From capex to opex: Ensuring the cloud shift optimises costs

Roger Österberg is solution leader at Insight.

The pandemic has thrown many organisations’ three- or five-year IT planning cycles into disarray. The sudden need to switch entire office-based workforces to remote working means that many organisations have had to invest heavily in software and infrastructure as a service to ensure they can keep operating. At the same time, many have faced reduced income as the economy contracts. As a result, switching to a predictable opex-based strategy seems highly attractive.

However, switching from capex to opex means much more than simply adapting to a new spending model. It can mean significant changes to the way IT – and the business as a whole – operates. Organisations that don’t understand this, or that miss it in what they see as a rush to transform, can find that what seemed a logical change has created more issues than it solves.

Cost optimisation isn’t automatic

One of the biggest drivers for moving to opex – and in particular the cloud – is optimising costs. However, this optimisation won’t happen automatically. Cloud spend is just as vulnerable to waste as any other investment. Indeed, the most recent Insight Intelligent Technology Index revealed that almost a third (30%) of cloud spend is wasted on unused services.

Another factor preventing optimisation is a lack of visibility and control over costs. A capex approach to investing in on-premises physical or private cloud architecture makes this relatively simple. You know exactly what resources are available because you have the invoices. Yet with opex, any part of the business could potentially invest in the services they need at a moment’s notice; meaning costs that, while necessary, are entirely invisible to IT and so can’t be optimised.

Lastly, there are the external costs caused by the switch. As a completely different way of delivering IT, managing the cloud demands completely new skills from legacy infrastructure. Failing to invest in these will inevitably incur more costs due to difficulties in managing the environment. Similarly, security needs will change depending on where data is kept and who has access.

Recognising these issues is essential in order to ensure that any switch still makes sense from a cost optimisation position. They are all solvable, but are easy to miss if the switch from capex to opex is happening on a rushed timetable.

Taking the right steps to prepare

Regardless of the pressure to switch from capex to opex, organisations still need to follow best practice. First, they must remember that knowledge is power – a successful switch relies on having a fundamental understanding of existing IT architecture, and a clear vision of what the switch should achieve. Crucially, businesses should take a step by step approach as a big bang switch is likely to be hugely complex and expensive. Taking an incremental approach where goals can be set and quickly achieved is more likely to deliver long term optimisation.

As part of this fundamental understanding, and to ensure that opex helps optimise the business, IT also needs to ensure it has visibility over all purchases. This doesn’t mean that every purchase has to be approved by IT first. However, the organisation as a whole has to understand that an opex approach will only truly benefit the business when IT can see how resources are being spent, and begin identifying opportunities to reduce costs.

Getting buy-in from other departments will be critical. IT should make clear that it is looking to optimise costs so that the organisation does not have to cut people or capabilities and ensure that it can invest in the future. Making this argument clearly should be enough to win over any resistance.

IT also needs to ensure that it has the skills to make the transition to opex a success. This may mean up-skilling existing employees; hiring new team members; or engaging an expert partner, but the team needs to know which approach best fits its needs and resources.

Lastly, IT teams should make sure that their planned approach will meet their objectives. For instance, many organisations have moved their application development environments to Infrastructure as a Service (IaaS) and stopped there. Yet this can actually lead to longer term costs increasing – organisations should be looking to take the next step to Platform as a Service (PaaS) to deliver true optimisation. 

A culture of change

The move from capex to opex is an established strategy in many organisations – reaction to Covid-19 has simply accelerated matters. However, the desire to make any moves quickly needs to be balanced with ensuring changes won’t create more problems and higher long-term costs. It may seem like a delay on the path, but taking the time to understand the organisations’ current position, its goals, and how to realistically achieve these will ensure that any changes to spending models result in true optimisation and business needs being met.

Photo by Damir Spanic on Unsplash

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Posted by Editor