This blog post is part 3 of a 3-part blog series on taking the journey to the cloud and understanding how to approach the risks involved.

In my previous articles, I focussed on the risk areas of a cloud ambition, but what happens when you tie this into the economic cost model as well? In the post-COVID era, businesses are very cost conscious. But innovation and growth cannot be side-tracked for cost constraints. In times like these, a strong Cloud migration strategy can not only fund itself but also open floodgates of opportunities for companies trying to make sense of the new normal.

Cost and value are not always aligned

In any organization, there are usually thousands of business applications running and their cost vs. value equation looks something like the one shown in Fig 1. A few applications will have very, very high cost, but likewise also have very, very high strategic needs. On the other hand, there will be apps that are adding to the cost but have no discernible business value.

For example, one of the major clients we were working with had a portfolio of 3,000 business applications. Of these, the top 25 applications controlled 25% of the total cost, top 150 applications controlled 33% of the total cost, and the top 500 applications controlled 50% of the cost. Often, for decision making, particularly in a “material outsourcing” discussion such as cloud, businesses tend to look at the total cost of applications or the average cost of applications. That could be misleading because the true business value and cost are not really aligned.

Tackling the cost challenge

There are two ways to reduce the total application costs of a business (See Fig 2):

1. Cutting the tail to reduce the number of apps by removing applications which have little to no business strategic value but are still driving costs.
2. Modernizing the remaining apps and moving to the Cloud to drive down costs at every level of the application portfolio.

These two activities together result in fewer, more strategic applications that are more modern and can be run at a lower cost per application. Here’s how it happens.

Cloud allows you to select the price you want to pay by opting for services you would like to avail. This is a typical Starbucks model - if the only thing you want is a Straight Black Americano that's going to cost you £2. If on the other hand you want a Venti Soy Chai Latte with Almond milk then you pay £5.80 – a premium for all the add-on services. The same model works for Cloud. To arrive at a Cloud price, you look at what your core application complexity is and what your non-functional requirements are, what SLAs you need, and then what is the Cloud model you are looking at.

In an on-prem model, you buy for the peaks and worry about returns, whereas Cloud gives you the flexibility to buy for the valley (the lowest requirement) and scale to the peaks as needed. This way, you can adjust for changes in core complexity, non-functional requirements, and SLAs for each application.

For instance, one of my clients was a leading credit-rating company and had a data centre in the UK. It was an exceptionally robust, secure, and resilient data centre and cost a lot to maintain. And so, any application that was hosted there, no matter how trivial, had super resilience and cost a fortune. The question is, do you want all your applications at this level of resilience, or could you move the non-strategic ones – like facilities management, conveyance etc. – to the Cloud?

Usually, in an Enterprise environment, there isn’t in-depth granularity on how apps are managed. Mostly with a “pack the rucksack” model of bundling as many applications and workloads together as possible, which is heavily influenced by traditional capital asset- utilisation considerations, low-value applications get clubbed together with high-value applications. And as a result, they get the same level of service as a strategic app. This additional service is expensive and not required for a low-value app. Breaking this model and getting to a hyperscaler Cloud can ensure application services much better tuned to the value and needs of each application without the added consideration of infrastructure or middleware expenses.

The ambitious vision: a low cost, low risk, future-ready application landscape

Which CIO wouldn’t want an over 30% reduction in application costs while retaining the app performance and reducing risk? The two-pronged approach outlined above, along with the risk discussions in the previous articles makes this ambitious vision possible.

At Wipro Cloud Studio, we have developed expert capabilities to help our clients achieve this ambitious vision, and we do these transformations routinely. One of our clients had an application landscape with 810 apps that cost $62 million to manage – this meant their average cost per application was $76,000. We helped them analyze all their applications and identify low value, duplicate, and zombie apps. By eliminating these apps and deploying microservices, they were able to cut the long tail by 15%, bringing down the total number of apps to be addressed to 688. This reduced the total potential cost of applications by 20%. In addition, by moving to the Cloud and using the model discussed above, we showed them how they could reduce their cost further, bringing the total cost to $42.2 million and the average cost per application down to $61,000 – that’s a 32% reduction in cost.

Creating a continuous working capital fund for Cloud initiatives  

We’ve seen how it’s possible to significantly reduce application costs. These savings can be reinvested to fund new initiatives. However, like any other initiative, Cloud migration also requires initial investment before it can pay for itself. If you don’t make the initial investment, you don’t realize any savings that could fund further changes.

To ensure this initial investment, CIOs need to build the business case and work together with business leaders, technology partners like Wipro, and CSPs to establish a starter fund. Once the savings are realized, a portion of the savings goes back to the business and the remaining portion continues to get reinvested for more improvements (See Fig)

Supporting all of this is the crucial consideration discussed in the previous POVs- POV1 and POV2, which is that by moving onto a Cloud fabric which has been built on a planetary scale with SKUs, continually tested on their service reliability and resilience, where every piece of code has been tested by millions of services on millions of clients, you significantly reduce your risks. In this instance, the client’s operational risk reduced by a high double digit %. Don’t be misled by the myth of Cloud being risky. It is the only way to build an agile, future- ready IT platform. And the time to make this shift is now. If you want to know how Cloud can benefit your business, write to me at gavin.williams@wipro.com .

Please click here to read part 1 and part 2 of the blog series..

Gavin Williams
Senior Partner
Cloud Consulting

Gavin has 25 years of experience with enterprise customers, helping them drive business success through innovative technology solutions. He works with different customers throughout the UK and Europe to understand their business needs and help them set a technology strategy and direction. He also has in- depth and extensive knowledge of customer business challenges with board-level messaging.