Most businesses are by now already at one or another stage of the
enterprise cloud transformation journey and a staggering 93 percent of business
executives who participated in Deloitte’s 2018 global outsourcing survey,
confirmed that their organisations were adopting &#8211; or at least considering
adopting &#8211; cloud.



Deloitte South Africa Finance and Enterprise Performance Management Leader
Phillip Hechter says that, “Cloud is not just here, but here to stay. With the potential
for significant cost savings and enhanced strategic value, cloud represents a
fundamental shift in how technology solutions are developed and in how they are
delivered”.



However, a migration to cloud is not without its challenges and the
bigger the organisation’s ambitions, the bigger those challenges.



Finance



In the latest iteration of its ‘Crunch time’ series, ‘<a href="https://www2.deloitte.com/za/en/pages/finance/articles/cfo-finance-guide-to-cloud.html">Crunch Time 8: The CFO Guide to Cloud</a>,’ Deloitte highlights
the need for the CFO to take an active role in navigating the challenges that
emerge during this process; as well as in making strategic decisions that leverage
the technology’s full potential.



The lowered costs on offer with cloud, are one of its biggest drawcards.
Broadly speaking, the operational costs are less expensive than those
associated with on-site technology and there exists the prospect for massive
returns on a cloud investment when what might be ‘unfamiliar’ cost categories &#8211;
like operating model optimisation, speed-to-market and innovation – are taken
into account, alongside more traditional ones.



New core finance
platforms



“Cloud solutions should be the default starting point for new core
finance platforms and some major Enterprise Resource Planning (ERP) providers only
offer cloud-native options now. The rest are at the very least, punting
cloud-optimised versions of their software. Certain components may need to
remain on-site for now and ERP providers will most probably continue to support
on-site technology for at least the next decade; but it is unlikely that this
will continue in the long run and the industry is now focusing its investments
in innovation, in cloud services”, says Hechter.



Financial treatment



The accounting for traditional computing investments is based on
established capitalisation principles, which are clearly set out in accounting
regulations. In contrast, when it comes to cloud investments the regulatory
framework is still evolving to reflect the fact that more and more
organisations &#8211; across the board &#8211; are turning to cloud-based offerings, in
order to satisfy their computing requirements.



As a result, the process of determining the appropriate financial
treatment for cloud investments is a somewhat subjective one at the moment and
each case &#8211; along with its unique facts and circumstances &#8211; needs to be
carefully considered.



In terms of tax, a move to the cloud might impact an organisation’s
current tax structures and allowable tax treatments vary in accordance with a
number of different factors.



Negotiating
contracts



Hechter adds that, “It is important that the approach taken in
negotiations is a holistic one and that all deals take into account the costs,
benefits and impacts for all parts of the business. Thus, it is crucial that
Finance works together with Legal, Procurement and IT. External advisors can
also prove valuable, especially in organisations that lack experience in cloud
contracting”.



Cloud vendors typically build their services and pricing models and –
more often than not – their contracts, around standardisation. This means that
they are likely to push back against any major changes to standard agreements.
Cloud providers are competing for market share, though, and so there exists the
opportunity to negotiate for extra benefits and service capabilities &#8211; which
could be a key source of competitive differentiation.



Cloud brings with it a range of opportunities for real innovation
including reduced time-to-market, scalability and a way to drive agility and
innovation. There are a host of examples of companies that are using cloud to
transform their service and product offerings, improve efficiency, increase
customer engagement and ultimately reap significant rewards as a result. It can
be done but at the end of the day, what you get out of it depends on what you
put in.

Tag: Enterprise Resource Planning

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A Business Case For Cloud And Why Finance Needs A Seat At The Table