As the cloud computing sector matures, enterprises have a rare opportunity to achieve cost-savings and efficiency-improvements – as long as their teams are properly trained for this brave new world.
Are you an IT manager or enterprise director who wants to harness the power and benefits of cloud computing for the enterprise? You need to read this article.
The movement to cloud computing is the disruptive change that IT departments now face as the industry continues to grow and mature. IT managers have a unique opportunity to achieve tremendous cost-savings and revenue growth in this brave new world while developing future revenue opportunities for their firms.
Innovative companies continue to reinvent themselves as unstoppable forces in their markets by taking advantage of the cloud computing revolution. Firms that don’t take advantage of this opportunity will become quickly outdated, and perhaps soon cease to be profitable. That’s why responsible and forward-thinking business leaders make sure their teams have the training they need to make the firm successful.
The standard objective for most large corporations in the midst of a cloud migration is to see more than 50 percent of workloads safely migrated to the cloud by 2025. Of paramount importance is the balanced use of public clouds that that emphasize security and governance.
The value and benefits of cloud computing continue to evolve. The reasons for moving to cloud in 2009 are very different from the reasons in 2016. While the core benefits of efficiency and agility remain the same, some advantages were not on our radar screens prior to this year. Let’s explore the massive advantages cloud computing can bring to the table in 2016.
Businesses Choose Cloud Computing over On-Premises Solutions
The worldwide cloud computing market grew 28% to $110B in revenues in 2015. Synergy Research Group found that public IaaS/PaaS services attained the highest growth rate of 51%, followed by private & hybrid cloud infrastructure services at 45%. The following graph compares cloud growth by segment and market leaders:
Source: 2015 Review Shows $110 billion Cloud Market Annual Growth at 28%
TBR predicts worldwide public cloud revenue will increase from $80B in 2015 to $167B in 2020. TBR found that 49% of the market believes the public cloud is as secure, or more secure, than the private cloud.
Source: Soaring Toward $167B: TBR Projects Key Trends in Cloud
Why Companies Prefer the Cloud
Enterprises believe the current cost of traditional enterprise software is disproportionate to the value it creates. The traditional approach of paid software licenses gets some pushback these days, in light of open source, and emerging cloud computing providers.
The days of IT being a huge cash-suck inside of enterprises are quickly fading. Corporate leadership wants to extract value directly from IT, which means measuring value accurately. Constantly tossing hardware and software at problems have created an environment of overly-complex enterprise architectures that are costly and difficult to manage from both an engineering and financial perspective.
Cloud computing solves the complexity problems in several ways:
- It has the ability to leverage software and infrastructure as-a-service, thus avoiding waves of software and hardware buys.
- It has the ability to place volatility into a domain using cloud-based resources. This makes applications much easier to configure and change.
- It has the ability to expand capacity as needed, when needed. Cloud-based platforms provide auto- and self-provisioning capabilities that allow applications to quickly expand capacity, and the cost is directly aligned with that expansion or contraction.
In these budget-conscious times, there exists intense pressure to reduce the cost of acquisition and maintenance of software solutions. In fact, the on-going support and maintenance of solutions can often be four times the original capital cost!
Cloud Computing Saves Large-Scale Enterprises Time and Money
Current enterprise thinking suggests, as rule of thumb, that the minimum value for cloud migration should provide the business a 50 percent savings versus traditional approaches — at least. These savings include the cost of moving the application to the cloud, or building the application as “net new.”
While these savings has been all over the map, in terms of what is saved, and how it’s saved, the notion is sound. The cost of running workloads on cloud-based platforms will be cheaper than traditional approaches on average. Responsible managers will perform an in-depth analysis on specific workloads to determine the exact benefit of each, and if a cloud migration should be undertaken.
Organizations strive to reduce risk, and want a far more tangible relationship between software’s benefit and its cost. This has also been apparent in the open source movement of the last ten years, and cloud computing is really an extension of that trend.
