The dynamic technology landscape and digital transformation imperatives have rendered cloud computing a strategic necessity for organizations looking to enhance agility, manage operating costs and stay competitive. The journey to the cloud is complex and fraught with challenges, though, but our guidance is intended to provide context around why organizations are moving to the cloud, the complexities involved and how to navigate the transition successfully. Further, we emphasize the importance of expertise, stakeholder buy-in, and a strategic approach to reaping the benefits of cloud computing. So why should organizations migrate to the cloud?
- Scalability: Cloud platforms provide elastic resources (compute, networking, storage and managed services) that can scale up or down based on demand, enabling organizations to respond to fluctuations in business activity efficiently. A cloud infrastructure also allows organizations to expand operations globally through flexible and adaptive systems that can conform to various geographical contexts.
- Cost management: Cloud computing can provide significant controls over operating costs by switching from a capital expenditure (capex) model to an operating expense (opex) model. This allows detailed accounting of costs down to the minute/ hour and allocable to the consumers (business applications or clients), eliminating the need for extensive on-premises data centers and large capital outlays.
- Security: Leading cloud providers invest heavily in security, often providing more advanced protection than many organizations can achieve on their own, abiding by industry and regulatory standards.
- Managed services: Cloud platforms are increasingly commoditizing basic infrastructure/ platform services and making them available as managed services. There is an additional cost for the managed services. However, when total cost of ownership (TCO) is calculated (internal engineering and operations), many of these managed services provide a high return. Organizations need to be mindful of cloud lock with some of the managed services, and this trade-off needs to be taken into consideration. For example, applications can move between AWS RDS (Postgres) and Azure Postgres database relatively easily, but this is not necessarily true for serverless AWS (Lambda + Fargate, etc.) and Azure functions. An increasing number of modernized applications now run on containers, and all major cloud providers offer managed services for Kubernetes.
- Data analytics: Cloud platforms offer powerful data analytics and machine learning tools, enabling organizations to gain deeper insights into customer behavior, market trends and risk analysis, driving better-informed decision-making and competitive advantage. Legacy systems were generally not designed for widespread data discovery or running data-science-based analytics. A cloud-based architecture enables such possibilities, and most organizations can build and launch these capabilities much faster than they could otherwise.
- Disaster recovery and business continuity: Cloud systems replicate data and applications across multiple regions and servers. This redundancy ensures that in case of a natural disaster, hardware failure or other disruptions, critical systems and data can be quickly restored, minimizing downtime and ensuring functional continuity. Organizations can achieve a much higher level of sophistication with respect to disaster recovery by leveraging the significant level of automation that is much easier to attain on the cloud. Given the substantial number of cloud users, there exists a large open-source community that supports disaster recovery software.
Migrating to the cloud is not a simple task as it requires expertise in cloud architecture, security, compliance and governance. Engaging with experienced skill-hiring/ training and cloud consultants or partners is crucial for simplifying the transition process. These experts can design a cloud strategy that aligns with the organization’s goals, state of technology maturity, technology debt, constraints, and regulatory requirements.
Cloud-Migration Hurdles
Migrating Legacy Applications
A significant challenge is moving legacy applications to the cloud. These systems are often tightly integrated with existing infrastructure and may require extensive repurposing, consolidation, small re-builds or a full revamp. Lifting-and-shifting many of the applications “as is” to the cloud can substantially increase the cost to run on the cloud. In some cases, a move to the cloud may increase the TCO for infrastructure when compared with on-premises, making the organization re-evaluate its decision to move the cloud.
There is also a cost associated with retiring or revamping applications. A consultant that understands how to navigate technology debt as part of a cloud migration strategy becomes valuable. A transition must be carefully planned to ensure minimal disruption to day-to-day operations.
Lack of a Target State Architecture Design
Designing the target state architecture is critical for a successful cloud transition. While organizations have the option to lift-and-shift their existing infrastructure to the cloud, such a move precludes them from achieving the several benefits listed above. Firms must design a target state architecture design for cloud residency and draw up a corresponding transition plan. Security requirements for the legacy environment are increasing, necessitating significant investments.
