Is the Cloud the Holy Grail of IT outsourcing investment?

As businesses look to slash costs and realise efficiencies, business leaders are under increasing pressure to invest wisely to create a more agile business that can flex with shifting market conditions. Currently 93% of CFOs rate the level of economic uncertainty as above average (or higher), creating additional problems in predicting how best to invest for growth.

IT outsourcing is recognised as one way by which businesses can slash operational costs to create new cash reserves, but technological advantages have created a new contender – the Cloud.

What can the Cloud offer?

The key selling point for cloud outsourcing as far as CFOs are concerned is subscription pricing. Cloud services tend to operate on a monthly or annual license model that aids cash flow management thanks to predictable costs.

There are a large number of IT functions that can now safely be migrated to the cloud, offering businesses the opportunity to outsource responsibility and offload secondary costs. Email, document management, telecoms and business intelligence tools are all prime candidates for cloud outsourcing, along with the development of bespoke applications to address specific business needs.

There are currently three major categories of cloud service provision to consider:

Infrastructure as a Service (IaaS)
Computer systems which are hosted offsite, such as those used to run websites for instance. IaaS is nothing more than a blank computer with which your business can do what it wishes and is billed on a per resource basis.

Platform as a Service (PaaS)
A more complete system offering a framework on which to develop and host your own services. PaaS scales automatically to accommodate changing resource needs and usage is charged based on how much of the resources are consumed.

Software as a Service (SaaS)
A web-based application, such as CRM or Business Intelligence that performs a single task. Usually, access is made on a per-seat licensing basis so services users are only billed for what they use. Like the proverbial pick-and-mix sweetshop, virtually any combination of these service types can be combined to create an IT infrastructure customised to meet the exact needs of the business.

Potential cost savings available through the cloud

Technological advances are one thing, but without a strong financial incentive, cloud adoption offers little by way of a compelling business case. Here are three key areas where the cloud can help further rationalise company expenditure.

Reduced Staffing Costs
Moving or replacing existing IT systems with Cloud-based alternatives significantly reduces the need for in-house IT staff. A typical business needs 22 IT staff to support every 1000 end users, consuming 35% of the total IT budget.

As part of their service, cloud providers assume full responsibility for managing, maintaining and supporting their offering, immediately relieving your business of these costs. Businesses are then free to reduce their IT staff headcount without concern of reduced service levels or associated drops in productivity.

Reduced estate management costs
Data centers remain a significant factor in estate management costs. Pushing IT systems into the cloud reduces costs associated with:
• Physically housing servers
• Electricity
• Air conditioning and cooling
• Failover and redundancy provisions

Again, the use of cloud-based data centers passes these costs onto service providers. Industry analyst Gartner calculates that it costs around $400 (£264) per year in electricity costs alone to run a single server 24x7x365 .
If a business needs to increase their IT capacity, the cost of data center expansion is also outsourced. Better still, cloud outsourcing allows for transparent failover to reduce the chances of a localised data center outage affecting service users.

Faster adjustment to market conditions and changing business priorities
However the crucial issue for the company looking to grow is that cloud services can be added or removed as business priorities change. Often this is as simple as enabling or disabling options through an online control panel, further reducing the lead-time for roll-out of new systems. The flexibility of cloud computing allows adopters to adjust quickly to shifting market conditions, allowing them to capitalise early on new opportunities.