While most CIOs realize that successfully executing a shift to some degree of cloud based compute will save money, the question of what will occur with the savings is one not often addressed. This is a hypothetical scenario, to illustrate some of the potential cost and transformation issues.
Lets say you are CIO in of a company that outsources 1000 servers to a hosting provider. You currently purchase all the server hardware, the outsourcing provider installs it an runs it for you. Typical problems with this model include time to provision hardware, keeping patching up to date, standards and application design consistent, and underutilization of capacity.
The cloud provider convinces you that many of these servers can be hosted within a provider private cloud. The increased server utilization efficiency of the cloud means that the number of physical servers can be reduced by 30%, a substantial cost saving. The new billing model is a pay-per-server image model, where instead of buying hardware, the number of active server images is billed based on daily, automated daily usage statistics.
Over a two year time frame, you move to the provider cloud instead of refreshing end of life servers in your existing outsourced server hosting operation. Indeed the savings work out, and IT capital budget reduces because of reduced purchasing of new servers. Operational costs go up, but this was to be expected due to the transition from spending money on hardware to spending on a pay-per-server image model.
Your CFO starts to ask you
if you are reducing headcount in
your IT operation because
the costs of providing the
infrastructure required by
your business applications
has reduced.
Your CFO starts to ask you if you are reducing headcount in your IT operation because the costs of providing the infrastructure required by your business applications has reduced. However, business groups are still demanding many changes to their applications, and the pipeline of backlogged project work for IT is as great as ever. In fact, many of the application groups quickly grasped the new flexibility offered by the cloud computing environment. The number of requests for approval of new development and test environments has risen substantially as these business groups realize they can get a new server image stood up within hours after approval instead of the previous months.
Possibility one - CFO loves this option. Cut IT staff numbers, because you are saving money on hosting and don't need all those guys that used to be supporting hardware installs.
Possibility two - HR director loves this option. Retrain former IT staff that used to be working on supporting hardware installation, standup and support, to address more of the project pipeline. You know this is a difficult option, it's debatable whether retaining will be effective, especially as many of the staff were previously to low cost offshore locations, have narrow, low level skill sets, and a pretty poor track record of showing innovation or autonomy.
Possibility three - you as CIO love this option. Cloud computing has enabled a rethink of the role and structure of your whole IT shop. Instead of an embattled operational focus and constant hardware refresh struggle, you've got staff that can be directed towards working with business groups on increasing the innovation and response times for their new ideas. This is a challenging cultural change, but judging by the new motivation that you are seeing from many staff, it's one worth pushing for.
Cloud computing might be still sky high in terms of turning vision into reality, but if we think it through, the possibilities for organizational change, culture change and cost saving are huge.
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