“Cloud” is no longer just a buzzword; it is fundamental to business, and today’s businesses have cloud in their DNA. There are often questions from the C-suite, though, on the associated benefits of cloud adoption. So, as you embark on your cloud journey, it is critical to build a holistic strategy that leverages cloud as a transformation agent to drive business value, ensures operational readiness for the target-state architecture, and addresses financial challenges required for the transformation.
Cloud as a Transformation Agent
Cloud enables organizations to reinvent themselves. The real value of cloud lies not just in its ability to reduce infrastructure costs, but in the opportunities it presents to rethink the business. However, many companies use a lift-and-shift approach to cloud that does not fully harness its power.
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While there are benefits of simply porting an existing application to cloud, companies should modernize their application portfolio to maximize business benefits. Modernization should be anchored in articulating business opportunities—especially for competitive differentiation—and identifying enabling technologies. These activities help build the case for cloud and avoid the fatigue that often comes with a cloud journey.
Opportunities will vary across industries but may include scaling operations, better addressing regulatory and compliance considerations, improving resiliency, or transforming the customer experience. For example, companies in the auto industry might migrate to cloud to enable smart factories that optimize manufacturing. In healthcare, organizations might use cloud to reduce administrative costs and facilitate data sharing. Insurance companies might leverage cloud-enabled AI to enhance their underwriting capabilities. These are but a few of a broad set of transformational archetypes that can be applied at virtually any company to help align the case for cloud with the business agenda.
Cloud Technologies That Help Build Business Value
As providers’ offerings have matured, cloud has expanded far beyond infrastructure to help companies build value by automating—and offloading—IT tasks that don’t provide business differentiation. In this vein, there are two productivity-improving technology shifts companies can make when migrating to cloud: The first is to capitalize on cloud-enabled advanced technologies, and the second is to shift to higher-order cloud-managed services.
Cloud lets companies quickly incorporate advanced technologies into existing and new offerings—providing agility and scalability and fostering innovation. Examples of these advanced technologies include analytics, machine learning, IoT, and blockchain.
Complementing these advanced technologies is the opportunity to shift to higher-order cloud-managed services, which helps companies offload many operational tasks—such as patching, maintenance, backups, and running the underlying platform—to cloud providers. In this context, managed services is not meant to refer to traditional outsourcing, but rather how cloud providers offer services that abstract from day-to-day operations. Examples include offerings such as databases-as-a-service, containers, and various functions. In general, CIOs should embrace higher-level services to get out of the business of managing non-differentiating activities and improve productivity.
Target-State Evolution
During cloud migration, companies will face many architectural and ecosystem issues. Two such issues are the implications of functioning in an interim hybrid-cloud state and establishing a longer-term, multi-cloud position.
Functioning in an Interim Hybrid-Cloud State
Early in a cloud migration journey, many companies function in a hybrid-cloud state with services delivered simultaneously on-premise and in cloud. Many companies spend months, if not years, in this hybrid-cloud state.
For example, a company may deliver its front-end customer experience via cloud, but still store its data on-premise. This interim state can increase architectural complexity and extend the troubleshooting process during failures. It also requires key services—such as logging and monitoring—to extend their capabilities both on-premise and in the cloud. Additionally, key functions—such as IT asset and financial management—can become fragmented if not correctly integrated.
To mitigate these risks, it’s essential to monitor workload migrations—and their associated dependencies—to ensure that the operating model and tooling support critical operations during cloud migration.
Establishing a Multi-Cloud Environment
Cloud migration also inevitably engenders discussions about vendor lock-in—especially vis-à-vis infrastructure, data, and applications. Clients have responded in different ways, ranging from adopting a highly concentrated single cloud strategy to highly diversified multi-cloud approaches.
In almost all scenarios, organizations typically negotiate and contract with more than one cloud provider but begin with a single-cloud model that best meets the organization’s capability requirements. Once cloud adoption reaches scale, organizations can deploy a multi-cloud model to adopt a best-of-breed approach and expand their capabilities.
To avoid lock-in and enable portability, companies are increasingly adopting open source technologies. Avoiding vendor lock-in, realizing cost-optimization opportunities, and taking advantage of the feature benefits of multiple platforms are usually top reasons for CIOs to consider a multi-cloud approach. Technology leaders should ensure that their governance and operating model can evolve to enabling multi-cloud over time.
Financially Engineer the Transformation
Aside from architecture concerns, another potential barrier to large-scale cloud adoption is securing the substantial upfront investment required. Securing funding, especially in light of COVID-19, is making non-traditional funding approaches, such as self-funding, the new norm. In addition to funding needs, many companies are navigating the realities of parallel run costs incurred while their workloads coexist both on-premise and in the cloud.
Self-Funding Strategies
Self-funding, which involves directing capital gained from savings opportunities to other efforts—thereby reducing the amount of upfront investment required—is one promising method to fund cloud adoption. CIOs are increasingly using self-funding to create a more compelling financial case for cloud.
There are various levers that can reduce the financial burden and minimize financial impacts to help companies pursue large-scale transformation. These levers include tax-efficient strategies, ecosystem partner credits, creative deal structures, and accounting and capitalization strategies.
Companies often seek co-investments from partners to help fund their transformation. For example, organizations are increasingly entering into creative deals that include data center buy-backs or multi-year operating agreements. In these arrangements, a partner purchases a company’s data center, then leases it back to the company during cloud migration—allowing the company to avoid the cost of owning and operating real estate they won’t need long-term.
Another co-investment scenario is operate-to-transform. In this arrangement, an investment partner will take over either a platform or business function to modernize its capabilities over a defined period and return that functionality back to the platform or function owner.
In both scenarios, partners make significant investments and help companies modernize with lower costs. These are but two of the many creative funding strategies companies can pursue as they look to fund their cloud migrations.
Controlling Parallel Run Costs
In addition to funding considerations, companies migrating to cloud are often subject to parallel run costs, which are costs to run dual environments—on-premise and cloud—during cloud adoption. For many organizations, the rate of cloud-adoption far outpaces the rate of on-premise decommissioning. Thus, these companies are faced with increased spend on cloud while still subject to on-premise spend commitments that are not shrinking.
To mitigate these costs, companies can assess their future data center spend commitments and decide how these commitments will be handled financially, as well as how their modernization strategy will impact these spends. Companies should also establish a decommissioning strategy to focus on recovery of licensing costs, efficient disposition of assets, and control of on-premise spending. Understanding how the balance sheet evolves across time and aligning migration and decommissioning strategies with spending goals can help minimize parallel costs.
What’s Ahead
The cloud is truly transformative. With cloud, organizations can increase revenue growth to drive improved business outcomes and access new technologies that help them enhance their operations to better serve their customers and grow their brand. Nevertheless, many CEOs are still leery of going all-in on cloud due to technology, architecture, and funding concerns. However, the COVID-19 pandemic has changed the game and has provided a critical impetus to modernize to cloud—and quickly.