All of these and many other cloud scenarios involve shifting from traditional IT expenditure models to a more flexible utility one.
It is now more essential than ever that you understand the associated costs involved in this new way of working to ensure you are achieving the best cloud value for each dollar spent.
Before making this shift, however, you should first establish a cost saving pillar as part of the overall cloud strategy and subsequent transformation. Then, as you make the shift, both understanding the value you are getting from your cloud solution and avoiding or rectifying some potentially expensive pitfalls are essential. Are you investing in the right area? Have your IT processes changed to meet the new cloud model? After all, just shifting your current application estate into a public cloud without process change will simply move existing issues from one location to another – and in many cases, it will exacerbate them. Without this insight, it’s all too easy to overspend on pay-as-you go and related services, or to under-utilize your cloud capabilities. In effect, you will fail to derive the full value of your investment in cloud.
This is cloud economics. It’s everything that impacts cloud value in relation to every dollar spent. And it’s a big challenge for many organizations. At Capgemini Invent, when we’re discussing cloud transformation with our clients, they’re often disappointed that instead of the anticipated 20-30% in cost savings, they sometimes see a significant increase in ‘IT’ costs. This, however, shouldn’t come as a complete surprise. Cloud is not a silver bullet. You can’t simply lift and shift a data center to the cloud and expect to realize immediate value. Rather, you must lead with a cloud economics approach. One that feeds into your cloud strategy and is implemented in a cloud operating model as part of your cloud journey.
Resilience, flexibility and agility
In the case of application estate migration, it’s about looking at how and what you migrate to deliver business value. For example, you need to identify and invest in the applications that give you a unique capability. For those applications that don’t give you this USP, you should consider either exiting them altogether, or replacing with a software as a service (SaaS) model. Other cloud economics measures include the levels of resilience, flexibility and agility you derive from your solution, all of which add business value.
Of course, resilience is highly topical at present as many organizations across all sectors seek to survive the COVID-19 crisis and position themselves to thrive afterwards. In some instances, the crisis has seen organizations ramping up their cloud resources, for example to supply the healthcare industry with instant capacity, or to increase bandwidth so that more people can stay in contact virtually – see the Zoom example below. What we’re seeing during the pandemic is a reassessment of traditional IT models and a new focus on the benefits that a comprehensive cloud strategy can bring.
In some industries, however, such as in aviation, the picture has been very different. Often operating with traditional IT infrastructures, many companies have been unable to simply switch off their IT capacity. Instead, it is still operating as a cost center, which is a huge challenge with revenues slashed as a result of COVID-19. A cloud-based infrastructure would have made it possible to scale usage and avoid paying for nothing.
Here we can see how investing in IT – in this case cloud – can ultimately support your cost optimization business strategy and provide an agile capability to deal with unforeseen events. And the investment can also deliver business value in the longer term through innovation, speed to market and enabling reinvestment of the cost savings that accrue.
Solving the cost increase conundrum
Let’s return to the issue of why costs might increase after a cloud implementation. We all know that cloud is offered as a utility (pay as you use) model. But, if not monitored and controlled, this flexibility can lead to a considerable increase in cost. And as it is a utility, you only find out what you have spent when you receive the bill. Instead, the savings will come in how you manage that flexibility – your usage and demand; and levers, such as value discounts and right sizing. This will require a transformation in the way you operate in the cloud – we’ve called it FinOps (financial operations) – to manage cloud use.
What’s interesting in all of this is that many CIOs tell us that they don’t necessarily want to reduce their IT budget, rather they want to spend it in a different way. They want to move from being purely operational (a support function) to enabling innovation and digital transformation, although few organizations have currently made this switch.
By achieving cloud’s cost savings potential and reinvesting in innovation and new digital services, IT becomes far more of a strategic partner to the business.
So, for example, we have seen established financial services companies, retailers and more taking on challenger brands by launching entirely new lines of business in a matter of months. How? By building the technology infrastructure on the public cloud and embracing a new way of working.
Changing ways of working in the cloud
An important element of cloud economics is managing the processes by which new cloud applications are developed or SaaS services integrated. These change. That means your IT function must change too to embrace the changes and deliver better outcomes to the business. We have all experienced the long wait for what we consider basic services, from days and weeks to provision a virtual server in a virtualized environment, to months for the ordering, delivery and build of a bare metal server in a datacenter. Now, these services can be delivered within minutes by a cloud provider. This speed means that it’s all too easy to request more and more services, but their delivery comes at a cost. With cloud economics, you ask if those services are really needed and if they’re appropriately sized. You ask what value they’ll deliver and, most importantly, if they can be charged back to the appropriate business unit or project. You identify services that are redundant and, now that they have served their purpose, can be removed. And you look at which resources can be turned off automatically at night and over the weekend or scaled down for quiet periods.
In companies with established cloud solutions, we often see patterns of working that add significantly to cloud usage costs. A simple lift and shift of policies, procedures and governance that were used to maintain your old datacenter ecosystem won’t work in a new cloud model because they are not fit for purpose during a digital transformation journey. Again, simple process change makes all the difference. For example, in our work helping clients analyze their cloud spend, we might find cloud-based testing and development machines left on when they’re no longer being used. That means they’re consuming cloud resources but adding no value. These are bad habits that creep in and diminish the cloud value unless fixed. Insisting that all virtual machines are switched off when not required is an easy change to make, although in reality it is seldom enforced when left to individuals. Rather, this should be automated, for example as part of your provisioning process to set-up automated shutdown patterns and thus form part of your new cloud operating model.
Shaping strategy with cloud economics
Cloud economics or FinOps should become integrated in your business as usual operating model and become a continuous operation, not one that is only visited on an annual basis. From identifying which applications you’ve got and what makes you unique, to process change and FinOps levers, cloud economics must be a fundamental thread in the fabric of your cloud strategy.
At Capgemini Invent, we work with our clients to embed cloud economics and FinOps as a continuous process across migration, build, innovation and operate.
We identify the quick wins that are easy to implement, but can yield very significant savings (we have seen more than 50%), such as Reserved Instance (RI) recommendations, redundant services, right sizing etc. And we identify more transformational changes, including retiring applications or replacing them with SaaS services. Or we might suggest re-architecting existing applications to leverage platform-as-a-service (PaaS) capabilities that decrease the TCO of applications and enable further automation. Of course, to realize any potential cost savings, action must be taken, and we can help implement the recommendations to ensure your cloud ecosystem delivers the best value for every dollar you spend.
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Vice President | Cloud