Posts Tagged ‘Debate’

So far in 2009, there’s been a fair amount of discussion pro and con regarding the financial benefits (or lack thereof) of cloud computing. It’s very reminiscent of the whole “do-it-yourself” or “outsource it” debate. Blog posts like this and articles like this are samples of the recent debate.

One thing I have not yet seen or heard discussed regarding cloud computing is the concept of EVA, or Economic Value Added. Let me add at this point that EVA is a registered service mark of EVA Dimensions LLC and of Stern Stewart & Co. It is the concept of economic income instead of accounting income. SoftLayer subscribes to software from EVA Dimensions LLC. Get more info here.

For you to buy into the premise of this post, you’ll have to be sold on EVA as a valuable metric. Bottom line, EVA cleans up the distortions of GAAP and aligns all areas of the business so that more EVA is always better than less EVA. Most other metrics when pushed to extremes can actually harm a business, but not EVA. Yes, even bottom line GAAP net income when pushed to an extreme can harm a business. (How that can happen is fodder for another blog post.) Several books have been written about EVA and its benefits, so that’s too much to write about in this post. This is a good summary link, and for more info you can Google it on your own. And if you do Google it on your own, be warned that you may have to wade through links regarding Eva Longoria and/or Eva Mendes .

Part of the Cloud computing debate revolves around “capex vs. opex.” Specifically, this involves paying for IT infrastructure yourself using capital expenditures (“capex”) or employing Cloud computing and buying IT infrastructure with operating expenditures (“opex”). Geva Perry recently said, “There is no reason to think that there is a financial benefit to making an OpEx expense vs. CapEx expense. Period.” I disagree. When you look at this in terms of EVA, whether you use capex or opex can make a big difference in creating value for your business.

Let’s look at the effect of switching capex to opex on EVA. Coca-Cola is a company that employs EVA. Years ago, they decided to ship their beverage concentrate in single-use cardboard containers instead of reusable stainless steel. This made GAAP measures worse – profit and profit margins actually went down. But EVA went up by making the move from capex to opex. How can this be? Grab something caffeinated and check out some numbers here if you dare.

OK, that’s all fine. But how would shifting IT spending from capex to opex affect EVA? Glad you asked. Last summer, I modeled some full-fledged financials to illustrate financial benefits of outsourcing IT vs. doing it yourself. I’ve taken those and added the EVA calcs to them. Take another swig of caffeine and check them out here and here.

Assuming that EVA is a worthwhile metric (and I think it is), moving capex to opex is possibly a very good financial decision. Any questions? As always, your mileage may vary. Model carefully!

Who would win in a fight to the death between a Grizzly Bear and a Great White Shark?

Yes, we here in SLales, particularly Daniel and myself, have these types of serious debates quite often. Now before you get all riled up about how this would never happen and there’s no way these two would ever even meet, etc, etc, hear me out folks. Daniel said it best during one of our many debates about this important issue:

“I win the lotto and I’m putting this show on Pay-Per-View…. greatest show on earth.”

IIIIIIIIIIIn the red corner weighing in at 5,000lbs, laying 20 feet long – SHARKY! AAAAAAAnd in the blue corner weighing in at 1,500lbs and standing 8 feet tall – GRIZZLY!

The setting would be similar to the UFC Octagon, only twice the size, instead of a cage it will be a solid metal octagon and filled with 4 feet of water so the Shark can maneuver and so can the Bear. Both animals are fully grown adults – the Shark is a female, the Bear is a male – predatory in nature and very aggressive.

My contention would be that the Great White wins this battle to the death for a few reasons:

1. The Great White Shark has been dubbed “an efficient killing machine” on several occasions by many scientists and experts.
2. This ain’t no Salmon Grizzly; this is 20ft and 5,000lbs of fury coming for YOU Bear!
3. Sharky is HUGE, more than double the size of Grizzly.
4. Sharky has rows and rows of teeth that are easily replaceable in a fight to the death, Grizzly has one set and that’s it.
5. Great White Sharks are notorious for their thick skin; the bear doesn’t stand a chance with his teeth and claws.
6. Yes, Grizzly will be more maneuverable, however one bite from Sharky and he’s done.
7. There is a certain 80′s rock band named after Sharky, none for Grizzly.

What’s you guys’ take on the outcome here, do you think Sharky or Grizzly would win?

Daniel, I await your side of the argument sir!

-Michael

***The views and expressions of these events are completely fictional and meant for entertainment purposes only. ***