To Buy or not to Buy, is that the question? Procuring versus Consuming Resources

By Pontus Noren, Co-Founder & Director, Cloudreach

In years gone past, companies have habitually bought and owned land, the building standing on it, and physical assets to sit inside it. These purchases have no obvious benefit to the core business; they are merely required to run it. I have seen entire villages and streets named after the company who resides there. This is in many ways an outdated way of thinking and operating and something I doubt we’ll see a lot of going forward.

Today it is no longer usual for companies to own the buildings in which they reside. Why would anyone in their right mind spend hard earned capital on a physical space they may or may not require further down the road, as well as having to take on that financial liability?

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Why then would the issues related to asset ownership not apply to IT? Large enterprises have spent decades procuring IT assets, building or leasing premises, and stuffing them full of equipment and perpetual software licenses, naming them “data centers”. The consequence of this has been laborious 5-year IT planning cycles imposed on the wider business. This not only stifles innovation but also forces the business to adapt to the procurement rhythm of IT, as opposed to the actual needs of the business. Crazy? Well, there was no alternative. Until now.

In December 2014 I was at a meeting with a senior IT executive from a large Oil & Gas company, and the question around procuring versus consuming IT resources was raised. What is a large enterprise supposed to do? The debate centered around the benefits of ownership of IT assets versus consuming what you need when you need it and, especially, the price point at which you can do those things. The eventual conclusion was simple. It’s better to consume.

The real question is therefore not whether to continue to buy IT assets, but rather: are enterprises equipped and ready to consume IT at scale today?

The relatively new world of “cloud adoption at scale for enterprises” has arrived and, while presenting wonderful opportunities, it also presents challenges. We find within our customer base that IT departments are gradually and steadily familiarizing themselves with cloud, building cloud centers of excellence, and starting to adopt cloud for a variety of purposes including production environments for critical workloads. What about other departments which are also required to play their part in particular finance and procurement processes?

Moving to a consumption-based IT model introduces three fundamentally new challenges

  1. Since there is nothing to “buy” as such, you start at $0 and spend goes up with usage which is 100% at odds with traditional procurement processes. Some vendors are introducing volume purchasing schemes in which discounts are traded for upfront commitments, but the implementation of these is still relatively rare as they usually come into play in cases where an organization is truly scaling their use.
  2. Usage is somewhat hard to predict in the early stages in particular, but also hard to control without the right knowledge and tooling, which means budget conformity is harder. The IT teams involved are ultimately responsible for all spend incurred to deliver the service, but the majority of those we come across are unprepared and lack the knowledge of managing a dynamic IaaS budget. The skills and planning required, as well as the approach you take, is fundamental to success in making the most out of your cloud spend. New tooling will more or less certainly be required. Traditional data centers and hosting models are not typically utility based, and there has not been a need for such tooling in the past.
  3. Rather than “cutting a single large PO and paying a single invoice”, the finance team must deal with a 30-day rhythm of invoices, which is sometimes difficult to understand, interpret and reconcile. If you add into the equation the billing of multiple clouds and tools, this will quickly turn into a relatively complex set of information which requires monthly aggregation and deciphering.

At Cloudreach, we find that the above challenges are, for many organizations, a significant barrier to adoption because new skills, processes, and tooling are all required. This often comes as a surprise to the organization in question as the focus is more (too much!) on the implementation, migration and managing of the cloud environments, and not so much on financial governance and operations of the consumption.

So what happened to the Oil & Gas company I met with back in December 2014? They are now powering ahead in partnership with Cloudreach, where the above challenges are being addressed one by one. Knowing the ‘cloud adoption at scale’ best practice principles, they are truly enabled to move their IT into the 21st century.

 

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