How to evaluate?
Companies typically focus on the direct financial impact the purchase would have—specifically, return on investment (ROI) and total cost of ownership (TCO) when evaluating new technologies. But when it comes to the move to cloud computing, these traditional calculations—while valuable—may not reveal the full impact of the transition.
When evaluating cloud investments, organizations can go beyond the typical business case, which encompasses the use of cloud services to reduce IT-related costs. Consider:
- The use of cloud services to accelerate business transformation via new technologies that are designed for optimal use in the cloud.
- The accelerated obsolescence of legacy systems in a highly competitive environment.
Depending on their competitive situation, enterprises in any industry that stick with legacy non-cloud systems may find their margins squeezed or growth slowed. Some firms may decide to invest in their legacy systems in order to at least partially match the capabilities of cloud-based systems. Whatever the approach, however, a view of the impact of cloud services on revenue, market share, market preservation and expansion, and profits, enables a fuller estimate of the returns, which may in turn lead companies to make their cloud investments a higher priority.
According to a recent report by MIT Technology Review Insights, additional criteria such as competitiveness, productivity, and new revenue opportunities come into play. Though difficult to measure, these factors have a clear impact on revenue growth and profitability. Indeed, there are already demonstrable productivity growth gaps between companies using legacy systems compared with those using cloud-based emerging technologies, including artificial intelligence (AI), machine learning (ML), Internet of Things (IoT), and blockchain.
Research by the McKinsey Global Institute estimates that 60 percent of productivity-boosting opportunities during the next decade will be digital, but that currently US and European companies are running at less than 20 percent of that potential.
Cloud computing is a unique paradigm shift that provides
- Rapid and iterative technology upgrades:Rather than an annual cadence of updates that can cause disruption and soak up time and resources, cloud applications receive updates automatically as necessary. With no on-premises hardware or software to maintain, company can reap benefits immediately.
- New functionality available at will:In a cloud environment, companies can adopt new functionality as soon as it comes online—or whenever they need it to drive innovation and meet (or exceed) customer expectations.
- Reduced cost of new technology adoption:Deploying your own AI, ML, or IoT solutions would be prohibitively expensive for all but the largest organizations. With the cloud, your company can take advantage of these rapidly evolving technologies immediately, and with minimal capital investment, using predictive analytics that leverage big data to propel growth.
- Rapid spread of best practices:With legacy software, it’s easy to get locked in with multiple customization or bolted-on functionalities that can result in ossified business processes. But best practices are not only built into best-in-class cloud applications, but they’re kept up to date as industries and technologies evolve.
Cloud computing offers these advantages, Companies can bring innovation to market quickly, opening new revenue streams and efficiencies.
Cloud delivers benefits beyond end of life considerations
The decision to upgrade technology typically falls on the IT department, which make the argument that it requires new hardware or functionality to support continued growth. Even among early cloud adopters, the decision to migrate typically relies less on these new opportunities than it does on more traditional “end of usefulness” criteria, including:
- Unpatchable security vulnerabilities.
- On-premises hardware reaching end of life or full depreciation.
- Costly and difficult upgrades.
As we’ve seen, however, the calculus has changed with the growth of cloud technology. Financial decision-makers are not used to considering the business benefits of a cloud migration. In addition, cloud computing’s subscription model means that costs will shift from capital expenditure to operations, which can obscure overall savings. Other benefits such as improved productivity are hard to quantify.
Applying traditional evaluation criteria such as ROI and TCO to cloud migration is valuable, but it doesn’t provide the complete picture.