Efficiency, always a top concern of IT leaders, is the subject of heightened focus in 2023, thanks to ongoing inflation and the threat of recession. Expenditures for cloud services in particular are coming under close scrutiny, at a time when cloud spending is nearly half of many IT budgets.
“As more and more workloads migrate to the cloud, managing cloud expenses has become an important priority,” says Dilip Venkatachari, senior executive vice president and global chief information and technology officer of U.S. Bank. The financial institution, headquartered in Minneapolis, is in the process of moving 70% of its workloads to cloud providers, principally Microsoft Azure, up from less than half that amount just a few years ago.
“We need to track and attribute expenses to specific applications over time. Knowing where the greatest demands are is the first step to being able to manage costs,” Venkatachari says. To do that, U.S. Bank has embraced FinOps, a business discipline and set of best practices for optimizing enterprise cloud spend. “We view it as an approach, a practice to be more strategic and tactical on critical expenses associated with infrastructure,” he adds.
Rick Villars, group vice president for worldwide research at IDC, sees the cloud as a natural fit for targeting IT cost efficiencies, with the firm predicting that in 2024, 50% of IT spending will be on cloud services.
“When you tighten belts, you look at your biggest budget item,” Villars says, noting that many companies made commitments to the cloud within the past three years, and as contracts have been renewed, customers have seen price increases between 10% and 20%.
“Companies think they are overspending a lot on cloud,” says Villars.
In answer to the question, “How has the state of the economy impacted the way your organization is prioritizing the following business initiatives,” the top responses were “Increasing operational efficiency” (58%) and “Increasing cybersecurity protections” (58%). —2023 State of the CIO survey
“2023 is all about the year of being efficient,” offers Tracy Woo, senior analyst at Forrester Research. “People realize the cloud isn’t a proof of concept anymore and that they need to batten down for a possible recession. They realize they need to get the most out of what they’re spending, and they have to be smart and strategic about what they’re doing.”
A look at cloud bills might make it appear that cloud providers are taking advantage of their customers, but that’s not the case, according to Woo. “There is not any price gouging. The market is too competitive for that,” she says.
Instead, customers often walk into cloud agreements assuming they will save money, but because they don’t watch costs closely enough, they are unpleasantly surprised. Customers need to track billing per hour, per minute, and even per second. “The way you have to keep track of it is very different from on-premises IT,” says Woo.
Cloud costs in the crosshairs
Like U.S. Bank, electronic components provider Avnet is in the midst of a multi-year cloud migration that will eventually move all IT resources to the cloud. “Four or five years ago, when we first thought about moving to the cloud, we thought the cloud was going to be less expensive. We learned early on that was really not the case,” says Max Chan, CIO of Avnet. “Lift and shift will never be economical unless you change the way you work.”
And that is something Chan and Avnet have had to learn on the fly.
“There is a different operating model, a completely new way of doing things in the cloud,” Chan says. “If you just think compute, storage, and capacity, you are in for an unpleasant surprise. We have been learning from our past mistakes.”
Avnet has created a FinOps team that uses ServiceNow Cloud Insights to track cloud usage as it increases from year to year, and on-premises capabilities as they decrease. “It’s a multi-year journey. As you are migrating, there is no way you can shut down your data center,” says Chan.
Using mainly Azure, Chan is beginning to use the Azure AIOps tool while relying on Azure Advisor, Azure Cost Management, and Azure Monitor with inputs from Azure DevOps and GitHub. “They are more than happy to help you optimize your usage of Azure. It sounds counterintuitive, but they want you to be efficient and use new capabilities,” says Chan.
Novanta, a maker of photonics equipment and a technology partner to medical and industrial OEMs, launched its cloud strategy three years ago. Up from 2% cloud utilization to 55% currently, the company, which is using mainly Microsoft Azure, now is looking at cost efficiencies and alternate cloud platforms.
“We’re looking at other cloud service providers for diversification, resilience and operational efficiencies,” says Sarah Betadam, CIO and CISO of Novanta.
Novanta plans to retain 25% of its IT operations in a scaled-down data center, for which Betadam is experimenting with raising temperatures above 64 degrees to cut air conditioning costs.
“Saving power and improving sustainability is an important goal for us,” she says, noting that Google Research has shown that IT infrastructure can operate safely at 80 degrees. Betadam adds that the push to bring down cloud costs is not an unusual drive to economize, unique to 2023, but part of the company’s ongoing adherence to efficiency.
‘Shift left’ and an appeal to automation
Kevin Gray, CIO of Burbank, Calif., faces different forces. As nearby employer Disney announced layoffs of 4,000 workers, Gray took note.
“We haven’t been hit by a recession, but enterprises are reducing their workforces. If tax revenues decrease, we may lose steady funding,” says Gray. “We’ve had the discussion with the city manager. We’re trying to get ahead of that storm by driving more efficiency and automation, not just in IT but the entire city.”
To that end, the municipality of 108,000 is implementing a number of “smart city” initiatives built on the internet of things (IoT) and AI, including intelligent traffic management and an intelligent transportation system.
Although not implementing a formal FinOps initiative, the CIO is leading the implementation of Scaled Agile Framework (SAFe) for Government, a blueprint for deploying Lean, Agile, and other principles for public entities.
“We’re big on shift left — shifting work to the least expensive resources you can,” says Gray. “That includes shifting work to the least-cost human resources and implementing automation,” he adds. As for the cloud, Gray says he is “very wary” of cloud costs and seeks to trim expenses for AWS and Microsoft Office 365 services using tools that come with the services. For a city the size of Burbank, third-party tools would not offer sufficient return on investment, he says.
Managing the workforce for efficiency
Workforce flexibility plays an important role in cost control for the city of Burbank. With 33 full-time employees, Gray relies on contract workers, systems integrators, and managed service providers to fill gaps, rather than over-hire and be confronted with layoff choices down the road. Burbank uses a managed service to help support Oracle ERP applications and a systems integrator to build its Mobile 311 application, an easy-to remember number that connects
citizens with municipal services.
The surge in remote work prompted by the COVID-19 pandemic presents opportunities for savings, according to Greg Smith, professor at Georgetown University and CTO of a firm in the Washington, D.C., area. “Organizations are starting to implement economical operational and technological changes as a result of the hybrid work environment that organizations have adopted,” says Smith.
Geolocation-based pay can allow organizations to reduce salary to match wages in the regions where remote employees might choose work, according to Smith. Remote work also allows organizations to trim costly office space and sell off unneeded real estate holdings. “A mix of fully remote, hybrid, and office-based staff will achieve payroll savings that are significant,” says Smith.
Dynamic sourcing models, including team-staffing platforms and skills marketplaces, are also stepping in to help fill talent voids without committing to full-time resources.
Lessons and advice
Whether macro-economic forces are expanding or contracting, IT budgeting requires deft management.
“Every year is a year of economy. We always want to be good stewards of our budget dollars,” says Venkatachari of U.S. Bank.
As for Chan, having learned firsthand the cloud is not a panacea, he advises his peers to proceed with caution. “Don’t jump into the cloud and rack up expenses without knowing how to take the costs out, otherwise you will be stuck with high costs for a long time.”
Betadam says no matter whether the economy is turbulent or not, focusing on ROI for all IT programs by tracking savings and accomplishments year over year can pay dividends later on, especially during budget requests.
“IT leaders’ focus on ROI and operational efficiencies should become part of our DNA and brand,” she says.
Budgeting, Cloud Computing, IT Leadership, IT Strategy