The purpose of this blog is to provide CIOs with a way to frame the value of Cloud Infrastructure in a way that creates Business-IT alignment and garners support for their current and future Cloud initiatives. The Business Benefits of IaaS include foundational support to high and mid-level strategy efforts that assist key business drivers and produced more value for the customer with the less operational expense and financial risk.
Businesses recognize that in order to remain competitive in the current marketplace, they’ll need to construct a Digital Transformation strategy for their enterprise. Normally, strategy development starts with a critical discussion among key stakeholders and executive board members on how they plan to respond to the changing effects of digitalization and increased competition within the industry.
Once a high-level strategy is produced, mid-level strategies within each segment of the enterprise are (or, at least they should be) established in unison to ensure all functions of the business holistically support one another and contribute to the overall goal of the business.
While the cooperation of every department is needed to see through your Digital Transformation strategy, due to emerging technologies such as Cloud Infrastructure, IT has the potential to be the cornerstone of your business success.
The reason is that Cloud Infrastructure offers flexible and scalable resource usage that helps your business successfully manage its data-intensive workloads and high traffic volume across every level of the enterprise in a more optimal fashion than on-premise environments.
Ultimately, the Business Benefits of IaaS include:
- Short-term Cost Reductions
- Long-term Cost Reductions
- Operational Support for Key Business Drivers & Improved Value for Customer
It is the CEO’s goal to find new ways to produce value for stakeholders, optimize costs for the business, and remediate risk wherever possible. As will be explained, Cloud IaaS offers a streamlined path to meeting these objectives. Most importantly, this is done without significant business disruption. At a time when the business is trying to optimize with limited impact on operations, this offers great strategic benefit to stakeholders and is an added reason why Cloud IaaS is a popular solution among other pillars of the cloud.
Three Business Benefits of IaaS
1. Short Term Cost Reductions
a. Less Financial Restrictions & Up Front Costs
Whether you’re pursuing Cloud Infrastructure to close functional gaps that limit operational performance or foster capabilities for future growth, the investment must be financially viable before it can gain approval from the business. From an economic perspective, one of the most compelling advantages of IaaS is its strong financial incentive.
In the short term, you’re retiring your real estate that houses your on-premise data centers in exchange for a service that lets you provision infrastructure resources based on your monthly needs. This is a short term Business Benefit of IaaS because you liberate yourself from tight financial restrictions that not only require extraordinary amounts of cash on the front end but also limit your business’s options in the future.
Since these investments can have a lifespan of 3-5 years, unless you want to forfeit the initial cash investment to pursue alternative measures, which would amount to hundreds of thousands of dollars wasted, you’re forced to make use of these high-maintenance resources until they reach their end of life.
For these reasons, the strict obligations you have with on-premise resources is not good for business longevity and poses a serious financial risk when you consider the alternative cost i.e. the sacrifice you make to invest millions in on-premise moves money away from other areas of the business that create more differentiation and are more relevant to promises made in your value proposition. It also reduces your agility for the next several years if you decide to pursue alternative solutions.
Therefore, one of the compelling business advantages of IaaS is that you immediately loosen the high-priced dependability you have on your on-premise datacenter. You make the transition into the outsourcing paradigm where you are provisioning infrastructure how you need it and when you need it, not only alleviating your business from financial risk, but also saving a lot of money now and, as you will see, in the future as well.
However, it should be stated that short term cost reductions alone do not make up a legitimate business case for Cloud IaaS.
2. Long Term Cost Reductions
a. Reducing On-Premise Expenditures
Among the Business Benefits of IaaS, the long term financial gain also holds high. By deploying Cloud Infrastructure, you’re replacing all the increased costs of managing an on-premise environment with a flexible service that offers monthly pricing, responsive delivery, and low maintenance for the customer. Allow us to explain.
There is a lot of financial responsibility that goes into maintaining an on-premise environment beyond the initial investment. For example, money is needed to acquire personnel for data center management. This means you must hire a full team to oversee operations in an entirely different location (often more than one), and the technical skill, combined with the labor of performing this cumbersome job, does not come cheap. In fact, it can amount to millions of dollars in just a few years alone for a relatively small staff size. That, plus the rent of owning the location, means just keeping the real estate in your possession and running is expensive.
On-premise data centers also require you to make yearly-recurring system implementations and upgrades. The reason these are challenging is that not only are they costly given their frequency and bulk, but they are highly disruptive to the business, taking weeks, even months, to complete. Because they are in partial remission and operating at less than maximum capacity until the implementation/upgrade finalizes, productivity across the entire company can suffer, especially if your business model is data-intensive and relies on smooth technological flow.
