Cloud Financial Office: Setting the Enterprise up For Success
The FinOps Journey:
(EDITORIAL NOTE – Annotated in 2019 to show how this post fits into the FinOps cloud operating model.)
With the release of the FinOps cloud operating model, the Cloudability Cloud Financial Office became known as Cloudability FinOps Services. These services help you navigate your FinOps journey so you can maximize the use of our platform and industry best practices to reach your cloud goals. Our combination of strategic advice, practical guidance and deep technical expertise are all there to help you maximize the value of your cloud.
Visit this page to find out more about Cloudability FinOps Services.
Earlier this week we launched Cloud Financial Office – the first product offering to create tailored, strategic plans for large business organizations migrating to or getting up and running efficiently on the cloud. The vision for this program developed over the course of my career, and really came to life when I found that Cloudability shared the same big dreams for enterprise on the cloud.
Now that we’re live, I wanted to share the insights and experiences, the data and expertise that created Cloud Financial Office, and what we can do for the enterprise.
The Origin Story
I’ve always geeked out on the financial side of technology. In fact, my first foray into the world that Cloudability lives in came almost a decade ago when a client admitted they had no way of knowing if they were spending the right amount of money for the hardware tech support they were receiving. I was curious about how we could apply data and technology to solve their financial problem, and built a system that mapped a solution. I ended up saving that customer $1.3M on their support renewal.
I continued to develop this new money-saving service as I scaled my own knowledge about the enterprise and cloud technology and began to move away from managed service into the world of Software as a Service (Saas). All my customers used my service to different extents. The amount of storage, compute and network consumption for each varied on an hourly basis, but the revenue I collected from them remained constant every month. Not understanding the profit margin per customer was something I just could not abide – remember when I mentioned that I geek out on the financial side of technology? – and led me directly to the concept of unit economics on SaaS.
AWS had a way for me to track all my costs down to a minute detail. I could build a platform that securely provided our customers a service while distinctly tracking cost of goods sold. We could build cohorts of customers’ spend to determine how their behavior or use case impacted our costs to provide the service. The more I dug into the data, the better decisions I was able to make for both my business and my clients. This was exciting, and undeniable evidence of the flexibility and control the cloud gave us. It was the business impact, not the technology, that led me to sales at AWS. I spent two years there helping large enterprises understand how those benefits could make a difference for their business.
Change is Hard – It’s Harder in the Enterprise
Moving enterprise companies to the cloud is no small feat. I worked with teams who faced challenges in understanding what actions they could take, when they should take them, how they funded them and measuring if the action had the intended result. Teams were tasked with proving that money saving actions they were taking had an impact when there was also a rapid organic growth of overall spend. The dissonance between the initial investment and “the Cloud Promised Land” led to some mistakes, missteps and awkward or frustrating conversations between teams and their executives.
From sales, I joined a team of people working to solve these specific problems. I spent another year and a half talking to customers who without fail could boil their concerns down to three things: business case, financial modeling and readiness.
The enterprise is largely new to building financial forecasts for applications on cloud (the same challenge any business faces when re-writing a core component of their infrastructure. Plus, the cloud is new and changes at the drop of a hat). This means that on top of navigating new infrastructure, the enterprise is forced into quickly forming processes for day-to-day cloud financial management.
This is about so much more than saving money; it’s the development of a muscle that looks at how a business uses cloud from a financial perspective, interprets it against their objectives and determines what actions they should or should not take to either keep on track or outperform objectives.
I started formulating solutions for these problems, and came to the team at Cloudability with the same query: how can we help the enterprise be successful amidst the many complexities outside of their own business operations?
Our answer? Data, expertise and the right technology (spoiler alert: this became Cloud Financial Office).
The good news is that business case, financial modeling and readiness can all be solved for within two broad categories: strategy and execution. In strategy, you are looking to the future, past your current fiscal year, and thinking about how to leverage cloud to make your company grow faster or be more competitive. In execution, you are focusing on the day-to-day operations you need to have in order to achieve already defined objectives.
Let’s start with strategy – building a financial model for migrations. The very first question we’ll ask you to consider when thinking about a large scale cloud migration is: “Why?”
The answer should be a “why” that has a defined value and financial model behind it, what we help you develop as the core business case. For example, a common business case is “business agility.” This speaks to the challenge of the enterprise to compete in markets that are more frequently being disrupted. The enterprise needs to be able to move faster and experiment at a better rate of return on investment. Cloud provides that through its elastic and disposable nature.
Great, we have a business case! Now we can move to the cloud – not quite … More often than not, the motivation of business agility is gated by financial benefit. Due to the conservative risk nature of many large enterprises and the fact that many are beholden to shareholders, they need to be sure that the measureable financials of the decision to move to cloud put them in a more favorable position regardless of the business case.
Change is sometimes difficult and can take years in the enterprise. They need to have a reasonable expectation of success at the end of the tunnel. To that end, they need a forward-looking financial model built on viable data. Data that is immensely challenging to get “right.”
(I can wax philosophical on the challenges of data in the enterprise, but suffice it to say that without complete and correct data, the enterprise cannot make a confident decision. This can derail even a straightforward rehosting migration model.)
