How Cloud Computing Changes Enterprise IT Economics

The rapid rise of cloud computing means corporate IT may no longer be the cheapest purveyor of application hosting, infrastructure, storage and other services. The sooner IT leaders come to terms with this, the better.

After a recent speaking engagement, in which I focused on creating a hybrid cloud computing strategy, an attendee approached me with a question. "How," he asked, "can I show that our storage is less expensive than AWS?"

When I asked him to elaborate, he outlined this challenge. His group installed a significant amount of storage a year ago, based on an estimate that the installation would support the growth of the company for the next five years.

Now, less than a year later, the new storage is nearly full. He explained that business users want to offer new capabilities to customers; one example is providing customers the capability to view their invoices for the past year online. Unfortunately, these new capabilities consume far more storage than planned for in the upgrade.

This isn't unusual. The increased expectations of business users—based on watching what competitors are delivering online, not to mention the amazing revolution in applications commonly referred to as the consumerization of IT—are consuming far more computing and storage resources than anticipated. This makes the traditionally challenging area of capacity management even more difficult.

Traditional IT Department No Longer Tenable

Put bluntly, the traditional assumptions of IT—stable workloads and predictable growth—are no longer tenable, having been undone by increased business process expectations and the accelerating rush to digital applications as the primary method of customer interaction.

These trends dislocate established IT economics and present IT groups with a financial challenge—one that threatens to topple their position as monopoly supplier of computing to the larger enterprise.

You can see this by examining the dynamics of this situation.

First, the fact that a "five-year storage purchase" is nearly exhausted after a year calls into question the basic competency of IT. IT can respond by saying that business users have increased demand beyond what was foreseeable, but that won't really hold water. In any case, nobody cares about the why; they just know that what was billed as a five-year solution became a 10-month solution.

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Second, users will be frustrated that they need to secure sufficient resources to address their business requirements. Even if they're willing to pay the attributed cost, they may find that IT cannot deliver resources to address their needs.

Frustrated by the unavailability of resources required to fulfill their needs, their options to obtain resources are as follows:

  • Forego obtaining sufficient resources and forfeit the business opportunity those resources would enable.
  • Lobby senior IT management to get their request put at the head of the list. This lets them go forward with the business initiative, but it also fosters disrespect for the existing process and injects an unhealthy atmosphere of currying favor into resource distribution.
  • Escalate resource requests to senior corporate management to force IT to direct resources to the successful petitioner. This disempowers IT and corrodes respect for it.

Third, IT is now placed in the unenviable position of having to ration a limited resource among competing demands from user organizations. In other words, IT is now seen as a roadblock, which sets the stage for resentment and frustration.

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In the past, this dynamic would lead to an urgent request to the company CFO, asking for more capital to address the resource shortage. Depending upon the CFO, the request might be granted—or it might not, thereby extending the business bottleneck and increasing the ongoing tension between users and IT.

Admit It: Cloud Services May Be Less Expensive

Fundamental to this dynamic is the bedrock assumption that IT is the monopoly supplier of infrastructure to users. That assumption, of course, is no longer accurate, thanks to the rise of Amazon Web Services and other cloud providers. Today, users can avoid the entire resource-rationing contest and go direct to a provider with effectively unlimited resources.

IT is now confronting a world in which its long-established role as sole supplier is no longer plausible or even appropriate. Faced with this new world of increasing demand and alternative sources of supply, how should IT respond?

Unfortunately, all too many echo the approach of my questioner: An assumption that IT must be less expensive than other options and a fevered search for a tool to "prove" the assumption. Note that he didn't ask, "How can I understand my cost versus a cloud provider?" Rather, he asked, "How can I show that our storage is less expensive than AWS?"

I responded by observing that most IT organizations dont really understand their true, fully loaded costs. I recommended he look into a tool such as Apptio to ascertain the total and then compare his organization's costs and the costs of other alternatives. He took no notice the recommendation and repeated his request for something to "prove" that running its own storage would be cheaper for his organization than using AWS.

This response is unfortunate—and it's going to lead to significant heartache for IT groups in the future. A reflexive insistence on retaining the position of monopoly infrastructure supplier, and a refusal to look to outside suppliers to provide sufficient extra capacity, consigns IT to an ongoing power struggle with users.

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It amazes me how many IT organizations persist in assuming—absent any concrete, credible evidence—that they are the low-cost supplier of computing resources. The downside of this approach is that it will render IT irrelevant as users bypass it to directly provision their own cloud-based resources.

A far better approach is to recognize IT's role: Enabling computing to be performed on behalf of the larger company, with selection, infrastructure and application management, along with cost-effectiveness, the domain of IT. Computing is the objective and infrastructure is the mechanism that supports the objective. In the past, the only way to fulfill that objective was to own and operate infrastructure. Today, owning and operating is no longer a prerequisite to obtain computing services.

Savvy IT organizations will recognize the real question: What's the most cost-effective vehicle to obtain computing resources, no matter where they reside? The answer will dictate the ownership and management of the infrastructure.

Bernard Golden is part of the Cloud Computing Enterprise Solutions group at Dell. Prior to that, he was vice president of Enterprise Solutions for Enstratius Networks, a cloud management software company, which Dell acquired in May 2013. He is the author of three books on virtualization and cloud computing, including Virtualization for Dummies. Follow Bernard Golden on Twitter @bernardgolden.

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