The cloud party is over, 2023 is the year of efficiency
Under the mantra of digital transformation, companies have invested heavily in technology over the last three years. Many of them have been focussing on the so-called journey to the cloud as it has been seen as a strategic priority in many organisations, although in many cases it has only been an “experiment”.
The siren calls of the cloud, sounded in unison by the so-called hyperscalers, that is, suppliers of infrastructure, platform and private cloud services, such as Amazon, Microsoft and Google, but also, and specifically in Europe, Deutsche Telekom and OVHcloud, among others, have led many large companies to swap their on-premises infrastructures for the use of cloud infrastructures. But have they met their targets?
Undoubtedly not, or at least not to the extent expected. Although, of course, many CIOs and CEOs are reluctant to recognise this, some million-dollar projects have not achieved a clear result, and there are some companies who do not even know what the results are. The digital transformation boom and the allure of the journey to the cloud have become deflated because they have not had the expected impact on the accounts.
Of the many digitisation initiatives under development, few are delivering the digital dividends expected by management teams. According to Gartner’s figures, more than half of all digitisation projects do not meet the expectations of the CEO/management team, either in terms of time (59%) or value generation (52%).
In an exercise of acknowledging mistakes and making amends, there are executives who, only in private of course, are confessing that the journey to the cloud has been a nasty surprise. They say this because, although the cost of hyperscale services may be lower on paper, the truth is that the total cost of ownership (TCO), which is ultimately what has an impact on the financial statements, is higher.
“IBM is well aware that everything that ends up on the mainframe has a non-trivial cost, but so does everything that ends up in the cloud”
IBM is well aware that everything that ends up on the mainframe has a non-trivial cost, but so does everything that ends up in the cloud, as Amazon, Microsoft and Google well know. In our experience, there are two fundamental reasons for this. Firstly, the existence of hidden costs in the use of services, including the processing of unforeseen peaks. Secondly, higher operating costs due to the need for specialised professionals, who are in high demand in the market, scarce and therefore more expensive. And, we might add, they are also less productive due to their lack of experience.
Less investment and more pressure for the CIO
In addition to announcements about mass layoffs from well-known suppliers such as Amazon, Google and Microsoft, a downgrading of IT investment forecasts is not uncommon in this environment. In fact, Gartner has already halved its forecast for global IT spending in 2023. Compared to its 5.1% growth forecast last quarter, the consultancy now estimates the percentage growth in IT investment for 2023 compared to 2022 at 2.4%, amounting to $4.5 billion, and draws attention to the fact that spending on IT services is growing faster than spending on internal services.
There is, therefore, new pressure on CIOs from the CEOs, CFOs and technology committees of the Boards of Directors, who are demanding an efficiency and service model to reduce costs without jeopardising operations. Financial performance targets are the priority and meeting them requires efficiency.
2023, the year of efficiency
Given that promises have not been met, decisions must be made, and this must be done in a cost containment scenario. Some companies are considering a radical shift back to the on-premises model and many others are moving towards a hybrid cloud model, with critical services on-premises and certain applications in the cloud.
Regardless of the model, what has happened reaffirms our belief that performance control in cloud environments, whether public, private or hybrid, is of paramount importance. Another major weakness has also been revealed, which is that while many companies have monitoring, control and management tools, they have not yet managed to get a real, complete and detailed view of what is going on.
Instead, they have partial views of multiple environments and lots of problems when it comes to taking action. When they do act, as in most cases it is through a third-party service provider, the cost of resolving the problem is not only delayed in terms of time, with the consequent impact on service quality levels and user satisfaction, but maintenance costs also skyrocket.
The consequence is logical: proactive monitoring and management of the technology, whichever model is chosen, becomes a priority. Effectively, from our point of view, the so-called “Applied Observability”, ranked second in Gartner’s “10 strategic technology trends for 2023” only behind “Digital Immune System”, is essential, but it is necessary to go further.
Continuous vision, detection, resolution and optimisation
In addition to the global, unique and detailed vision, we need to add the ability to dive into, correlate, detect and resolve problems, and optimise on a continuous basis. It is not enough to know what is happening and be able to identify problems, both during the development of new software and when running applications; it is also necessary to have the ability to act considering all the dependencies and to do so increasingly automatically.
This automated detection capability is crucial because when it comes to software errors, the Pareto principle holds true, that is, a few types of errors generate most of the problems.
Clearly, we are seeing a return to basics. Clearly, we are seeing a return to basics. Company managers want to know for certain whether the technological infrastructures supporting the company’s operations are working properly and at full performance, not only from a technical point of view, but also from a functional perspective in terms of responding to business priorities.
Performance, understood as the optimal combination of efficiency/cost, is not a fad, it is a basic requirement, and the continuous improvement of this dual variable is a must for the CIO/CEO tandem. They need to be able to continuously monitor the operation of infrastructures and applications to see how decisions involving technological changes are reflected in the operating account and in customer service levels, and also to be able to measure the results of their policies for outsourcing technology services in order to monitor the actions of their suppliers.
In short, more efficiency and management models that add value and improve operational efficiency based on substantial KPIs for the business, that is, those that are relevant from a financial point of view.