Once that data has been collected, we can start to do an application rationalization exercise to delve into the migration patterns that can take you to the cloud. I’ve included a sample chart of what these considerations can look like (see chart below). Keep in mind there will rarely be one migration pattern that meets all needs. The most successful model will mix the solutions together into a hybrid strategy that maps to enterprise objectives. See? This work is inherently complicated.
|Migration Pattern||Data You Need||What You Get||What Are the Costs?|
|Rehost, Lift-and-Shift||OS, CPU, Disk, Memory, Performance Utilization||~20% overall savings when you do a complete TCO comparison to running these applications in the datacenter taking into consideration a 5 year forward looking model that accounts for capex of hardware growth and refresh along with operational overhead of real estate or hosting fees, power/cooling, headcount and software/hardware support contracts.||Rehosting, like network discovery, is a solved problem. There are many proven methods (some slow, some quick) for moving Windows and Linux workloads from point A (your datacenter) to point B (your cloud provider) using third party tools that have competed themselves down to a reasonable commodity price point. Eg This is your most affordable option.|
|Replatform||OS and/or Application Data||>20% as you shed more operational overhead and/or licensing costs. Less DBAs, less software costs.||This sometimes can cost a bit more than rehosting as you have to reload applications onto new operating systems or convert databases into new engines. There are tools out there for database migration, including AWS DMS and Oracle GoldenGate.|
|Repurchase||This is normally more based on a business case that some SaaS company provides a superior product/service to anything you can run yourself. Eg Salesforce, O365, etc.
Alternatively – your source application, instead of being refactored, can be replaced with another off the shelf application that can be run inside a cloud in a more elastic cloud architected design that provides significant value.
|More features, flexibility, stability than you have from an in-house supported solution and significantly less overhead to operate. Often times this means you have converted to a best in class/breed solution that your peers and customers have also converted to allowing for greater value in B2B interfacing as well. Value will vary.||The costs here are less about migration and more about the cost to change your business to leverage the new application to service the same business need. Difficult to quantify.|
|Refactor||An application that either from a code or architecture perspective can be augmented in such a way to leverage cloud native services and features. If you write all the code for an application in-house, you can probably refactor it for cloud. Similarly if you are using a collection of standard open source applications to combine together for an overall solution, many of them may be able to be swapped out for cloud native services. (NoSQL, Queueing, RDMS, Storage etc)||A highly scalable and resilient application or service that you can rapidly continue to innovate on and can quickly adopt new technologies into. Your overall cost to operate an elastic application in the cloud can save you upwards of 70% versus the legacy model of architecting for the highwater mark of utilization that sometimes only happens a few times per year.||Refactoring is the most expensive form of migration during the actual migration. Often times customers need to bring in partners who have a lot of experience in refactoring and can help to gauge the effort level. Refactoring also takes longer as the skill set is hard to duplicate and if you have a lot of applications to refactor, you end up doing more in serial than parallel. Your business case should judge where the ROI point is, in time, on the cost savings post-refactor against the time and cost of refactoring. For customers looking for a very near term ROI, they may not have the business tolerance for a refactor heavy migration.|
All of these factors and mathematical variations are necessary to figuring out what that future cost to operate will be. As I mentioned in my previous post, when I joined Cloudability, we envisioned this piece of Cloud Financial Office akin to Hurricane Mapping; combining historical data with what we know about the present situation to provide a confident, accurate forecast.
Cloud Financial Office does the same thing. We have six years of anonymized cloud spend information that cuts across thousands of customers, different industries, different sizes of customers and applications. The data reflects behavior changes as new cloud features and pricing changes impacted how customers leverage cloud. With this information, we evaluate real world observable results of refactored applications in cloud environments and make a much stronger informed model of where the refactored application has a likelihood of landing.
From there, we’ll loop in more data and expertise for as streamlined a plan as possible. We’re partnering with TSO Logic to ensure the migration discovery phase moves as quickly and smoothly as possible for enterprise companies planning out the switch. I’ve seen first-hand, how TSO Logic helps enterprise simplify and fast-track planning, and we’re excited to have their skills and smarts available for Cloud Financial Office customers.
The end result is highly confident migration business cases and financial models to make the best strategic decisions.
More than Migration
Strategy is just one half of the equation. Cloud Financial Office was built to support the execution as well. This is when we turn attention to the capability and controls a company has in place for cloud financial management and optimization.
While every company is unique, we know that the objectives and obstacles companies need to be ready for look similar:
- How are we controlling and justifying the amount we spend on cloud?
- How are we holding our forecasted models accountable to what is actually going on?
- Who is addressing the financial objectives, needs and responsibilities of our lines of business as well as IT and Finance?
- Who is responsible for analyzing the patterns of financial data to uncover, react and respond to anomalies?
- Who is looking at the industry innovations of the cloud providers and our peers to improve on our financial strategies?
Companies need perspective and expertise to navigate questions like these – which is essentially what we at Cloudability have been doing for the past six years. Now, our aim is to help companies answer these questions and have the technology in place to stay accountable earlier in the process.
Cloud Financial Office combines team needs and responsibilities with a future-looking roadmap. This can guide recommendations for a number of topics ranging from Pricing Models to Operational Capabilities to Account and Tagging Segmentation. And when the enterprise encounters a blocker or gap in any of those areas, we have a strategic way to weigh them by importance, priority, impact and level of effort.
Both identifying and solving these gaps are critical to the customer being able to achieve their defined objectives (you know, the ones we identified way back in the beginning of this process). When you quantify the proposed solutions, you can then decide what you are actually going to do, in what order and who is responsible for the action.
The net result at the end of the journey is a cloud financial operation that is prepared to work day to day to continually deliver on the things you set out to accomplish in the first place.
Now that we have a solid operational model that allows us to succeed, we need to constantly dig into the financial data using Cloudability, ensure we are delivering concise, correct and timely reporting to teams and have ongoing communication with these teams to balance the quantitative data from Cloudability with the qualitative feedback we get from the lines of business.
Setting Enterprise Companies Up for Cloud Success
The one thing we can count on is that things will always change. We need to constantly question the status quo and look for opportunities to outperform our objectives. There’s no substitute for having an informed, personalized program on your side when that happens.
If you want to nerd out on tech and finance with me, or have a question about how Cloud Financial Office can help, get in touch. We’d love to chat.