Clouds represent a fundamentally different way to conduct business. Traditional ROI measures may not apply.
Over the last couple of years, as cloud computing has drifted into the mainstream of the enterprise, the conversation has shifted from whether to deploy clouds to how to use them strategically and maximize return on investment (ROI). To be sure, clouds present very different CAPEX and OPEX models. In fact, a 2014 survey conducted by Unisys in conjunction with IDG Research found that nearly one-fifth of senior IT executives view ROI as a hurdle to cloud implementation. Although the figure was down from 34 percent a year before, it's clear that clouds introduce formidable challenges for IT and line-of-business leaders. "It's very difficult to clearly identify and measure all the benefits of the cloud," said Agatha Poon, research manager at 451 Research.
Here are five key factors that CIOs and other senior executives should focus on in order to fully gauge the value of clouds:
The cloud isn't just about the numbers. When it comes to the cloud, "You cannot view return on investment as strictly a money issue," said George Mendel, senior director for Networks Systems and Operations at the National Association of Independent Schools (NAIS), a not-for-profit organization that represents the interests of independent schools and serves as a clearinghouse for information and best practices. It uses Veeam Cloud Connect (VCC) to manage multiple private clouds that speed information delivery and replicate data for backups and disaster recovery.
"It's important to understand how cloud capabilities change your business model and enable new features and capabilities–but also create new or different risks," Mendel said. "It's also important to structure cloud services effectively and efficiently because they can range from very cheap to extremely expensive. You really have to understand what your business model dictates and how they fit in strategically."
Focus on processes, not technology. It's tempting to view clouds as a way to introduce leading edge systems and software while simplifying IT administration. But, as Poon of 451 Research explained: "The cloud isn't really about technology, it's about business processes and making them more efficient."
Organizations that achieve outstanding results typically identify how the cloud can rewire processes, workflows and tasks in a far more efficient way. This includes connecting multiple digital technologies–such as mobility, social business and big data, for example–and perhaps plugging in connected devices via the Internet of things. The end goal is to streamline tasks, processes and operations.
Yet, in order to maximize results, an organization must break down silos and, as Poon, put it, "develop a more systematic approach that includes regular feedback and collaboration." While ad hoc point solutions deployed by specific departments or groups such as marketing or human resources may pay dividends, organizations that take a more holistic approach realize significantly bigger benefits–even if it's not always possible to quantify the ROI.
Not all clouds are created equal. In reality, the term “cloud computing” is used to describe a vast array of tools, technologies and services. Although many think about clouds in a somewhat monolithic way, it's important to remember that clouds can range from niche SaaS plugins that add analytics or marketing capabilities to highly complex infrastructure as a Service (IaaS) and development platforms, otherwise known as Platform as a Service (PaaS). They can also range from pricey private clouds to far less expensive public or hybrid offerings. Moreover, companies in the same managed services space can offer significantly different delivery and pricing models.
Not surprisingly, the returns associated with different approaches and vendors can vary significantly–and even the way an organization or vendor measures results can skew ROI numbers. Rohit Antao, a principal at consulting firm PwC, said "It's important to conduct due diligence. Some organizations are looking to transform IT service delivery and reduce total cost of ownership. Others are hoping to transform business operations and customer engagement through mobility, apps, social business and other tools. How you measure the return under these different scenarios can be very different."
Find the right vendors. It's not exactly a bulletin that vendors deliver promising marketing pitches that focus on business transformation and cost advantages. But, as NCIS's Mendel explained, "Sometimes you can end up getting a Cadillac when all you need is a Volkswagen. If you overpay or a vender under-delivers you negatively impact your return on investment."
Mendel also pointed out that it's wise to look beyond basic pricing models and understand the type of firms a vendor caters to and why. "Some cloud service providers target big corporations and other vendors focus on small firms. In order to achieve optimal ROI the service offerings and pricing levels must be in sync," he said.
Finally, pricing doesn't always correlate with offerings and quality of service. Poon said that some cloud vendors are willing to assist with systems integration, data migration and various other tasks. These ancillary services can shorten ROI windows and boost other gains not directly related to numbers.
Use metrics and measures but don't overweight them. Conventional ROI formulas don't always work in the cloud. Applying these methods leads to confusing, if not deceptive, results. Gartner Managing Vice President and Fellow Daryl Plummer noted in a 2012 Forbes article: "With cloud computing, stipulating that a hard-money ROI will be achieved, in the form of savings, is likely to net you more heartache than cost break." He and other experts say it is much wiser to focus on overall value rather than dollars. Among the factors that may provide "soft" ROI: agility, flexibility, scalability, improved processes, streamlined development platforms, and more strategic use of IT resources.
In fact, an overemphasis on ROI can place the focus in the wrong place. After all, Poon said, the ultimate goal is to improve customer relationships and drive gains that transcend a spreadsheet or dashboard. Yet, some metrics may be valuable. For instance, Mendel at NCIS said that the organization constantly solicits feedback from members about systems performance, the usability of Web analytics and the value of other tools and technologies. "Using this data we are able to gauge the value of systems and understand how they change interactions. We are able to understand where clouds actually improve the business."
In the end, Poon said that it's important to think strategically and look for ways to improve processes that deliver business gains. This requires broad input from across the organization, a different relationship between IT and line-of-business users, and an understanding that costs and ROI must take a back seat to value–and an ability to become a faster, better and more competitive enterprise.