Cloud economics is crucial for an organization to make the most out of their cloud solutions, and business leaders need to prioritize shifting their company culture to embrace accountability and trackability.
When leaders hear the phrase “cloud economics,” they think about budgeting and controlling costs. Cost management is an element of cloud economics, but it is not the entire equation. In order for cloud economics to be implemented in a beneficial way, organizations must realize that cloud economics is not a budgetary practice, but rather an organizational culture shift.
The very definition of “economics” indicates that the study is more than just a numbers game. Economics is “a science concerned with the process or system by which goods and services are produced, sold, and bought.” The practice of economics involves a whole “process or system” where actors and actions are considered and accounted for.
With this definition in mind, cloud economics means that companies are required to look at key players and behaviors when evaluating their cloud environment in order to maximize the business value of their cloud.
Once an organization has fully embraced the study of cloud economics, it will be able to gain insight into which departments are utilizing the cloud, what applications and workloads are utilizing the cloud, and how all of these moving parts contribute to greater business goals. Embodying transparency and trackability enables teams to work together in a harmonious way to control their cloud infrastructure and prove the true business benefits of the cloud.
If business leaders want to apply cloud economics to their organizations, they must go beyond calculating cloud costs. They will need to promote a culture of cross-functional collaboration and honest accountability. Leadership should prioritize and facilitate the joint efforts of cloud architects, cloud operations, developers, and the sourcing team.
Cloud economics will encourage communication, collaboration, and change in culture, which will have the added benefit of cloud cost management and cloud business success.
Where do companies lose control of their cloud costs?
When companies lose control of cloud costs, the business value of the cloud disappears as well. If the cloud is overspending and there is no business value to show for, how are leaders supposed to feel good about their cloud infrastructure? Going over budget with no benefits would not be a sound business case for any enterprise in any industry.
Out-of-control cloud spending is quite easy, and it usually boils down to poor business decisions that come from leadership. Company leaders should first recognize that they wield the power to manage cloud costs and foster communication between teams. If they are making poor business decisions, like prioritizing speedy delivery over well-written code or not promoting transparency, then they are allowing practices that negatively impact cloud costs.
When leaders push their teams to be fast rather than thorough, it creates technical debt and tension between teams. The following sub-optimal practices can happen when leadership is not prioritizing cloud cost optimizations:
- Developers ignore seemingly small administrative tasks that are actually immensely important and consequential, like rightsizing infrastructure or turning off inactive applications.
- Architects select suboptimal designs that are easier and faster to run but are more expensive to implement.
- Developers use inefficient code and crude algorithms in order to ship a feature faster, but then fail to consider performance optimizations to execute less resource consumption.
- Developers forgo deployment automation that would help to automatically rightsize.
- Developers build code that isn’t inherently cloud-native, and therefore not cloud-optimized.
- Finance and procurement teams are only looking at the bottom line and don’t fully understand why the cloud bill is so high, therefore, creating tension between IT/dev and finance/procurement.
When these actions compound, it leads to an infrastructure mess that is incredibly difficult to clean up. Poorly implemented bad designs that are not easily scalable will require a significant amount of development time; therefore, leaving companies with inefficient cloud infrastructure and preposterously high cloud costs.
Furthermore, these high and unexplained cloud bills cause rifts between teams and are detrimental to collaboration efforts. Lack of accountability and visibility causes developer and finance teams to have misaligned business objectives.
Poor cloud governance and culture are derived from leadership’s misguided business decisions and muddled planning. If leaders don’t prioritize cloud cost optimization through cloud economics, the business value of the cloud is diminished, and company collaboration will suffer. Developers and architects will continue to execute processes that create high cloud costs, and finance and procurement teams will forever be at odds with the IT team.
What are the benefits of cloud economics?
Below are a few common business pitfalls that leaders can easily address if they embrace the practice of cloud economics:
- Cost Savings: The cloud eliminates the need for upfront hardware investments and reduces ongoing maintenance and operational costs. Organizations only pay for the resources they use, allowing for cost optimization and scalability.
- Infrastructure Efficiency: Cloud providers can achieve economies of scale by consolidating resources and optimizing data center operations. This results in higher infrastructure efficiency, reducing costs for businesses compared to managing their own on-premises infrastructure.
