17 Jun CFO Guide to Improving Financial Results With DevOps
Managing the strategic financial direction of an organization is at the heart of the CFO role. CFOs are charged with making informed decisions regarding how to distribute an organization’s assets in order to maximize value to customers and, therefore, generate profit. To that end, it is critical that CFOs stay informed about new and emerging business principles and management systems across all functional areas of the organization.
IT and Development are vital to supporting a company’s business strategy, especially in software companies where the product being sold is the technology that is developed and deployed by Development and IT Operations. In fact, in Gartner’s 14th Annual Technology Issues for Financial Executives Study, 44% of CFOs reported that their influence over IT has increased either slightly or significantly since 2010. Of those that reported an increase, 45% said that the primary reason for their increased influence over IT was that they see IT as key to corporate strategy.
Tensions between Development (e.g. software developers and QA) and IT Operations (e.g. systems engineers, system administrators, IT operations staff, and DBAs) often hinder the ability to get the best software to the customer in the shortest amount of time possible. An increasing number of CFOs have determined that spending money to improve IT and Development, and how they work together to move software from design to deployment and support, is a worthwhile investment that will build a sustainable competitive advantage and have a positive impact on the bottom line.
A software development method called DevOps has been increasing in popularity over the past six years. DevOps introduces changes to processes, tools and culture that facilitate collaboration between Development and IT Operations towards the common goal of enabling the company’s success. This contrasts organizational structures where Development focuses on just new features and bug fixes while IT Operations is solely responsible for keeping the site stable and fast.
Because of the potential impact that DevOps can have on the bottom line, CFOs would be well served to understand what it is and how high performing DevOps teams can facilitate remarkably better business results.
DevOps: What Is It?
Wikipedia describes DevOps as “a software development method that emphasizes communication, collaboration, integration, automation, and measurement of cooperation between software developers and other IT professionals. The method acknowledges the interdependence of software development, quality assurance, and IT operations, and aims to help an organization rapidly produce software products and services and to improve operations performance.”Born from Agile Methodology, DevOps has principles akin to those of TQM in manufacturing. DevOps emphasizes:
- Viewing the performance of the system as a whole, not just that of a functional silo or department.
- Creating feedback loops to shorten the time it takes to respond to users.
- Building a culture of respect, trust, and transparency.
DevOps: Why Is It Important?
As evidenced by Puppet Lab’s 2014 State of DevOps Report, there is a positive correlation between strong IT performance and strong financial performance. The report points out that companies with high IT performance are:
- 3.3 times more likely to have met or exceeded the company’s productivity goals.
- 1.6 times more likely to have exceeded company profitability targets.
Companies that successfully invest in implementing DevOps can also quickly realize the following financial benefits:
- Reducing Cash Conversion Cycle. Cash Conversion Cycle is the length of time it takes to convert resource inputs into cash flows. Positive cash flow is the lifeblood of any business, and is critically important to CFOs. Theoretically, delivering new functionality to customers results in new revenue. If releases to deliver the new functionality are spaced out over quarters or years, the time to convert the resource input (labor costs) to cash flow (incremental revenue) is lengthy. One of the tenets of DevOps is continuous release through release automation. DevOps strives to make deployment of new functionality and bug fixes a non-event that can be done easily with the push of a button. That means that new functionality is deployed in smaller increments as often as possible, thus reducing the Cash Conversion Cycle.
- Reducing Expenses. Similar to its predecessors, Lean Six Sigma and TQM, DevOps focuses on continuous improvement and eliminating waste in processes. The result of the investment in increasing efficiency is long term cost reduction.
- Faster Growth. DevOps ultimately aims to build a better product and deliver more value to customers. By deploying new features at exponentially greater velocity and shortening the feedback loop, the company is set up to give customers more of what they want in the product. If feedback indicates that the new features falls short, corrections are more easily made. This leads to increased customer loyalty and more stable revenue streams as the business reduces its churn rate.
- Employee Engagement. Better performing teams lead to happier, more loyal, and more engaged employees. Employee engagement is important because it drives employee behavior, which has been proven time and time again to drive organizational results.
DevOps: How Do You Get It?
Upon making the decision to invest in DevOps, IT leaders will most likely take the lead in the process and tools aspects of DevOps. IT leaders are typically the best suited individuals to head up the process of seeking out and implementing the tools that are needed as well as evaluating and modifying processes to conform to the tenets of DevOps. CFOs can have an impactful contribution to successful implementation in the culture aspect of DevOps. One of the early thought leaders on DevOps, Dominica DeGrandis, in her article, DevOps: A Software Revolution in the Making, discusses two essential ingredients of DevOps: good leadership and good decision making. Both of these ingredients start with the tone at the top. DeGrandis points out that good leadership involves establishing a culture consisting of:
- Emphasis on quality
- Collaboration between teams
- A properly designed process
- Showing employees how their work contributes to the company’s success
- An emphasis on improvement, not blame
- Trust
- An environment that drives out fear to increase productivity and innovation
Good decision making involves studying data derived from metrics to make informed decisions. “Studying the ‘what and why’ of the current performance of a system leads to understanding possible improvements and what prevents them from being achieved”. CFOs can drive the collection of the appropriate metrics to enable better decision making.
DevOps: How Do You Measure It?
Metrics that measure the success of DevOps are leading indicators, which predict the future financial performance of the company. CFOs can look at measures of success in DevOps to find correlations and translate that information into better and more reliable forecasts. Additionally, continuous review of DevOps metrics allows CFOs to take an active role in pointing out where corrections need to be made to prevent downturns in financial results. In order to measure DevOps success, CFOs and IT leaders can begin to measure things like:
- Number of Deployments. How often is the team deploying new code? More deployments typically means that new functionality and bug fixes are in the hands of customers more quickly.
- Percentage of Failed Deployments. What is the percentage of deployments that negatively impacted the user experience or caused an outage? The emphasis on continuous improvement and quality inherent in DevOps should reduce this percentage.
- Mean Time to Recover. What is the length of time it takes to resolve an incident once it is reported? This metric speaks to the capability of the team to resolve issues as well as their responsiveness.
- Lead Time for Changes. What is the cycle time from the start of development to deployment to production? Cycle time is an important indicator of efficiency in the process.
Summary
Though it is a relatively new concept, DevOps is taking hold in many successful organizations worldwide. With roots in management systems that had their place in history as systems that revolutionized the way business was done, DevOps is poised to have the same impact on today’s software world that TQM had on the manufacturing environment in the US in the 1980’s. Successful implementation of DevOps can have a tremendous positive effect on an organization’s Balance Sheet and P&L. CFOs have an opportunity to participate in its successful implementation by helping instill the right culture of good leadership as well as facilitating good decision making by providing analysis and review of metrics that measure the success of DevOps in their organization.
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