EDWARD WILSON-SMYTHE AND ROBERT BRENNAN HART
“The first rule of any technology used in a business is that automation applied to any efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency.” – Bill Gates
Enterprises have spent the greater part of three decades optimizing technology and service management disciplines around the concept of expensive, complex, disparate solutions that require significant operational oversight, significant time to change consumption patterns, and significant cost and effort to improve. Cloud services, by the nature of flexible on-demand consumption, are not suited to management and governance approaches based on pre-negotiated baselines or customized pricing for incremental consumption or considerations of fixed cost amortization. These services are most certainly not suited to monthly or quarterly reporting and analysis of consumption and performance, or extended planning processes related to new functionality or lifecycle management.
This gap between traditional management and governance approaches and the nature of cloud services represents a growing barrier to the ability of enterprises to leverage enterprise cloud to drive desired business outcomes.
The value leakage related to unforeseen demand, poorly-managed provisioning, inefficient architecture, immature performance management, and inflexible integration and innovation management can more than double the cost of enterprise cloud services, undo even fundamental benefits related to lifecycle management and almost eliminate the significant cost advantage that well-architected and well-managed cloud services can offer. The data presented below is taken from Avasant Research’s online survey of over 1,500 global technology executives from January to May 2018.
Unanticipated Demand– Clients who are exploiting cloud services for enterprise workloads typically report a 30-40 per cent higher cost than budgeted, based on higher consumption. Forty per cent of this consumption is due to cloud adoption at a faster pace than anticipated. However, with cloud consumption scaling up on a daily, hourly, or even per-minute basis, and capacity decisions for legacy environments being made on a quarterly or annual basis (if at all), there are often no corresponding reductions in traditional workloads, leading to a higher cost with no offsets.
Unmanaged Demand– The larger issue is that close to 60 per cent of this higher cost is due to inefficient or unmanaged consumption of cloud resources, starting with simple issues such as provisioning the wrong commercial model for specific workload needs, to continuing utilization of cloud resources after the on-demand need has been fulfilled. Together, these factors reduce the on-demand nature of cloud consumption and create excess unused capacity that companies continue to pay for, not unlike traditional on-premises or outsourced data center delivery models.
Inefficient Architecture– The single biggest driver of inefficiency is application and integration architecture that is inefficient and leads to higher transaction volumes in and out of cloud environments. While in traditional delivery models, transaction inefficiency does not have a direct impact on costs given the high level of unused excess capacity, these superfluous transactions have a direct impact on cloud costs, as much as 40-50 per cent higher than what can be achieved with well-architected solutions.
Management Complexity– While hyperscale solutions offer a high degree of automation, monitoring and reporting of the native workloads, there is significant cost and effort involved in integrating and orchestrating these services with both applications hosted in an IaaS/PaaS model, and with other services outside the native cloud environment. The costs of instrumentation, monitoring, automation, integration, and reporting can erode any management and governance efficiencies compared to traditional on-premises or outsourced managed services.
Legacy Integration– Inability to restructure operations to support the much higher velocity of change in cloud environments, and the need to ensure these changes are coordinated with and integrated into other workloads, can effectively offset any benefits of lifecycle management that are possible from cloud services. Collectively, the need for increased integration effort, lifecycle management of non-cloud environments, and the management and governance of these efforts can cost as much as, if not more than, the lifecycle management efforts related to traditional environments.
NO MORE SQUANDERED VALUE
Despite the significant progress in cloud adoption, the ubiquity of Enterprise Cloud services, and clear understanding of the barriers to value creation, there remains one final barrier to transformation that has held business innovation back for over two decades and perpetuated legacy and obsolete technologies in enterprises.
The prohibitive cost of transforming obsolete, customized, and inflexible technologies, when combined with lack of capital in many industries, leads to over half of transformation initiatives never seeing the light of day, and over 95 per cent of technology spend continues to be sundered on the maintenance of increasingly obsolete solutions. Even when executed, traditional approaches to transformation are associated with an abysmal track record, with 65 per cent of initiatives failing to meet scope, cost, or time objectives, the average cost overrun being 50 per cent, and a mind-boggling 90 per cent of initiatives requiring immediate remediation due to obsolescence caused by long planning and execution cycles, typically three-four years from ideation to execution.
Progressive technology companies and leading enterprises are responding by disposing of the traditional portfolio management and capital budgeting approach to transformation, and instead adopt Zero Cost Transformation approaches based on:
Significantly reducing or eliminating capital investment required for innovation
Investment by strategic technology partners in the digital transformation program
Compensation for technology partners linked to tangible business value generated, measured, and reported
In 2017, over 25 percent of all transformation initiatives are based on co-investment, and close to one-third of initiatives link some or all vendor compensation to tangible business value generation.
This partnership is made possible by the significantly lower cost of readily available cloud-native solutions, the exponential impact on business efficiencies, increased flexibility to switch technologies and vendors based on open standards, and rapid maturation of the market for co-innovation partnerships. Most critically, by leveraging cloud-native solutions and embedding DevOps into transformation initiatives, enterprises can shrink initiative timelines from three to four years to three to six months; greatly accelerating innovation, reducing cost and time risks, and virtually eliminating the risk of technology obsolescence.