How to Sell the Cloud as a vehicle to Deliver Consumption-Based Cost Allocation

Cloud for Consumtion-based computing

In order to align their IT plans with the overarching business objectives of reducing cost of ownership, increasing speed to market, and delivering compliance, many IT executives are trying to sell cloud strategies to their business counterparts across a quilt-work of value propositions:

  • The “Technology Argument,” which centers around three themes:
    1. Compute elasticity: “Rather than building an ecosystem based on maximum capacity, ‘the cloud’ will enable us to have systems dynamically allocate technology based on our needs”
    2. On-Demand computing: “With ‘the cloud’ we will have the ability to rapidly install systems that today take us weeks to do in our current model
    3.Geo-Diversity: “With ‘the cloud’ we can distribute our systems across multiple geographies to provide disaster recovery and improved performance
While these technology arguments are valid, very often the architectural limitations of their applications and infrastructure actually prohibit one or all of the above, mitigating the perceived benefits. For example, if your applications are not multi-threaded, compute elasticity is impossible.
  • The “Cost Savings” argument:

    1. “If we move our systems to ‘the cloud,’ we can save a bunch of money
    2. “If we move to ‘the cloud,’ we can reduce our headcount

Cost savings is always a great thing. However, a lot of companies find they cannot actually achieve this goal because, again, it is highly dependent on how you architect your cloud solution. If you’re moving your systems to Amazon’s AWS, all you get is hardware. You will still need to retain your entire application development, support, testing teams, etc. You’ll also need to retain the majority of your infrastructure support staff. In other words, the cost savings end up being too small to overcome the inherent fear/risk that many business executives still associate with placing their assets in the cloud.
  • The “Technology Treadmill” argument:
    1. “We are just not as good at managing the technology as they are
    2. “We can stop the vicious cycle of hardware refreshes, security patching, etc.
ICS has actually seen this approach work quite well in organizations that have recently been devastated by viruses and other security breaches. However, if you’re maintaining your core Intellectual Property inside your walls, you have to continue to ride the treadmill, albeit at a slower pace.

And, so on and so forth. There are a lot of different approaches being worked to sell cloud strategies, all with varying degrees of business alignment and success.

ICS would like to turn the prism on this topic. . . As former IT executives, the ICS leadership team was thinking back to all of the budget discussions we’ve had with our business leadership teams. Each year, quarter, sometimes even each month, we had to sit across the table from CFOs trying to justify IT allocations, even for services for which they didn’t even use. You know the story; it goes something like this:

“The total cost for IT is $XXX. Your business accounts for Y% of the total user population. So, we allocate Y% of $XXX to you. We realize you don’t use all of the services, but it’s the cost of being part of the enterprise. Some use more, some use less, and in the end, it all equals out.”

If you’ve been an IT executive, you’ve probably had this conversation more times than you’d like to admit. And, each time, your business counterparts give you an earful before begrudgingly acquiescing. As they say, it’s a dance as old as time.

In other words, the business is asking us a simple question:

What are my actual costs and why can’t I just pay for what I need/use?

And, while it is a simple and a fair question, it is not an easy one to answer. The costs to provide this granular level of usage and cost allocation are astronomical, the processes complex, and the existing technology ecosystems are frequently too complex to segregate into discrete services. For example, how much does a file server cost? There are data center costs, hardware, software, licensing, staff, help desk, networking, etc., etc., etc. We just didn’t build the organization to enable this level of analysis.

Now, let’s get back to how to sell a cloud strategy story . . . ICS has been working with a client to sell the business a four-phased program to deliver a consumption-based cost allocation model that will also align IT with the corporate strategic goals. Before diving into the four phases, following is a brief business summary:

  • Global media and entertainment
  • Highly decentralized businesses, with highly divergent cultures, all managing their own P&L
  • Strained relations with IT
  • Of their composite strategic goals, there were three in common:
    1. Reduce operating costs
    2. Increase speed to market
    3. Protect and exploit intellectual property
  • However, even more critical than the above strategic goals, a priority for each business is to remain autonomous

It was the final bullet that proved the most challenging and the reason we came up with the idea of approaching the business with the value-proposition of consumption-based allocation. We explored the others:

  • Technology approach was not feasible. The architecture was not mature enough to deliver any significant value. Plus, the business heads didn’t have enough confidence in IT to entertain this degree of perceived sophistication
  • Cost savings was a good approach. But, ultimately, the studios make so much money that we concluded a cost-savings-only benefit approach wouldn’t sell, especially if there was a possibility the business would/could lose some local IT headcount
  • The treadmill argument was a no-go from before even exploration. The business didn’t trust IT enough to allow them to move services and manage it for them. And, the businesses didn’t have the staff or experience to manage these services on their own.

Candidly, we had some false starts, until our client came to us and said, “I have to go present IT cost to the Finance heads . . . again!” Then, it hit us; this is our value-proposition: Cost transparency and consumption-based cost allocation. Specifically, we proposed the following four-phased approach:

  1. Logical – Centralize all disparate licensing agreements/contracts into one. Then, wherever possible, leverage this aggregate pool of licenses and convert them to a usage-based agreement rather than total number of users. For example, rather than purchasing an email license for every mailbox, let’s establish a licensing pool and pay for just the ones we use. Oh, and by the way, this track of work alone will save $7M over the next six years
  2. Physical – Based on agreed upon criteria, move physical hardware out of company-operated data centers and facilities to a central location (about 200 servers). Oh, and by the way, we will be able to setup new server hardware in 1/20th the time. Oh, and this track alone will save $2M across the next six years in just hard costs. Add to that the other costs such as power, networking, staffing, etc., and the total cost savings is incalculable.

The above two phases are strictly technology changes, but they do deliver cost transparency and consumption-based cost allocation – not across the entire ecosystem, but enough to prove the concept and deliver significant benefit.

With some established credibility, we can now move into the more complex and more guarded areas of the organization: To maximize the value to the company, process and people need to now be aligned with this strategy to fully realize the maximum benefits.

  1. Process – With the changes in technology management and new capabilities, processes need to be evaluated, mapped, and updated to optimize performance. For example, the user provisioning process can be modified to automate and reduce the process time in excess of 75%
  2. People – The final step of our journey is to align our staff with these new technology and processes. This phase of the program will reduce total staff costs by up to 30%

Ultimately, we sold the cloud strategy based on a primary value proposition of cost transparency and consumption-based cost allocation. With success, the business allowed more and more functionality to transition into the cloud, including migrating to Office 365 ($3m cost savings over six years), backup and restore (another $500K over three years), and are now in the process of actually hosting their customer-facing solutions in the cloud, creating an entirely consumption-based customer usage model – the first in the industry to do so.

When all is said and done, aside from the over $13M of cost savings over the next six years (not including staff reductions or savings yielded from process efficiency), several derivate benefits were gained for the overall organization:

  • Increased speed to market for their products
  • Decreased time to integrate newly acquired businesses by 60%
  • Decreased time to launch a new office location by 80%
  • Increased security footprint for core Intellectual Property

So there you have it, a “how-to” guide to sell the cloud as a vehicle to deliver consumption-based cost allocation. Give it a try.