It’s an unfortunate reality that many cloud migration programs fail to deliver the intended results the first time around.
An estimated one third of cloud spending goes to waste, with 13% of projects, on average, going over budget. Businesses set out to increase efficiency by going all-in on cloud, only to find that critical applications are too complicated or impossible to migrate, forcing them to put the project on hold while they revise their strategy.

With businesses investing so much time and money in cloud migration programs, why are the returns so often lackluster? What are the cloud leaders doing to make their programs so successful? The answers lie in cloud economics.

Cloud economics is a strategic approach to managing technology investments that emphasizes cost-benefit analysis as a way to deliver real business value rather than simply cut costs. Businesses approach cloud transformation as a business transformation, answering core questions such as: How will this new technology impact the business? What value does it offer and what will that value cost? What kinds of changes are necessary to accommodate a cloud transformation?

With cloud economics, businesses still identify key ROIs and metrics (cost cutting, for example, or increased efficiency), but the focus is on learning new ways to manage resources, teams, operations. This cross-functional aspect is what really sets cloud economics apart from more cost-centric cloud strategies. Through cloud economics, finance, technology, and business teams collaborate to maximize business value, learning how to reallocate resources and adjust cloud consumption in line with business strategy to deliver the desired ROI.

By contrast, many traditional cloud migration programs focus solely on the benefits of moving to the cloud — and those benefits often only focus on cost. Businesses see moving to the cloud as a way to cut costs or increase efficiency. They see other organizations moving to the cloud and posting major returns on investment, increases in operational efficiency. In effort to keep pace with these other organizations or get a leg up on their competition, businesses go all-in on cloud, shifting everything as fast as possible, seldom stopping to consider the cost of these investments, whether the returns they’re after are even possible. Eventually they hit a wall. Maybe some critical applications are not transferable to the cloud or the translation is more complex than they expected. Progress stalls, efficiency slips, and cost increases as the company extends itself over legacy on-premises systems and the cloud.

Moving from on-premises data centers to the cloud, for example, involves a lot of financial considerations, such as the movement from CapEx-heavy asset-based architecture to OpEx-heavy as-a-service models. Moving to the cloud can also require new ways of working, training for staff, hiring more people with specialized skills. By applying cloud economics to the cloud migration strategy, businesses can take a more holistic approach to address these other aspects of cloud migration, working across various functions such as Finance, HR, IT, Sales, to go beyond merely optimizing costs to truly maximize the business value of cloud computing.

Not All Cloud Strategies are Created Equal

While upfront planning is important, sometimes it’s not enough. Businesses often forecast cloud spend based on historical data and existing ways of working. This backward look can prevent the company from taking full advantage of all the cloud has to offer because the business is considering how the cloud can improve existing operations rather than how operations will change with cloud and what’s needed to support those changes.

The emphasis on cost-benefit analysis through cloud economics is especially important when venturing into unknown territory. Businesses need to be sure they’re investing appropriately, taking necessary risks while avoiding unnecessary ones.

Data center exits are a great example of the kind of balance businesses need to strike with cloud strategy and how difficult it can be. Because hybrid and multi-cloud data centers can be more affordable, accessible, scalable and efficient than physical data centers, not making the switch as soon as possible can seem like throwing money away. But there are potential costs associated with data center migrations that may not be immediately obvious, such as how new pricing models could affect the business model, or increased downtime as employees and customers adapt to new applications or operations.

A cost-benefit analysis can help the business work through these considerations and break down the entire cloud migration into stages, then prioritize those stages to maximize ROI and guide investments based on returns. As the project progresses, cloud economics can help the business adapt to new challenges by reallocating resources accordingly, such as slowing investments in one area to prioritize another that has become more urgent, or pushing ahead despite challenges because what seems like a rough patch now aligns with the business’ larger goals.

From Reducing Costs to Maximizing Value

Cloud economics encourages businesses to look deeper and further ahead, beyond cost-reduction and short-term goals to consider the underlying business interests to such goals and the steps necessary to achieve them. How can the business be more efficient? What changes are necessary? Will switching to cloud support those efforts, or is some other technology better suited for the task? These questions shift the focus from reducing costs to maximizing value. By identifying the business goals and the cost of those goals, the business teams are able to make more informed decisions about what’s truly best for the business. 

Wipro FullStride Cloud uses cloud economics when working with clients to create a holistic cloud strategy that focuses on how to maximize the value of cloud computing to drive specific business outcomes. This is a cross-functional process, using FinOps to maximize business value throughout the organization and its cloud environment. By creating a tailored approach for each company there is opportunity to identify areas of overspending and opportunities for efficiency, enabling them to find opportunities for reinvestment in other areas. This requires analyzing where change needs to take place including identifying how various areas of an organization should work together, breaking down silos.

For example, Wipro led a cloud cost optimization and avoidance advisory for a client with all workloads already migrated to Azure Cloud. By increasing cost visibility and defining priorities for cost optimization, the client was able to implement smart shut-downs and start-ups, which helped increase efficiency and reduce costs by 28% per week on average. Another client, a leading German energy company, was able to avoid an additional $3 million per year in cloud spending by reducing its Azure consumption and resizing its cloud infrastructure.  

Whether businesses are just starting a cloud migration, re-evaluating their approach, or looking to maintain the success they are achieving, cloud economics is an essential strategy because it keeps the business focused on the costs and the benefits of the program. These factors will change in time, so it’s important that businesses continue to monitor their investments and their goals in the cloud, and adjust their approach as needed to strike the desired balance. 

Santanu Kumar Patro

General Manager & Practice Head – Cloud Economics, Wipro FullStride Cloud Advisory and Consulting

Santanu Patro has about 20 years of experience in IT and close to 15 years’ experience in Advisory & Consulting. Being a techno-evangelist, he has been developing future ready solutions/services to meet the ever-changing requirements of an enterprise and leading a team of IT therapists to solve enterprise challenges.

Co-Author

Sudin Somachandran

Partner – FullStride Cloud Advisory and Consulting

Sudin leads IT Strategy and Advisory for FullStride Cloud Advisory and Consulting Practice. He has 15+ years of experience in leading IT and Business Strategy Consulting. As a strategist, Sudin looks to understand what is behind the curtains and come up with innovative solutions to resolve business problems with technology. He has also led major IT transformations across multiple industries.