Abstract
Almost two decades into the era of cloud transformation, countless companies are adopting cloud-based systems. Prior to making the switch, most conduct a thorough business case analysis, identifying potential savings and benefits. To manage cloud costs, many organizations are establishing FinOps practice across their teams. However, some time into the journey, questions arise: “Did we achieve the benefits we anticipated?” and “What business value has our investment created”? Since 2022, Google Cloud has been partnering with customers to pinpoint the tangible business value derived from their cloud transformation. These studies have resulted in a collection of quantitative evidence across countries, industries and customers. This blog post aims to spotlight key insights that can be drawn from the data, highlighting how customers are generating measurable business value — also beyond cost savings — through their cloud transformation.
Why business value measurement?
“We’ve been at this for 12 months! Where’s all the business value we said we’d realize by moving to the cloud?” – The CTO
“How can I prioritize the migration of workloads to the cloud from a business value perspective?” – The head of Cloud Services
“Do we have any benchmarks on the percent reduction in TCO that projects have seen after moving to the cloud?” – The CIO
These are the questions that we, as the Cloud Value Measurement Team, receive every day from our Google Cloud customers. Despite the different focus areas or technical expertise, all of these questions revolved around one central theme: how can you measure the value generated by the cloud?
Since the establishment of the Cloud Value Measurement Team, we have been working with our customers to identify exactly that. Through one-on-one engagements, we’ve been tracking business value that organizations are achieving through their cloud transformation. With this influx of data, our customers justify past and future investments, prioritize decisions, and achieve greater visibility across their business. The storytelling power of data allows our customers to contextualize and amplify their successes to both the C-suite, and the wider public. Throughout this process, we’ve collected a vast amount of quantitative evidence across countries, industries and customers. Analyzing this data allows us to identify common themes and trends illustrating the tangible benefits of cloud transformations.
In this blog post, we aim to delve into these themes, shedding light on how our customers are not just saving costs, but also generating meaningful business value through their cloud transformations. Stay tuned as we unravel the insights gleaned from our extensive research and customer partnerships.
Why Cloud FinOps is a prerequisite for value measurement
Before we delve into the themes emerging from our research, it’s essential to highlight a foundational observation: having an established Cloud FinOps practice is crucial for measuring business value1. It shifts our perspective from viewing cloud usage in pure cost terms to understanding and contextualizing the business value it delivers.
Instead of stating, “Cloud cost me $10,000 last month, up 10% the month before” we transition to, “That $10,000 we spent last month generated x value — a 6% improvement on the previous month.”
Established value metrics are the reward of a successful Cloud FinOps function. Once you have visibility into who is spending, and on what, you can combine this with other data to calculate the value produced. For example, an online retail company might aim to optimize their cloud spend per customer transaction. By measuring the direct on-demand cost of the infrastructure they are using, and combining that with the number of transactions, they can generate a base value metric (cost per transaction). The addition of qualitative data empowers them to make informed decisions on strategic initiatives and technology pathways.
In essence, Cloud FinOps paves the way to value measurement. We’ve delved deeper into this and the broader concept of unit economics much further in our Unit Economics whitepaper. One key Cloud FinOps capability necessary for value measurement is cost allocation. Without understanding who is spending what, measuring value becomes impossible. More on cost allocation in our dedicated whitepaper here!
Methodology
Once you understand who is spending what (and on what), you can begin contemplating the value it generates. At Google Cloud, we use the following five pillars to capture business value from cloud transformations. We’ve built this framework from common business value models for IT2.
Figure 1: The five pillars of business value
Cost efficiency is often the first thought when moving to the cloud. Establishing Cloud FinOps practices provides organizations with transparency and control of the cost in the cloud3, as well as link cloud spend to business growth via unit costs4. Knowing your cost in the cloud is a prerequisite to calculating savings realized against on-prem. Cost efficiency is a very important component of business value, but should not be the only one.
