Opportunity
A global ERP company was in a rapid stage of growth within their cloud book of business. However, the margins on those products were much lower than the desired target. Working together with the CFO of the company, a senior management consultant with a focus on finance & strategy was brought in to analyze financials and operations.
Solution
A three-prong approach was taken to financially and operationally optimize the company’s cloud-based business. First, a standard costing methodology was used to understand how the products should be structured and implemented with cloud vendors such as AWS and Azure. Second, a historical analysis of cloud billing data helped understand how pricing (fixed vs variable) drove costs for each product and helped identify deviations from expected standard costs. This was achieved by categorizing expenses and identifying code inconsistencies that may have caused system inefficiencies. Through this Pepper Foster was able to isolate root causes of poor margin outcomes into three categories:
- Product implementation decision impacts
- Contract terms
- Customer behavior
Furthermore, Pepper Foster developed key financial strategies to optimize the purchasing of Reserved Instances, cost & margin forecasting, cost models to support cloud contract negotiations. From an operational standpoint, Pepper Foster identified several opportunities to re-orient operational processes (e.g. decommissioning, customer setup and usage audits) to help transform the business to operate better in the cloud.
Outcome
Tight collaboration between finance and the cloud operations teams supported the goals of the firm. Following phases of discovery, analysis and strategy, and execution, the efforts revealed six key technical changes that resulted in nearly $1 Million in cost savings and another $1.8 MM of unrealized revenue opportunities for the company. Beyond the financial benefits, the new capabilities to support costing, financial planning have resulted in stronger product business planning.