Monday, May 10, 2010

Open Group's Cloud Workgroup delivers new white paper on business ROI of cloud computing

This guest post comes courtesy of Mark Skilton of Capgemini Global Applications and The Open Group.

By Mark Skilton

The Open Group’s Cloud Work Group has published a white paper, “Building ROI from Cloud Computing," that’s getting quite a lot of positive attention about cloud-delivered business benefits.

The paper, of which I'm a contributing author, looks at various ways to measure ROI from cloud models, and includes a questionnaire as well as some useful metrics to show a long list of demonstrable business benefits from cloud adoption. [Disclosure: The Open Group is a sponsor of BriefingsDirect podcasts.]

Many experts view cloud computing as a technological change brought about by the convergence of several new and existing technologies. Techies tend to like it for the following characteristics:
  • The performance is the same if scaled for one, to a hundred, or a thousand users with consistent service-level characteristics.

  • It frees applications from being locked into devices or locations.

  • Users only pay for what they use and with no or minimal up-front investment costs.

  • The service is on-demand, able to scale up and down with near instant availability.

  • It enables access to applications and information from any access point.
But this is only half of the story. These technical characteristics can also be found in many non-disruptive IT solutions. What's also creating business buzz? The rate of change and magnitude of cost reduction and specific technical performance impact of cloud computing, that's what.

And these benefits aren’t just incremental -- they can give up to a 10-times cost-efficiency improvement.

The capacity-utilization curve

The famous graph used by Amazon Web Services illustrates the capacity versus utilization curve and has become an icon in cloud computing circles. The model illustrates the central idea around cloud-based services, enabled through an on-demand business provisioning model to meet actual usage.

Years from now, when cloud computing is seen in a historical context, the capacity versus utilization curve will be an iconic model that had the same effect as previous well known business models.


This matters to business because avoiding the cost impact of over-provisioning and under-provisioning forms a core precept of cloud computing. This is in addition to the opportunity for cost, revenue, and margin advantages of business services enabled by rapid deployment of cloud services -- with low entry cost, and the potential to therefore quickly enter and exploit new markets.

Years from now, when cloud computing is seen in a historical context, the capacity versus utilization curve will be an iconic model that had the same effect as previous well-known business models.

Eight ways to cloud computing ROI

The current view of capacity and utilization is a technology provider viewpoint, and is essentially based on key performance indicators, rather than business benefit metrics.

IT capacity -- as measured by storage, CPU cycles, network bandwidth, or workload memory capacity -- forms an indicator of performance, while IT utilization -- as measured by up-time availability and volume of usage -- is an indicator of activity and usability.

But effective cost/performance ratios and levels of usage activity don’t necessarily imply proportional business benefits. They’re just indicators of business activity that are not in themselves more valuable than lower operating cost.

The Open Group’s new paper, however, uncovers eight business metrics that translate the indicators of the capacity-utilization curve to significant and tangible benefits to the business:
  1. The speed and rate of change of cost reduction and cost of adoption/de-adoption is faster in cloud models, creating additional cost transformation benefits.

  2. Optimal total cost of ownership, where you can select, design, configure and run infrastructure and applications best-suited for business needs. Traditionally this may be decoupled as IT projects hand-off to production services -- but in cloud environments these can be joined up.

  3. Rapid provisioning scales up and down to follow business activity as it expands and grows, shrinking the provisioning time from weeks to hours.

  4. Increase margin and cost control by enabling revenue growth and cost-control opportunities to pursue new customers and markets for business growth and service improvement.

  5. Dynamic usage with elastic provisioning and service management targets real end-usage and business needs for functionality as the scope of users and services evolve.

  6. Risk and compliance improvement is possible by leveraging the cloud’s "green" capabilities through shared services.

  7. Enhanced capacity utilization helps users avoid over-provisioning and under-provisioning of IT to improve smarter business services.

  8. Access to business skills and capability improvement is made possible through cloud sourcing, on-demand solutions.
A full copy of the Cloud ROI paper is freely available on The Open Group’s website: http://www.opengroup.org/cloud/whitepapers/ccroi/index.htm.

Mark Skilton is currently global director responsible for applications strategy and service offer development for Capgemini Global Applications Outsourcing Services. He is also the co-chair of The Open Group Cloud Work Group, focused on helping companies to improve ROI with their cloud computing initiatives. Mark can be contacted at mark.skilton@capgemini.com.

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