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Calculating cloud value not for amateurs

When it comes to figuring out the value of using the cloud, Forrester Research analyst James Staten advises doing the analyses around the business problem you are trying to address — not around the cloud service you are thinking of using. Makes sense. At SearchCIO we often hear from IT and business readers that the value of technology can’t be toted up in a vacuum but in the context of the business — its market, its customers, its competitors. But how easy is it for CIOs to do that? Not easy at all, according to Staten. That’s true even for what might seem like simple scenarios.

Consider the cost analysis for going with a SaaS application for mobile devices versus developing the app in-house, Staten said. “SaaS applications typically support the latest mobile devices within three weeks of the mobile device coming out.”

The CIO could start by determining how fast the IT organization could deliver the same applications. Let’s say it would take the IT department nine months to develop the apps.

If the business has a good understanding of its financial model, then it would be relatively straightforward to figure out how much money the business would make by being ready for a mobile device in three weeks versus being ready in nine months. But what if the internal IT department wants to be a contender for that app business by changing its delivery mode?

“If you have to do the analysis of ‘Ok well let’s say that we can speed up our internal process by moving to agile [software] development’, now we’re probably talking about an incredibly tough financial analysis,” Staten said, referring to the methodology of developing software in iterative, good-enough chunks.

Staten explains that this analysis requires an IT organization to know what the move to agile development would entail in process and people costs. I imagine the CIO would also want to calculate the long-term benefit of moving to this methodology, in addition to the immediate costs.

But there’s another problem. Turns out, it is not so straightforward to calculate the value of being early to market. “A lot of the costs here are soft, meaning they don’t have bottom line financials behind them. Few companies know how much it costs them to be slow to market,” Staten said.

Indeed, Staten said that cloud analyses of this ilk are often one-offs. In other words, the analyses are customized to the particular application or use-case for an enterprise.

“If you have an application that is highly elastic like a webpage that’s going to change all the time, that’s a very different analysis from ‘We moved our ERP system to the cloud.’ You would get a very different outcome,” Staten said.

And guess what? “[The] people that tend to be the best at this work are the global system integrators and global consultancies,” such as McKessan, McKinsey and IBM Global Services, Staten said. So much for saving money.

Let us know what you think about the story; email Kristen Lee, features writer, or find her on Twitter @Kristen_Lee_34.

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