Covid-19 has accelerated the adoption of public cloud technologies at a rapid pace. If you use public cloud technologies, are you optimising costs to support and drive innovation?
What has the global pandemic taught us (amongst other things)?
There has been significant increases in investments in public cloud technologies, as witnessed by financial results of the public cloud vendors. For many, increased adoption of cloud technologies has been driven by the need to ensure organisational resilience and continuity but also to drive new ways of engaging with customers via digital channels in light of the pandemic. Those organisations who had invested in an effective digital strategy were largely able to adapt to the significant changes in front of them. Those without have unfortunately been left playing catch up.
Using cloud – more of the same, right?
Traditionally when launching new services, a business would have to ‘spec’ and then procure hardware and software. This process could take weeks and months depending on how quickly capital expenditure budgets were approved and vendors engaged for the required ‘kit’. One of the benefits of the cloud is its ‘elasticity’ – that is the ability to quickly scale up and scale down the amount of compute capacity you have based on business need. You can have a new server built and configured with the associated software in a matter of minutes. You can then take the same server down at the same speed and only pay for what you use.
Surely a consumption based model makes things more cost effective and easier?
The new ‘pay as you consume’ model is great as it helps organisations shorten the lead time to build, test, evaluate and launch new products and place them in the hands of their customers. It does however create challenges. Procurement and finance leaders traditionally operate using tight governance and cost control e.g. quarterly budgets and quarterly reviews. In the new world of elastic compute, this governance and oversight shifts away from procurement and finance teams to engineers who are building and deploying new technologies. Spend can increase significantly in a matter of hours. In the new model, a quarterly retrospective review just won’t work.
Engineers typically want to deliver software fast and reliably whilst also working on projects which are meaningful and fun. Tight cost control and cost optimisation is rarely high on the agenda for engineers. Herein lies the challenge for businesses who are looking to shift to using public cloud services, costs can suddenly spiral out of control and erode potential returns on investment due to shifting roles and responsibilities.
Impact on accounting, roles and responsibilities
In a cloud consumption based model, organisations will largely transition their expenses from a capital to operating expenses. This represents a significant shift for most businesses and can have a material impact on the P&L. Public cloud providers offer a number of incentives to use their services e.g. through discounts available by using reserved instances (RI’s) and savings plans (SP’s) where organisations tie into services for specific periods of time e.g. 1, 3 and 5 years. Choosing what is best for an organisation can be tricky e.g. it's not just about saving money but it's also considering the impact on resilience and long term security.
Additionally it’s important that finance teams understand how to account for these services. Do long term (3 and 5 year) incentives such as RI’s and SP’s become capitilised over their period of purchase e.g. similar to a traditional asset purchase? How do finance teams gain visibility of the options available and the choices made so they remain in line within the organisations appetite?
Why technology is important but people are even more critical…
This new model requires closer collaboration between finance, operations, procurement and technology teams. Finance teams need to start thinking like engineers and engineers need to start thinking like finance people. Technology plays a significant role in gaining insight into cloud usage but its people who provide context and insight as to whether recommendations will truly deliver business value. Skilled, capable and inquisitive teams must therefore take centre stage.
Where do you start?
Successfully managing and governing cloud spend doesn’t need a sizable cloud deployment or a multi-million pound cloud bill. Focusing efforts on how to manage and optimise cloud should therefore start from day one. Culturally this may be a significant shift for individuals so it’s important that organisations take a ‘crawl, walk, run’ approach, starting small but building momentum quickly.
Where do you start? Start with collaboration…get your product, finance, operations, procurement and IT teams (to name a few) together. Establish how you manage, monitor and govern cost today and what needs to change. Establish guard rails to help your team stay within the boundaries you define.
Rinse and repeat, take lessons you learn from this exercise and improve on each iteration. Only then can you move from crawling, to walking to running.