Another reason these are frustrating is that you’re in house team must independently negotiate the cost-benefit analysis of new upgrades when they become available. This is no easy task. Not only is it work-intensive but it can be difficult to manage across the business if you decide to upgrade. Therefore, one of the additional Business Benefits of IaaS is that your provider will keep your infrastructure running on the latest installations and upgrades and will expedite the process to keep you up to date and running quicker, saving you additional time as well.
Another drawback of on-premise is disaster relief i.e. the cost of putting out fires. For some on-premise users, this alone is a reason to switch to the cloud because, not only is it highly stressful to deal with the pressure of the entire business on your shoulders when situations occur, but the cost of remediating damages can dive deep into the budget. For this reason, many companies will conduct preemptive maintenance i.e. procedural behaviors that check system health on an ongoing basis. Yet, even with these in place, disaster still strikes, and the business still suffers not just financially, but operationally as well. Not only that, but the amount of time that goes into this regulatory maintenance is wasteful because it is pulling away from other important tasks.
The maintenance and cost of on-premise are extraordinarily high. Through Cloud Infrastructure, these responsibilities and their associated costs are shifted to a provider who is much more qualified to manage these operations in a holistic, seamless fashion. It’s what they do, and because they’re so good at it, they’ve streamlined the process to execute, allowing them to offer infrastructure as a service in a way that is cost-efficient to the customer, flexible to their changing needs, and much more low maintenance on-premise will ever be. As a result, some businesses go from spending millions of dollars to less than 500K a year within 2 years using Cloud Infrastructure. As we will see though, the Business Benefits of IaaS go beyond immediate cash flow.
b. Switching Capital Expenditures to Operational Expenditures
From a financial perspective, there is much more to be said than just added cost-efficiency. The Business Benefits of IaaS also include the following.
Previously, CFOs favored CapEx for IT investments because companies that capitalize costs could record higher profitability in the early years, incentivizing investors to invest because it demonstrated strong company ambition towards the future. However, this would ensue in low profitability in later years because higher net profits would in turn lead to higher taxes. Therefore, while recording infrastructure as CapEx increased the book value of your company, it led to higher costs down the road.
Through an operationalized approach, infrastructure is recorded as an operational expense and written off once the resource is consumed and no longer needed for the period. This means infrastructure no longer leads to inflated profitability and companies can avoid additional income tax. In addition, since companies do not require these high capital expenditures to power their business, they do not require additional funding from banks and investors to finance IT. For SMBs, this creates huge financial flexibility since small scale projects can be undertaken, unconstrained by capital considerations and bank loans.
Beyond just the immediate cash flow, the Business Benefits of IaaS include huge ramifications on the overall financial elements of your business. If done correctly, Cloud Infrastructure can lead to a high monetary gain in the future and renewed financial freedom, all without the significant business disruption that comes with other pillars of the cloud.
This also shows the increased importance of collaboration between IT and Finance. Before, on-premise gave IT the freedom to remain siloed and not interact with other areas of the business. With the transforming effects of Cloud, Business-IT alignment is important to producing the best strategy and optimizing results around business drivers that matter.
3. Operational Support for Key Business Drivers & Customer Value
Not only can you partake in huge cost reductions and more financial freedom, Business Benefits of IaaS include increasing the productivity of key business drivers across the entire enterprise. How?
Through streamlined automation and advanced compute, you enable end-users to complete their workloads with greater efficiency, leading to greater value for the customer when they interact with your company.
What is a key business driver? A key business driver is something that drives the financial and operational results of a company. They will vary based on the nature of one’s business i.e. what they do to deliver value, who they deliver value to, and how they deliver it.
Example 1: A key business driver for your company may be its service delivery. At all times of the day, customers can call and resolve the issues they are having with your product, not just with unlimited availability but with excellent customer service delivered as well. This is a great offering, especially as customers become more demanding from companies they work with; however, keeping the system up and running for this long at all times of the day requires you to have ongoing network performance that is durable and consistent. Also, to empower your employees to make the right decisions for their customers, they must have tools that operate seamlessly when they are tapping into your wide customer database. Otherwise, any delay is evidence against your ability to deliver on your promise. In an on-premise environment, this threat lingers at all times of the day and depends on your in house team’s ability to fully manage the environment.
Example 2: Another example of a key business driver maybe your website. It could be that your website has very high traffic. If this is the case, it is likely that many of your visitors are accessing your page using mobile, meaning you must have the infrastructure to support responsive entry paths with a broad geographical scope for various interfaces. That is if you wish to maximize your conversion rate. If users access your webpage and it is unable to handle the high number of visitors, the bounce rate will jump and you will lose potential customers (and possibly, returning ones too). In an on-premise world, the task of enabling this growth becomes more and more difficult and with less guarantee.