The days of having to pay huge licensing costs are quickly ending. The evidence of these changes can be found in the revenue trends of the larger enterprise software providers as they are consistently shifting to more cost-effective solutions.
Cloud Providers Recognize the Trend and Constantly Develop Solutions
Cloud providers understand these trends and are providing platform analogs for most of the major enterprise software products.
The best example of this is AWS’s Red Shift, which is a direct replacement for Oracle-based data warehousing solutions. However, the IaaS providers themselves offer storage and compute services that make traditional providers cost-ineffective, and those enterprises are replacing them with cloud-based solutions as fast as they can.
The Value of Cloud Computing in the Enterprise
The drive for reduced risk demands much greater predictability of the running costs for internal software solutions.
One great value of cloud computing is that costs are more stable and more predictable. IT budget overruns were so commonplace that enterprises projected them as a cost of doing business.
According to the Harvard Business Review: “When we broke down the (IT) projects’ cost overruns, what we found surprised us. The average overrun was 27%—but that figure masks a far more alarming one. Graphing the projects’ budget overruns reveals a “fat tail”—a large number of gigantic overages. Fully one in six of the projects we studied was a black swan, with a cost overrun of 200%, on average, and a schedule overrun of almost 70%.”
These IT cost overruns are no longer tolerated. CIOs are held accountable for excessive spending, as related to enterprise infrastructure and application maintenance and delivery. Yesterday’s norm of $200 million dollars in cost overruns on SAP implementations will get today’s CIOs fired within most of the Forbes magazine Global 2000 biggest publicly traded companies.
Challenging the Paradigm by Providing Customers Real-World Value
The value of solutions is no longer determined by the available functionality (most organizations only use a small subset of the available functions in their software products), but by the experiences of the users, in the way that they use and interact with the solutions. In other words, friendly simplicity beats complex bells and whistles.
As we moved to cloud, we also reconsidered how development occurs, and how users experience the applications.
The process of tossing features at users caused a few negative outcomes:
- Users do not find value in the features.
- Users do not use the features.
- Developers spend resources to build the features that are not wanted nor used.
- We pay to operate the feature-rich applications that do not bring the desired value.
The use of cloud allows developers the opportunity of rethinking the value to the end users. This includes mixing and matching cloud-delivered services to meet the exact needs of the user.
I content that the greatest progress is being made with the use of DevOps, or the tighter integration of people, processes, and tools that allows developers to define, design, develop, and deploy applications at the speed-of-need within the enterprises.
While DevOps and cloud computing are not necessarily tightly coupled, they do provide a great deal of benefit when leveraged together.
DevOps’ links with cloud computing are easy to define, as in a recent article I wrote for TechBeacon:
- The centralized nature of cloud computing provides DevOps automation with a standard and centralized platform for testing, deployment, and production.
- In the past, the distributed nature of some enterprise systems didn’t fit well with centralized software deployment.
- Using a cloud platform solves many issues with distributed complexity.
- DevOps automation is becoming cloud-centric.
- Most public and private cloud computing providers support DevOps systemically on their platform, including continuous integration and continuous development tools.
- This tight integration lowers the cost associated with on-premises DevOps automation technology, and provides centralized governance and control for a sound DevOps process.
- Many developers who enter into the process find that governance keeps them out of trouble, and it’s easier to control this process centrally via the cloud, versus attempting to bring departments under control.
- Cloud-based DevOps lessens the need to account for resources leveraged.
- Clouds leverage usage-based accounting, which tracks the use of resources by application, developer, user, data, etc..
- Traditional systems typically don’t provide this service.
- When leveraging cloud-based resources, it’s much easier to track costs of development resources and make adjustment as needed.
Cloud computing providers offer vast resources at generally-reasonable prices. I predict that enterprises that fail to take advantage of these resources will face similar results as those who ignored the rise of the Web in the early 1990s. Disaster.
This is a lesson well-learned by the Forbes Global 2000. Many of these powerful companies were schooled in the art of staying current with technology around the Dot Com Boom of the late 1990s.
