Head in the Clouds - Cost of cloud and my assets have lots of life remaining

Having made massive investments in data centers, on premise infrastructure, and mainframe applications, enterprises are understandably reluctant to shut these down, sell them off and move whole heartedly to cloud. Migrating to cloud can be complex, risky and expensive. Organizations that have a culture of squeezing out the last remaining drops of value from an aging infrastructure may be unwilling to sunset assets. Sometimes organizations will accept the increased risk of aging assets for the potential cost avoidance and the ability to focus their IT efforts on other areas with greater business benefits. Introducing the enterprise to yet another major IT transformation program may not be a popular and career enhancing move. The enterprise, having invested heavily in a new data centres, data centre consolidation and the latest upgrades and security technologies, now faces yet another technology pivot.

Each cloud business case may be highly complex, balancing the cost of the migration and cloud consumption costs with savings from reduced infrastructure footprint, future upgrade avoidance, IT reorganization and greater reliability. How will you account for the business benefits of elasticity and a better employee/developer experience? How do you measure the financial benefits of employee collaboration, satisfaction and engagement?

For complex infrastructures, that are a mix of legacy and current technologies, the business case can be challenging to define. Some organizations have completed a detailed business case only to decide that running IT internally was cheaper than going whole-heartedly to cloud. As a result, cloud adoption in some large enterprises has been opportunistic and fragmented. IT organizations have adopted a “cloud first” mandate but sometimes this means little more than some technology solutions use a cloud service while others remain in the data center.

A Cloud Committed IT Strategy and roadmap is a fundamental starting point, unfortunately in some cases this document simply becomes and artifact that is never looked at again. Various groups define cloud business cases and run projects and programs to implement various disparate cloud services. Each business case takes months to review and approve and then selection and contract negotiations take place followed by implementation. The result, can be a painfully bureaucratic, and protracted. This approach creates a fragmented enterprise architecture that is more complex to manage, potentially higher risk, and may in fact be more expensive. All this, despite what each individual business case states. And then: budgets get cut, regulations change, key infrastructure implodes and the IT organization is scrambling to fix things.

To address the business case and cost implications of moving to cloud, there are some key steps that organizations need to take. Most important is a recognition that cloud is the preferred destination for all services in one form or another (SaaS, PaaS and IaaS etc.). An internal Transition organization needs to be formed to drive and manage the journey to cloud. This organization needs to have the executive support and mandate, governance and skills to drive cloud adoption.  It needs to consist of architecture, security, delivery, risk, finance and HR/change management sub teams. It may also include key vendor resources and consultants. This organization needs to define the IT strategy and roadmap and develop a standard accelerated business case process. This organization also needs to develop a complete inventory of all IT assets and services and build a 5-10 year legacy cost model (assuming no move to cloud) as a base line cost comparison. It must adopt some key principles when moving to cloud. For example, selecting “best of suite” vs. “best of breed”.

In parallel, the IT organization needs to simplify, rationalize and standardize. As an organization, IT needs to move away from being a systems integrator and become a service management organization. The incremental benefits of selecting multiple services from different vendors (best of breed) are often outweighed by the cost, complexity and integration challenges of this approach. Better to standardize and consolidate around a few key vendors. Choosing one vendor’s product suite can lead to a better overall user experience as the products are more tightly integrated. As well, a single vendor suite can simplify the business case cost model.   

The organization needs to compare “like” with “like” when evaluating the on premise vs. cloud solution. This must include a 5-10 year view that would estimate the costs to upgrade the on premise solution, the costs to patch and maintain the solution. Cost elements that can be included are the help desk costs associated with resolving issues, patching and update costs, HVAC and other data center costs apportioned for the technology footprint. One major financial institution built the legacy baseline cost model with a hypothetical Windows 11 upgrade program after 7 years. This enabled the institution to model the costs of a legacy, internal on premise world and compare this with the costs of a future cloud service model; even through there is no future Windows 11 upgrade.

Fundamentally, the Transition organization champions and manages the enterprise’s journey to the cloud. It acts as the architecture and delivery focus for the enterprise’s digital transformation. The Transition organization, leverages economies of scale, builds knowledge on the existing legacy environment, manages priorities and drives change. It works with business teams to enable their cloud transitions and ensuring that the transition to cloud is properly managed. This organization will use a streamlined approval process and measure the effectiveness of the cloud transformation while retooling and refocusing the organization around cloud consumption. Finally, this organization will managing change and strive to reduce the impact on staff while ensuring adoption and modifying behavior to best leverage new cloud services. Business cases must be prioritized and approved based on an overall budget. An agile project approach enables this organization to incubate cloud projects quickly, kill the ones that are underperforming and refocus on the ones that are doing well. Moving to cloud is as much a learning experience for the organization as it is a prescriptive approach.

Clearly the organization cannot change everything at once. But the organization must understand when key technologies/services are nearing end of life.  These technologies must not simply be upgraded but must factor into the roadmap for migration to the cloud. We have direct experience of clients moving rapidly to cloud in some areas while other IT groups continued to invest and upgrade on premise technologies, so committing the organization to that specific technology for years to come. When legacy infrastructure is factored into an overall cloud business model, a business and risk decision can be made on which legacy assets can be sweat, while others are being sunset, replaced or migrated.

If the organization does not adopt a centrally managed, properly governed and swiftly executed cloud transformation approach, the risk is that the on premise infrastructure mess, will be haphazardly swept under the cloud carpet. 


Simon Morris is a Digital Transformation leader at KPMG.  When his head’s not in the clouds, he is riding his bike, carving turns on his snowboard, or helping his son build water cooled computers. He can be reached at simonmorris@kpmg.ca