CFOs/CIOs: The Fatal Error in Your Cloud Strategy?

Not too long ago I visited a client and Cloud was on the agenda. The Head of IT took great pride in taking us through his strategy. But it quickly became apparent that he’d been taking his company in the wrong direction - for the past 3 years.

The key motives behind their company’s move to Cloud were "to achieve cost efficiency and business agility." But they began the Cloud journey with Infrastructure… A fatal error! They missed 3 years of real savings and incremental value.

“They began the Cloud journey with infrastructure… A fatal error!”

Quick Definition:

Infrastructure* - metal boxes that host data and run programs

Cloud** - IT services accessed over the internet and paid for on a subscription basis (OPEX). Updates & maintenance carried out by the vendor. Cloud is made up of three layers: applications, platform and infrastructure

Let's take a look at how IT costs are split in a typical company:

As you can see, infrastructure only accounts for about 10% of the Cost of IT. So why focus efforts on cutting costs from the smallest piece of the pie?!

“Why focus efforts on cutting costs from the smallest piece of the pie?!”

Quick Definition:

On-premise - Traditional IT. Paid for up-front (CAPEX) and maintained internally by your IT team. Updates carried out periodically by your IT team on a CAPEX basis

Now don’t get me wrong, ditching existing on-premise infrastructure and shifting to the Public Cloud* (Infrastructure-as-a-Service, or IaaS) does have its benefits; security and flexibility for example. But realistically, IaaS can only save companies about 5% of the total cost of IT.

Quick Definition:

On-premise - Traditional IT. Paid for up-front (capex) and maintained internally by your IT team. Updates carried out periodically by your IT team on a capex basis

“ Realistically, IaaS can only save about 5% of the total cost of IT”

The majority of time, in the majority of IT departments, is spent tending to ‘keeping the lights on’ activities. Systems admin, application performance management, application customisation, integration, upgrades… And moving your existing on-premise systems to a cloud environment doesn’t eliminate any of those problems.

"Moving your existing on-premise systems to a cloud environment doesn't cut down time spent on "keeping the lights on" activities"

Back to my client

So, back to my client. I started to draw the diagram and he told me that about 70% of their IT costs were staff-related. I asked: “So, your goals are cost efficiency and business agility. How much of your team’s time is spent ‘keeping the lights on’?” His answer? “Too Much.”

“ How much of your team’s resource is spent on ‘keeping the lights on’?” – “Too much.”

It quickly dawned on my client that he'd been looking through the wrong end of the telescope.

Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS) eliminate a huge chunk of the low value-add activities that plague IT departments. PaaS enables IT teams to quickly develop and deploy applications – and it removes a huge proportion of low value-add headaches, including systems admin, management and integration. SaaS vendors handle application hosting, manage performance and perform upgrades as part of the service. Furthermore, SaaS applications are highly configurable, which eliminates the need for heavy customisation – and they’re usually about 20% less expensive than on-premise options. Why do the dirty work yourself when you can get someone else to do it for you?

How much money can SaaS and PaaS actually save you? I’m aware of customers who’ve been able to reduce the time spent ‘keeping the lights on’ by 50%. But without attaching a number to it, it’s fair to say that the time savings and productivity benefits are significant. SaaS and PaaS are where businesses can save the real money.

“SaaS and PaaS are where businesses can save the real money.”

So where should you start? In the area that has the most potential to reduce costs and add value - SaaS. And to see significant benefits, fast - you should replace on-premise apps that take up lots of IT's time, and where new levels of flexibility and new capabilities also add a lot of incremental value - like ERP. Thousands of organisations are already on the 'Journey to Cloud' with SaaS and PaaS, with companies across the Fortune 500 and FTSE 100 all drinking the Kool Aid.

If you’re not already neck deep in SaaS and PaaS, what are you waiting for?

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*Infrastructure is a collection of resources that support an IT environment, including: servers, storage and network components.

**There are three types of cloud: Public, Private and Hybrid. For simplicity, I've discussed Public Cloud - the most commonly used and the one that people are usually talking about.

Zak Nason is a business consultant with multinational experience developed at major blue chip organisations, mid-sized enterprises, start-ups, and as an entrepreneur. He’s passionate about using technology to create business value. He spends his time advising the leaders of FTSE-listed and large privately held companies on finance and supply chain optimisation.

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