Cost Optimisation
Feb 21, 2021

Fix Your Cloud Costs!

Cost Optimisation – the true strategic priority for Technology Leaders in the current climate

The pandemic has seen several, operational step changes, one of which has been an acceleration of cloud adoption and usage.

Coupled with the need for CFOs to drive cost efficiencies across the organisation to compensate for the drop in revenues and rise in uncertainty, Technology Leaders are now facing a triple-pronged conundrum, how to manage:

 

  • Huge increases in cloud usage (and therefore, cost)
  • More complex technologies in response to new ways of working
  • The cost efficiency needs of the business

Managing increased cloud adoption and usage

 

 

“The Pandemic collapsed into three months a process of adopting e-commerce that otherwise would have taken 10 years”[1]

 [1] McKinsey Consumer Survey, McKinsey & Company

 

As organisations shifted to adapt to remote working, cloud adoption naturally increased. It did so at the cost of exposing the flaws in existing processes – especially procurement.

Gone were the year-long feasibility studies, competitive tenders and multi-year implementation programmes as CIOs raced to enable new systems.  The need for IT spend “on the fly” stress tested established governance and architectural rule books.

The result? Organisations survived the pandemic.  That fortunate state now affords them the luxury of turning their focus to reining in the consequences of a lack of project visibility and cost transparency to levels that are appropriate in the new normal.

With business priorities in a state of constant flux, technology leaders were unable to plan what they needed in terms of rightsizing, automation and application modernisation.  It is all too easy to blame developers, project managers and decision makers as being careless or for failing to stick to top-quadrant PMO disciplines – but this is unfair. 

The reality is that the decisions were made with eyes wide open but with speed of execution taking precedence over detailed planning.  Technology professionals were dealing with classic burning platform scenarios when keeping the business operating was the only priority. The result may well be bad code and incompatible systems, but the organisation survived – and now the post event optimisation must begin. 

Another consequence of the reduced central controls has been the rise of Citizen Developers.  This new generation of tech savvy workers who are in the business verticals, but not in IT, has taken the opportunity of looser controls to commission and implement  ‘rogue’ application development environments.  This uncontrolled activity exponentially increases the risk of waste given their lack of overall expertise to manage such environments.

The negative impact resulting from the combination of these factors is laid bare in a Gartner report which stated that:

“Through 2022 in any given month, over 30% of the growing expenditure on software and cloud services will be unused.”[2]

 

[2] Gartner, “Software Assessment Management for the Cloud: Consumption Management and Optimisation Take Center Stage”

 

 

Although this is a shocking level of waste, seizing the opportunity to address it has the potential to make a substantial and sustainable contribution to the bottom line.

 But there is a bigger prize in prospect.

 The experiences of the recent past – rapid deployments, Citizen Developers and the prospect of material savings from optimising the status quo – opens up new possibilities to see IT not as a cost centre, but as a driver of competitive advantage.

The pandemic has seen several, operational step changes, one of which has been an acceleration of cloud adoption and usage.

Coupled with the need for CFOs to drive cost efficiencies across the organisation to compensate for the drop in revenues and rise in uncertainty, Technology Leaders are now facing a triple-pronged conundrum, how to manage:

 

  • Huge increases in cloud usage (and therefore, cost)
  • More complex technologies in response to new ways of working
  • The cost efficiency needs of the business

Operating in an increasingly complex technology landscape with

remote Ways of Working

Citizen Developers are just one example of the growing democratisation, this has been exacerbated by remote working.  This results in Technology Leaders being required to focus more on user experience and enablement, especially when considering the complexities of cross-organisational collaboration.  This can be seen in the volumes of press articles emphasising that the most innovative CIOs and organisations are focused on enabling talent to work from remote locations. 

 Calculating the cost benefit implications of democratisation is a non-trivial exercise and one which places an increasing load on concepts such as Showback and Chargeback for Product Owners and Business Vertical Leaders to be able to see the value as well as the price of their systems.

And, of course, to achieve this efficiently requires an effective tagging strategy in order to understand the technology landscape. Cataloguing who the product and service owners are, being able to articulate the unit economics (i.e., the technology cost contribution to each unit of sale) are necessary prerequisites to effective portfolio management.

 Both of the above dimensions have direct impacts on the ability to forecast spend and budget accurately.

Achieving cost efficiency in the business

As CFOs come under increasing pressure to drive cost out of the business in order to maintain the cash flow and the overall business health of the organisation, Technology Leaders must be armed to answer questions such as: 

  • What is the total spend by geography?
  • What are the main cost drivers?
  • How much is the spend is variable?
  • What are the Unit Economics of my units of sale?
  • Where can I leverage CapEx vs OpEx in my spend?

 All too often, IT is seen as a cost centre when it should be viewed as a tool to achieve one or both of two objectives: 

  • Do things better and/or
  • Do better things

 Or, put another way, technology should be seen as a way of either driving efficiency or innovation.

 To be able to articulate these complex messages, senior Technology Leaders need to understand and speak the language of finance in order to communicate the variable nature of cloud technology consumption and associated shifts on the balance sheet with Finance colleagues.

 This, in turn, requires a two-pronged approach:

  • Top-down: Technology Business Management Frameworks are used to set the priorities and measurements to control costs; and
  • Bottomup: FinOps Frameworks provide the discipline and rigour when delivering priorities.

To be clear, these frameworks are not about saving costs, they are about enabling the organisation to make money and increase profitability.

Summary

As the dust settles in a post-COVID-19 world, those who actively manage cloud technology waste, drive efficiencies, and break down the silos across the organisation will be the ones that gain competitive advantage.

 

Resource wastage, the need for transparency in spend and the appropriate controls over the unit economics are all factors that now need to be in the front of Technology Leaders’ minds.

Using tools that drive cost transparency with certified TBM & FinOps specialists will accelerate this process to create the outcomes needed, but leadership and executive sponsorship are essential for success.

The good news is that while the rush to tackle burning platforms might have been inefficient – it has helped many organisations to survive the pandemic’s existential threats.

The better news is that the landscape is littered with low-hanging fruit which can deliver quick optimisation wins which will underpin confidence in the Technology Leaders’ ability to contribute to competitive advantage and then move to a more mature level of cost management.

The time for change is upon organisations and their leaders, the question, is which ones will take the first step?

Jez Back

Consulting Director – Thebes Cloud Management

 Jez joins the Thebes Group family to lead our new subsidiary business, Thebes Cloud Management. He has previously worked at Deloitte, HP & EDS and has spent 14 years in the technology sector, mainly focused on cloud technology.

 On Thebes Cost Management, he says, “I am thrilled to be leading this new subsidiary in the Thebes Group family. My ‘why’ is about helping others realise their ambitions so that they can make their mark on the world – this is what I want to take to clients and partners.

By using FinOps, Technology Business Management, and the partnerships we are already growing, we can fix our clients’ costs at pace. The time to do this is now. We are not just about helping our clients save money on cloud costs, we are obsessed about helping them to maximise value, make money and create transparency.”

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