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Grey Clouds over Cost Savings

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By Michael Queenan, Director – Nephos Technologies

If you are looking at Cloud for just cost savings you’re going to be disappointed.

Let me start with a bold statement – Cloud, as a vanilla term, is not the cost savings beast that everyone has been telling you it is. Don’t get me wrong there are cost savings opportunities in certain areas – which I will come on to later – but if you are looking at Cloud for a pure cost saving exercise you are likely to be disappointed.

As a quick introduction, and in case you haven’t heard of Nephos Technologies before, we are a completely independent Cloud services firm that was started due to the lack of openness and transparency we heard from our customers. We kept hearing that there didn’t seem to be enough companies looking to help customers understand Cloud, providing honest, unbiased advice and recommendations into how and where customers could and should look at Cloud services. So that is where we started from and one of the key services we provide.

The part that most amuses me about this topic is that it is a problem caused by the Cloud providers themselves as highlighted beautifully in Daniel Steeves post (Stop Selling Cloud). Everyone knows there is a big opportunity in Cloud, as all the analysts keep telling us, so it is the old “Field of Dreams” approach: “if you build it they will come”. Instead of trying to understand how their customers businesses work and where is the most appropriate place to look at Cloud, all these companies realised they had spent millions on building a Cloud and needed to sell it, so the easiest place to start was create an ROI whether that is real of imagined.

Really Looking at Costs

In my opinion the first thing that needs to be done before looking at any Cloud service is to truly understand the cost of running this service in-house. Surprisingly to me this is still something that most organisations don’t have a handle on yet, and until these costs are understood there is no way to know if moving them outside the business is better or not.

Building out the overall internal cost of a service isn’t just about hardware there are a number of other elements that need to be included; hosting, electricity, cooling, management, refresh rate, write off period etc. The last point is especially important in certain market sectors such as Public Sector as their write off periods can be up to 10 years. Trying to build an ROI on hardware that isn’t going to be replaced for 10 years is impossible! The cost argument can also be a difficult one to make for certain markets as they are not setup to suddenly drop 50% of their capital budgets, but have their operational cost increase by 400%.

The problem I’m starting to see in this area, more in the SME and Midmarket organisations, is that because there are now so many un-regulated Cloud companies out there trying to sell their services on cost rather than business benefit is that when they don’t get the savings, or service, they expect which ultimately leaves the customer disappointed or disillusioned with Cloud as it doesn’t live up to the hype. I believe this is why the work of organisations such as The Cloud Industry Forum is so important and needs to be encouraged to help act as a kite mark to stop the cowboy companies out for a quick buck.

Where Cloud does Help

Despite these challenges, it’s not all doom and gloom. If you look at Cloud services for more than just cost savings your business will undoubtedly reap the rewards. There are a number of areas that I believe Cloud is great for…… and I do!

– Agility: This to me is the biggest reason to look at Cloud from a business perspective as the ability to “right size” your environment based on usage is hugely key to a number of markets such as; retail, media, consumer brands whose infrastructure requirements go up and down depending on time of year

– Management: For organisations with small IT Teams this is a huge consideration. The fact that they no longer have to worry about hardware upgrades, patch management and overall operational cost of keeping services running means they can focus on delivering business innovation through IT.

– Get access to enterprise software you couldn’t afford before: The days of only large enterprises having access to enterprise software is long gone and SaaS provides companies of all sizes access to software that enables them to compete with organisations of a much bigger size.

– Certain Cloud Services do work on an ROI model: There are a number of Cloud services such as DR as a Service, Storage as a Service and Backup as a Service that are very easy to build out an ROI due to the known costs of providing these services in-house. A good example is backup where Nephos Technologies partners with companies that can provide this service for around £1500 per TB per year, which is hugely cheaper than providing it on-site.

– Test and Development: To me this is a no-brainer as it greatly reduces the cost of deploying these types of environments and also decreases the time to market for new services through the software lifecycle.

– Technology Refresh: This is the time when an ROI argument comes to the fore if customers are looking at changing from a capital to operational model.

– Mobile/New Markets: With a number of companies looking into interacting with customers in a new way (mobile/social media) and also looking into new international markets Cloud provides an easy way to test these strategies without a huge investment.

To highlight the fact that if you understand the customers business requirements it is indeed possible to offer cost savings through Cloud; Nephos Technologies recently completed a piece of work for a European retailer where we delivered 45% savings on predicted capital expenditure, 38% savings on overall operational cost and 61% savings on IT for opening up a new site. We did this by understanding their business plans and matching services to these problems, not by pumping a load of numbers into a spreadsheet to demonstrate an ROI.

The last thing I will say on this topic is that Cloud needs to be looked at the same as any new technology and should be based on business requirements not because it is the latest flashy thing to do. You need to understand why you’re considering it as an option and what the end game is – what benefit are you really trying to achieve!

Cloud needs to be looked at the same as any new technology… what benefit are you really trying to achieve?!

At Nephos Technologies our Cloud Feasibility Study delivers an adoption strategy that highlights the areas we believe you should, could and definitely should not look at as potential candidates for deploying Cloud services. It starts with speaking with line of business managers to get an understanding of how your business works and what your future business plans are . We also evaluate your current IT infrastructure to understand development plans and changing requirements. Then, and only then, do we feel we are in a place to start looking at where Cloud might be able to help our customers achieve those goals.