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Cost savings among the biggest cloud fallacies

Experts at the MIT Sloan CIO Symposium described the advantages that justify the high cost of moving to the cloud while acknowledging the data center is best for some companies.

Over the last half-dozen years, companies have learned that running business applications in the cloud won't be less expensive than the data center. So, justifying a cloud migration depends on advantages other than saving money.

At the MIT Sloan CIO Symposium Monday, an expert panel focused on what they consider the critical advantages cloud providers deliver to customers. They include faster software updates to introduce new services or support, new products, and the ability to scale applications up or down as needed.

Early on in the pandemic, some retailers took advantage of the agility offered by cloud providers to quickly expand their pickup and delivery services. In another example, healthcare institutions expanded telemedicine services to lower the number of in-person patient visits.

Fortunately, most companies have more time to plan for the move and prepare for the expense.

"When you initially go to the cloud, you actually have increased your costs," said Subhadaa Reddimasi, head of cloud adoption at financial services company Wells Fargo. "It's important to look at it longer term versus the near term."

Panelists agreed that success depends on moving slowly to the cloud, starting with portions of workloads, not entire applications. Planning for the migration will include many elements, such as consultants, application development, educating IT staff and hiring people familiar with the cloud.

Successful companies first establish the business case for a cloud project, and then monitor and measure results, which upper executives use to determine the return on investment, said Cathy Horst Forsyth, founder and CEO of Strongbow Consulting Group.

Some will acknowledge that they've done the math and see that the efficiencies are with traditional data center infrastructure.
Cathy Horst ForsythFounder and CEO, Strongbow Consulting Group

Eventually, companies with successful cloud migrations learn to lower costs by optimizing their cloud operation to get the highest return from the money spent.

"Broadly speaking, I would tell you that most of our clients now, thankfully, do not talk about moving to the cloud for cost savings," Horst Forsyth said.

However, enterprise customers often underestimate the time needed to move applications or shift from on-premises software to SaaS. They also miscalculate how fast they can replace legacy data center infrastructure with a cloud provider.

"What you [typically] wind up with are two worlds and two sets of [accounting] books," Horst Forsyth said.

Sometimes, that kind of hybrid situation isn't the best deal. It's not unusual for a Strongbow Consulting client to determine that the cloud won't save them money.

"Some will acknowledge that they've done the math and see that the efficiencies are with traditional data center infrastructure," Horst Forsyth said.

A comparison chart of on-premises and cloud storage costs.
Cloud cost calculations must include the upfront investments and the annual fees for cloud consumption.

Importance of IT talent

Reducing costs often depends on the quality of IT talent within an organization. An effective talent strategy includes training current staff, hiring people with experience in cloud operations, and shifting the IT culture toward processes for developing software, applying security and managing cloud infrastructure.

"It really is upskilling the entire organization to think about business differently [and] to be open to [new] technology," Horst Forsyth said.

That includes new approaches to security. Cloud service providers (CSPs) offer more robust protection than many companies can implement themselves, said Jan Shelly Brown, a partner of McKinsey & Company.

"There's a lot of innovation from a security perspective that the CSPs are bringing to the table," Brown said.

However, that means an organization must focus on training IT staff to implement security when deploying cloud code, Brown said. Also, organizations like banks and hospitals will have to satisfy regulators that data is secure using automated cloud controls.

Cloud lock-in is another concern of companies. Unfortunately, it's unlikely that they can avoid it, given the difficulty of moving corporate data out, Wells Fargo's Reddimasi said. The best strategy is to develop contingency plans for moving data if a cloud provider fails to meet expectations.

"Preparedness is a big part of [controlling] vendor lock-in," Reddimasi said.

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