Don’t Move To The Cloud Just To Improve Your Cost Structure



A lot has been rightly made of the cost-savings benefits of cloud computing. But if that’s why you’re considering moving your applications, hardware, development tools—or any combination thereof—into the cloud, you’re going to be in for a surprise.

Here’s the thing: Cloud computing saves organizations a lot of money by allowing them to shift the cost of maintaining hardware, databases, and applications to the tech provider experts. It also forces companies to stop customizing software to suit outdated, idiosyncratic business processes, and at the same time it reduces the cost of supporting that software—an activity that often costs more than the original software itself did.

But if that were the only benefit of moving to the cloud, it would barely be worth the effort. Moving all that technology out of your own data center and onto your tech provider’s stack isn’t without its own costs.

And here’s another thing about that cost savings: Once you’re done with the shift to the cloud, those savings are banked and part of the new normal. In other words, management will throw you only one parade, if that. And then it’s back to the same old budget wars.

Make the Cloud a Holistic Part of Your Strategy

So what’s the point then? The point is that cloud computing must be a reflection of your business strategy. The cloud is the tactic that makes your overall strategy shine. And here’s how:

Use your savings to finance other changes: Right away. A very large financial institution did just that after moving to a cloud talent management application, changing its HR policies immediately. It did away with the tiresome and mostly ineffective annual personnel reviews process, substituting the new capabilities of Oracle HCM Cloud to give employees ongoing feedback and coaching, raising productivity and morale.

Remember, the cost savings are a use-it-or-lose-it proposition. Companies should therefore use cloud computing to facilitate broader strategic goals, such as to improve employee performance and analyze data to improve decision-making capabilities. And they should measure those benefits.

Don’t outsource a mess to the cloud. Many customizations to existing applications have merely codified practices built up over decades, based on the perceived needs of small elements of the organization. It’s important to identify and eliminate anachronistic processes before moving to the cloud. Just as traditional IT outsourcing failed to produce significant savings if the customer’s internal processes were inadequate, the same holds true for moving on-premises IT to the cloud. The cloud should be the impetus to clean up islands of information and gobs of data in a variety of incompatible models and formats.

Change your business—not incrementally, but at the foundation—while the getting is still good: Too often, companies make changes when times are tough, and that impacts the quality of decision-making and the depth of the changes. Changes made in a positive business climate, however, will be viewed internally as ahead of the curve rather than a knee-jerk reaction. But these changes must be championed visibly by senior company leaders, sometimes including the board of directors. It helps to remember that it’s companies that do the right things—focusing on the most profitable customers, for example—are the ones that are most at risk of disruption.

Organizations are under threat of disruption. One of our customers, one of the largest banks in our region, is making significant strategic changes to its operations to meet this threat, slowly transitioning most of its IT to the cloud. With its huge footprint and legacy, this isn’t something it can do overnight—or during a crisis—so it’s quite a compliment to its leadership that it has seen fit to undergo the complex transition now.

Force change throughout the organization: Whenever the new chief digital officer or chief innovation officer reports into the IT department, chances are that person is just an IT director wearing a new hat. Making those new titles report through operations, on the other hand, means the business is taking responsibility for changes that may begin with IT but must ripple throughout the organization. IT must be a tool in everyone’s toolbox.

Consider spinning off an entirely new entity: One of the world’s top airlines decided that it couldn’t turn on a dime. So in the face of increased competition from discount airlines, it spun off an entirely new airline to compete with the disruptors. Building from scratch, it was able to launch its IT department entirely from the cloud, thanks to the ability to have near-instant IT provisioning and a near-zero CapEx requirement.

Create ‘intrapreneurship:’ Consider how many times your employees have come up with great ideas that would benefit your customers or the rest of the organization—it’s the classic, “if only we had an app-for-that” argument. The downside risks of employing a couple of programmers—perhaps some tech savvy millennials—to rapidly prototype new employee ideas that meet your standards, pales in comparison to the potential for new revenue streams and/or the loyalty that would be created. The barriers have never been lower and investment is minimal as the creative process could begin in the cloud and be brought back on premise if and when necessary. Case in point is a bank in Australia that recently created a rapid innovation center based on this exact premise.

Impose a New Discipline

Indeed, business and industry disruption is everywhere. Even the consulting industry, which for decades lived off the bounty of the IT landscape by selling expensive customizations, is having to rethink its business model. A hidden benefit of the cloud is that it imposes a discipline on businesses. Not every process is a competitive advantage, and those that aren’t should be replaced with cloud-based standard practices. This new reality will give rise to new consulting models, such as helping companies extend their software-as-a-service apps, rather than the old customization model.

In the old way of doing things, IT organizations made purchasing decisions using a long requirements-gathering phase, followed by a long implementation phase, followed by an even longer customization phase.

The new way of doing things circumvents the drawn-out procurement, implementation, and customization phases. It allows organizations to reap the benefits of innovation from cloud providers as they come to market, not after months-long upgrade cycles.

Established companies often move their systems to the cloud in phases, keeping systems that provide true differentiation in-house, while benefiting from competition among cloud providers to ensure that even standard processes benefit from a constant stream of innovative new features.

Technology has been an enabler of organizations for a very long time, but the technology itself hasn’t been flexible enough to allow companies to move to a materially different model. This sort of flexibility is table-stakes for cloud software and hardware as  IT must itself be inherently capable of serving multiple large organizations accessing the same footprint at the same time.

Yes, the cost benefits of cloud are enticing, especially early on. But in the long run, the real benefits are in the realm of business innovation.


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