As industries become digitally mature, cloud infrastructure investments are expected to go through the roof. Research suggests that global public cloud spending is poised to top $330 billion by 2022, which is a 550% increase since 2019.
Over time, businesses have steadily increased their spending on infrastructure-as-a-service (IaaS), while aggressively investing in storage, server, compute, and other cloud-based services such as security, process monitoring, and billing. Clearly, a growing number of organizations are keen to explore cloud infrastructure implementations to scale their existing applications.
The simple fact is that cloud adoption is no longer a matter of ‘if,’ but a matter of ‘what,’ ‘when,’ and ‘how.’ COVID-19 has already changed the business and financial outlook of many enterprises globally. It has decimated the travel, transport, and hospitality industry on one side. And on the other side, it has accelerated the growth of gaming, FMCG, and hyperscalers. But both ends of the spectrum have one thing in common: they have started adopting the cloud, whether as a natural choice or a forced option.
Now, the biggest concern for enterprises is to stay in control of cloud costs and monitor how technology teams equate the cost spend to the generated business value. Hence, the key facet of a cloud migration initiative is also its economic viability. Enterprises must manage their cloud costs to generate positive net value for the business.
According to a 451 Research study, 80% of respondents acknowledged that poor cloud financial management has had a negative impact on their businesses. Another 85% reported overshooting their cloud budgets, while 57% said cloud cost management was a daily worry.
The key facet of a cloud migration initiative is also its economic viability. Enterprises must manage their cloud costs to generate positive net value for the business.
The New Realities and Challenges of Cloud Implementation
To develop well-rounded cloud cost management abilities, enterprise leadership teams must thoroughly understand the new realities of cloud implementation. Here are some ways in which cloud implementation has evolved:
- Procurement on the cloud is no longer centralized. It happens across technology teams.
- Variable/consumption-based cloud spend models are dominant and are replacing fixed-cost spend models in data centers/on-premise environments.
- Macroeconomic instability, including the recent COVID-19 situation, is pushing organizations toward greater efficiency while leveraging cloud technology.
- A robust operating model that aligns business, finance, and IT is the need of the hour in the cloud world.
Cloud has not only blurred the boundaries within IT but is also creating cross-functional teams and enterprise-wide collaboration. While the benefits of unified processes are apparent, the challenges lie in understanding and optimizing the cloud spend across functions. For instance, procurement teams are used to buying IT assets as a part of the CAPEX model through a centralized method. However, as cloud services can now be availed on demand by any individual within the ecosystem, the highly decentralized manner of procurement creates a misalignment between IT and Finance. Technology and development teams are in need of cloud services for solution innovation, but this results in massive cloud bills that the finance teams are unable to entirely understand, causing inter-team friction. A lack of clear understanding and cohesion between teams, especially IT and finance, is detrimental to seamless cloud adoption.
To avoid these scenarios and enable enterprises to unlock the full value of the cloud, the economics must be managed smartly. This can be achieved through a framework of set processes that break silos and encourage collaboration where companies can align their business objectives with the necessary trade-offs between quality, cost, and speed.
Communicate, Correct, and Collaborate
When a football team takes the field, the collective goal is to win. However, every player has their own unique abilities and expertise. All 11 players need to play to their individual strengths, whether in the role of a quick back, a goalkeeper, a forward, or a defender. Only when they collaborate with one another and complement each other’s skillsets, they become match winners. This analogy applies well to the stakeholders in an enterprise. The technology, finance, and business teams need to actively collaborate to achieve the goal of optimizing cloud costs.
In this context, cloud economics management (CEM) plays the role of a coach. CEM steers the cross-functional teams toward the common goal of effective cloud cost management, which, for an enterprise, is maximum business output at minimum cloud costs.
CEM is an iterative process that may require a change in the culture and mindset of your organization. To achieve it, the key tenet is to follow the three Cs: communication, correction, and collaboration. These three Cs apply to all enterprises, irrespective of whether they are in the ‘crawl,’ ‘walk,’ or ‘run’ stage of their digital transformation journey.
Communication is the first and foremost step in this iterative process. It offers stakeholders the required visibility, insights on allocation, budgeting and forecasting, and benchmarking within and across industry peers. Insights derived during the communication phase empower individuals and teams to identify and suggest required corrections to the cloud environment, such as under- or over-utilization of resources, removal of surpluses, automation for optimization, and revisiting buying options to get discount benefits on subscription spend.
During this phase, the CEM team will set goals and metrics that will lay the foundation for the stakeholders to collaborate and take action on the areas of improvement identified in the previous phase. Within enterprises, the adoption maturity of this model varies across business units based on multiple factors. The CEM team plays a critical role in driving best practices across these different teams, based on the cloud maturity adoption across these phases and stages. Organizations must embrace the CEM framework as an integral part of the CCOE, involving business, finance, and IT stakeholders.
The following table offers a quick view of the CEM framework across the crawl, walk, and run stages of digital maturity.
Figure 1: The CCC Model across stages
Organization Structure for Successful CEM
The right team structure is critical to achieving CEM success. The following graphic demonstrates how cross-functional teams that adopt CEM interact with key stakeholders to develop enterprise financial accountability, offer visibility, and increase the benefit of cloud adoption for business growth.
The key elements of organizational structure features for CEM success are:
- Strong executive sponsorship from the CIO/CTO/CFO
- Cross-functional team alignment between business, IT, and finance
- CEM teams to define a common language to communicate with stakeholders
- Technical decision and its cost accountability pushed to the ops and technology teams A strong culture of shared accountability between teams
Key benefits of adopting a CEM framework:
- Real-time visibility of cloud spend across stakeholders
- All stakeholders communicate in a common language to meet the cost objective
- Assured trust and transparency liberates teams to focus on their core deliverables
- Smart cost management enables the timely investment for innovation
Every aspect of a business stands to gain from the cloud infrastructure. CEM is the obvious next step to achieving radically improved productivity and cost-efficiency from cloud adoption. The CEM model is all about bringing a cultural and mindset change in how to handle cloud spend compared to the traditional cost model in an on-premises environment. It gives more financial accountability to business agility initiatives. The post-pandemic world will require enterprises to scale quickly with agility, and the cloud will be one of its key drivers. With the growing use of cloud, a robust CEM framework will help shape and secure the digital future of enterprises.