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For the finance function, IDC analyst sees more risk management ahead

"Big data" analytics, cloud and shifting ROI, oh my! In a recent webinar, IDC Vice President and IT Executive Advisor Joe Pucciarelli unveiled the Framingham, Mass.-based consultancy's top predictions for CFOs for 2013. In this Q&A, he elaborates on a few predictions, provides long-term perspective and explains why he thinks the future could be particularly bright for finance executives.

Your first prediction is 'CFOs and CIOs will move to "zero capital" and transform the IT financial model.' Can you explain what that entails?

Joe Pucciarelli: We're talking about the transition to the acquisition of IT resources from a non-capital intensive resource. Computer equipment averages between 42% and 48% of all the equipment [that] companies [in mature economies] buy. CFOs [chief financial officers] are presenting their companies to Wall Street, and a lot of the capital on their books -- which is affecting the way investors are valuing the company -- is being driven by the need to invest in IT. We believe that the external perspective to IT, principally [that of] the CFO will challenge the business to more quickly adopt strategies for producing IT resources like cloud […] to reduce the amount of capital and cost that the IT infrastructure brings into the business. Ninety-five percent of North American companies in our most recent survey [said they] are implementing some form of cloud technology.

If you look at the forces that companies are facing and the overall [context], a good example is Wikipedia. [Of] the top 40 websites worldwide, Wikipedia is No. 5. It serves about 19 billion page views per month, and their annual IT budget is approximately $27 million. I joke that the other 39 companies probably spend more on coffee for people working in [their] data centers. [Some] large companies are spending over $2.5 billion per year on capital, and in context, Wikipedia's $27 million is insignificant.

How is the role of the CFO evolving in regards to technology purchasing?

Pucciarelli: CFOs [generally] have responsibility for capital spending. Since IT spending averages between 42% and 48% of all capital spending, CFOs have a significant oversight perspective [on] how the resources are being allocated to IT. Especially in Europe and the U.S., over 50% of CIOs continue to report to CFOs, directly or on a dotted-line basis. The combination of these two [factors] is that CFOs are a major voice in IT funding and major platform choices. It's still IT's responsibility to select the technology and the vendors, decide the means by which it will be implemented, and structure negotiations, [but] CFOs are setting the overall perspective and policy [and] establishing the governance framework.

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How is the consumerization of IT affecting finance?

Pucciarelli: It's not directly impacting the CFO -- it's changing the technology that IT has to consider. You don't see CFOs necessarily being impacted by specific initiatives, like do you buy this technology or that. They're more interested in setting the overall direction, [which] would be to minimize the use of capital [or] provide access through mobile devices, and so forth.

What do you think will drive CFOs to adopt cloud-based technology?

Pucciarelli: If cost was no object, I'd like to continue to host my software, because it gives me greater control and security. The rub comes when you have an outlier like Wikipedia that's operating a huge website at a fraction of the cost of a typical private website. [Certain] companies are aggressively adopting cloud-based technologies, and as they do, they're rapidly driving down the unit costs of what it takes to deliver services to their customers. So, the question [for CFOs] becomes what are my internal costs to deliver this where I have a more favorable degree of risk control [versus] doing it with an external provider -- what are the risks and at what cost? It's not a question of what I want to do, it's [more] what the market imperative is going to challenge me on.

It's easy now because cloud adoption is in its early phases. The tough part [will] come in about three years, as you start seeing companies embrace these new technology models and operate at substantially lower cost. In turn, they're going to pass those costs onto their customers which will make markets more competitive and challenge people to reexamine their business models.

Another of your predictions has to do with analytics in finance. How do you think big data will affect the finance function?

Pucciarelli: I've been in countless business teams where people talk about ultimately relying on their judgment to make decisions. [But] we're moving to a world with information that doesn't just allow you to make a decision informed by facts, but allows you to make one based on facts. WalMart did an analysis of canned soup sales and they correlated it to the weather, and they've been able to predict [sales] based on the forecast. So, it's not someone saying, 'It's February and I'm not sure what the weather outlook looks like, but my gut tells me it'll be cold, so we're going to order more soup.' It's a matter of looking at long-term predictions and data analytics in the form of a weather forecast, and using that to base your soup decision.

Five to 10 years from now, you'll see much more accurate analytics and predictive data to inform strategic -- down to trivial -- decisions. I believe that's going to impact the finance function because in a lot of organizations, [finance] vets the data that people use to base decisions. There's an expression in the finance world -- 'one source of the truth.' They want one [version] of the numbers that everybody uses to base the business on. But when we start using predictive analytics and big data, you'll have people outside of finance contributing data to the decision making process, which is not coming through the general ledger now, nor will it in the future. So, I believe the finance function is going to be called upon to vet data from the marketing, supply chain [and] sales functions for accuracy.

Your final prediction is about how calculating the return on investment of technology purchases is changing in a market that's shifting from asset ownership to intellectual property. How should CFOs approach technology ROI in the future?

Pucciarelli: [Finance executives are] familiar with doing the ROI of a technology purchase -- they've been doing that since they were first-year accountants. [But] how do I compare the ROI analysis for a service that's delivered from a data center I own, with the cost of a service that I'm renting or buying under a long-term supply contract from another organization? Basically, I'm going to be comparing an intangible -- the use of a service -- with the value I get from an asset that I own and control. So, in my opinion, we have to become more sophisticated in terms of using new analytics to quantify the risk factors associated with the services we're acquiring from third parties, and trying to compare that with the services we are producing with our own assets.

Needless to say, it's a time of disruptive change. Any parting advice for finance executives?

Pucciarelli: I think the biggest challenge for CFOs and the finance function is to recognize that we're moving through a period [of] significant technology transition [and] embrace [it]. [It's] going to create risk, but also tremendous opportunity to reorganize industries that are staid, [and] possibility for new approaches. There's an old saying: If you want to make money in poker, you sit at a table with a high limit. I'd compare the change in the market to being at a poker table without a limit. I think, as members of the finance community, we are entering a period of real professional opportunity, so it's an exciting time.

Emma Snider is the associate site editor for SearchFinancialApplications.com. Follow her on Twitter: @emmajs24.


This was first published in February 2013

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