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Setting the Foundations for Cloud Usage

Posted April 7, 2021 in Business & Enterprise Architecture
Setting the Foundations for Cloud Usage

The best way to convince people of a solution is to involve them in its creation and implementation. A cloud center of excellence (CCoE) is a multidisciplinary cloud governance board with authority to define, implement, and enforce a company’s cloud computing standards. The CCoE helps set the foundations for cloud usage and provides a way to evolve the cloud outside of IT. In AWS’s definition, a CCoE comprises two subgroups:

  1. A cloud business office, representing the business stakeholders — both on requirements and financial oversight (Finance)

  2. A cloud engineering group, representing the technical aspects of cloud usage (IT)

Both groups work together to provide a holistic approach to the cloud. The CCoE helps create a harmonious move to the cloud, listening to all stakeholders while at the same time providing a center of authority capable of making decisions and enforcing them.

IT Concepts in Financial Terms

The following statements represent the way IT often presents a concept. Each example in this section offers a more procurement-friendly version, followed by a brief explanation.

IT: “Cloud Is Cheaper than On-Premise”

Finance: CAPEX and OPEX of cloud vendors are much lower than ours, and this allows them to offer attractive pricing.

Each year, cloud vendors buy billions of dollars of IT equipment, allowing for cost optimization of both CAPEX and OPEX. The savings are mostly transferred to end customers (you), thanks to ferocious competition among Amazon, Google, Microsoft, and others. AWS pushes the CAPEX optimization further by taking ownership of a big part of the IT supply chain by creating hardware (the Nitro virtualization system and, more recently, the Graviton processors).

IT: “In Cloud Computing, You Pay for What You Use”

Finance: Computing has long been a commodity, and cloud vendors are the first utilities to provide that commodity at scale, with pricing per hour (called on-demand [OD]), similar to electricity.

Compute power has long been seen as a commodity, with the vendor’s choice based mostly on existing contracts, relationships, and price. But when your business is not IT, having a data center and servers, and their associated costs, looks very much like deciding not to connect to the national grid, and instead buying and maintaining local generators. It is inefficient and soon will be a burden for the business.

Cloud vendors are the compute commodity’s utilities and follow much of the electricity business model, with a pay-as-you-use (OD) tariff system charged by the hour (and sometimes by the second).

Caveat: Cloud computing as a utility is in its infancy, and each cloud vendor has its specificities, making it not as simple as electricity to switch between providers. I am confident that we will get there.

IT: “Cloud Vendors Discount Their Prices Regularly”

Finance: Cloud vendors are incentivized to share any savings with their customers to allow for more volume and be cheaper than the competition.

Cloud vendors follow the utility business model: high volume/low margin. This model requires vast up-front investments, many years of losses, and excellent services. The substantial initial investment (often as much as US $10 billion) is why there are so few global players, each backed by a company with the cash (i.e., Amazon, Microsoft, Google, IBM, or Oracle).

IT: “We Can Access Discounts by Buying Reserved Instances, Other Options”

Finance: By committing to using a certain quantity of cloud over a long period (i.e., forward-buying), you reduce risk for the cloud vendor, which in exchange provides discounts. There are other forms of discounts connected with the transfer of procurement risk from the cloud vendor to the customer.

The IT department often finds itself in the position of leading a multidisciplinary initiative for wide cloud adoption. “Leading” implies convincing others to follow you. To do so, you need a mutual under­standing and a common language. Finance is perfect, but the bridge between the technical jargon and the financial world is not mature.

[For more from the author on this topic, see “Taking the Lead in Cloud Adoption & Procurement: A Quick Guide.”]

About The Author
Frank Contrepois
Frank Contrepois is a Senior Consultant with Cutter Consortium’s Business Technology & Digital Transformation Strategies practice. As a cloud expert, he has developed and implemented innovative solutions relating to cloud installation, configuration, customization, and integration. Mr. Contrepois is a driven, innovative, and entrepreneurial leader with extensive experience within the technology sector. He is adept at incorporating a culture… Read More