Most companies have already been through a first phase of driving cost efficiency in their IT infrastructure, taking measures such as consolidating their global data centres and outsourcing infrastructure operations. However, according to the hype at least, the cloud promises to offer a whole new wave of cost reductions, efficiency savings and service improvements.
But are cloud services really ready for the big time? By which I mean not just for supporting the odd website, but for big, mission-critical, transactional systems (eg ERP) for top-tier, global companies?
Well, my answer is an unequivocal (if still cautious!) yes. This is based on working with two clients – a FTSE 250 manufacturer and a FTSE 250 consumer goods company, both global brands and household names – on programmes to move their data centres to the cloud.
Of course, cloud is one of those terms, like Big Data, that is used to describe a very wide range of services. I am talking here primarily about the virtual private cloud or the private cloud – with VPC arguably offering the most promising ‘best of both worlds’ combination, many of the cost and agility benefits of public cloud, but with the control, tailoring, security and risk mitigation benefits of traditional hosting.
We don’t currently see public cloud as being the preferred option for these sort of industrial strength corporate applications – other corporate uses certainly, but ready to host the transactional ERP systems of some of the world’s largest companies? Probably not yet – but it will be interesting to see how the space develops. One of our clients, a large energy company, has moved the entirety of its external website hosting to the public cloud, while another client, a major automotive manufacturer, is in the process of putting its SAP CRM on public cloud. But we haven’t yet seen anyone put true ‘backbone’ ERP on public cloud.
But with VPC, it really can be like having your cake and eating it: with a well-run and well implemented service, the pure economies of scale mean that it should be able to offer a better service at a lower cost.
Taking my earlier example of a FTSE 250 manufacturer moving the entirety of a global data centre (both SAP and all non-SAP, Windows and Unix), the transition will have achieved:
– Total operational cost savings (on a cash basis) of 42%
– Service level improvements – most key SLA metrics (for availability, incident & change management, etc) were better than previously and the remainder were the same
– Flexibility – a largely (but not completely) utility-based pricing approach, with a 50% capacity floor, means there is ample room for major service changes (eg to support corporate acquisitions or divestments)
– Responsiveness – the time to stand up new environments (eg new development and test environments for projects) will go from a matter of weeks to a matter of days (albeit still not hours/seconds like public cloud would be)
– Security – having done extensive review and analysis, the client’s internal IT security experts considered the cloud service to offer the same or better IT security overall than under their previous hosting arrangements – despite the multi-tenanted approach. Importantly, the contractual recourse (ie warranties, indemnities and limits of liability) in case of security breaches is also better than their previous arrangements
Of course, in moving to the cloud there are many issues to consider and which need to be got right. For example, the pricing model (noting that typical commercial offerings in VPC or PC don’t offer 100% utility pricing), asset ownership and refresh, the legal terms and conditions, the scope of the service (does it include Application Management for example?), and data sovereignty (where will your data be physically stored and therefore what legal and regulatory regime will apply?).
There could also be significant implications for the way that major software products (such as Oracle and SAP) are licensed – an area where you may need to seek expert independent advice. While moving some applications – such as those which sit on non-virtualised platforms or that currently run on legacy OS platforms – could have a higher risk profile and will need to be carefully managed.
Then there is managing the transition and transformation project itself, plus the implications of the move for the internal IT team: you are likely to find skill requirements shift more towards supplier management (building a good relationship with the cloud service provider) than some of the technology skills that had greater prominence before.
Quite a lot to think about then. But with really material cost savings possible, plus service level improvements to be achieved, our view is unquestionably that if CIOs are not exploring this already, they should be – and will be soon.
