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Why the Ever-Changing Cloud Landscape Demands a New Operating Model

Writer's picture: Justin AndreJustin Andre

Updated: Jul 28, 2023


In today's rapidly evolving technological landscape, businesses are flocking towards cloud computing at an unprecedented pace. According to Gartner, global end-user spending on public cloud services is forecasted to grow 23.1% in 2023 to total $332.3 billion, up from $270 billion in 2022. The major driving forces behind this adoption are the unparalleled advantages offered by cloud computing, such as scalability, flexibility, and the capacity to foster innovation.


However, despite its countless benefits, managing cloud costs effectively has emerged as a significant challenge for many organizations. Amazon Web Services' CEO, Andy Jassy, once noted,

"Cost is a bigger issue for companies than they may admit, because it tends to be very unpredictable. It's hard to forecast what the costs will be and to optimize costs."

This brings us to an important realization: traditional on-premise methods often fail to control cloud costs effectively. Due to inherent differences in cloud and on-premises environments, the techniques used for on-premise resource management are often inadequate for cloud cost management. For instance, a Flexera 2023 report indicated that 30% of cloud spend is wasted, underscoring the need for better management and optimization strategies.


To address this conundrum, many forward-thinking organizations are embracing a new operating model – the Cloud Operating Model. Satya Nadella, CEO of Microsoft, has championed this approach, stating, "To make digital transformation tangible, to make it real, is to be able to convert digital technology into digital transformation, into digital outcomes. And that’s what the cloud enables."


By understanding and adopting the Cloud Operating Model, businesses can better manage and optimize their cloud costs and resources. As this post will explore, the Cloud Operating Model not only mitigates the issue of unpredictable costs, but it also fosters a culture of cost transparency and accountability, thus leading to more effective and efficient use of cloud resources. Stay tuned, as by the end, you'll gain valuable insights into the importance and benefits of a Cloud Operating Model and its role in shaping the future of cost-effective cloud computing.



picture of a data center migrating to the cloud

The Shift from Traditional On-Premise to Modern Cloud


Understanding the disparities between traditional on-premise IT environments and the modern cloud is crucial in today's digital era. In the words of former Google CEO, Eric Schmidt, "Cloud computing is the future, and it's going to redefine the way we do business."


Historically, on-premise IT has been characterized by infrequent large-scale hardware purchases with lengthy procurement cycles. Gartner statistics from 2019 reveal that organizations were spending an average of 57% of their IT budget maintaining legacy systems, reflecting a significant investment in on-premise IT infrastructure.


In stark contrast, the cloud operates on frequent, small-scale purchases made in a matter of minutes. According to a 2023 IDC report, the Pay-as-You-Go pricing model of cloud computing, where costs are based on consumption or allocation, accounts for nearly 60% of total cloud spending.


Furthermore, the structure of IT operations has dramatically shifted. On-premise IT was often centralized, with a limited number of individuals in the central IT team making purchasing decisions. Amazon's CTO, Werner Vogels, spoke to this shift, saying, "Cloud is about how you do computing, not where you do computing." Indeed, the cloud empowers distributed DevOps and project/product teams, enabling many individuals to make frequent purchase decisions.


Another tectonic shift involves moving from finite resource availability to virtually unlimited scalability in the cloud. On-premise environments often demanded complex installations and proprietary configurations across multiple vendors. The cloud, however, offers integrated services from a single vendor, accessible through a unified console, significantly simplifying the user experience.


The cloud also provides ready-to-use managed services, eliminating the need for manual installations and maintenance. As Jennifer Chason, Director of Google Cloud's Office of the CTO, puts it, "The cloud has made technology more accessible and less complex."


Lastly, the cloud introduces repeatable automated deployments and pipelines, replacing inconsistent manual installations. It enables shorter iterations with constant deployments, fostering an environment conducive to frequent trials, failures, and innovations.


These differences underscore the necessity for a revamped operating model designed specifically for the cloud environment, reflecting the dynamic, decentralized, and innovation-driven nature of cloud computing.



Introducing the Cloud Operating Model


Compass

Operating models are distinct and unique to each organization, molded by a myriad of factors including culture, structure, business model, and priorities. The Cloud Operating Model can be perceived as a structured compass for managing and operating cloud services and resources efficiently. As IT industry analyst, Dana Gardner, observed, "A comprehensive cloud strategy requires a disciplined, measured approach to change...and a new operational model to tie it all together."


The Cloud Operating Model spans governance, operations, and financial management, functioning as a roadmap to ensure agility in technology development and business capability delivery. Importantly, a well-defined cloud operating model ensures an organization's cloud environment aligns with its overall goals and objectives, fostering a harmonious synergy between technology and strategy.


The Cloud Operating Model promotes effective collaboration among different teams, breaking down traditional silos and fostering a shared sense of responsibility for the organization's success. As Satya Nadella stated, "Our industry does not respect tradition – it only respects innovation."


depiction of cloud computing

Benefits of a Cloud Operating Model


1. Flexibility and Scalability

According to IDC, by 2023, over 500 million digital apps and services will be developed using cloud-native approaches. The Cloud Operating Model empowers organizations to scale resources up or down based on demand, enabling rapid and efficient responses to changes in the business environment.