Business Benefits of IaaS include that these threats to your key drivers are reduced. The enhanced computing technology of Cloud Infrastructure enables them to operate at maximum capacity i.e. with less delay, and greater precision, for the customer. This is because Cloud Infrastructure integrates the servers and automates data exchange processes needed for the technology to run, creating streamlined processing and higher performance speed.
Not only that, due to the scalability of this service model, if, for example, sales experience higher customer volume after the website shows a spike in traffic, you can provision additional infrastructure resources to power and sustain this growth as it is happening, not after. Therefore, the Business Benefits of IaaS improve the effectiveness of business drivers, not just with added strength, but with added flexibility and scalability that enables full adaptability to capitalize off opportunities and mitigate threats in the market.
While you can increase the computational performance of the technology in an on-premise environment, it is much more expensive to do this, and because you do not have the scalability and added support of Cloud Infrastructure, all the responsibility of managing the environment and adapting to changes in the market rests on your shoulders. Unless IT conducts an ongoing SWOT analysis to know what the needs will be, they will constantly be in a reactive state. Where you want IT is in a proactive state, and the only way this is possible with limited disruption to the business is through Cloud Infrastructure. This added agility is one of the more subtle, but impactful, Business Benefits of IaaS that many companies hope to achieve and you can too.
Aside from the cost, the performance of on-premise simply does not fare against Cloud Infrastructure, which is designed and built for faster processes with less manual support needed. Through advanced technologies such as serverless architecture, VMs, and containers, the commercial viability and strategic benefit of on-premise will continue to go down as the computing speed, flexibility and Business Benefits of IaaS continue to go up. Therefore, it is best to make the transition sooner rather than later.
In making this change, you invest in your employees and your customers, driving real value for the business and giving IT the capabilities it needs to keep the business running at a much more efficient rate than on-premise.
Remember…
In order to improve market positioning in today’s highly competitive environment, you must streamline operations as much as possible at the lowest cost. Any chance to improve performance in a way that enhances the customer experience is worthwhile. For this reason, you should consider abandoning your on-premise, at least partially, so that you can take advantage of the Business Benefits of IaaS, especially if you find your business devoting high costs to IT maintenance and on-premise resources, and you are approaching the end of life for data centers. That way, you can give IT the means to power the business and lead it into the future without losing an arm and a leg.
Once individuals begin to strongly consider migrating away from on-premise infrastructure to receive the Business Benefits of IaaS, the next question becomes which provider to go with. Two of the world’s leading global IaaS providers are Amazon and Oracle. Find out how these two market leaders go head to head in areas where it matters most – Cost, Performance, and Security. If these are not highly considered in the front end, you jeopardize the opportunity of securing the Business Benefits of IaaS for your company. If you’re an EBS customer, click here. If not, download the following infographic to get the insight you need for your Cloud IaaS provider selection.
Frequently Asked Questions:
What are the advantages and disadvantages of IaaS In Business?
The Business Benefits of IaaS include its flexibility and on-demand service that results in added agility for your company and cost reductions now and in the future.
The disadvantages of IaaS will be a product of poor provider selection and migration strategies, that would prevent you from maximizing the Business Benefits of IaaS for your company. If proper cloud procedures and cost optimization approaches are not implemented, Cloud IaaS, like all other investments, can cause disruption and sub-optimal resource use that does not support business growth.
What does IaaS mean for Business?
As stated, the Business Benefits of IaaS goes beyond added efficiency. It is also a chance for accelerating innovation within your company. If IT can invest less time in maintenance and more time on value-added improvements, they could engineer new ways to integrate the company and improve applications that directly affect end-user experience.
What are examples of IaaS?
In August 2019, Del Monte, reduced overall IT costs by a whopping 35% in less than 4 months when they migrated over 200 servers to the cloud.
If done properly, IaaS can significantly reduce costs and improve efficiency within the business. This is an excellent example of a troubled company rising when they began to enjoy the Business Benefits of IaaS. However, as stated before, cost reductions alone should not be a reason for pursuing Cloud IaaS.
Why is IaaS required for a Business platform?
IaaS is not required for your business platform but it is essential if you want to maintain differentiation in the future. As more companies begin to migrate to the cloud, taking advantage of opportunities to streamline internal processes at a reduced cost becomes imperative to providing continued value for the customer. Agility will lead you into the future. Therefore, the Business Benefits of IaaS go beyond metrics and business drivers but deal directly with capabilities you have against competition and the rate at which you can produce them.
What is IaaS in simple words?
IaaS in simple words is Infrastructure as a service, where you are outsourcing your compute, server, database, and storage from a provider as opposed to powering it in-house. It is a product of advanced business technology and is a luxury of the 21st century. It has brother solutions in the cloud, but among the other Business Benefits of IaaS, it can optimize the benefits of the cloud with little risk to the environment, which most other pillars can not do.