Managed Cloud Services Lower Enterprise TCO Though Hidden Costs Offset Gains

A webinar hosted by IndustryWeek suggested that manufacturing companies should avoid designing, operating, and maintaining their own cloud services because the total cost of ownership (TCO) is lower when using a cloud services partner. TCO is one of many factors that a company should consider in its IT infrastructure programs, but as we intend to demonstrate, infrastructure and management cost savings from exclusively partnering on cloud services could lead to unforeseen business expenses elsewhere.

It should be no secret that outsourcing cloud services to a partner will remove infrastructure CAPEX and personnel costs for training and supporting those platforms. From the perspective of a CFO, moving the cloud off-premise is financially sound. The CIO response to putting all the cloud eggs in one basket, however, would be to highlight the potential risks of hosting business data in the cloud, typically focusing on security and business continuity (service availability).

The need to secure company data is also obvious, so we will not expend additional energy there. However, when a project comes up within the organization about moving data outside of company data centers, it creates an opportunity to audit data management practices. One potential outcome from a data management audit would be a map of how information flows and where data resides, leading the management team to make decisions on the criticality of the data to the business:how sensitive is the data? If the data were lost, corrupted, or compromised, what would be the impact to the business? With this understanding in mind, a business can make informed decisions about what data is eligible to move outside of company facilities.

At about the same time that the IndustryWeek webinar was presented, Amazon experienced a service outage with its AWS cloud platform. Amazon’s e-commerce platform was not impacted by the AWS outage, which led to significant delays in website load times and even took some customers entirely offline for hours. S&P 500 companies lost US$150 million during the outage, according to cyber risk assessment startup Cyence.

Other brands using AWS, including Amazon and its Zappos business, were not impacted. These businesses are designed to operate across multiple geographic zones using Amazon servers, and thus, mitigate performance issues when one zone experiences issues. While certainly a benefit of cloud services, a distributed cloud environment is more complex in architecture and is costlier to operate.

The simple answer is that a one-size-fits-all approach to using cloud services should be avoided. There are benefits to moving some types of company data to a managed services partner such as performing analytics on so-called “disposable” big data. And there are advantages to keeping operational data in-house. Leading enterprises in data management adopted a hybrid cloud approach that combines the benefits of private and public cloud services.

Consider the criteria for reaching a decision:

• Where does a decision fit within a corporate governance model? Do the CIO/CISO/CDO roles have mandates, as well as the CFO?
• What KPIs can be tracked and measured for a project? How will success be determined? What are the thresholds that trigger an evaluation of the solution’s performance?

CAPEX system costs and keeping IS personnel on staff to implement, operate, and support programs are often cited as objections to adopting new technology. Committing to the cost of new technology is challenging if the ROI depends on user adoption. Underbudgeting for the implementation of new technology also undermines adoption goals.

Another strategy to determining the criteria for a CAPEX decision is to understand the side effects of not proceeding. While still an outcome, the impact can be measured by a company’s market competitiveness.

TCO is only one consideration in making an informed decision on IS/IT infrastructure. As the Amazon AWS outage shows, saving on upfront system and personnel costs solely to achieve a better TCO does not guarantee a quicker ROI, nor does it reduce support and maintenance expenses.