- Agility and Speed: The cloud enables rapid deployment and provisioning of resources, reducing the time and cost associated with traditional IT infrastructure setup. This agility allows businesses to quickly adapt to changing market demands and launch new products or services faster.
- Global Reach and Accessibility: Cloud services provide a global infrastructure footprint, allowing businesses to easily expand their operations into new regions without the need for physical infrastructure investments. This global reach enables faster access to customers and markets.
- Scalability and Elasticity: Cloud services offer the ability to scale resources up or down based on demand. This scalability eliminates the need for overprovisioning and ensures businesses have the necessary resources to handle peak workloads without incurring additional costs during idle periods.
- Improved Resource Utilization: Cloud providers optimize resource utilization through virtualization and efficient resource management techniques. This leads to higher resource utilization rates, reducing wasted capacity and maximizing cost efficiency.
- Business Continuity and Disaster Recovery: Cloud services provide built-in redundancy and disaster recovery capabilities, reducing the need for costly backup infrastructure and complex recovery plans. This improves business continuity while minimizing the financial impact of potential disruptions.
- Innovation and Competitive Edge: The cloud enables rapid experimentation and innovation, allowing businesses to quickly test and launch new products or services. This agility gives organizations a competitive edge in the market, driving revenue growth and differentiation.
- Focus on Core Business: By offloading infrastructure management to cloud providers, businesses can focus more on their core competencies and strategic initiatives. This shift in focus improves productivity and resource allocation, leading to better economic outcomes.
- Decentralized Costs and Budgets: Knowing budgets may seem obvious, but more often than not, leaders don’t even know what they are spending on the cloud. This is usually due to siloed department budgets and a lack of disclosure. Cloud economics requires leaders to create visibility into their cloud spend and open channels of communication about allocation, budgeting, and forecasting.
- Lack of Planning and Unanticipated Usage: If organizations don’t plan, then they will end up over-utilizing the cloud. Failing to forecast or proactively budget cloud resources will lead to using too many unnecessary and/or unused resources. With cloud economics, leaders are responsible for strategies, systems, and internal communications to connect cloud costs with business goals.
- Non-Committal Mindset: This issue is a culmination of other problems. If business leaders are unsure of what they are doing in the cloud, they are less willing to commit to long-term cloud contracts. Unwillingness to commit to contracts is a missed opportunity for business leaders because long-term engagements are more cost-friendly. Once leaders have implemented cloud economics to inspire confidence in their cloud infrastructure, they can assertively evaluate purchasing options in the most cost-effective way.
What are the steps to creating a culture around cloud economics?
Cloud economics is a study that goes beyond calculating and cutting costs. It is a company culture that is a cross-functional effort. Though it seems like a significant undertaking, the steps to get started are quite manageable. Below is a high-level plan that business leaders must take charge of to create a culture around prioritizing cloud economics:
1. Inform: Stage one consists of lots of data collecting and understanding of the current cloud situation. Company leaders will need to know what the trust costs of the cloud are before they can proceed forward. Creating visibility around the current state is also the first step to creating a culture of communication and transparency amongst teams and stakeholders.
2. Optimize: Once the baseline is understood, leadership can analyze the data in order to optimize cloud costs. The visibility of the current state is crucial for teams and leadership to understand what they are working with and how they can optimize it. This stage is where a lot of conversations happen amongst teams to come up with an optimization action plan. It requires teams and stakeholders to communicate and work together, which ultimately builds trust among each other.
3. Operate: Finally, the data analysis and learnings can be implemented. With the optimization action plan, leaders should know what areas of the cloud demand optimization first and how to optimize these areas. At this point in the process, teams and stakeholders are comfortable with cross-collaboration and honest communications amongst each other. This opens up a transparent feedback loop that is necessary for continuous improvement.
The entire organization stands to gain when cloud economics is prioritized. A cost-efficient cloud infrastructure will lead to improved productivity, cross-functional collaboration between teams, and focused efforts towards greater business objectives.
Ready to take control of your cloud costs and maximize the value of your cloud infrastructure? Contact 2nd Watch today and let our team of experts help you implement cloud economics within your organization. As a trusted partner for enterprise-level services and support, we have the expertise to assist you in planning, analyzing, and recommending strategies to optimize your cloud costs and drive business objectives. Don’t let cloud spending go unchecked. Take charge of your cloud economics by reaching out to a 2nd Watch cloud expert now
Mary Fellows | Director of Cloud Economics at 2ND Watch