Tips for leaders of small/midsize organizations on OpEx optimization with a focus on cloud usage.
Gartner states, “Seventy percent of enterprise workloads will be in the cloud by 2024, yet three out of four organizations do not have a fit-for-purpose cloud strategy.” Gartner further states, “Although it’s best to craft a cloud strategy before adopting cloud computing, that’s rare. Most organizations devise their cloud strategy after they have gained some experience with the cloud.”
Why do most organizations need a cloud strategy to manage their higher Operating Expenses OpEx budget related to the cloud? Before answering this question, we must understand a few facts about the cloud and how most organizations got here.
In the past few years, in addition to remote working, the other top reasons for increased cloud adoption are changes in product/service delivery, new channels for connecting/reaching customers, changes in organizational processes, and maintaining a competitive edge. According to Gartner, more Than Half of Enterprise IT Spending in Key Market Segments Will Shift to the Cloud by 2025.
Every small and mid-size company, irrelevant of its technology profile, uses the cloud to deliver services to its employees and clients. The technology profiles of these companies can be divided into three types:
Technology Enabled – Ability to drive distribution via online digital channels.
Technology Led (SaaS) – The core value proposition is customer-facing technology and Back-office.
Technology-supported - Technology that enables the core business to generate revenue or supports critical back-office functions.
Lacking a cloud strategy, these companies have seen an increase in the expenses for cloud usage, sometimes three to four times, as they scale their operations. Many times, these expenses become a surprise for the leadership team. To keep the cost down, these companies miss some of the critical benefits of the cloud, including more flexibility and reliability, increased performance and efficiency, and lower IT costs.
Some significant challenges facing many organizations related to cloud spend come from not having a holistic cloud strategy or the cloud strategy not tied to the overall business strategy with no apparent (Key Performance Indicators) KPIs to understand and track anticipated spending on cloud year by year. This scenario makes it challenging to recognize if they are getting the full potential of the cloud from an economic point of view. In addition, cloud environments are dynamic, and costs can change rapidly as new services are adopted, and application usage grows.
Another widespread problem the companies have encountered is cloud vendor-specific services. Many of these services can be quickly integrated into customer application(s), saving time and cost and promptly providing the needed business features. Many organizations start using these cloud services and later find them costly as they scale.
A well-defined cloud strategy and expected total cost of ownership (TCO) on the cloud can make cloud usage more manageable. Cloud cost calculators can estimate future costs using realistic assumptions - including the amount and nature of storage used, computing resources, considering instance types, operating systems, and specific performance and networking requirements. Working with cloud providers to understand the options for cost savings can also help significantly reduce OpEx related to cloud consumption. Cloud providers offer multiple pricing models and provide deep discounts in exchange for long-term commitment to cloud resources (reserved instances) or a commitment to a certain level of cloud spend (savings plans). These discounts must be factored into your business plan to understand the long-term cost as you scale.