CIOs need to start changing the way they talk with CFOs, not just at budget time, but throughout the year, CIOs and experts say. Cloud computing and consumerisation trends, especially, are changing the nature of corporate IT and, with it, the way CIOs structure their IT budgets.
This shift is in its early days, but forward-looking CIOs are beginning to think of themselves as providers of services rather than infrastructure. As such, they supervise operating expenditures, not capital expenditures, and they approach the CFO as partners, not supplicants, in business-investment decisions.
Robert Petrie, vice president of IT at U.S. Pharmaceutical Product Development, which runs clinical trials for big drug companies, said decisions about provisioning new technologies are made based on “what makes the most sense from a business standpoint and from a financial standpoint.” But thanks to cloud-based infrastructure, software-as-a-service and employee-supplied devices, these decisions have different budget implications than they used to, including how IT investments are governed and who pays the bills.
Questions of Cash Flow
Cloud computing offers CIOs the opportunity to transform investments in corporate computer systems from capital expenditures into operating expenditures. Instead of making a multimillion-dollar up-front investment in software licences and computer-room servers, companies can arrange to pay for the same capabilities with monthly per-user contracts. That means that when you want to deploy a new system, you have more funding options.
Getting new technology in monthly instalments may benefit companies that need to cut capital expenses. For example, Joe Drouin, senior vice president and CIO at temporary help giant Kelly Services, said that when he joined the company three years ago, “We were suffering from a depreciation hangover” caused by a huge PeopleSoft implementation. That project won’t be completed until 2014, at a 10-year cost of between US$100 million and US$110 million.
Years of heavy investment in servers and software had tied up millions of dollars, leaving Kelly with a limited ability to make new investments when business slumped during the Great Recession. The dramatic revenue declines during the recession had a painful effect on companies with high fixed costs. Many found that multi-year depreciation of capital goods can result in big operating losses when gross profits shrink. Fixed costs and cyclical revenue are a bad combination.
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