Cloud computing: cost control vs cost reduction

Jason Nicholl at Lemongrass examines how enterprises can optimise spend on cloud workloads to get better returns

 

For the typical business, news of a volatile economy might create anxiety around potential cost-cutting decisions. However, not all industries face the same level of potential activity decline as some may profess.

 

The cloud and data migration market is a prime example, as the current state of the global economy is having little effect on customer buying behaviours. According to Gartner, worldwide IT spending projected to reach $4.6 trillion in 2023, a 5.5% increase from 2022.

 

When it comes to business costs, the instinctive reaction to mitigate economic hardship is to consolidate services while reducing overhead and redundant programs.

 

However, for cloud data management, there is a far greater trend we’ve seen lately regarding establishing effective ‘cost controls’ over ‘cost reductions.’ Instead of a complete market and activity slowdown, businesses are now focusing on optimised and efficient expenditures versus simply slashing operating budgets and overhead.  

 

An evolving mindset

The art of reducing costs has always been on the mind of any business leader – “save money wherever possible.” However, as the awareness of cloud benefits have increased in recent years, businesses now realise where they should be spending to optimise processes.

 

With a greater understanding of cloud benefits versus risks, enterprises are now empowered to make more informed decisions.

 

Cost reduction has been a core motivation behind enterprise cloud migration, and while target cost cutting remains in present business practice, the market is shifting its strategy towards cloud operations.

 

While some companies remain keen to outsource the responsibility to internal operating models in the cloud – in an effort to help control costs – most companies wisely choose to keep hold of the reins.

 

In charge of tracking, reporting and managing spend, FinOps is – and will continue to be – the driver of company behaviours around costs. FinOps is still fairly new for many businesses, though more and more companies are deliberating on how best to deliver it.

 

Ultimately, the function set up should begin with a clear Service Definition of how FinOps capabilities will best support a business strategy. Once businesses plateau their cloud spending, they can identify opportunities to optimise costs. They may identify situations where VMs can be migrated to different instance types that reduce costs without compromising performance, or leverage multiple cloud platforms to develop lower-cost services.

 

For example, a multinational information technology company was able to identify over $2.5 million in annual savings year-over-year after migrating their data to the cloud. Once migration was complete, they began identifying and shutting down unused data instances, identifying volumes that were not attached to any used systems, and removing old media that was no longer relevant. Deep dives into other, long-retired department data yielded further opportunities for cost savings for the company.

 

A maturing market

SAP on cloud is a core part of IT infrastructure where cost control has become a significant business driver. Certain operations within SAP have become expensive, and without a proper rollout strategy, they can also become overly burdensome for teams.

 

Enterprises who seek solutions to modernise SAP utilisation is where the market is experiencing its most rapid maturity. Instead of making radical and immediate cost reduction decisions, businesses are now also thinking more about the long-term benefits of their investments.

 

A major influence of upcoming enterprise spending is SAP’s 2027 S/4HANA deadline. Markets have already sized up the scale of this massive transition, resulting in the deadline being pushed back from its original 2025 timeframe. With SAP ceasing all maintenance support for customers on its Business Suite 7 base by the end of 2027, the migration to S/4HANA is going to drive business spending over the next few years.

 

Building resilience with greater cost control

In times of financial uncertainty, it’s widely recognised that a focus on long-term investments, rather than short-term challenges dictating cost-based decisions, improves business resilience.  

 

Having greater control over business costs will be of critical importance in the coming years. As enterprises continue to mature, there are lucrative opportunities to enhance processes and get the most out of their cloud systems.

 

An era of greater cost control is upon us; one that emphasises spending over short-term, sudden reductions. Those who prioritise this latest rising cloud strategy will not only be in a strong position to ride out the economic turbulence, but also improve their competitive positioning in the long-term. 

 

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Jason Nicholl is Executive Vice-President at Lemongrass

 

Main image courtesy of iStockPhoto.com