Where Do CTOs and CFOs Agree and Disagree on Outsourcing?
On occasion, hedge fund C-level execs don’t see eye to eye. It’s inevitable. One such topic of occasional discord is outsourced IT. Chief technology officers (CTOs), for example, are immersed in every level of technology, from applications to security to disaster recovery, and they have a vested interest in concerns from user experience to business continuity and beyond.
Meanwhile, chief financial officers (CFOs) must focus on the bottom line, factoring in the cost-benefit of new technologies and projects. Elsewhere in the C-suite, the chief operating officer (COO) is looking at opportunity costs and asking key questions including if the CTO is managing day-to-day IT “plumbing,” which strategic projects are getting pushed aside?
Following is an excerpt from a whitepaper we recently published looking at various C-level perspectives on IT outsourcing – including where certain executives may differ on its value, where those same executives can agree, and ultimately why outsourcing IT and using the cloud sets alternative investment firms up for success. DOWNLOAD THE FULL PAPER HERE.
The cloud point-counterpoint
Based on investor comfort, the SEC’s increased scrutiny of cybersecurity practices and the impact of legislation like the Dodd-Frank Act, moving to private cloud services seems like a no-brainer. The cloud creates a far more cost-efficient and effective way for alternative investment firms to improve security and manage day-to-day IT demands. So why the conflict between CFOs/COOs and CTOs?
Total Control Comes with Risks
One reason for the conflict is that CTOs want to retain control, and understandably so. Outsourced security measures may seem opaque compared to the control they impart – it is tempting to believe that no third party could be as invested in system resiliency (i.e. disaster recovery) and security as the firm itself.
The reality is that most CTOs are so tasked for time and money that they cannot maintain complete control over their environments. The burden of ensuring continuous, reliable and secure operations is difficult even for large enterprises that have vast time and budgets and potentially unsurmountable for smaller teams. Often only the largest firms can adequately invest in and manage the layers of security necessary to defend against growing cybersecurity threats.
In seeking to retain control, CTOs are limiting their options. Embracing the idea of cloud-based services expands the CTO’s team, provides greater redundancies and enables more cost efficiencies. Most importantly, it lets the CTO focus on priority IT projects that enhance and improve the company’s bottom line.
CTO’s Role is Evolving
Procuring, maintaining, testing and upgrading adequate technology on-premise is out of reach for most alternative investment firms. It is also becoming an antiquated strategy. Today’s progressive CTOs are increasingly drawing on cloud technology to create agile firms that can quickly deliver the applications users require.
CFOs/COOs must recognize the valuable business knowledge and insights the CTO can insert into functions including risk management, product development, operations and innovation. CTOs must understand where they can deliver functional results and utilize the cloud as an IT-enabler for the firm.
As the CTO’s role evolves, so does the entire IT team. Too often in-house IT teams are allocating valuable time to reacting to IT issues and troubleshooting rather than proactively solving user issues or addressing regulatory mandates.
Outsourcing Has a Track Record
CFOs and COOs have the advantage of positive experiences with outsourcing. Many have used third-party providers for functions like payroll, accounting or even hiring, so it’s not surprising that they tend to be more comfortable with bringing in cloud service providers to deliver more efficiencies and dedicate focus to revenue-producing activities.
Finding common ground in the C-suite
Just because CFOs/COOs and CTOs have different views into IT operations, outsourcing and the cloud, doesn’t mean there is no common ground. After all, both leaders ultimately want what’s best for investors and the firm. When you dig a little deeper, there are far more areas where CFOs/COOs and CTOs agree than where they differ when it comes to outsourcing IT. For example:
The outdated due diligence argument against going to the cloud has been turned on its head in the current regulatory environment. CTOs may feel they’re doing the appropriate due diligence to manage all the risks themselves. However, assessing your own risk is incredibly challenging. To thoroughly evaluate risk as well as address investors’ five, 10 or even 20-page due diligence questionnaires about technology, partners, vendors, cybersecurity and operations, CTOs need to devote enormous amounts of time – repeatedly. Risk assessments are not one-and-done tasks. Vulnerabilities, particularly cyber security weaknesses, should be assessed in depth every six months and remediation of identified issues must be addressed.
Investors expect the latest and greatest technologies, especially when it comes to security. Not only does outdated technology affect the IT department and how it does its job, it can be a real red flag for discerning investors. Cloud providers are buying en masse and passing the cost savings along, making enterprise-level features affordable for even small to medium-sized hedge fund firms. Building your own production and secondary (redundant) infrastructures is increasingly an antiquated IT strategy in this day and age.
Outsourcing IT shifts these time burdens to the cloud services provider, freeing IT leaders to go beyond the break-fix and reactive troubleshooting cycle. With basic-level desktop engineering off their plates, CTOs can focus on more strategic initiatives to drive the firm and its investors into the future.
This article originally appeared on Eze Castle Integration's corporate blog HERE.