In this article, we will learn how cloud computing supports business transformation and the key steps to getting started with a cloud strategy.
The growing importance of cloud computing for businesses
Cloud computing is an increasingly popular technology. Companies of all sizes and industries are migrating from traditional on-premise to the cloud. The main reason for cloud migration is the many benefits companies wouldn't get with traditional data centres, including scalability, flexibility, and security.
The economics of cloud adoption
The potential value of cloud services is tremendous. However, the cloud is more than just a new way to do things; it's also an economic model that requires careful consideration.
Cloud adoption can be facilitated by a robust strategy that considers that merely transferring information from on-site servers will not ensure seamless or any functionality. The economics of running applications in the cloud differ from more traditional models, something many businesses fail to consider when planning their cloud migration strategies.
By following some of the most important lessons learned by McKinsey, businesses can ensure a successful transition to the cloud.
1. Сhoose long-term benefits over short-term gains
When some companies move to the cloud, they often simply migrate existing applications with minimal or no redesign. Such an approach means that most of the technical and operational inefficiencies of the old applications are retained, preventing a business from taking advantage of the cloud's dynamic infrastructure.
The benefits that can be reaped in the short term pale in comparison to those that companies could capture in one year, such as time to market, access to advanced capabilities, and innovation. Investing more time in foundation development, app remediation, and automation could lead to a 15% – 25% increase over short-term gains.
2. Move towards an operating expenditure model
Traditional IT infrastructure for most enterprises is based on a capital expenditure model with long-term demand planning. Costs for consuming additional capacity are minimal, and companies use average costs and utilisation rates to evaluate their cost-effectiveness, which often limits the flexibility required for modern DevOps practices.
On the contrary, cloud service providers have shifted the paradigm to an operational cost model in which businesses pay for what they use. Therefore, companies must adapt and learn to develop a dynamic approach that optimises their marginal costs by selecting cloud services that best meet their current workload requirements.
3. Develop a priority-based budgeting approach
When companies move to an operational expenditure approach, they often budget for future spending based on past patterns. It can result in more than a 20% discrepancy between forecast and actual expenditures, resulting in poor allocation decisions and the need for difficult rebudgeting.
Organisations should tie it to business priorities for better forecasting and budget planning for the cloud. Effective forecasting requires organisations to establish unit economics for their core applications, such as calculating customer cost per customer. This approach requires a shift in mindset towards a consumption-based model and a competent FinOps team capable of understanding the business drivers of cloud spending and its impact on unit economics.
4. Make sure cloud services are worth the investment
Successful cloud adoption can be especially useful for workloads with variable consumption to allocate resources more effectively. For example, a video-streaming company that analysed the relationship between the cost of cloud services and business demand drivers accurately predicted future cloud consumption 95% of the time.
Companies that fail to differentiate between workloads that would benefit from on-demand scaling and those that wouldn't end up missing out on potential savings. Carefully assessing which workloads benefit from cloud elasticity helps businesses maximise ROI and get more value from their cloud spending. Thus, companies need to evaluate their workloads individually to determine if elasticity patterns could help them save money on the cloud.
5. Separating the economics of cloud computing from its architecture
Businesses should be aware that they often overestimate their cloud utilisation. It can lead to increased expenditure because most companies end up with lower use rates than expected. While some enterprises with advanced cloud architectures have utilisation rates of over 60%, most companies fall below 30% and sometimes below 10%.
An infrastructure supporting higher use rates makes it possible to achieve them. However, all too often, the business's cloud economics and architecture are developed independently, resulting in utilisation rates that the underlying infrastructure cannot support. To avoid this problem, companies need to establish a close relationship between the cloud business case and the transformation of their architecture.
6. Define and prioritise workloads for cloud migration
It is not recommended that every workload be moved to the cloud. Some workloads, such as storage services on custom-designed on-premises infrastructure, can be more valuable if left on-site. Companies with a small number of massively scaled workloads need to be careful when deciding which ones to migrate to the cloud.
Emerging trends in cloud computing
1. The growing adoption of hybrid clouds
Modern hybrid architectures focus on true integration, where workloads can move fluidly between environments based on real-time requirements. Applications might process sensitive data on-premises for compliance while leveraging public cloud resources for analytics and machine learning, all within a unified operational framework.
2. FinOps optimising cloud costs
FinOps is emerging as a key practice for organisations seeking to optimise cloud spending while maintaining agility.
Key steps to getting started with a cloud strategy
The following steps should be taken into consideration by businesses when developing, implementing and maturing their cloud strategy. It is a general overview that can be adapted to the specific needs of a company.
Step 1: Outline business goals
Outline your specific business objectives and goals, and explain how cloud computing tools will help you achieve them more effectively. It can include starting new business functions, attaining growth, consolidating data centre facilities, or any other goal that is expected to be helped by the cloud. Furthermore, specify how the outlined objectives can further be used to assess the performance of the cloud.
Step 2: Assess the current infrastructure
Before moving data and workloads into the cloud, it's essential to understand where you stand today. It will help you determine which areas of your business would benefit most from moving to the cloud.
- Are you running on outdated equipment?
- Do you have too many servers in a single location?
- Do some applications require more memory or processing power than others?
Knowing these details will help you gauge what capabilities are needed in the new environment, so look at everything from hardware to software requirements for each application you plan to move into the cloud.
Step 3: Identify the cloud target state
Cloud target state involves identifying what your business needs from its cloud and how you can use its services to improve the company's operations. Start by asking these questions:
- Which applications do you want to run in the cloud?
- What technology do you want to use?
- How much control do you want over my assets?
- What factors will you consider to evaluate the success of the cloud target state?
Step 4: Address risks
It is essential to understand the risks associated with the cloud, such as, but not limited to:
- Security risks - The security of information stored in the cloud depends on many factors, including encryption methods and password protection. Many companies have been compromised due to poor security in their applications, databases and storage systems. It's crucial to address cybersecurity concerns before integrating applications into the cloud.
- Data privacy risks - Data privacy laws vary between countries, so it's essential to understand how your data will be treated by different jurisdictions when stored in the cloud. It includes how law enforcement agencies can access any personally identifiable information (PII) under specific circumstances without your consent or knowledge. While using cloud services, it is worth considering data anonymisation techniques that can help protect sensitive information.
Step 5: Implement cloud strategy
The last stage in the rollout of your cloud strategy is its implementation. You should also have a plan detailing how to carry out this implementation, including developing a clear roadmap with milestones and timelines for each step of the migration process.
You should also know that every new service your company selects will require ongoing support. With a well-thought-out plan, you and your IT team can manage and customise your new set of tools, supporting ongoing software development while leveraging vendor expertise, all without increasing workloads for your team.
Conclusion
In the fast-moving world of the cloud, it is vital to have a structured process to align business strategy with technology innovation. Defining your cloud strategy will help you determine where current investments should be focused and how enterprise cloud adoption should move forward. It will also make it easier for you to articulate your vision and goals for your enterprise cloud strategy, ultimately improving its chances of success.
In this article, we have highlighted the basic steps for enterprises that want to implement a cloud strategy. This list is not exhaustive and needs to be adjusted based on your specific needs, especially if you plan to leverage emerging technologies such as artificial intelligence for innovation and growth.
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