Monday, November 3, 2014

CAPEX to OPEX, A Strategic Talk between CIO & CFO

CIOs and CFOs have to work closely to keep companies competitive and modern.

Digital is the age of change, technology life cycle becomes shorter every year and CAPEX doesn't allow most of IT organization
 to keep modern and competitive, how shall CIOs argue to CFOs to move from CAPEX to OPEX your IT budget?

Start the conversation as a way of providing the CFO budgeting flexibility. Depending on CFO strategy he/she may be already interested to reduce company's CAPEX expenditure and move to an OPEX model. Most CFOs are open to the conversation that starts with what the tradeoffs are and then a discussion about how to make it happen. There is an economic pain point but it is a bit different for each company. The CIO helps the CFO's office understand the nuance of cloud and which parts of it are used to replace traditional infrastructure and capital projects typical of CAPEX vs. OPEX; while the CFO's office helps the CIO understand the lines as they are drawn in the world of finance. Together, with the right communication and relations, each helps the other get it right for the organization. 

Engage the CFO from the angle of the organization's strategic initiatives. Propose new spending in the context of the business strategy and how it will help the business win at their strategy. If alternative non-traditional IT methodologies or services align well with your current and future plans, then the conversation you engage in with the CFO may have more traction. It means that you can more easily state your case why these items have direct impacts on the organization. Even if it results in more OPEX there may still be measurable benefits from revenue generation; reduction in risk; productivity improvements; speed and agility; increased flexibility; resources reallocation from a shift in skill sets; etc. And if it's an item that is truly strategic in nature, then it'll likely be well supported from the other c-levels as well; making it difficult for a CFO to make a stand against your ideas.

Find the middle ground. Exploit CapEx to OpEx transformation from a purely financial point of view and find a middle ground that satisfies both parties. It's important to remember that CFOs tend to like tradition. When you break with tradition, it helps to have proof, a plan, and a way to make it real. if you can use things to reduce the overall expenses enough to make it worth it, it will happen. The conversation has to start a bit differently from what you might expect. One of the "rocks" that has stopped many a cloud migration is that unless the CFO sees some benefit to finance or a safe, clear path to lower overall savings, you won't get the attention you need.

Get an education from the CFO on the finance rules. Each CFO seems to treat OpEx a bit differently. Spend an hour and get the CFO to explain the finance rules in detail and engage the conversation, and you might find the room you need there. For example, CFOs may prefer not to exceed the budget rather than have savings. And sometimes they don’t feel comfortable with moving to pay per use models (OPEX based) when they think they won’t be able to manage price increases or if they lose the tax savings usually related to investment (and not for OPEX). Also, Understand where your hardware portfolio is from a depreciation standpoint. How long has it got, what’s it worth, when will it "drop" off the books. In addition, Cloud does come across as all OPEX. But not all cloud contracts are the same. There may be provisions that let you treat it as CAPEX. Get the auditors engaged in studying and it and let them figure it out.

Show cost predictability and optimization. CFOs tend to like consistency in costing structures if the cloud OpEx model shows the predictability of cost. CapEx tends to have peaks and valleys of cost; Cloud provides a stable cost structure that is conducive to an OpEx conversation. The same discussion can be used with application models as with equipment. CFOs react very well when presented with a true picture of costs, a TCO (Total Cost of Ownership) model over a minimum 5-year horizon. This is especially true for SaaS applications, where TCO analysis often favors the SaaS/Cloud model. Present CFO the cost optimization in detail such as:
*An all-inclusive subscription fee vs. new and expensive on-premises equipment, annual 
licensing fees, and associated maintenance 
*The ability to reduce or completely eliminate capital-intensive upfront and ongoing hardware 
*The ability to reduce or completely eliminate IT support and staffing 
*The ability to eliminate costly, disruptive, and time-consuming upgrades 
*The ability to eliminate software maintenance

As the IT market is having a big shift from a technology aspect. Problems met in the daily work can only be solved via a good collaboration and experience sharing, CIOs and CFOs have to work closely to keep companies competitive and modern, to invest and run IT more effectively because it is one of the key elements when companies are looking for growth and competitiveness in a global economy. 



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Insightful discussion on transitioning from CapEx to OpEx, highlighting strategic considerations for businesses. A valuable read for understanding financial agility and optimizing resource allocation.
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