View from the Cloud: Establishing ROI from Cloud Computing

Cloud  Computing has been described as a technological change brought about by the convergence of a number of new and existing technologies. But this is only half the story, says Mark Skilton of Capgemini. 

 

These technical characteristics can also be found in non-disruptive technology solutions. The rate of change and magnitude of cost reduction and specific technical performance impact of Cloud  Computing are not just incremental, but can give anywhere between five to ten times order of magnitude improvement.

 

The famous graph used by Amazon Web Services illustrating the capacity versus utilisation curve has become an icon in Cloud  Computing. The model illustrates the central construct around Cloud-based services enabled through an on-demand business provisioning model to meet actual usage.

 

Why does this matter? The principal reason is that for business one of the core precepts of Cloud  Computing is to avoid the cost impact of over-provisioning and under-provisioning. This is in addition to the opportunity for cost, revenue, and margin advantages of business services enabled by rapid deployment of Cloud  services with low entry cost, and the potential to enter and exploit new markets. 

 

We believe that in years from now, when Cloud  Computing is seen in a historical context, the capacity versus utilisation curve will be seen as an iconic model that had the same effect as previous well known business models including Moore’s Law that established the concept of exponential growth in computational power but has subsequently been seen in other technology areas, including storage and networks.

 

The term “race to the bottom” refers to the competing drive between participants in a market driven by the need to make the greatest cost savings. The term is often seen in a negative context, as the lower costs and margins are seen as a detriment to the participants. Massively scalable services from Cloud  Computing providers have the effect of driving down costs and prices, as the dynamics of competition are shifted by the presence of potentially rapid cost reductions and huge data centre investments. 

 

The counter-balance to this is the Quality of Service (QoS), and the associated cost of that Service (CoS) that characterises the value of the cost per unit of performance provisioned. 

 

The differentiator of Cloud  Computing is not just the offer of utility infrastructure computing services, but also of all the higher-level services that enhance and build business value. We see this as the influence and scope of the movement from IT-centric to business-centric services across a wider services continuum, with utility services for infrastructure at one end, and with business-centric software and business processes delivered as a service from the Cloud  at the other. 

 

 

But how do organisations go beyond the initial capacity and utilisation benefits described in Cloud Computing? The typical view of capacity and utilisation is a technology provider/seller viewpoint which is essentially based on key performance indicators (KPIs) rather than business benefit metrics. 

 

However, effective cost/performance ratios and levels of usage activity do not necessarily imply proportional business benefits. They are just indicators of business activity that are not in themselves more valuable than lower operating cost. So where does that leave us? Through extensive discussions we have identified eight business metrics that translate the indicators of the capacity-utilisation curve to direct and indirect benefits to the business. 

 

Cloud  Computing can provide many advantages over conventional approaches to IT provisioning, which can translate into significant improvements in ROI. But what makes it particularly exciting is that its potential effect on business is not just incremental improvement, but disruptive transformation through new operating models.