Those that fought against having a Web presence, considering it “trendy” and “temporary,” found their organization on the outside of an emerging market.
Time Magazine does a nice job of profiling the case of Borders Books. Borders went belly up almost 10 years ago because:
“It was too late to the Web. For years, Borders outsourced its online book-selling to Amazon.com. So anytime you visited borders.com, you were redirected. While at the time it may have seemed like a smart decision to jump on the coattails of the Amazon juggernaut, relinquishing control to another company hurt Borders’ branding strategies and cut into its customer base.”
Borders decided to partner, rather than lead the charge around the emerging use of e-commerce. This meant Borders could not get the direct value from leveraging the Web, and customers viewed Borders as non-innovative.
The cloud presents much the same type of opportunity and, if ignored, downside.
Future Enterprise Cloud Computing Innovations
Examples of cloud-related innovations that we will likely see in the future include:
- Automobile companies that can quickly change product lines and manufacturing processes to keep up with a quickly changing market.
- Nissan can quickly change internal and external processes to quickly manufacture electric cars that will compete with Tesla Motors.
- Ford and GM could be massively impacted if consumer tastes change more rapidly than their IT infrastructure can manage. They won’t build competitive cars in a tight market and no amount of investment will bring them to parody.
- US Health care companies’ ability to change IT processes to comply with new regulations such as the Health Insurance Portability and Accountability Act of 1996 (HIPAA).
- There is a clear need to rethink the role of cloud computing by those charged with HIPAA security and policy because of the US law’s complexity.
- The key to success is understanding the existing requirements, and understanding how the emerging use of cloud computing could provide compliant HIPAA solutions.
- In many cases, leveraging cloud computing will improve upon the best practices and technology that exist today, and provide those who leverage cloud-based systems a leg up on those who don’t.
- The ability for technically-intensive companies, such as those that process financial transactions, or those that process images and video, to significantly reduce costs, and be more competitive.
- Video rendering is a huge and costly process.
- Those who maintain on-premises systems are likely to spend the most money, with the least return on the cost of hardware and software.
- The elastic nature of cloud computing makes the automation of these processes much more cost-effective, and provides the ultimate in scalability.
- Cloud creates a strategic advantage that businesses can leverage to push others out of their market.
“Borders was too late to e-books. In a similar vein, Borders didn’t foresee the rise of e-books t Amazon and Barnes & Noble did. Borders didn’t develop its own e-reader to compete with the Kindle or the Nook. Borders only opened an online e-book store a year ago (article initially published in 2010). And when you walked into a Borders, you barely knew that they sold e-books for devices like the Kobo and Cruz. By contrast, Barnes & Noble went all out with the Nook when it was released in 2009 — when you walk into a B&N now, the Nook kiosk stares you right in the face.”
This is a key challenge with innovation. Businesses that adopt innovation incur risk. However, they may also incur rewards for successful innovations. Failure to innovate means a failure to move at a rate determined by the market. In the case of Borders, it failed to keep pace with its competition.
We face the innovative use of cloud-based resources, as both a risk and an opportunity. The cost of risk continues to decline as more enterprises successfully migrate to the cloud. At the same time, enterprises view change as costly and risky, and thus find easy excuses to avoid change. This risk-aversion will drive many businesses into the ground over the next few years, and there will be many ‘Borders stories’ that will be reported in 2017 and 2018.
Understanding the Benefits of Cloud Computing for Your Business
We’ve made a pretty good case for cloud computing. It can quickly meet the needs of businesses, as well as scale on-demand. However, there is much more to the value of the cloud than we originally thought, and the benefits of cloud continue to quickly evolve in tandem with the technology.
It’s time to understand the benefits of cloud computing as they relate to your organization, enterprise, or business. Take a close look at what you’re currently doing with IT, good and bad. Use this assessment to determine the value points, in terms of cost savings, including development and operations.
The largest values can be found in the agility angle of cloud computing, as well as in competitive advantages that can give you a leg up on the competition. Miss this opportunity, and it could mean your business. That’s a fact.
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