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As more businesses move towards at-scale adoption of cloud technologies and services, questions on how to best measure financial and non-financial benefits continue to be asked by companies that are migrating workloads and applications to the cloud.
Together with Amazon Web Services (AWS) and Omdia, we recently hosted a webinar to discuss insights on how Australian businesses can plan to ensure optimal ROI should they decide to embark on a cloud project.
We also covered how customers can optimise their cloud budget by understanding the total cost of moving new workloads and optimising any existing environments to lower existing public cloud spend using Telstra Purple’s fully funded, zero cost, no obligation Total Cost of Ownership, Optimisation and Licencing Assessment.
See the recording of the ‘How are Aussie businesses measuring cloud ROI?’ webinar here.
Here are our top five key learnings from the webinar.
1. Cost reduction remains to be a key driver—and expected ROI—for cloud migration
In a business landscape that’s rife with disruption, most Australian businesses are still on the lookout for any way to cut back on operational costs. Omdia surveyed over 200 local businesses in 2021, and an additional 200 in early 2022 to understand the return that they expect from cloud migration where several key themes emerged.
“When it all boils down to it, our local research found that Aussie businesses wanted to simplify their infrastructure and services, improve their application agility, scalability, and performance but not at the expense of security, and thirdly—very importantly—reduce the total cost and relative cost.”
Adam Etherington, Senior Principal Analyst, Omdia
These key drivers can lead to reduced operational costs by creating efficiencies for an organisation—which, at the end of the day, remains to be a common goal for businesses, regardless of what industry they are in. As such, organisations expect that the ultimate benefit of cloud migration is dollar savings.
“When customers are starting out in their cloud migration, it’s easy to get drawn into that dollar-for-dollar conversation. That’s important, but what we’re seeing now is that it’s probably not the most important benefit.”
Peter Reid, Head of Cloud Strategy, Telstra Purple
2. However only 10% of realised business value comes from cost savings
In recent research published by AWS, customers that have migrated to the cloud reported that a mere 10% of the realised business value comes from cost savings—a massive 90% is coming from somewhere else.
Peter Reid shared what the Telstra Purple team has discovered after helping hundreds of customers with their cloud journey.
“Some of our customers have pointed to things like operational resilience, the ability to define an architecture in cloud that you couldn’t do on-premises to make your business more resilient. They also mentioned staff productivity—lifting up the IT administration role onto business value-adding activities—as well as business agility and reducing the change management overhead.”
Peter Reid, Head of Cloud Strategy, Telstra Purple
However, it’s important to note that reaping business value beyond cost savings cannot be realised by simply moving an on-premises server to the cloud. Businesses should also take the opportunity presented by cloud migration to ensure that a good cloud foundation, combined with better deployment processes and a managed services framework is established.
Another great call-out from the expert panel is that whilst businesses see cost savings in the first year of the project, savings from cloud migration actually increase over time.
“IDC called out that the five-year ROI with AWS is 442%, and 56% lower five-year cost of operations. A one-year ROI might look marginal, while a three- to five-year ROI will show substantial gains. As an example, if you had a million-dollar cloud investment and a $900,000 year one gain, that’s a negative ROI. But with a three-year ROI, that’s going to be $1.7 million.”
Ben Place, BDM Lead Microsoft Workloads, AWS
3. Measuring non-tangible business benefits beyond costs
Based on their recent survey, Omdia identifies several ways Australian businesses typically measure the degree of success and the ROI of cloud. Many still consider greater financial flexibility or reduced costs as a key metric, but they’re also looking at measuring benefits beyond dollar value.
“Australian businesses are looking at how cloud drives measurable improvements to customer experience and critical applications. They’re also looking at how cloud-enabled technology drives business innovation,” Adam shared.
Measuring improvements to customer and end-user experience on critical applications come down to application performance and uptime, as well as recovery time and recovery point objectives. Measuring actual customer satisfaction resulting from the migration can be performed internally or through the Net Promoter Score (NPS) of mission-critical apps.
On the other hand, measuring innovation can be more complicated. Adam mentioned a large insurance company who indicated that cloud migration enabled them to deepen the data analysis on customer segments, helping them target customers better and improve their channel mix. Additionally, cloud provided many businesses Omdia had surveyed to be more agile, especially when it comes to improving their operations and speed to market. These improvements helped drive up incremental revenue and profit, even when businesses factor in cloud migration costs.
4. There’s no one-size-fits-all formula for ROI measurement
While cloud has been around for more than a decade, there’s no one-size-fits-all formula that can help businesses measure the return of their investment. Different businesses use cloud for different reasons and in different ways, which naturally means that how they measure the degree of success and ROI will be different.
IT and business decision-makers also face a variety of challenges when it comes to measuring the returns against their business cases. Many have built their cloud business cases several years ago, but as time passes—compounded by the impacts of COVID-19 and changing economic conditions has meant many underlying inputs into business cases are now superseded. Adding to this is the continuing number and types of services available from public and private clouds, as well as rapid interoperability between cloud, data sets, and applications from leading providers which is compelling many organisations to update their cloud business cases to reflect these changes.
“Businesses really want innovation from the cloud. But it’s actually the least measured as the businesses we surveyed have told us. Ninety percent of organisations track total cost of ownership yet fewer than 18% track or can demonstrate how cloud can drive innovation. On average, about 50% of cloud deployments typically meet whatever business case expectations were agreed to in the first place.”
Adam Etherington, Senior Principal Analyst, Omdia
5. Planning for optimal ROI
Despite the challenge’s businesses face in measuring the benefits and ROI of cloud, our experts shared insights into how businesses elect to conduct cloud assessments.
“With complex organisations, it’s not immediately clear what the investment is or what the return will be without conducting some sort of upfront analysis. A good place to start is by calculating the total cost of ownership, taking into account the savings realised by retiring infrastructure or facilities that will not be used anymore.”
Ben Place, BDM Lead Microsoft Workloads, AWS
“My recommendation to businesses starting their cloud journey is to go ahead and look at the cost savings. But be prepared to position that against the less tangible benefits and do a business case. Where it makes sense, use external consultants. We have a wealth of knowledge that we can bring into organisations past experience.”
Peter Reid, Head of Cloud Strategy, Telstra Purple
