Australian businesses are tracking significantly lower than global benchmarks in their usage of the cloud, with only approximately 25% of IT infrastructure currently in the cloud. In comparison, respondents in the Flexera 2022 State of the Cloud Report—across a wide range of industries and regions—indicate that, on average, 50% of their workloads and 48% of their data are already in the public cloud.
In order to bridge this gap and stay competitive, Gartner predicts that Australian businesses will increase their public cloud service spend in 2022 to $18.7 billion, an increase of nearly 18% over 2021. Similarly, GlobalData forecasts that large scale digital transformation initiatives will increase Australian cloud computing spend by a Compound Annual Growth Rate (CAGR) of 12.5% between now and 2025.
There are numerous factors driving Australian businesses public cloud adoption, including:
- The permanent post-pandemic shift to work-from-home
- Continuing supply chain challenges and chip shortages impacting infrastructure supply
- Competitive pressures driving increased need for innovation and new business models at velocity and at scale
- The use of cloud to help achieve sustainability goals, with hyperscalers far out-spending any single private business when it comes to ‘green-computing’
- Security at scale, with cloud providing improved security, driven by AI and Machine Learning
- Favourable changes in the Australian regulatory environment
- The promise of the cloud OPEX model to help maintain profitability in the face of rising business costs
With all of the promise, however, there are also significant obstacles to overcome as Australian businesses expand and deepen their journeys in the cloud. This article explores one of the key challenges: how to optimise cloud costs to achieve maximum business value from digital transformations.
The Cloud Cost Conundrum
In the Flexera 2022 State of the Cloud Report, optimising cloud usage to save on costs is cited across all organisations as the #1 cloud initiative—for the sixth year in a row. Three out of four organisations see cost savings as their top metric for measuring the progress of their cloud strategies. And the report’s respondents self-estimate that 32% of their cloud spend is wasted (up from 30% in the previous year).
The crux of the matter is that financial and operating models that work well in the more static world of on-premise data centres break down in the cloud ecosystem. Key contributors to poorly controlled cloud spend and cloud budget overruns include:
- Lift and shift migration of apps and workflows that cannot take full advantage of cloud consumption and cost models
- The cloud’s self-service, frictionless procurement models
- The complexity and fluidity of cloud pricing models
- The complexity and velocity of new cloud services
- A shift to siloed IT decision making, at the team level
- Traditional IT operating models which remain unchanged after an organisations mass shift to the cloud
The solution to the cloud cost conundrum must be strategic. In order to accelerate business outcomes without experiencing cloud-bill shock each month, Australian companies must embrace the new financial and operational approach—FinOps—that delivers ongoing visibility into and control over highly dynamic and decentralized cloud spend.
The core FinOps principles are:
- A centralized team of FinOps practitioners supporting and enabling IT and the business
- Cross-team collaboration (engineering, operations, product, business unit, and so on)
- Each team and business unit taking ownership of its cloud usage
- Timely reports accessible to all stakeholders
- Decisions driven by an understanding of the business value of the cloud
- Variable cloud cost models being seen as an opportunity, not an obstacle
SXiQ and Cost Optimisation
SXiQ, an IBM Company, is an organisation of deeply experienced cloud technology experts (applications, platforms, cybersecurity) that deliver lasting and secure digital transformations to its customers throughout Australia. SXiQ collaborates closely with clients to solve business problems through the adoption of technology, develop and implement cloud migration strategies, and enable a transformative operations culture (people, processes, and technology stack) that sustains continuous innovation and improvement.
SXiQ views cloud cost optimisation not as a tactical effort to reduce monthly bills but rather as part of a game-changing organisational transformation to reduce complexity, mitigate tech debt, increase uptake of cloud and accelerate business innovation.
By unlocking trapped IT and cloud costs, SXiQ helps its customers:
- Improve talent retention by delivering better, more innovative, employee-centric experiences
- Capture new customers and better retain existing ones through innovative user experiences
- Position themselves to take advantage of emerging opportunities
- Build the resilience required to weather current and future macroeconomic forces that would otherwise destabilise their business
The below diagram (see Figure 1) outlines our multi-phased cloud cost optimisation methodology. It starts with rapidly capturing immediate cost optimisation opportunities and ends with establishing a FinOps framework that ensures ongoing cloud cost governance to stay closely aligned with evolving business requirements.
In general, the domains covered by a FinOps framework range from visibility into and understanding of current cloud usage and costs to full organisational alignment around FinOps goals. Other FinOps domains to be mastered include performance tracking and benchmarking; real-time, automated decisions and workflows; and continuous cloud rate and cloud usage optimisations.
Along the way, SXiQ conducts detailed cost and usage analysis, delivers detailed reports and business cases, and implements cost optimisation measures such as instance rightsizing, reserved instances, granular resource scheduling, and app modernisation (containerisation).
Additionally, SXiQ ensures that processes across your entire IT and cloud stack are highly automated and code-driven to fully leverage the power of cloud-native architectures and technologies, better positioning your business to achieve faster, lower-cost innovation and to more easily adopt AI and Machine Learning in the future
Figure 1: SXiQ’s multi-phased cloud cost optimisation methodology
SXiQ in the Real World
Here are two case studies that show how our methodology works “on the ground” and the quantifiable benefits your organization can achieve.
Bupa’s cloud initiatives were stalled because costs were significantly higher than expected. The SXiQ Cost Optimisation Squad identified short-term (e.g., rightsizing, right-timing, improved tooling), medium-term (e.g., reserved instances, resource/workload consolidation, contract renegotiations), and long-term (e.g., platform modernisation, cost visualization, FinOps) savings opportunities.
Bupa Australia reaped a 7:1 ROI on the cost of implementing SXiQ’s plan through the following benefits:
- 25% reduction in ongoing cloud costs
- Innovation program and cloud migration back on track
- $1.5m p/a freed up to continue cloud modernisation investments and support new FinOps practices
Read the full story here.
Digital Marketing Services Company
This company was an early adopter of AWS to deliver its digital marketing services to SMBs in Australia. Its cloud cost management program was limited to tuning cloud infrastructure resources, but growing cloud costs were outstripping the savings. SXiQ conducted a FinOps review that revealed how migrating to more modern cloud services such as containers, WAF, CDN, PostgreSQL, and serverless could significantly change Sensis’ cloud spend profile.
With a 15% reduction in their monthly cloud bill, the company reaped a 5:1 ROI on SXiQ’s implementation costs.
Read the full story here.
Public cloud adoption in Australia is growing strongly, driven by post-pandemic shifts in work-from-home and supply chain practices, consumer demand for innovative services at velocity and scale, and changes in the Australian regulatory environment. Australian companies are also looking to the cloud OPEX model to help them increase profitability in the face of rising business costs.
However, Australian companies face the same cloud cost conundrum that continues to stymie their peers around the globe, i.e., how to control cloud spend and avoid cloud budget overruns which ultimately slow the further adoption of cloud and severely slow-down innovation within a business. The solution involves a paradigm shift to new financial and operating models and the establishment of an effective FinOps program, allowing companies to transform themselves through a deep understanding of the cloud’s business value to their organisation, ensuring the benefits of cloud are fully exploited.
SXiQ has a battle-tested methodology for helping companies gain control over cloud spend, culminating in the implementation of a mature FinOps framework.
Learn more about how SXiQ can help your company exceed its business objectives through a strategic approach to cloud cost optimisation.