How Cloud Computing Helps Cut Costs, Boost Profits

Companies that are moving select IT capabilities to the cloud are saving money and increasing profits, which they are putting back into the business to increase headcount, boost wages and drive innovation.

The decision over whether to move your organization's IT to the cloud can be a daunting one. After all, it means a wholesale change in the sourcing and delivery of IT products and services. However, many companies are making the leap, at least for select capabilities—a recent by CDW of 1,242 IT professionals found that more than half of organizations are moving a variety of capabilities to the cloud. And a majority of them are recognizing cost savings and increased profits, according to another study by Rackspace Hosting.

How Cloud Computing Helps Cut Costs, Boost Profits

"The findings were pretty telling in terms of the adoption of cloud computing and the benefits of cloud computing," says John Engates, CTO of Rackspace Hosting. "The bottom line is cloud saves companies money and increases their profits."

Rackspace, in conjunction with the Manchester Business School and Vanson Bourne, recently conducted a survey of 1,300 companies in the U.K. and U.S., supplemented by qualitative telephone interviews by the Manchester Business School with companies that used the cloud during December 2012 and January 2013.

The study found that 88 percent of cloud users pointed to cost savings and 56 percent of respondents agreed that cloud services have helped them boost profits. Additionally, 60 percent of respondents said cloud computing has reduced the need for their IT team to maintain infrastructure, giving them more time to focus on strategy and innovation. And indeed, 62 percent of the companies that have saved money are reinvesting those savings back into the business to increase headcount, boost wages and drive product innovation.

"The study shows just what an important impact cloud computing is having on U.K. and U.S. businesses," Engates says. "It's particularly interesting that, despite the ongoing economic backdrop, half of businesses on both sides of "the pond" are actually increasing profits and growing their business through the use of the cloud. This includes investing in headcount and wages as well as driving further innovation."

Turning to Cloud for Storage and Collaboration Apps

The services or applications organizations are moving to the cloud are largely dependent on company size and industry, according to CDW. For instance, storage is the primary service for 40 percent of small businesses and 35 percent of mid-sized businesses, whereas large businesses and the federal government are first and foremost going to the cloud for conferencing and collaboration applications (40 percent and 39 percent, respectively). Organizations are also turning to the cloud for messaging, office and productivity suites, business process apps and compute power.

However, reducing IT operating costs is only one of several cloud benefits, according to cloud users surveyed by CDW. In fact, organizations implementing or maintaining cloud computing point to increased efficiency (55 percent), improved employee mobility (49 percent), increased ability to innovate (32 percent) and freeing current IT staff for other projects (31 percent) as the top benefits. Reduced IT operating costs come in fifth on the list of benefits (25 percent).

Calculating Cloud ROI

When you set out to calculate your cloud ROI, Paul Croteau, an enterprise solution engineer at Rackspace, says you'll need to consider factors that are relevant to your enterprise application portfolio and specific computing needs.

First, Croteau says, your ROI analysis should take into account broad considerations like cost per unit of computing power, the tradeoff of the amount of labor necessary to redesign applications that need to operate in a cloud environment and intangibles like time.

"Moving to the cloud also adds new factors into the ROI equation that require thinking beyond the realm of items like capital acquisition, licensing of software and depreciation," Croteau says. "For example, users only pay for what they use with a cloud platform, and you can see exactly what the power is costing you through the transparency of a cloud provider's interface. Another prime cost benefit of the cloud's economy of scale is the ability to scale up and down quickly, across a number of investments."

"Cloud computing can create a significant return on investment, affording energy, licensing and administrative costs, and it frees up capital and personnel to innovate on new ideas quickly," Croteau adds. "Moving to the cloud is a transformational investment, in every sense of the word—but it's a move that many of today's organizations find compelling."

Building a Cloud Roadmap

CDW offers the following recommendations for building your cloud roadmap:

  • Tap a cross-section of your stakeholders for a thoughtful analysis of benefits and costs, and then select a cloud strategy consistent with your IT service fulfillment model.
  • Launch first with services that don't pose unacceptable risks to your organization, aren't business critical and where complexity of implementation is low (storage, unified communications and office productivity apps, for example).
  • Leverage your user's familiarity with consumer cloud offerings to maximize the success of cloud adoption.
  • Independent software vendors will bring new features to market faster with cloud applications, so follow those changes closely.
  • Start planning today; understand your internal "cost to serve" per application, which will help determine ROI for public cloud solutions.
  • When working with cloud providers, look for contracts that establish and enforce service levels and security standards.
  • Work with a software licensing expert to clarify and resolve issues affecting applications your organization wants to move to the cloud.

Thor Olavsrud covers IT Security, Big Data, Open Source, Microsoft Tools and Servers for CIO.com. Follow Thor on Twitter @ThorOlavsrud. Follow everything from CIO.com on Twitter @CIOonline, Facebook, Google + and LinkedIn. Email Thor at tolavsrud@cio.com

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