Increased emphasis is being placed on the sustainability impact of cloud transformations. Today, carbon footprint and energy consumption can be lower in the cloud, with optimizations in cloud-based operations leading to less waste in the supply chain.
There are also positive effects on the resiliency of operations, with benefits seen in service quality or security risk exposure.
Customer satisfaction and business revenue can be boosted by new or improved services that can be provided using cloud technology, which has not been possible before.
Lastly, cloud transformations facilitate innovation, from accelerating business processes to enabling rapid experimentation to freeing up developer time for innovative projects.
These benefits collectively constitute the cumulative business value of cloud transformations. As one moves from left to right, these benefits increasingly resonate with the business in a meaningful way. However, they also become more challenging to measure… given that business value is a lagging indicator of cloud transformations (figure 2).
Figure 2: Business value is a lagging indicator of a cloud transformation
In an ideal scenario, when a step in the cloud transformation is taken, for example moving formerly siloed databases into one data lake in the cloud, the business value is immediately apparent. However, the impact of the step is not quite so direct.
Consider the following example. An IT batch process becomes faster due to improved data accessibility and cloud elasticity. This speed increase does not yet constitute business value; faster does not always equate to better. But suppose the faster query process enables a business-relevant report to be more accurate and available sooner. This is where the real business value begins, as business decisions can now be made more promptly and with greater confidence. Taking it one step further, this faster insight may even have more direct impact to the business, such as reducing risk exposure, or increasing sales. These would then finally also manifest in reduced cost or increased revenues in the company’s P&L.
We consider the last three steps in this chain to be veritable business value. The further to the right, the more relevant to the business and the more powerful the measurement will be. However, it also significantly harder to measure.
This analysis is based on the business value evidence we have collected since the inauguration of the global practice in 2022. The data has been collected via three channels:
Value realization workshops with customers (conducted by the Value Measurement Team)Published use cases (e.g. on conferences, in journals or blog posts)A survey with Customer Teams in Google
To date, our data base covers
>2,000 business value measurements (“soundbites”)>900 customers50 countries15 industries
This is merely a starting point, but the data already allows some interesting insights into value creation that can be generalized.
Business value realized on Google Cloud
First of all, it is interesting to see where our customers are realizing business value.
Figure 3: Innovation, followed by resiliency are the most common forms of business value of a cloud transformation.
An interesting finding is that the most frequently mentioned benefit is not cost efficiency, contrary to common expectations. The majority of the benefits cited are related to innovation, followed by improved resiliency, and only then better cloud efficiency. (record count: 1,655).
The sustainability aspect has been minimally represented thus far. Customers have only recently begun to measure sustainability effects of their cloud journey — particularly since the onset of the current energy crisis. It is anticipated that more benefits will be observed in the near future.
In our next post, we will dive a little deeper and share results for value realized in each of these areas, starting with cost efficiency.
Cost savings are challenging to compare across organizations due to the drastically differing states of the estates moved to the cloud. To compare, we have chosen to share the percent of cost savings reported by customers.
Stay tuned for our next post to find out more about cost efficiency, reduction in carbon footprint, improvements in system availability, better customer experience and how the cloud enables continuous innovation!
1. See for example Google Cloud (2023): What is FinOps? https://cloud.google.com/learn/what-is-finops, viewed July 3rd, 2023.
2. See for example Tallon, P.P., Mooney, J.G., Duddek, M. (2020): Measuring the Business Value of IT. In: Lynn, T., Mooney, J., Rosati, P., Fox, G. (eds) Measuring the Business Value of Cloud Computing. Palgrave Studies in Digital Business & Enabling Technologies. Palgrave Macmillan, Cham.
3. See Tanna, K., Moss, S. (2023): FinOps from the field: How to build a FinOps roadmap, Google Cloud blog, viewed July 3rd, 2023.
4. See FinOps Foundation (2023): Measuring unit costs, viewed July 3rd, 2023.
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