In my previous blogs I had brought out the importance of the CFO-CIO collaboration. We discussed and deliberated on the four mandates of the CIO  -  Leverage, Expand, Transform and Pioneer.

And I won’t be surprised, if CIOs today are implementing a cloud strategy or actively mulling one to leverage all the four mandates to create value for the organization at times when all of us accept that uncertainty is the new norm.

We need to ask a few basic questions  -  especially at a time when cloud computing promises to be a solid strategy for forward thinking companies.

1. How can I enhance market share / consumer experience / demand
2. How can I improve supply chain?
3. How far or how soon can cloud reduce the overall cost – including IT?
4. What are the risks associated with cloud?
5. What if I don’t have a cloud strategy?

While attempting to answer these questions -  I will be guided by two basic assumptions: a. My organization is a large and spread out across the globe  b. My organization has the basic infrastructure and processes in place that are needed for a large organization to operate.

Enhancing market share

• Today 1 billion world population is connected through mobile telephone and the opportunity is to grow to 7 billion. So how does mobile companies, not only enhance connectivity and reach, but also grow different services verticals, targeted at different customer segments ?

• About 4 % of the Indian retail market is organized and  more than 100 million Indians have access to internet according to IAMAI’s report.  This is projected to grow to 175 million internet users by year 2014. This translates to a growing demand of goods and services, which is perhaps not possible to fulfill through traditional channels.

• The Indian automobile industry is growing at an average rate of 30% per annum.  Car sales are expected to reach 5 million by year 2015 and 9 million by year 2020 according to a SIAM report.

So the question here is how will companies address the potential market? Growing systems and processes, organically, may not be a cost effective solution.  The challenge is a. Bringing down cost per transaction   b. Bringing down risk per transaction  c. Enhancing satisfaction per transaction  d. Enhancing and leveraging insights per transaction.  So before jumping onto a cloud model, it is essential to delve deep into these parameters.

Improving supply chain

It is estimated that India loses about $ 65 billion annually in supply chain inefficiencies according to a CII publication of 2010. Among the major bottlenecks – one of the key bottleneck is  low supply chain visibility. In other words, efficient planning and execution of logistics lags because there is limited control of goods between the source and the destination. This includes the storage and warehousing.  With growing demand in the market, the complexity of supply chain also increases. There is hardly any company who would own the entire spectrum of supply chain. At the same time in an uncertain economy, the volatility of supply chain is greatly enhanced.  In this scenario cloud computing can be very helpful  to reduce the costs of planning and forecasting,  warehouse and transport management, reducing sourcing and procurement costs and provide after sales services at reduced costs. The entire spectrum of the supply chain can be accessed in parts by relevant groups  – while the transparency is visible to all the stakeholders in the supply chain.

However, there are several caveats. It is essential for a CFO  to be convinced on the cloud based supply chain strategy and ask oneself  -  What is the permissible level of compromise in a shared environment ? How much of capex can be converted to opex? Is the risk due to liability reduced ? Is there a significant reduction of cost overall?

How far or how soon can cloud reduce overall cost

Let me bring a very simple analogy here.  You travel frequently between two cities A and B.  In the first case, you travel from your house in city A  to the airport in you own car, park the car at the airport,  get onto your private jet, arrive at  city B, your second car picks you up from the airport and transports you to your own second house at  city B.  In another scenario, you travel to the airport in city A by taxi, get onto a commercial jet, arrive at city B and again hail a taxi to a  hotel. The first scenario makes sense, if  in your entire career you travel between the same two cities. There are hardly any risk in time, since you are in control of all the components of your travel and stay.

That is what the nature of business was  till the last decade. Today, uncertainty being the norm, you may not know if  your source or the destination cities remain the same.  Hence, the second scenario makes sense  -  but of course with added risks  of taxi may arrive late or the flight may get delayed or  hotels may be overbooked. The upfront costs here could be the time bound SLAs with your travel agent.  Hence, identifying the risks and preparing what ifs  in the second scenario is important. It is very natural that mistakes cannot be ruled out in a new model and there will be costs associated with mistakes. In the early stage of a learning curve, it would be most appropriate to plan for such mistakes and take learnings from such mistakes.

What are the risks

Most often you may have heard that cloud and risk are the two sides of the same coin. A discussion in cloud is never complete without a prolonged discussion on risks. I would not get into the debate of the technical risks  -   which every CFO would be aware of and to a large extent those risks can be managed well if not eliminated altogether. However, some risks are very clear and present.

1. Risk of an inappropriate cloud partner can perhaps be the biggest risk. Your cloud partner must know your business well and should have the capability to walk with you.
2. An inappropriate cloud strategy can be equally frustrating. What is needed is a strong cloud partner to help you in your business objectives.

What if I don’t have a cloud strategy

With data explosion  and a dire need to integrate several channels of  communication with business stakeholders  -  it is important for  companies to  understand how a cloud can help address challenges in volatile times.  I would recommend a few readings at your convenient time:

1. An HBR article on “What every CEO needs to know about the cloud”  http://hbr.org/2011/11/what-every-ceo-needs-to-know-about-the-cloud/ar/1
2. “Cloud Decision Time for CFOs”   an article by Computerworld http://www.computerworld.com/s/article/9223527/Cloud_Decision_Time_for_CFOs
3. “Overcoming obstacles to cloud computing” http://www-935.ibm.com/services/us/cio/reader/build/media/cloud/overcoming_obstacles_to_cloud_computing.pdf