Using Cloud Flexibility to Drive Enterprise-Class Cost Efficiencies – A Tale from the Frontlines | Gaining Altitude in the Cloud

Posted On March 12, 2012

Myth

One of the current mantras that many enterprise cloud enthusiasts are chanting is that “it’s not about cost.” Cloud is all about business agility and flexibility with cost being an interesting side benefit, but not necessarily compelling on its own. Focusing on cost efficiency and TCO is indicative of a stodgy, legacy IT mindset that doesn’t understand the true paradigm shift of cloud.

The TruthNothing could be further from the truth. In fact, we’re finding that some of the more interesting cloud enterprise use cases these days involve leveraging cloud agility to aggressively reduce infrastructure and IT costs.

Take a recent client of ours, a Fortune 500 global energy company seeking to reduce corporate IT infrastructure costs. Its focus was on reducing costs across two primary datacenters that delivered HR, finance, accounting, operations and other applications to business operations across 30 countries. Understanding cloud options for migrating its SAP deployment was a central focus of their effort.

Facing an imminent and significant hardware upgrade cycle, it was more interested in exploring opportunities to reduce costs through traditional IT outsourcing (ITO) vehicles, as well as next generation, cloud-enabled delivery models. Critical objectives included:

  • Reducing asset ownership
  • “Variabilizing” its IT cost structure
  • Outsourcing commodity IT skills

Based on these requirements, our client evaluated potential solution options from nearly 20 service providers, including traditional enterprise IT service providers, cloud service providers (CSPs), offshore ITO vendors and telcos/carriers.

Our client narrowed the field to three potential solution providers, each with different recommendations on where to migrate existing applications and workloads (which were largely in dedicated and virtualized models). Recommended solutions varied not just across cloud delivery model (public vs. private), but also across asset ownership (on-prem private vs. hosted and virtual private):

Cloud Providers Solution Overview

And what did the client find? As shown below, leveraging a mix of virtual private and public cloud models offered the opportunity to reduce its annual infrastructure costs by over 30 percent!  “Provider A,” which suggested migrating approximately 30 percent of the clients’ workloads to public cloud environments ended up with the most compelling business case. While they recommended migrating 80 percent of the workload portfolio to cloud-enabled models, they did recommend keeping the client SAP instances in a traditional, dedicated model.

IT Infrastructure Annual Cost

Some additional observations:

  • Costs reflect all required migration and replatforming investments
  • Public cloud costs were indicative of current market pricing generally at the same unit price levels across the period. As shown by the recent AWS price drop of up to 37 percent on reserved instances, this is a very conservative assumption
  • Efficiencies do not reflect additional potential opportunities from active workload management

So where did the savings come from? Our client found that the savings were driven by four primary levers:

  • Consolidation and rationalization of underutilized servers
  • Migration of unpredictable and “spiky” workloads to public cloud models with consumption-based billing
  • Reduced IT operations and management costs
  • Defacto outsourcing of maintenance and support to CSPs

We’re seeing similar results across our other clients, who are finding that cloud-enabled delivery models, leveraged correctly, can drive substantial and lasting reduction in IT infrastructure costs.

Maybe cloud and cost efficiency aren’t so boring after all…

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