• Sam Wilson, UK Country Manager at Serviceware SE


• 14.09.2023 05:30 am
#cloud

These last few years we have witnessed many businesses rapidly embrace the cloud in a bid to stay competitive in an ever-evolving digital world. For businesses adopting an all-cloud strategy, the migration to public cloud offered greater scalability and cost savings – with companies only needing to pay for what they needed. However, in the mad rush to digitally transform and remain competitive, many organizations underestimated their cloud infrastructure and platform services consumption rates, leading to higher costs and missed opportunities for savings. 

As we look ahead, it is predicted that by the end of 2023, 40% of organizations in Europe are expected to establish a dedicated FinOps practice to enhance the transparency and efficiency of their IT budgets, according to IDC. By doing this, organizations will free up 15% of their cloud spend, allowing them to reinvest in new capabilities for the cloud, which will help to fuel innovation.

Is it time to re-evaluate your cloud strategy?

The result is that cloud costs have skyrocketed - far exceeding IT departments’ expected budgets in many cases and resulting in businesses experiencing what VMWare call ‘Cloud Bill Shock’. The much-anticipated economies of scale from the hyperscalers have yet to materialize; and AWS, Google and Azure are no longer able to compete on price with on-premises solutions. So, against the backdrop of rising inflation and economic uncertainty, it’s natural that businesses are re-examining their cloud investments and, in many cases, taking the decision to reverse their cloud migrations. And this isn’t only driven by cost, but good governance.

So, is the age of the cloud first strategy over? Are we about to witness large-scale repatriation of workloads back on-premises? While this may be a little extreme, businesses today are certainly beginning to question whether they need to move everything, or indeed anything, to the public cloud. Many organizations that initially rushed to migrate lock, stock and barrel are now back-pedalling, or at the very least exploring a hybrid model of public cloud, private cloud and on-premises. And while some analysts predicted that rising interest rates would result in a slowdown in cloud spending, could it be that the current economic climate is now the catalyst for a much-needed rethink and possible overhaul?

Rightsizing: The foundation for optimizing your cloud costs

There’s no question that the cloud has radically transformed IT and businesses over the last decade, and the adage: ‘don’t throw the baby away with the bath water’ should be applied here. Reverse cloud migration is not as simple as putting everything back on-premise, and the business case doesn’t necessarily support this either. The agility of the public cloud has always been its greatest value proposition – something we witnessed during the COVID-19 pandemic. However, businesses must recognize there are far better ways to manage cloud costs which also take into consideration how IT as a whole can be best optimized within the organization.

The truth is that businesses have been overspending on the cloud largely due to inefficiencies in usage, rather than because they are overusing resources. With various sources suggesting that around a third of cloud spend is wasted, it’s fair to say that utilization has been mismanaged. This is costing businesses millions of pounds each year, resulting in them losing much of the value that cloud solutions promised in the first place. With Gartner predicting that more than half of IT spending will be in the cloud by 2025, there’s an even greater need for cost transparency and optimization today. 

Converting technological expenditures into organizational value

Cutting back on cloud spending does not necessarily mean cutting back on cloud usage – it’s all about fostering good cloud health practices and/or introducing a cloud centre of excellence within the business to help manage cloud provisioning, not just within the IT department but across the various teams and departments within the organization that procure and consume cloud services. The mechanisms, processes, and policies of FinOps - the financial operating model for public cloud consumption – can help solve cloud cost utilization issues, putting the responsibility in the hands of the practitioners and helping create responsible cloud users, but it can only go so far in translating technology investments to organizational value.

To truly understand and manage the business’ technology footprint and enable CIOs and CFOs to account for, analyze, control and optimize IT costs, as well as communicate their value internally they need a ‘single (data) source of truth’. Often described interchangeably, IT Financial Management (ITFM) and Technology Business Management (TBM) are complementary disciplines to FinOps that help improve an organization’s outcomes, particularly where IT spend is large and complex, by mapping technology assets and resources to business impact. The C-suite not only needs a top-down overview of compute, infrastructure and storage costs, regardless of whether it’s hosted in the public cloud, private cloud or on-premise, but other business-critical IT expenditure, such as labour costs, hardware, facilities and power, to deliver the right transparency and charge back to the business. 

Bringing together FinOps, ITFM and TBM

The cloud may be hitting a plateau in the industry, but that doesn’t mean it’s going away any time soon. In fact, Gartner predicts that by 2026, 75% of organizations will adopt a digital transformation model predicated on cloud as the fundamental underlying platform. When it comes to improving cloud planning and forecasting, the developing relationship between FinOps and ITFM/TBM is where the most intriguing improvements are taking place.

Combining both an ITFM and TBM approach allows businesses to manage the financial aspects of IT and ensure that IT investments are aligned with business objectives. Integrating these approaches enable business leaders to compare like for like, i.e. the TCO in public cloud can be reflected in the same way as on-premise services to help business leaders make a truly informed decision about whether to cloud or not to cloud. This is crucial for strategic decision-making especially as we see public cloud spending increase and take up a bigger chunk of IT's overall budget.