The Cloud Series - Part 1: Cloud strategy and spend in the face of uncertainty

Do you see the following symptoms in your organisation?

• A fundamental misalignment of cloud cost with strategy; with no transparency and cost baseline
• Cloud costs are unexpectedly spiralling out of control, and no one knows why; a rapid cost take-out is the need of the hour
• A disconnect between cloud strategy and investment – both within the C-suite and other senior-levels

The issues highlighted above are more prevalent than you might think, and are amongst the most common challenges we have encountered in our client assessments.  

In our series of articles focused on the cloud, we look at some compelling aspects surrounding cloud adoption in organisations – with a lens of demonstrating urgency and a bias for action. We reflect on our findings, recommendations, and learnings from a variety of recent engagements.

In this first article of the series, we specifically elaborate on how multiple events and considerations have impacted and shaped cloud strategy, and the investment in the technology over the years.

Cloud strategy and investments have evolved over time

Cloud strategy is meant to be a clear and concise set of goals, resources, and targeted activities for the usage of cloud within an organisation. However, businesses often struggle to adapt, respond, and execute effectively towards this strategy, because the approach and the associated spend are susceptible to both predictable and unpredictable events.

For example, changing industry and consumer demands (let’s call this a predictable scenario) can result in an organisation being unable to respond quickly and effectively enough – often because the operating model is inherently static, siloed, or simply broken. On the other hand, sudden unpredictable and unexpected local or macro events (factors outside of an organisation’s control), can also leave organisations struggling to adapt or cope.

It’s been a rollercoaster ride for cloud strategy and the associated investments - from the initial adoption and growth surge, to more recent pivoting and belt-tightening.

Since AWS launched in 2006, the industry has seen unprecedented growth in cloud, with investments in traditional IT data centres staying flat or moderately positive during the same period. 

A recent O’Reilly report revealed a dynamic shift towards cloud: 

• c.90% of organisations using cloud
• c.50% pursuing a cloud-first strategy
• c.30% are already cloud-native
• c.40% intend to go cloud-native in 3 years

While COVID accelerated cloud adoption in the areas of remote productivity and collaboration (driven by the demands of business continuity and a virtual/remote workforce), it came at the cost of putting the original well-intentioned cloud strategies (that focused on innovation and modernisation) on hold. 

Another O’Reilly survey indicated a huge churn in the cloud workforce landscape, with a quarter of current cloud professionals changing or planning to change their employers. This situation was exacerbated by an increase in compensation levels, making it even more expensive to hire cloud professionals. At the same time, belt-tightening with layoffs across SG&A domains, including cloud, has removed at least 250,000 technology roles in the last 12 months.

Additionally, M&A activity hit an all-time high in 2022, with 62,000 deals at a value of $5.8 trillion, resulting in a huge spend on integration activities across IT and additional inorganic growth to the cloud spend; putting further pressure on leaders to deliver synergies across an increasingly complex cloud estate.

In 2022, just when everyone thought that the pandemic situation had cleared and we began to adjust to the new normal, new challenging macro-economic conditions emerged, meaning businesses had to recalibrate for extreme supply chain challenges, surging inflation, and a possible recession.

As we look forward in 2023, we are already seeing several new triggers that are set to further alter the fabric of cloud adoption:

• OpenAI and ChatGPT - Having garnered 100M active users in just 2 months of launch, yet still in its infancy of enterprise adoption, ChatGPT is set to exponentially accelerate the adoption of Artificial Intelligence (AI) and Machine Learning (ML), making such technologies all-pervasive. Additionally, with all major cloud providers already strongly positioning themselves in AI and ML capabilities, we can expect businesses to make significant allocations towards such technologies in the years to come. Our colleague, Francesco Barosi, (Global Leader of Technology, Media & Telecommunications), presents a nuanced view in a recent article
• Cloud providers are expected to alter and tweak their commercial models as well as increase costs. Google has already announced changes and price increases for many of its services in 2023. The time is right for organisations to start assessing the impact of such changes and increases in cloud rates and devise strategies to optimise existing cloud forecasts and budgets (that are already constrained!)
• Cloud cost optimisation, efficiency and FinOps will be a key focus area for organisations. With an estimated 30% of cloud costs wasted on average, there is a huge requirement to control inefficient ways of cloud spending that is prevalent, and create a culture to sustainably and efficiently manage cloud spend. Activity around the FinOps domain has skyrocketed, with cloud providers, technology solution providers as well as advisory firms joining forces to break into this huge demand in the market.

The daunting task of fall-out from recent events has been sudden, with unplanned investments and a squeeze in discretionary spend

Business and technology leaders are tasked with an enormous and daunting set of challenges with their cloud strategy and spend:  

• Deliver the value of a pre-covid cloud migration business case in a post-covid world
• Win the war for talent, while implementing layoffs & headcount
• Move with speed to the cloud, but also modernise
• Implement differentiating use cases using AI/ML, with a slowing rate of cloud growth
• Cut cloud costs while absorbing cloud price increases, and recycle existing investments

Focusing on the right questions can allow leaders to take the right view on their broader cloud estate and help recalibrate the strategy and spend. Some areas and key questions to address include:

• Revenue and growth - Are cloud investments and expenditure in line with revenue-generating projects (as opposed to just keeping the lights on)?
• Operations and service management – Are we taking advantage of native cloud automation and tools and assets (as opposed to replicating legacy manual operations in cloud)?
• Governance – Do we have appropriate guardrails in place to assess and manage demand for new cloud services and tools in a controlled way, while giving technology teams adequate flexibility?
• Procurement and supply chain - Are licenses optimised to run in the cloud, if not, can a simple amendment to the standard frame agreement or contract provide savings?
• Contracts - How regularly are we negotiating with cloud providers and our existing third-party suppliers with cloud offerings for better discounts and rates?
• Cyber security – Can we apply a consistent approach to address security across the multi-cloud estate to achieve synergies and cost-efficiency?

At AlixPartners, we have been in the driver's seat with our clients in solving complex and ‘what really matters’ issues - with pragmatic and out-of-the-box propositions. Our clients that are successful in the face of these challenges have a common theme – the ability to adapt in the face of disruption and reset.  

Read our next in the series, 'Why Cloud course-correction is not only necessary, but also imminent'; and 'How Cloud requires organisations to act with speed on key focus areas'. 

Do these topics resonate with you? To learn more about our work and the impact we have made in this area, speak to the AlixPartners Cloud team:

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