Hidden Costs of On-Premise IT
AlfaPeople |
Mar 27, 2018

Hidden Costs of On-Premise IT

When considering moving to the cloud from on-premises solutions there are many financial, cultural and functional aspects to be considered

Many of these are seemingly obvious considering that you do not operate yourself anymore. In return, some of the disadvantages on on-premises solutions are not quite so immediately apparent as others. Justin Moor from Microsoft recently wrote a blog post about this. Here are his main points:

  • Shared services and infrastructure

Infrastructures and related services are most often shared in larger companies, where on-premise applications and platforms are supported across business units. A single unit holds a proportional share of the total cost of the infrastructure, while in other companies it is managed from a central team where the unit does not incur any costs. In companies where this is the solution, it can be a difficult task to convince the unit of the benefit going to the cloud instead of continuing an on-premise solution. Should a unit wish to be in the cloud, they suddenly need to cover all the costs associated and not run a split of the cost that is being shared by more units. It makes it seem like a big expense when compared to the shared or zero-cost model that they used to use. The reality, however, is that the on-premise solution is artificially cheap. The total cost hides when it is divided into several units.

  • The ability to keep pace

It is a known challenge that many companies with an on-premise solution are lagging behind in updating systems because the many and large requirements to stay compliant in combination with endless maintenance work require so much time. It will quickly become a battle where it´s about keeping the system up to date rather than focusing on delivering more value to the business. And the company is going to fall more and more behind because projects become complex and require much more time. In some cases, the company is working with outdated software versions and paying to a vendor to continue to support that version. In other companies, you maintain code and integrations that are not found in the new versions. Or you are waiting to develop a functionality that already exists automatically in the new versions.

  • Maintenance of the status quo

Keeping an on-premise solution pending is a major task that requires time, effort and focus to be up-to-date on your own competencies, meeting increasing security requirements, and at the same time still delivering a value to the company. And the value is actually the only measurable and visible. Staying updated and meeting security requirements is a matter of course and expected, but cannot be measured. If, on the other hand, the company chooses to move its solution into the cloud, priority can be given to delivering real value to the business through improved competitive conditions, even better customer experiences, new product development, data management investments, increase in employee efficiency, increased revenue, better quality in analytics etc.

The cloud is moving too fast to us

The vast majority of companies with an on-premise solution can recognize all or some of the situations above. Being agile in a company with an on-premise solution is by no means possible, even if you want to. The very slow cadence that the business value can be delivered into can be boiled down to these 3 challenges:

  • Only a limited part of the total effort in it will be dedicated projects with a real potential for business development.
  • Only a limited part of these projects remains a priority long enough until they are actually completed.
  • Only a limited proportion of these projects actually delivers value when they are long terminated.

This in itself is sad. But it is definitely dangerous for a company if this slowness in its development over time affects the culture and becomes an accepted norm. When organizations suffering from this kind of slowness see what the speedy cloud solutions can provide new functionality and improvements, one of their first reactions is fear. For how can we ever follow the pace of development? The answer to the question is that it is the cloud itself that allows them to follow. For cloud solutions, so much time is left with the IT managers that they can focus more on making the business grow.

Comparing the cloud with on-premise solutions makes it crucial to have these hidden expenses in mind. An organization that successfully implement cloud solutions is no longer the same organization. Cloud involves an automatic shift from operation to development.

These hidden costs must, of course, be assessed along with some of the well-known benefits of the cloud, such as the shift from capital-linked investments in soft and hardware and the possibility of it becoming more business development.

At AlfaPeople we are focused on Microsoft Dynamics 365 and has implemented our Cloud Liftoff solution in numerous organizations already. If you would like to know more about this, you can download our whitepaper Going Cloud with your Microsoft Dynamics CRM solution.