For executives, the consideration is less about cloud technology and more about how a cloud solution could improve their business. At CDW, we are uniquely positioned to guide executives through this important consideration. In order to press on this advantage, we’ll need to understand the executive considerations for cloud. Here are at least two decision criteria that executives apply to determine the viability of cloud for their business.
How does cloud improve my company’s financials?
Profit & Loss. There’s a lot to consider in this area, so we’ll focus on cost for today. Let’s say a customer is thinking about moving their email to the cloud from their on-premise facility. As part of this analysis, the customer will need to compare the current cost of their premise-based email system with the cost of the proposed cloud-based email solution. For the premise-based costs the customer will need to not only quantify direct hardware and software costs, but also include indirect costs like power, space, cooling and labor. For the cloud-based costs, while most of the customer costs are quoted in the cloud provider pricing, it’s very important for the customer to perform the due diligence on other sometimes hidden costs like data migration and setup, bandwidth fees and the “what ifs” costs related to cloud metering. Also, it will be important for the customer to determine if moving to the cloud will decrease coworker count/payroll expense.
Benchmarking on-premise costs against the cloud provider’s costs needs to be an ongoing process for the customer. There are three reasons for this.
- First, cloud prices for more commoditized cloud solutions will decrease faster than on-premise costs as new cloud providers/competitors enter the market (this is happening today with storage and $/GB).
- Second, cloud prices will decrease faster than on-premise costs as cloud providers consume power more efficiently (i.e. they’ll pass on efficiency gains/savings to the customer in a competitive environment).
- Third, the customer will need to consider the size of their IT operation-some customers with very large IT operations and predictable IT volumes believe that their on-premise costs compare very favorably, relative the cloud provider’s cost
Balance Sheet/Cash Flow. Many customers are initially attracted to cloud because it’s an opportunity to allocate IT spend from a capital expense (CAPEX is often associated with a customer premise-based solution) to an operating expense (OPEX is often associated with a cloud-based solution). Specifically, customers who are cash-constrained or can achieve a higher return on capital elsewhere, prefer a pay-as-you-go plan (OPEX) rather than a pay-everything-up-front plan (CAPEX). This is one of the reasons that cloud is so appealing to small businesses; there is no need for an up-front investment in hardware, software or IT coworkers with cloud, it’s all pay-as-you-go.
There are some cases, however, where moving to a cloud solution may not make sense from a financial perspective. For example, if a customer has recently purchased hardware and/or software for their particular IT workstream and has an experienced IT staff to support it, it would probably make sense to stay with the premise-based solution because, in this instance, it’s a sunk cost.
Finally, if the customer is really intent on allocating IT spend from CAPEX to OPEX but can’t justify the risk (see next section below), an operating lease, which also moves CAPEX off the balance sheet, may be the right solution for the customer.
How does cloud impact my company’s risk profile?
Compliance Risk. If the customer’s business is subject to privacy regulations such as HIPAA, FISMA, PCI, or SOX, they will need to understand, at a detailed level, the cloud provider’s level of compliance with these regulations. The customer will also want to understand the level of compliance that the cloud provider’s partners (i.e. partners who the cloud provider uses to deliver their cloud service) have achieved. Failure to comply with these regulations may result in significant penalties and/or time in jail or prison for the customer. Depending on the circumstance, this due diligence can be a fairly lengthy process for the customer (they may even outsource the due diligence), as neither the regulations nor the providers’ compliance with those regulations aren’t detailed enough to evaluate compliance.
Financial/Operational Risk. For many customers, an IT services interruption for their business or their customers translates into real expense–whether that’s lost coworker productivity, service-level agreement rebates or other liabilities. Therefore, the customer will need to understand, at a detailed level, the cloud provider’s business continuity capabilities (as well as partners of the cloud provider), including the cloud provider’s specific process and timing on recovery, should an IT services interruption occur. They also need to understand the cloud provider’s service-level agreements and how they are paid from the service provider for non-performance. Finally, they need to understand if the cloud provider indemnifies them from liability if there is a services interruption. Again, many customers are figuring out how to overcome this risk and moving their business to the cloud.
Net it out! Each customer’s risk tolerance is different and while due diligence is necessary, many, including the federal government, are justifying the risk to experience the advantages of cloud solutions.
You now can see that the answer to “Should I move my business to the cloud?” is very specific to the customer’s circumstance. Hopefully, there are a few ideas here that will help you to understand what to think about when you’re considering of going into the cloud.