Move to the cloud? The two decisions that matter

Recently, I wrote about how the software company I work for, Precise, cut 70 percent of its IT budget by migrating its applications and infrastructure to cloud and SaaS technologies. That amounts to $ 2 million dollars in savings a year — no small chunk of change for a business of 200 employees.

Moving to the cloud and SaaS is easier and simpler than many executives believe and can deliver significant business gains in a relatively short amount of time. But clearly, internal politics and personal agendas sometimes get in the way of what should be a fairly straightforward decision. Otherwise, wouldn’t more small and midsize companies have made the switch to 100 percent cloud environments by now?

There are two key decisions that a company should make when considering its cloud strategy. First, how much money do you have available to spend on technology? Secondly, how unique are your processes? These two basic questions will help you decide which applications to purchase in the cloud and which vendors to choose. Coupled with the right management attitudes, the answers will help IT achieve the maximum savings and value from cloud and Web technologies — without harming the business. Here’s how we developed our strategy at Precise.

Decision 1: Show me the money

Back in 2008, after being spun out of our former parent company Symantec and into a new private company, cost management was critical for our near-term and long-term survival. We also had 1,000 customers to support, and we couldn’t risk hurting those relationships by taking any chances with our systems and infrastructure. However, the bottom line was that we could not afford to continue spending at the same levels we had been. We needed drastic change, and fast.

To make ends meet, we needed to cut our IT budget by more than 50 percent. This was a CEO decision, and we had to abide by it. There were no politics and no management wrangling involved here: A single look at the P&L revealed why those cuts were non-negotiable.

Decision 2: Is customization really necessary?

Companies have a hard time letting go of what they consider to be proprietary. However, very few applications are so unique that they require in-house ownership. In other words: to drive a nail into a two-by-two, everybody uses a hammer.

As a software company, there is nothing proprietary in how we manage finances or in how we sell, market and support our products. We were determined to find off-the-shelf SaaS apps that could run our business. And if we needed to change our processes a bit as a result, we could live with that. To be realistic, we assumed that a minimal amount of customization would be needed to integrate applications and make minor adaptations. We asked our department heads to select these SaaS applications — we didn’t ask IT. Obviously, IT was a valuable partner in the decision-making process, but we let department VPs make the final call because they owned those processes.

Making ends meet

There’s one caveat here: whatever the departments chose had to fit into our budget at the time. Here’s an example of how these decisions can flip at the 11th hour. Our customer-support organization had outgrown its customer portal platform and needed a new content management solution. Our vendor for customer-relationship management had just launched a new product, but it was out of our price range. Beggars need to be diligent choosers. So, our support folks looked around and found some quality alternatives.

The vice president of customer support was about to close a deal with one of these candidates, when, unfortunately, our quarterly numbers came in lower than expected. Although the support team really wanted the product, they could no longer afford that one either. The usual cliché is that when managers have no money, the CEO tells you to be creative. Our support folks were creative indeed. They selected Drupal, an open source solution. Combined with hosting by Acquia, Drupal is affordable, and it does what the support team needs. In fact, this solution was about 85 percent less expensive than the offering sold by its closest competitor.

Bigger isn’t necessarily better

Many execs still think the size of their organization reflects their power, influence and value in the company. With the advent of cloud, SaaS and automation, this is simply not the case anymore — especially for small and midsize companies. IT can deliver more value by orchestrating products and services that other people build and run, rather than doing it all in house.

Our IT director created more value for the company by slashing his budget by 70 percent and his staff by 50 percent. This is a hard pill to swallow, but it works. Many chief information officers describe their job as supporting the business through automation, while continuously grinding down the IT unit cost. The cloud and SaaS are pivotal technology levers to help CIOs achieve these goals.

Think clearly before moving to the cloud

In the case of Precise, the decision to go SaaS all the way was easy, because we required minimal customization and our size was too small to consider economies of scale in hosting. This might not be the case for other companies. With adequate scale, larger organizations can actually drive costs down by in-sourcing rather than outsourcing. At the extreme end, consider Google, which hosts its own environment and custom designs its infrastructure down to the compute and storage units. As cloud vendors achieve economies of scale and drive their own costs and pricing down, such examples are few and far between today.

Deciding how far your company will go with the cloud and SaaS should all come down to total cost and essential application functionality. Muddying the waters with debates around control, security, user preferences and vendor relationships is an enormous waste of time and energy. Stick to the basics, get crystal clear on which apps truly require on-premise management and make the decisions that are best for your business’s bottom line.

Zohar Gilad is the executive vice president at Precise, in Redwood Shores, CA.

Image courtesy of Flickr user Radio Saigón.

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