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The Stack Archive

Using the cloud to increase return on investment and not just reduce cost

Mon 30 Jun 2014

tilley-7563_small[1]As cloud technology and know-how increasingly matures, Keith Tilley believes organisations should now look to invest in its agility benefits in creating a more dynamic and responsive business rather than just cheaper and flexible IT operating costs

As if gaining visibility into what is being spent on IT services isn’t already difficult enough, it’s necessary to factor in what might or might not happen in the near future. As the economy begins to bounce-back – and note that we ‘officially’ moved out of the recession on the 9th May – many organisations are expecting a movement in IT costs and an element of reduced predictability; 70% of respondents in fact from our recent research conducted with IDG Connect.

However, this movement is still very much focused on savings rather than investment, and over half of respondents expect to significantly or dramatically reduce costs over the coming years. Given the continuing uncertainty over the macro-economy, the business challenges of dealing in a global market and the need for governments and public-sector authorities to reduce costs, it’s no surprise that just 8% of respondents are expecting to see a rise in cost of operations.

Alongside this, new business models are adding further pressure on IT. In the late 1990s, when companies were deploying large, monolithic ERP systems and their first e-commerce projects, it was accepted that IT would often take years to show an ROI. However, these days – and particularly as we are in a recovery / low growth phase – IT has to show that it can generate ROI in under a year and often much faster than that.

The question is: how do organisations deal with these financial pressures, particularly as many will have sweated assets and underinvested in IT during tougher economic conditions? How can they ensure that IT continues to deliver quick ROI wins?

Many CIOs now believe that investment in cloud technologies is the best way route to achieving these goals. Adoption levels are continuing to rise as more businesses buy into this popular model of computing consumption. In fact, recent research from Kable suggests that spending on cloud services will grow up to 13 times faster than what companies are spending on IT hardware and services. UK cloud budgets are set to grow annually at a 34% compound annual growth rate (CAGR) until 2018, according to the research house.

Not only will cloud save businesses money in the long run, but its flexibility and speed of deployment means that the cost of business failure is reduced, enabling entrepreneurs to re-invent their business models in a time where innovation is key to business success.

Alternatively, one popular route is through extensive use of third-parties – for example service providers – that can offer significant economies of scale, access to deep domain expertise and shared datacentre facilities.

Moving to a managed cloud service will provide buyers with the ability to relinquish management of some day-to-day operations and gain more accurate and reliable service level agreements (SLAs), higher availability and the resilience to focus less on disaster recovery. An organisation will also benefit from much lower upfront costs than on-premise deployments and a faster start to projects and programmes.

At the same time, finance directors will like the flattening effect of subscription tariffs in the cloud. It has few surprises and instead costs are better aligned with true value delivery than traditional, rigid enterprise software pricing.

Having a close working relationship with the managed service provider will ensure ‘open book’ accounting and predictable cost models. Service catalogues, for example, provide an at-a-glance view of what’s available from the IT portfolio. A menu-like approach and clear vocabulary allow constructive conversations with the business, support standardisation and reduces complexity.

Chargeback, on the other hand, presents a way to bill lines of business based on their levels of consumption. At the same time, it relies on capacity and demand management, and to a lesser extent, metering to measure how far services matched up to SLAs.

Research stats from IDG Connect show that more than half of respondents (53%) currently use both chargeback and service catalogues. Certainly, chargeback and show-back schemes are one way to demonstrate transparency in spending and what it has provided, proving evidence to show that IT is a strategic enabler rather than a cost centre. This can then be used to educate business departments and help drive behavioural change to reduce costs.

Having a clever ICT strategy won’t, on its own, ensure the prosperity of an organisation but it does leave it with a platform for agility and, with the right processes in place, with more visibility into spending and the value of their investments. With 82% of respondents looking to move to smart sourcing, partners that deliver service assurance, value and quality at low risk, offer CxOs a flexible tool for dealing with uncertain futures.

Keith Tilley, is EVP EMEA & APAC for Sungard AS

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