According to Gartner Vice President Lydia Leong, “moving to cloud IaaS without sufficient transformation may fail to yield the hoped-for benefit and may actually result in higher costs.”
An iaas success story
In August 2019, Del Monte, one of the largest producers and distributors of branded processed food in North America, announced that it was closing two of its US manufacturing plants and selling two others. This was its response after the parent company, Del Monte Pacific Limited, placed pressure to improve operations and cut costs.
Food Manufacturers are succumbing to massive industry-wide changes as the current US administration increases tariffs on aluminum and metal and the price of maintaining operations skyrockets. The financial pressure of these unforeseen threats in the market reverberated throughout Del Monte. Senior Executives were facing great strain to cut costs and save money, including their CIO who, in less than 4 short months, came up with an idea that reduced overall IT costs for Del Monte by a whopping 35%.
What was the idea that enabled him to cut IT costs so dramatically? Infrastructure as a service.
Briefly: what is infrastructure as a service?
Infrastructure as a service, or IaaS, is a cloud solution that involves transferring a company’s internal computing resources from a traditional on-premise data center to servers that are hosted by a 3rd party and connected via the Internet. This means all the heavy lifting that goes into keeping a business’s IT up and running, such as operating data centers, networks, servers, storage etc., is performed by a cloud provider, all while maintaining its IT capabilities.
For Del Monte, this meant shifting their capital expenditures to operating expenditures and paying for infrastructure resources using an on-demand service model. However, as we are about to see, the short 4-month time frame and remarkable cost reduction rate following Del Monte’s IaaS migration doesn’t reflect the true reality facing most businesses in their journey to the cloud.
Iaas rarely leads to short term cost reductions
IaaS is not a cost reductions strategy; it’s a cost management strategy that, if done right, can lead to significant cost reductions down the road. However, many businesses comparing their current on-premise infrastructure to prospective cloud providers assume that migrating will automatically result in significant, short term cost reductions.
According to Gartner, this is the Number 1 misconception surrounding infrastructure migration. While some organizations like Del Monte can see sharp cost reductions following their migration to IaaS, for most businesses, especially SMBs, this is not a realistic outcome for their migration.
The Rumor Persists…
In 2017 and 2018, the Federal Computer Week (FCW) hosted a panel of Federal IT leaders to provide feedback regarding their ongoing cloud migration projects. What was their number one complaint? Cost Reductions. According to the FCW Editor-in-Chief, an, “overwhelming consensus,” among the participants at the panel complained that, “the savings-driven sales pitch that has dominated the conversation since ‘cloud first’ became official policy misses the bigger picture, and in some ways, it is hindering the government’s ability to take full advantage of cloud services.”
The reason for this is because IaaS migration leads to organizational transformation that is 1) disruptive and 2) difficult to manage. You must be extremely technical and business savvy to successfully anticipate and monitor the wide-scale changes that come with your IaaS migration, especially if you do not plan to outsource services from a 3rd party integrator.
SMBs may have less experience with cloud-based solutions. For this reason, it’s possible they lack the knowledge needed to properly plan for their migration. Larger businesses, however, equipped with years of experience and a skilled IT team, may simply underestimate the workload of their migration (which, due to their size, will likely be far more sophisticated and complex if they wish to achieve a smooth transition into the cloud).
In either situation, it’s best to take Leong’s advice.
Build a better justification for the cloud
It’s likely that you have been given the task of evaluating whether IaaS is a good solution for your company. Maybe it sounds like a feasible option. Meanwhile, you have others questioning you saying, “this looks great… but how much money will it save?”
Just because you are receiving pressure from upper executives, don’t feel obligated to filter you’re pending IT decisions through this motive to save money. This is the fatal flaw of IT departments debating cloud migration and the number one reason for their miscalculations that follow. The purpose of this investment is not to produce immediate cost reductions for your organization, nor is it a realistic goal to place in mind given the disrupting effects this will have on your company.
As stated, the goal should be to incur the business value benefits that come with migrating your infrastructure to the cloud, which, if done right, will lead to the long-term financial outcome you and your team are looking for.
Just remember to carefully assess and understand the ramifications that this potential cloud migration will have on your business operations. Take initiative to accommodate these changes before you officially begin the migration. Think preemptively as you gear up for this extremely disruptive and transformative process. Most importantly, don’t base your decision to migrate to IaaS on whether it will save you money. Truthfully, it won’t if you haven’t done the work of critically analyzing the situation, and you’ll need to have a better case built up to justify your cloud migration if you want to get the most of out of this investment.
The prevailing myth about cloud IaaS is that it is a guaranteed way to save you money. This was the case for Del Monte, but it won’t be true for you if you don’t take steps now to ensure your successful IaaS migration.
The organizations that do see fruitful cost reductions as a result of their IaaS migration are doing an effective job at planning and analyzing proper use cases of the cloud within their company.
Workload optimization, governance, cost management and operational alignment with cloud operating principles – These are just a few of the things you might consider when deciding whether to migrate your infrastructure to the cloud.
Regardless of the criteria you implement, if you think IaaS will lead to the best outcome for your company, make sure you have solid case and that you can justify this migration beyond simple cost reductions.