2. Improved Collaboration

Embracing a Cloud Operating Model stimulates cross-functional collaboration, enhancing decision-making and resource utilization. Werner Vogels once said, "In the cloud world, collaboration is not a choice. It's a business necessity." By breaking down silos, teams can collectively work towards the organization's success, resulting in superior outcomes.


3. Enhanced Innovation

The cloud offers access to the forefront of technological innovation. Adopting a Cloud Operating Model means businesses can leverage these advancements and swiftly bring novel products and services to market, in line with the sentiment expressed by Oracle CEO, Safra Catz: "Cloud is about breaking down walls between people and information, not building them up."


4. Cost Transparency and Accountability

According to a report by Flexera, managing cloud spend is the top initiative for businesses in 2023. The Cloud Operating Model provides clear visibility into the costs associated with cloud resources, facilitating data-driven decision-making and optimized spending. The allure of the cloud lies in its transparency. It offers visibility into your usage, ensuring you only incur costs for what you actually utilize.



Cloud Center of Excellence (CCOE)


A cornerstone of the cloud operating model is the establishment of a Cloud Center of Excellence (CCOE). Often described as the "brain trust" for an organization's cloud strategy, the CCOE serves as a centralized team vested with the responsibility of managing and governing the cloud computing environment within an organization.


The CCOE is akin to what Google Cloud's CEO, Thomas Kurian, describes as "an engine for sustained innovation." It extends guidance, provides robust support, and shares best practices for seamless cloud adoption, operations, and optimization.


Comprising an interdisciplinary team that includes cloud architects, security experts, DevOps engineers, and financial analysts, the CCOE is a hive of expertise driving cloud adoption. As per an IDC survey in 2023, nearly 60% of enterprises have dedicated cloud teams or centers of excellence that provide resources for the rest of the organization.


By facilitating self-service for cloud users, the CCOE contributes significantly to enhancing operational efficiency. Julia White, chief marketing and solutions officer at SAP, explains this beautifully: "A cloud center of excellence is not just a technology play. It's about enabling and empowering the people in your organization to take advantage of the cloud's vast potential."


The CCOE's crucial role underscores its value in the overall cloud operating model, underscoring its strategic importance in modern businesses. As stated by Andy Jassy, "The companies that will thrive in the era of widespread cloud adoption are those who invest in their ability to learn and continually iterate on their cloud strategy." The CCOE embodies this very ethos of continuous learning and strategic iteration.



FinOps: Optimizing Cloud Spending


At the heart of the cloud operating model lies a key financial discipline known as Financial Operations, or FinOps. FinOps is akin to the "science of financial management" in the cloud, as described by J.R. Storment, the Executive Director of the FinOps Foundation. This practice fuses the fields of financial management, cloud engineering, and operations to optimize cloud spending and allocate resources effectively.


The FinOps team—comprising financial analysts, cloud architects, and DevOps engineers—collaborates on refining cloud usage, enhancing cost visibility, and instilling a sense of financial accountability across the organization. As per a Flexera 2023 report, companies that use FinOps practices are more likely to understand and control their cloud costs effectively.


a person counting out dollar bills

CCOE and FinOps: A Comprehensive Approach


While the CCOE and FinOps may appear as separate entities, they are, in fact, two sides of the same coin. The CCOE focuses on cloud governance, best practices, and enablement, acting as the "beacon of knowledge" in an organization's cloud journey. In parallel, FinOps zeroes in on cost optimization and financial performance within the cloud environment, ensuring every dollar spent is accounted for and effectively utilized.


Both these models dovetail to provide organizations with a comprehensive approach to cloud management and operations. As Joe Kinsella, CTO of CloudHealth Technologies, aptly puts it, "Combining the governance of CCOE with the financial insight of FinOps is like merging the heart and brain of cloud management." This integrated approach offers a holistic perspective of cloud operations, merging technical know-how with fiscal prudence.



 

The ever-changing landscape of cloud computing necessitates a shift in the traditional operating model. The implementation of a robust Cloud Operating Model, inclusive of a Cloud Center of Excellence (CCOE) and Financial Operations (FinOps), is no longer a luxury but a necessity for organizations aiming to fully leverage the potential of the cloud.


The Cloud Operating Model offers an overarching framework, helping organizations to effectively manage their cloud services while aligning them with their business objectives. Meanwhile, the CCOE serves as a centralized hub of cloud expertise, empowering teams to adopt and utilize cloud resources efficiently. The FinOps approach, on the other hand, ensures financial acuity in cloud spend, promoting cost visibility and accountability.


In the words of Satya Nadella, "Cloud computing is foundational to the new social and economic order." Embracing a comprehensive Cloud Operating Model is a proactive step towards ensuring scalability, innovation, and cost-effectiveness in this new order. By doing so, organizations can navigate the vast cloud landscape, harnessing its full power to drive their digital transformation journey and ensure sustainable success in today's cloud-driven era.


 

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