensive industries that value operational efficiency. This CFO is more likely to have an MBA than an accounting degree. You will need data to back virtualization.

  • The performance leader

focuses on cost management, metrics, and the standardization of systems. Often external hires, they come in to achieve aggressive growth and cost targets. Show this CFO how virtualization and cloud can help him or her exceed the organization’s expectations.

  • The growth leader

is often a former investment banker, consultant or private equity professional brought into industries facing constant disruption and M&A activity. They don’t want to think about IT—systems better work well, no buts or ifs. This CFO needs to be convinced that outsourced IT can beat in-house capabilities.

 

Decide who you’re dealing with before crafting your arguments

 

“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.”

Let’s be real: most CFOs don’t understand half of what IT says. IT professionals are struggling to keep up with the seismic shifts IT infrastructure, let alone a CFO

So first, explain what virtualization is. Ernst & Young says your average CFO is almost 43 years old and probably male. His (or her) formative years preceded the rise of cloud computing. So how do you explain it? You tie it directly to value propositions that a CFO can understand.

Take VMware’s website as a model: “Virtualization is the single most effective way to reduce IT expenses while boosting efficiency and agility.” The site then explains that you can run multiple operating systems on one computer, get higher productivity from fewer servers, save more than 50 percent on IT costs, and streamline the entire deployment and management process. Great start.

Depending on which type of CFO you have, you then dive into more specific considerations for cash flow, operational efficiency, performance or growth, or even address all four.

Help the CFO understand the difference between now and a virtualized future

 

Most CFOs are comfortable with the legacy IT model. A department needs an application, which requires software, which requires at least one server, but probably a few: an application server, a database server and a web server. The company outlays the cash to buy those servers. Each piece of equipment is configured to accommodate the peak workload so no one will experience service interruptions.

You know that this is overkill.

While each server has a peak workload, it’s also easy to find an application design for your company that supports similar workloads at different times. So why have two servers sit idle most of the day?  Through virtualization, the workloads can be shared by one server or configuration instead of two.

While CFOs might not inherently understand server virtualization, they do get ‘asset utilization’ and ‘leveraging fixed and capital costs.’  For the cost of one configuration plus some virtualization software, you can at least double or triple your asset utilization.  The return on investment in such a scenario is significantly higher than if separate environments are deployed for each application.

Now, you’re speaking CFO language

 

“There is no instance of a country having benefited from prolonged warfare.”

You’ve convinced your CFO that with virtualization, your company’s IT infrastructure and fixed asset investments are maximized by utilizing as much of the computing power as possible.

Now you address outsourcing, and here’s where a quick pitch can produce a divisive, multi-month debate.

Many organizations have “we’ll do it ourselves” syndrome. The idea of another organization handling critical IT infrastructure is blasphemous.

The move to virtualization and the cloud is also complicated: talk of equipment needs, hardware configuration, data center risks, uptime and capital costs can derail the virtualization train.

Again, convert the value of this transition into CFO language to prevent heel digging.

First, outsourcing lets your company focus on the core business. Each business provides some value added benefit to customers. By outsourcing, companies free up internal resources to focus on tasks that drive value. IT can focus on application development and customer features as opposed to data center maintenance.

Second, outsourcing controls capital costs and converts them to predictable operating expenses. We all know IT equipment is expensive. Gartner estimates that global IT spending will top $3.7 trillion in 2013. The move to the cloud circumvents large upfront investments. Instead, your company moves to an on-demand model and only pays for the resources actually used. This conserves cash flow and allows you to invest in the areas that drive value.

Third, when you outsource, you place critical infrastructure in the hands of experts who are able to leverage their knowledge and resources at a large scale to provide better and more reliable service to your business at a reasonable price. For years, most small and medium-sized businesses have had critical components of their IT infrastructure on premise and maintained by company employees. This is tantamount to a transportation company manufacturing its own trucks and building its own roads. It diverts money and energy from revenue driving activity: shipping goods.

Remember, do not view your finance team as backwards gatekeepers—that will show through when you pitch virtualization and cloud technology. Instead, look at your CFO and financial department as strategic allies in IT advancements that boost revenue and cut costs. And to win these allies, don’t fight. To borrow Sun Tzu yet again, “The greatest victory is that which requires no battle.”

About Chris Locke

Chris Locke, a Chicago native and University of Illinois at Champaign-Urbana alumni, is the Chief Financial Officer for SingleHop LLC. He has a diverse background, having worked in public accounting, strategic consulting, and for both privately-owned and publicly-traded businesses in the CFO role. Before joining SingleHop, Chris was CFO for Rewards Network, Inc., a publicly traded firm focused on loyalty marketing for the restaurant industry. At SingleHop, Chris is responsible for all accounting, finance and administrative functions of the company, and is focused on building the internal infrastructure needed to support SingleHop's continued growth. When he isn't working, you can find him exploring Chicago's restaurants, working on his home-brew computer entertainment center, or working out to P90X2 or Insanity in his man-cave.