Cost pressures shine a spotlight on IT managers and cloud expenditure
The pandemic forced many businesses to rethink how they work. For most, the solution was found in the cloud.
From powering virtual stores, to connecting employees, cloud-based tools sustained business as usual. Now, businesses face another challenge.
With rising inflation, supply chain disruption and rumours of a recession, the pressure is mounting for businesses. Across all sectors and sizes, finance departments are placing even greater scrutiny on expenditure and are looking at ways to reduce costs wherever possible.
IT budgets are by no means exempt from such scrutiny - especially with inflation increasing the costs of servers, storage and professional services. Producer Price Index data, which tracks prices paid to the producers of goods and services, reveals the cost of host computers and servers has risen 21%, compared to pricing levels in June 2021.
One area increasingly under the microscope is cloud services. Gartner expects cloud spending to increase by 22% in 2022. For those organisations that are in the midst of their transition to the cloud, it can be hard to justify the monthly invoices for cloud services while still maintaining much of their previous infrastructure. As purse strings tighten, IT teams need to respond. For most IT managers it’s less about finding savings, and more about being commercially minded. Being able to communicate the timelines for the return on investment and justify the increased IT expenditure will go a long way to support your cloud migration.
Ultimately, to navigate rising cost pressures, IT teams must understand and articulate the commercial implications of the cloud, so they can reinforce its worth.
The nature of cloud expenditure
Traditionally, IT procurement saw businesses make significant investments to acquire infrastructure, hardware and related software upfront. Known as a one-time sales model (Capex), businesses paid once for the kit they need.
Cloud expenditure is fundamentally different. Rather than a Capex model, cloud expenditure uses a recurring sales model (Opex) based on usage and data.
For finance departments, this is a drastic shift. As opposed to one-off payments, finance will get a regular bill for IT expenditure – that varies depending on usage. This requires IT and finance to reimagine budgets and payments.
IT teams need to be mindful that they pay for cloud services according to consumption. As such, even day-to-day IT operations will impact on cost, so they must acknowledge and respect the commercial environment they’re facing.
What about the return on investment (ROI)?
As the old saying goes, sometimes you’ve got to spend money to make money. From increased productivity, optimised processes to reduced overheads, migrating to the cloud has several wide-ranging benefits for businesses. However, in most transitions, these benefits are not realised instantly.
In fact, it’s rare that a cloud implementation simply “goes live”. Migrations are often phased or layered in a way that makes calculating the ROI challenging.
Positioning the value of a cloud migration within the commercial landscape is essential when talking about ROI. For example, organisations embracing hybrid working will likely face rising cloud costs due to increased usage. However, IT managers can highlight the talent attraction and retention benefits of such a shift – perhaps, offsetting increased cloud costs. And, if cloud services and hybrid work allows a business to downsize their physical footprint, that can represent a significant return on investment.
The same could be said for a business that pivoted to eCommerce during the pandemic. While cloud and IT costs may have increased, such a transition opens a new revenue stream to deliver greater ROI for the entire organisation.
It’s vital IT teams understand the commercial reality facing their organisation and can communicate the balance between rising costs and the ROI implications of their cloud strategies. While CIOs will know exactly how their cloud migration will transform the business, most CFOs just see spiralling costs with little to no material benefits.
The IT team plays a fundamental role in any organisation and how it operates. But, in any time of financial uncertainty it is natural for expenditure to be questioned or reigned in.
The cloud represents an opportunity for organisations to find efficiencies, create new ways of working and even develop new business models. But this can only happen if IT teams can make the right business case and demonstrate a path to ROI.
With greater commercial awareness and a clear understanding of how the cloud impacts the wider business, CIOs and IT Managers can continue to drive cloud migration forward.
To find out how we can help you capture the full value of the cloud, click here.
Cloud Services Business Manager EMEA, Ricoh Europe
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