Optimizing the Cost Model
Dedicated, owned or leased infrastructure requires capital investment to design and build an IT ecosystem that meets expected peak demand. When not running at peak, that excess capacity equals lost value that you can’t bank for future use.
In the cloud, you provide for your needs “a la carte”; you pay only for what you need, when you need it, and you can readily purchase more (or less) in accordance with current demand. This fractional-consumption model opens the door to a far more cost-effective IT infrastructure and is one of the top drivers behind cloud adoption.
This consumption model applies to more than just infrastructure—it can have a major effect on software costs as well. For example, cloud-based database services can save a tremendous amount of money over licensing costs from traditional software vendors.
Another area that offers room for potentially huge money savings is designing your disaster-recovery (DR) plan. Historically, companies needed a complete duplicate environment running in a separate data center to make sure that they could resume operations quickly in case of a disaster. This scenario made it nearly impossible for most small and medium-size businesses to even consider a comprehensive DR plan, and they just crossed their fingers and hoped they would never have to worry about it. Today, with the ability to set up landing zones in the cloud—and only spin up the compute and storage services when you need them—even small companies can afford to sleep at night knowing that should the worst happen, they can be back up and running in a short time. And it doesn’t cost them an arm and a leg for the protection.
Shifting Costs to Invest in Innovation
Even if all the cloud did was reduce the costs of maintaining current systems and shift budgets from capital expenditures (capex) to operational expenditures (opex), it would be a worthwhile exercise for most IT organizations. But moving to the cloud offers many additional benefits.
“IT groups are forced to spend about 80 percent of their budgets on old, inefficient IT infrastructure and applications, including support, upgrades and patches. This leaves about 20 percent for innovative new development.”
– Mark Hurd, CEO, Oracle, OpenWorld Conference, September 2016
Historically, most IT spending goes toward the maintenance of existing systems. Innovation must therefore get by on whatever money is left in the budget. Yet innovation is becoming more critical to the long-term survival of an enterprise. Reducing maintenance costs frees up capital and staff to truly work with the business and focus on innovation.
Fueling Rapid Innovation and Continuous Improvement
Today’s cloud development environments, when paired with agile development methods, allow for speedy building, testing, deployment and improvement of applications. They have given rise to the credo of “fail small, fail fast, fail often,” an approach that encourages rapid prototyping and testing of small bets to uncover hidden gems, then making big bets on what works.
The DevOps Revolution
Coming along with this technological revolution is the rethinking of how development teams and operations teams work together. Previously, these two disciplines may have operated in their separate silos.
Historically, a development team would work on an application in whichever model the company chose. Once the application was complete, it was essentially thrown over the wall for the operations team to figure out what to monitor in that application, how to set specific thresholds in the monitoring platforms to tell when the application was functioning improperly, and what to do if the application failed.
Modern DevOps targets more-rapid releases of software and services, without sacrificing high quality, by focusing on an integrated and collaborative approach. Today, development teams and operations teams are integrated and working together on each piece of the development cycle to make sure that monitoring, management and even self-healing are built into applications as they are developed.
Current developments such as microservices, containers, the use of software-defined infrastructures, automation technologies such as Puppet and Chef, and GitHub for storing code have accelerated the requirement for development teams and operations teams to align more closely.
The companies who embrace the cloud and DevOps will out-innovate their slower-moving competition.
Competitive Factors in Moving to the Cloud
The business imperative for cloud adoption may also be influenced by the competitive environment in your industry. In many industries, the companies that make the best (and earliest) use of cloud computing will gain a competitive advantage, while the competitors who fail to understand the cloud and delay their adoption may find themselves at a long-term disadvantage.
This isn’t a phenomenon unique to cloud computing—consider Blockbuster vs. Netflix (in its reborn version of online content streaming), Uber vs. the taxi industry and Airbnb vs. travel agencies. Businesses that adapt to change are the ones that thrive.
As you assess your industry, some factors to consider include the following:
- The importance of cost leadership in your industry
- The pace of application development among your competition
- Your customers’ changing expectations
- Regulations that apply to your industry
These industry-specific factors can help you determine the appropriate pace of moving to the cloud and whether additional compelling business drivers place your company at risk if you don’t act. Remember to consider competitive threats coming from external players outside your industry/market as well.