6 financial benefits of cloud—do you know which you’re hoping to achieve?

Keith small.jpgBy KeithMacbeath, senior principal consultant with HP Software Professional Services

 

Many organizations when they first get started with cloud start off with something like a science project. They may try cloud in low-risk areas like dev and test. Science projects are great learning opportunities, but no one expects to see big financial improvement from them. The payoff comes when you get to the next level of adoption, and to get there you’ve got to target the financial consequences you want to achieve. These considerations will affect everything from which delivery options you consider to how you stand up your cloud to how you get people to use it.

 

Improvement in development productivity. We’ve worked with one customer who saw a 30%improvement in development productivity by going to a radical private cloud approach. The reasons for this are simple: When you’ve only got six flavors of operating environment you become expert on those flavors, and don’t waste time on infrastructure issues that do not add value. In addition, automated self-service provisioning reduces what developer call ‘ dead time’, which is waiting on operations. And finally, since everyone is running everything on the same set of environments there is more software code reuse as well.

 

Adoption of a variable cost model. This benefit is most obvious in terms of public cloud utilization. Let’s say I am in retailing and most of my activity and revenue comes in between mid-October and mid-January. I’d really like to be able to ramp up the scale of my IT operations along with everything else in that period and ramp it down the rest of the year. With the public cloud I can easily do that.

 

Improvement in management productivity. This may not be the benefit that immediately comes to mind when people think of cloud, but it is a fairly significant one. Many organizations make people go through a planning dance where they try to forecast exactly what they’re going to need in the upcoming year, and that becomes budgeted hardware. The problem with budgeted hardware is that anyone can buy it. If you don’t jump in quickly enough, some other department can say I want that, even if they didn’t budget for it. So you get these endless games being played with what’s budgeted, what’s unbudgeted, and in the end it doesn’t even have that much to do with what’s actually purchased. But you can spend a lot of management time on it. One strategy proverb holds that the thing that’s in shortest supply in the organization is management bandwidth. Why waste it on this?

 

Disruptive improvement in operations productivity. Now this is the benefit that everybody thinks of immediately with cloud. People think, well, gee, if I’ve automated provisioning that means that I can take all those resources this used to consume and I can apply them to something else or simply take cost out. One of our customers saw the cost of deploying a server decrease by 80% as a result of a private cloud initiative

 

Increased utilization of assets. This is where the concept of cloud bursting comes in. I’ll run my in-house private cloud at a much higher level of utilization—say 70%, rather than the typical 30%—and I’ll just burst into public cloud for those peaks that come once a quarter (or whenever). If you do this, you’re able to avoid paying the full cost of infrastructure sized for peak usage that goes mostly unused.

 

Reduction in opportunity cost in the business. I’ve left the best until last because the value of it can be the hardest to predict, and hardest to measure, yet may be larger than all of the others combined. It is related to the other classic benefit of cloud – faster time to market resulting from automated provisioning. To turn the latter, which is a measurement of time, into a measurement of value has several aspects: I already mentioned the aspects of development productivity and operations productivity and third is this reduction in opportunity cost in the business. It applies most clearly and forcefully in businesses in which innovation or time to market is a competitive differentiator, businesses in which shaving weeks or months off an implementation cycle can be worth millions of dollars in revenue. For some business time to market is so clearly job 1 for this reason that cloud is a no-brainer, and they have been early adopters of cloud. For others this benefit is just one among the rest.

 

Now, in order to reap these financial benefits, you’ve got to get a significant percentage of your people using your cloud. I’ll write more about that in my next post.

 

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Comments
Brian Paterson(anon) | ‎03-17-2013 03:43 AM

Great article Keith, just wondering what tools you used to achieve this HP CSA, or CDA  and or others

 

Cheers

Brian

Louise C ng(anon) | ‎03-18-2013 06:14 AM

Thank you for your insights Keith.  Another opportunity or benefit that cascades from most of those you've mentioned is Customer Satisfaction.  Whether it be internal or external there is a BIG WIN for the customers of both Operations and Applications.  This comes with renewed confidence in the Data Center and enables IT to gain traction with the LOB's.  Looking forward to any ideas on quatifying the impacts of Customer Satisfaction.  Thanks Keith!

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