By Sean Harris
Let’s examine a story I see often in my work with customers as part of the VMware Advisory Services team. The names and details have been changed to protect the innocent.
Jessica, the new Head of IT Service Delivery at ABC Banking Corp, was frustrated with being told that the cost of delivery of IT was too expensive. She wanted to show that had she massively reduced the cost of IT delivery with the new private cloud that her team had delivered. Not only that, but the elastic demand and agility of the service had generated so much value to the business, in terms of revenue and market share, that the business should be investing considerably more in this solution going forward than they had done to date.
She worked with VMware’s Advisory Services to build a model that showed the true value of the private cloud solution in terms of time to market, market share (as a result of being earlier to market) and revenues over a 3-year period.
They first built a model that looked at supply and demand and showed the impact of shortage of supply on the loss of customers to competing services (so reducing demand and market penetration). Once they understood the organisation’s ability to service demand they were able to estimate the revenue impact from lost customers, using the metric for average revenue per customer.
The model did not consider the application development time of the service. It was assumed that this has already been done. There is another value model that can be built to show the benefits of time to market through agile and cloud native application development vs traditional application development approaches, but that was out of scope for this exercise.
For a traditional service delivery model, it was assumed that capacity would be built linearly over time. You need a certain capacity before the capability is available and/or there is a marketing decision made to delay the launch (availability) of a service (to prevent customer dissatisfaction due to disappointment when the service is actually not yet fully available).
For the cloud (public, private or hybrid) service it was assumed that the capability can be delivered from day one. The agile elastic capacity of the private cloud infrastructure means the service receives the infrastructure capacity that it needs on demand.
The final key assumption was that they existed in a competitive market place and so there were other equivalent competitive services available to consumers. This means that if demand out strips supply and some consumers are unable to get the service when they want it a percentage will go to a competitive service and never return.
Armed with this model, Jessica could show her leadership team that with a traditional service delivery approach they were unable to deliver the service from day one, resulting in demand outstripping supply. This would have resulted in a loss of final market share of 10 points (down from 40% to 30%) and a loss of 3 year service revenues of around 25%.
By switching to a private cloud delivery model, that allowed supply to match demand from day one, they would not lose out on revenue to their competitors. Not only that, but she proved that a private cloud significantly reduced the TCO (total cost of ownership) of infrastructure delivery at ABC Banking Corp. and that while some competing public cloud solutions were comparable in price, they were not fully compliant with (sometimes unique) security and audit requirements of the business and external regulators.
The lines of business and marketing were now able to clearly see the value to the business of the new private cloud infrastructure service and quickly approved additional investment in current private cloud. They added private cloud services as well as directed a multiple new projects to target Jessica’s private cloud platform.
What can we learn from this story?
Providing on-demand infrastructure absolutely increases the agility of the business, and that agility has far reaching benefits throughout the organization, particularly for the bottom line. A well-researched business case has proven to be the linchpin of success for many of the transformation initiatives, making it easy for the business to see the massive return on investment they will realize through shifting to a private cloud delivery model.
Like Jessica, many IT leaders have limited or no direct experience of creating business cases that go beyond IT costs and into revenue, market share or margin impacts to the business itself If that’s the case for you, contact your VMware representative take advantage of the deep expertise of VMware Advisory Services.
Sean Harris is a Business Solutions Strategist in EMEA based out of the United Kingdom.