Kaveh Khorram is the CEO of Usage.ai, which helps organizations reduce their AWS bill.
FinOps, a term coined at the Cloud Economic Summit in early 2019, is the new way enterprises are approaching financial management in the cloud age. With cloud services and infrastructure players constantly innovating and changing prices, the old way of treating IT spending as a sunk cost is no longer effective. Instead, enterprises must adopt a FinOps mindset, which views IT spending as an investment that needs to be constantly monitored and optimized.
As we enter what appears to be a recession period, enterprises that have adopted a FinOps mindset will likely be in a better position to weather the economic downturn. Although the National Bureau of Economic Research hasn’t yet declared a recession, there are many signs that one is on the horizon. The first quarter of the year yielded -1.5% GDP growth, the second quarter is expected to continue this trend, the yield curve inverted and most economists (paywall) are forecasting a recession.
In times of economic hardship, enterprises need to be more strategic than ever with their spending, delivery speed, value delivered and competitive advantage. All of these factors will be put under the microscope during a recession, and they’re all advantages that FinOps could provide, as expressed in a survey of 753 global cloud decision-makers.
Let’s take a closer look at the potential benefits and how FinOps can help enterprises achieve them to thrive in a recession.
The first and most obvious reason to consider FinOps is its ability to help enterprises save money, which is vital in an economic downturn. As cloud prices fluctuate and new services are constantly being introduced, it can be difficult to keep track of spending. As a result of billions of dollars in wasted cloud costs and ever-increasing prices, almost three-quarters of professionals moved applications out of public clouds in 2019.
Amid pandemic-driven cloud costs and global economic uncertainty, many enterprises are turning to FinOps for help optimizing their cloud spend. This makes sense, as in 2020, “27% of leaders mentioned a significant increase in cloud spend due to Covid-19.”
However, as businesses migrate to the cloud at an unprecedented rate, they’re also facing unprecedented challenges when it comes to managing costs. The biggest challenge? Lack of visibility into cloud spend.
Notably, the cloud storage provider Dropbox left the cloud in 2016, saving nearly $75 million. However, a complete exodus isn’t needed to achieve cloud savings. In fact, many enterprises are finding that by implementing FinOps techniques such as choosing a savings plan or buying and selling low-cost reserved instances (RIs), they can potentially save a significant amount of money without compromising on quality or service levels.
Faster Delivery Speed Of New Products And Services
FinOps can also help enterprises speed up the delivery of new products and services. In the traditional model, IT spending was viewed as a sunk cost, which meant that new product development was often put on hold while the organization recovered its investment.
Businesses that migrate to on-premise solutions to cut operational costs often find that their IT teams are unable to keep pace with the speed of innovation. As often mentioned, “on-premise implementations take longer due to the time needed to complete installations on servers and each individual computer/laptop.” This can lead to frustration among users who want the newest features as soon as possible.
However, under the FinOps mindset, enterprises treat IT spend as an ongoing investment and benefit from the speed of the cloud. This means that they can reinvest savings back into research and development, speeding up the delivery of new products and services. In fact, McKinsey findings reveal that 75% of the cloud’s predicted value comes from increasing innovation, coming out to $770 billion in value. Tapping into that value will be more important than ever in a recession.
Increase In Competitive Advantage
In addition to delivering more value to business units, FinOps can also help enterprises gain a competitive advantage, which is much needed in a world where most businesses fear “competitive displacement.”
In the FinOps model, IT is viewed as a differentiator that can give organizations a competitive edge. By optimizing their IT spend, enterprises are able to invest in cutting-edge technologies that give them a leg up on the competition.
As a Statista survey (paywall) highlights, around half of organizations see at least some competitive advantage from using cloud infrastructure and services. This is because the cloud can provide a number of benefits that are difficult for on-premise solutions to match. For example, the cloud can offer agility and scalability that are perfect for organizations that experience rapid growth or sudden increases in demand. The cloud also enables organizations to quickly experiment with new products and services without incurring the significant upfront costs associated with on-premise deployments.
The cloud also provides access to a wealth of data and computing resources that can be used to power cutting-edge artificial intelligence and machine learning applications. These applications can be used to gain insights into customer behavior, improve marketing campaigns and develop new product offerings.
The increased agility that comes with FinOps means that organizations can often better respond to market changes and opportunities. As a result, those who adopt a FinOps mindset are usually able to keep pace with the competition and even outpace them in certain areas.
If you’re not already practicing FinOps in your organization, today’s uncertain economy highlights that now is the time to consider starting. The potential benefits are too great to ignore, and the longer you wait, the more difficult it will be to catch up to your competition.