A large software company that lacked a coherent cloud strategy found out the hard way that its employees were racking up $1 million per month on unchecked cloud services.
By Andy Lewis
Four years ago, the business side of a large, rather successful San Francisco area software company decided that in order to improve its time to market, the company's application developers would start using the cloud.
Unfortunately, the business side didn't consult with the IT department, in part because they didn't trust IT's ability to launch an agile and scalable cloud in a timely manner. As a result, the app developers began signing up for monthly, service-based subscriptions with Amazon Web Services (AWS) without any governance from IT.
The app developers' initial cloud projects started small—and scored some admirable successes. Pretty soon, however, it seemed like every app developer at the company was using AWS or another cloud vendor. The business' cloud costs grew rapidly during the next 6-12 months and eventually reached $1 million per month.
The software company was hemorrhaging money due to its employees' unsupervised use of the cloud. It was common, for example, for an app developer to rent space on AWS for a month, but use it for only a few days (or, in some instances, a few hours). And as the business side had allowed the app developers to sign-up for cloud services willy-nilly, using either personal or corporate credit cards, the software company lacked a clear overview of its cloud usage. Consequently, it was difficult to control its cloud costs.
This unwieldy state of affairs persisted for two years, during which time the company's cloud expenditures continued to mushroom. Finally, a fiscal slump led the company to re-examine its operating costs, and the cloud services' undisciplined and escalating spending finally received some long overdue attention.
The software company brought us in to fix its cloud problems. Over the course of six months, we produced a cloud strategy for the business and gradually transitioned its sprawling array of clouds to a single private cloud, which is centrally managed by the IT department. This maneuver produced the desired effect of both empowering the IT staff and putting them back in charge of the company's technology.
Now, the app developers all use the company's private cloud which, thanks to the IT staff's oversight, has slashed the business's cloud-related costs by 40 percent from their previous height. In addition, the company's digital assets are now protected by IT-run data back-up and disaster recovery plans. Moreover, with its cloud operations safely back in order, the IT staff is focusing their efforts on delivering technology solutions that align with the company's business strategy and help achieve its principal goals.
Cloud Strategy, What Cloud Strategy?
The San Francisco software company's ordeal is hardly unusual. Only one in four enterprises possesses a coherent cloud strategy, according to a just-published IDC global survey of 3,643 respondents at enterprises actively using the cloud with multiple workloads. The survey also found that 32% of enterprises have no cloud strategy, 11% have an opportunistic strategy, and 32% are operating on an ad-hoc basis, basically winging it.
This poor performance isn't particularly surprising. After all, cloud computing is still a relatively new technology—in this YouTube video, I describe today's cloud platforms as being Cloud 2.0—so a certain amount of muddling through in the early stages of adoption is hardly unexpected.
Another reason why some enterprises are struggling with a coherent cloud strategy is because they acted too hastily. Many companies feel an enormous amount of pressure, as I've learned from conversations with executives in the technology, health care and manufacturing industries, to be using the cloud. One of the chief driving factors behind this rash business behavior is the fear of their organization being perceived as lacking in innovation. As a result, they too often rush into action—and end up picking the wrong cloud platform.
Here are five tips to keep in mind as you develop or overhaul your company's cloud strategy:
Ask the right questions
In order to ask the business side the correct questions, IT needs to think like the business side. For starters, you must understand the company's business strategy, its chief competitors and emerging players, and any potential new areas of revenue.
Ask the right people
If your organization isn't using the cloud yet, you need to know your company's current assets such as hardware, software and talent. In short, what have we got and how are we using it? Also, you need to understand and anticipate your company's future growth (or contraction).
If you've inherited a public, private or hybrid cloud or a mishmash of shadow clouds are underway at your organization, you need to track the costs. Start by finding out who is using the cloud and what services.
Your chief financial officer is a natural ally in both of these scenarios.
Listen, listen, listen
When discussing cloud usage, you need to tap into your right brain and truly listen to the business side and hear what they are saying. Also, you and your staff should find ways to bond with the business side and develop a trust-based, mutually respectful relationship. This takes a significant amount of time and effort, but when done right, your heartfelt efforts with the business side can produce a strong working partnership between you and them.
Be an asset
IT is undergoing a paradigm shift as its role changes from being a supplier of services to being the provider of the technology that drives a company's business. However, IT is still seen in many organizations today as a business expense, not as a valued company asset. To change this perception, I urge IT departments to hire a sales force and actively market IT in its organization.
Once your cloud is safely launched (or relaunched), it's time to consider your next move. You've demonstrated to the business side that IT knows cloud. Now, build on that. But focus your time and energy on business outcomes, not IT outcomes.
Tear Off the Band-Aid
Finally, let me end with a few cautionary words. A costly and avoidable problem I've frequently observed at large businesses is a tendency to not act after an organization realizes it has selected the wrong cloud.
These giants of industry tend to endure their miserable situation, which often grows larger and more expensive, as happened with the San Francisco area software company. Instead, they need to take immediate action.
Any delay in transitioning from the wrong cloud to the right cloud affects an organization. The production cycle of new products or services at large businesses is typically delayed by 6-12 months due to using the wrong cloud. Also, these large organizations usually incur an additional 30-60% in operating costs. In such situations, it's best to rip off the Band-Aid and start anew. Sure, it sometimes hurts, but no one ever promised IT would be easy.
Andy Lewis is the CIO at Kovarus, where he is responsible for providing thought leadership on the enablement of IT-as-a-service transformation strategies. Lewis has more than 20 years of experience with companies such as EMC, Visa, Barclays Bank, Lloyds TSB, and Galileo International. He has extensive experience with cloud-based computing, technology strategy and process excellence. Lewis has also co-authored books on storage area networks, and served on many CIO and CTO councils. To read his previous article for CIO Insight, "Getting Real With Virtualization," click here.
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