These investments can be combined with the move to the cloud to optimize overall spending. Organizations must also consider factors such as data sovereignty, disaster recovery and high availability. An intelligent system design ensures optimal resource utilization and performance in the cloud.
Lack of a Target State Agile Delivery Model
Designing a target state delivery model helps ensure a much higher return on investments made in the cloud. In many organizations, infrastructure teams operate within their own silos. As a result, business and software divisions often perceive cloud migration as an infrastructure CIO-led initiative, and the rest of organization is not always fully bought in. Business presidents and CTOs still need to deliver against business priorities, leading to inherent prioritization conflicts.
Rethinking the delivery model (scaled Agile – SAFe), shifting left (DevSecOps), test automation and self-service for developers (Infrastructure As Code) can significantly increase velocity and agility, providing business value to these key stakeholders and fostering cross-organizational alignment.
Commercial Justification
Obtaining stakeholder buy-in is essential for any cloud-migration initiative. Organizations must clearly demonstrate the benefits and return on investment of cloud adoption. A move to the cloud often involves transition from a capex-oriented depreciation schedule to an opex-oriented cloud cost schedule.
Therefore, it is pertinent for organizations to consider the following:
- Profit and loss (P&L) charges: Identifying and quantifying the expected increase in P&L charges attributable to cloud migration is difficult and requires scrutiny and reclassification of costs at various levels.
- Project cloud migration costs: Accurately estimating cloud migration costs, including infrastructure, licensing and other one-time expenses, is key to managing the economic impact of such a transition.
- Contain overlapping costs to minimum: It is important to contain overlapping costs during the cloud transition phase when organizations maintain legacy systems while setting up and running their cloud infrastructure. Business leaders are generally not prepared to absorb dual costs, and this impacts their assessment of the value generated by such a transition.
- Identify assets for write-down in advance: Once an asset (could be hardware or customized software) on the balance sheet is replaced with a cloud-based service, it loses its residual economic life and might have to be written off. Such one-off write-downs need to be identified in advance and their cumulative impact should be socialized before any move is undertaken. Prolonged parallel run-in costs (due to delayed migration or risk management) are often a positive on this aspect — organizations don’t have to write down old assets if they continue a parallel run.
- Consider application refactoring costs: Legacy code was not always prepared for cloud-readiness. In such situations, organizations are faced with the daunting task of refactoring their application stack. The spectrum of activities here could vary from simple lift-and-shift to platform-based application refactoring. The more complex an organization is and the more customized its application stack, the more difficult and expensive it is to refactor it.
- Emphasize cost avoidance: Considering the state of technology debt, most organizations face increasing regulatory, audit and security requirements. They are obligated to address this technology debt and take proactive measures to manage the security of their infrastructure and applications. Such budgetary allocations can be leveraged as part of the overall business case for cloud migration. Additional “soft saves” and value generation can be quantified due to the increased velocity available to the organization after the transformation.
To ensure successful and effective cloud migration, organizations must address the challenges before proceeding with the actual implementation and migration of their systems. A well-thought-out approach is essential; otherwise, complications may arise during the transition, potentially impacting operational fluidity. By involving and integrating people, processes and the tech stack, organizations can rapidly execute on the momentum to create an optimal infrastructure based on a meticulously crafted blueprint.
Final Thoughts
The cloud transition process presents organizations with both opportunities and challenges. While the benefits of cloud adoption are compelling, the journey demands careful planning, expertise, and stakeholder buy-in. Organizations that approach cloud migration with a focused and intentional plan can realize significant advantages in scalability, cost efficiency, security, and innovation. CRISIL guides its clients through the complexities of cloud migration, helping corporate leaders make informed decisions and steer their organizations toward a more agile and competitive future.
The success of cloud migration lies not only in the technology but also in the strategic approach and the expertise guiding the organization. As such, we believe the cloud should be embraced with a positive yet realistic perspective, acknowledging its potential to empower organizations to thrive in the digital age.
- Expert CIO Reveals How to Unlock Value from the Cloud Shift - December 22, 2023
