Part two of Pieter Kemps series of studying how businesses can leverage on the cloud for operational and financial activities.
The previous post explained how late-stage VC’s and PE firms are increasingly working together with the CFO’s of their portfolio companies to drive value creation through financial and operational streamlining of their business. I explained in more detail how Amazon Web Services (AWS) enables CFO’s to use IT as a tool for financial streamlining by avoiding and reducing costs, moving assets off balance sheet and increasing Return on Assets and capital efficiency. Here, we’ll explore how the Cloud can be a tool for CFO’s in the process of operational streamlining by focusing on three key areas:
- Improve agility of IT and business units
- Drive innovation for new revenue generating products & services
- Simplify M&A with faster & more attractive deals
First of all, the Cloud services offered by AWS enable you to improve agility of your IT and business units. It allows companies to focus on their business: do more, do it faster, and with less resources. This is largely caused by the Managed Services nature of a lot of the services, as well as the high levels of intelligence and automation that are built into the platform. In addition, AWS offers self-service infrastructure, which means you can set up your infrastructure in a few clicks, thereby eliminating the need for complex capacity planning, logistics, staging, etc. In my previous post, I mentioned an IDC research of AWS customers, which showed benefits in various areas:
- Enhanced Agility – This time-to-market benefit is often cited as the key reason for adopting cloud services. For example, one company related how computer simulations which used to take two to four days could now be done in a half hour reflecting a 99 percent improvement in business process.
- Faster time to market – Applications were developed and deployed in 79 percent less time and required 77 percent to 86 percent fewer developer hours.
- IT Staff Efficiency – AWS had significant impact on application development and deployment, reducing overall developer hours by 80 percent
- IT Staff Productivity – With AWS, IT staff productivity increased by 52 percent, saving US$150,000 per application
Some of the world’s most respected companies have experienced the increased agility that the Cloud offers. For example, Shell’s VP of Architecture, Johan Krebers, has said that “the AWS Cloud brings business agility as Shell is able to deploy services much more quickly.” And Jeff Kimsey, VP of Project Management for NASDAQ, stated that his company was “… able to leverage AWS and decrease our time to market threefold.”
Increased innovation and revenue
Secondly, the Cloud can help to drive innovation for new revenue generating products and services. In a typical on-premise environment, most companies spent 70 percent of IT time and resources on ‘undifferentiated heavy lifting’ of infrastructure, and only 30 percent of time and resources are available for innovation and focusing on the core business. With AWS, this ratio swaps around entirely, and we hear that customers can spend 70 percent of their time focused on innovation and developing new products, services, and business models. The time spent on infrastructure is reduced to 30 percent or less.
This focus on innovation, research and development has been experienced by Pfizer, one of the largest pharmaceutical companies in the world. According to Dr. Michael Miller, Head of HPC for R&D at Pfizer, “Pfizer did not have to invest in additional hardware and software, which is only used during peak loads; that savings allowed for investments in other Worldwide R&D activities. AWS enables Pfizer’s Worldwide R&D to explore specific difficult or deep scientific questions in a timely, scalable manner and helps Pfizer make better decisions more quickly.”
Finally, the Cloud helps PE firms and M&A teams to simplify the M&A process, and enable faster and more attractive deals. This is caused by the Cloud’s ability to help you ‘decouple’ business units and facilitate the carve-out process. With all IT functions in the cloud, you can create self-contained business units with no external dependencies. This enables easier and quicker carve-outs, with rapid untangling of companies/BU’s/JV’s and quick handover without the burden of (long-term commitments to) fixed assets. It also makes it easier to acquire and integrate. As such, business that have their infrastructure and ERP applications (e.g. SAP, Oracle, Ramco) running on the Cloud, are more self-contained and hence easier to buy/sell. This makes for more attractive deals.
In conclusion, there are very tangible benefits of leveraging Amazon Web Services as a tool for financial and operational streamlining. To start the process, there is no need to do a Big Bang. You can explore where it makes sense and look at your workloads, applications and business processes and start with the quick wins. Over time, the benefits will become increasingly tangible, in both operational as well as financial impact.
Image Credits: White Stratus