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Strategy

Moving to the cloud – Why move?

IT infrastructure is changing dramatically, and cloud computing is largely responsible for that change. A recent survey of 489 organizations found that 77% of firms are using or have plans to use cloud computing. 64% said they believed the cloud would be the best way to manage IT infrastructure within three years. The staggering prediction is that the SMB cloud market will be valued at $100B during 2014 and will help to create 200,000 more jobs in IT!
One of the key benefits of cloud is that a client does not need to sign up for an extended period of time but can subscribe in the form of monthly, quarterly, or even annual payments. This makes it much more manageable for businesses that might not have a large sum of cash on hand. It is not cheap, but it is not as overwhelming as major IT purchases.
Broadly speaking cloud can currently be broken into four categories:
  • Public Cloud – You register, pay for and use the service and share with all other users
  • Community Cloud – You share services with other similar organizations
  • Hybrid Cloud – Mix and match of the other cloud options
  • Private Cloud – Dedicated platforms and applications in your own Data Centre

To add to the complexity cloud providers also break the service into a number of variants including Software as a Service (SaaS), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS). The good news is that during the next few years there will be a rising trend for cloud delivery model consolidation and SaaS, PaaS and IaaS will start to form unified service delivery stacks.

What can cloud do for me?

Cloud is still a bit confusing to most people and a good understanding of the types of cloud service is a good start. However, it is more important to understand where your organization is at present and how a cloud solution could benefit it. The CIO can then align his IT team with those objectives and choose a solution that best fits the organizations requirements.

What does IT cost today?

There isn’t an easy answer here as the influence of IT has progressively spread across organizations, and with ‘Digital’ it will rapidly move across the traditional marketing scope. In most organizations the financial models used to track costs have hardly evolved and in most cases now only provide an indication of overall true IT costs.
The start point has to be an audit to understand these existing costs as they will be needed to accurately assess the cost benefits of moving all or part of IT service provision outside the company. This audit isn’t just to assess, it also needs to establish upgraded cost management models to help the organization going forward.
It could be argued that in-house IT support cannot be as cost effective as having a partner using shared, hence relatively lower cost, personnel to manage these services. Not surprisingly many cloud and traditional managed services providers very effectively use this argument to sell their services. If systems rarely require change these cost comparisons can be valid but if you need to modify systems, perhaps in response to a changing market or competitor activity you also need to consider the costs and responsiveness of the proposed new service vs. an in-house solution.

Benchmark your costs

The smart organizations take their cost analysis a stage further by benchmarking their costs to similar organizations. One large business adopted this approach and discovered that it was paying up to seven times more for specific services than the amount paid by competitors a fraction of its size!
Understanding and minimizing your IT costs allows you to immediately realize savings. It also sets a lower cost target for a cloud service provider to improve on. I worked for a large outsourcer a few years back and they shared the initial bid plans with their prospective client for cost reductions. The client took these proposals and immediately implemented all key cost reduction changes. It then went back to the outsourcer with a revised set of cost targets! Typical ‘low hanging fruit’ areas for savings include old services contracts (e.g. network) that may be out of touch with today’s more competitive rates.
Bear in mind that cloud providers need to find a profit somewhere hence it is valid to confirm that you could not replicate their costs. Amazon, for example, displays its pricing on its website and has an online calculator that can be used to calculate out how much a given application topology and usage will cost. Use any disparity you discover to see if you could also achieve a reduction.
A few years ago Bechtel, the giant construction firm, benchmarked its costs for a number of common IT resources against cloud providers. Bechtel is a large and financially well-off company hence it could be argued that it would be a very efficient IT user. Bechtel found that its cost structure was wildly higher than the best-of-breed cloud providers. Here are some of the numbers from the benchmarking exercise:
  • Internet traffic cost Bechtel $500/MB vs. $10-$15/MB
  • Bechtel had one admin per 100 servers vs. one admin per 17,000 servers
  • Storage cost $3.75/GB/month vs. $.10/GB/month.

Bechtel built three new highly efficient data centres and raised storage utilization rates from single digits to 70%. Its server utilization rates grew to 70%. It stopped using public Internet providers and installed its own fiber optic connectivity to Internet peering points.
These changes took Bechtel’s overall IT run costs below the level it could achieve via a cloud solution. Bechtel were able to invest to reduce costs but most organizations will not be able to replicate this approach and a cloud service might provide a compelling option. However, you need to do the benchmarking and assessments to rule this option out. 

Conclusion

CIO’s are under tremendous pressure from both external influences and their own management teams to enthusiastically embrace cloud solutions. The best way to manage these pressures, and achieve a good outcome, is to:
  • Involve the leadership team in the entire process
  • Understand your existing IT costs
  • Benchmark against your competitors, comparable businesses and cloud providers
  • Target and apply any key cost reductions

This will put you in a great place to start to evaluate what type of cloud service is appropriate for you and what cost model you want to achieve. We will take a look at the cloud service models in our next article.
Please contact us if you would like further guidance or to discuss your requirements in more detail by using the Contact Us form on the website (www.korolit.com) or directly at enquiries.korolit.com or phone at 0333 444 8944. 

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