The people tasked with deciding on procurements usually assume that the procurement is worthwhile. The same expectation applies to cloud services. Our view is that the cloud – and especially the continuous development of the cloud – are worthwhile investments. What are the factors in the value of clouds? How can the value be maximised?
Cloud services may be difficult to perceive as investments because they are neither visible nor tangible. However, the benefits are undeniable.
"The viability of the investment is much greater than just the value of the technical solution. The cloud benefits the entire company's operations and is a source of competitive advantage," says Pekka Nurmi, Head of Strategic Development at Knowit.
One of the ways for a business to realise monetary benefits and added value in the initial transition to the cloud is to use SaaS solutions. With a cloud model, the company is not made to pay for idle capacity because most services use pay-as-you-go billing.
"However, there are many other potential benefits of cloud services. In the field of innovation capacity, in particular, there is a treasure trove just waiting for someone to claim it. This enormous business potential should not be left untapped," emphasises Jani Koivulainen, Head of Software Development at Knowit Solutions.
For example, according to study reports from McKinsey and PwC, the majority of the companies that migrate to the cloud only exploit a fraction of the cloud's potential. McKinsey values the untapped potential of the cloud at more than $1.2 trillion, with innovation capacity accounting for over $0.7 trillion of this sum.
It is difficult, but not impossible, to calculate the return on investment (ROI) of cloud services.
Cloud service providers will tell you that ROI varies from 200 per cent to almost 500 per cent over three years. One will say that the productivity of IT staff will increase by 25 per cent, while another will claim a rise of more than 60 per cent. According to some, the savings in infrastructure and personnel costs will reach millions of euros, while others claim 30 per cent. The bottom line will be dozens of per cent better.
"The present state must be analysed before the return on investment can be calculated. It is important to calculate where the costs and resources go and determine whether there is any waste," Koivulainen says.
The analysis alone may provide valuable benefits. For example, it may become clear that the expensive hardware in data centres is running at 10 per cent of its capacity 90 per cent of the time – in other words, it is largely wasted. The equivalent cloud resources can scale up and down instantly according to your needs.
It is also appropriate to anticipate future IT costs. Things like major update projects for old applications or server hardware upgrades can leave a large dent in the budget.
"A company may be coming to the end of the lease in its data centre, or its hardware may be approaching the end of its life cycle. In many cases, the company already knows that its critical applications no longer provide a decent user experience," Pekka Nurmi says.
If a company chooses to run applications in its data centre, the infrastructure will eventually begin to show its age. Laborious and costly upgrades are easy to postpone. However, such delays only raise the price of keeping the applications on life support. In the cloud, the service provider takes care of upgrades to the infrastructure and tools at no extra cost.
"Applications can be modernised in an agile way in the cloud, ensuring that they remain up to date both technically and in terms of the user experience. This means that companies can avoid making expensive one-off modernisations or accumulating substantial repair backlogs," Nurmi says.
A quick way to realise scalable and measurable cost benefits in the cloud is to use SaaS-based services. There are also ROI calculators for such services.
"It can easily take several person-months of work to customise or modify traditional applications, whereas similar applications may be available in SaaS form. It is also important to remember that companies gain a valuable competitive advantage if their applications offer the functionality and availability that users demand," Koivulainen notes.
The transition to a developing cloud environment and cloud-native applications based on microservices creates a self-enhancing cycle. It boosts the company's innovation capacity even further. Customers of the major cloud services have begun launching new products 44–75 per cent faster than before.
"Cloud tools present incredible opportunities for innovation. I just attended a course where we used cloud tools to create a note-taking app with text-to-speech capabilities quickly. Not many companies could do something like this – and it would not be worth doing it today, even if they could," Koivulainen says.
The cloud boosts companies’ agility and reaction rates and makes information systems elastic and scalable and improves security and resilience. It slashes the number of unplanned IT outages.
Fortune favours the brave. New solutions are constantly being released, and people should not hesitate to try them out. Early adopters receive an unparalleled boost in added value.
Corporate managers should commit to modernising their entire organisation with the help of the cloud and understand how the nature of the company and its business model may change.
"Value is added continuously after a cloud transition is complete, but value-creation is significantly enhanced when its clear targets are set. It is critically important for the company to continue working on cloud modernisation all the time," Nurmi says.
Authors:
Pekka Nurmi, Head of Strategic Development, Knowit Solutions Oy.
Jani Koivulainen, Head of Software Development, Knowit Solutions Oy.
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