LaborSome estimates show that 67% of global enterprises' IT budgets are allocated to labor with 40% of this budget dedicated to application development and maintenance. Specifically, a 2010 IBM internal study of its own distributed infrastructure showed labor to be over 60% of the total operational cost per year. Cloud technology will decrease the necessary person-to-server ratio over time as more applications begin running on automated platforms in the cloud. With IT labor spend in excess of 60%, as IBM referenced in their findings, comes the biggest opportunity for cost reductions via increased capabilities of automation and decreased labor dollars earmarked to manage the infrastructure.SoftwareThe average enterprise has hundreds of applications making software the second largest expenditure for enterprise IT budgets at approximately 16%. The increased accessibility of software through enhanced virtualization allows companies to leverage a pay-for-what-you-use model and reduce overall software licensing and maintenance costs. By utilizing cloud based solutions, what was once a previously fixed cost can now be absorbed as a variable cost to be strategically optimized over time.HostingAs the complexity of the enterprise grows, so too does the need for a more powerful hosting infrastructure. It is estimated that hosting accounts for 8% of the typical global enterprise IT budget. Enterprises are now presented with an alternative to the traditional, fixed, capital expenditure (CAPEX) model that has been so common for enterprise hosting spend previously. The new integration of public and/or private cloud hosting, will offer the enterprise an operational (OPEX) pay as you go model that can also(software) be absorbed as a variable cost and optimized over time. The enterprise could also experience a reduction in power and cooling costs due to the increased efficiency in the use of the on site IT infrastructure.It was only a few weeks ago when Warren Buffet invested $10.7 Billion into IBM, and rationalized the move by saying, “It’s a company that helps IT departments do their jobs better.”
It is this understanding, of the inherent value of helping IT departments do their jobs better, that makes the enterprise adoption of the public and private cloud a question of “when” and not “if”. Given the tumultuous economy, and the advantageous cloud technologies, the opportunity to justify such a move lies not only within cost reduction benefits, but also more efficient time-to-market and increased speed at which decisions can be made and executed upon.Warren Buffet invested in an enterprise that helps IT Departments do their job better because he understands the long-term value of a successful and efficient IT department. The question is, will your enterprise invest in the Cloud to help your own IT departments do their jobs better and realize the long-term cost savings?What other opportunities for cost savings has a move into the cloud provided you with?Follow @openlogic
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