21 May 2024

Optimisation key to managing spiralling costs amid inflation

Banking & Finance
| The European |
Sameena Hassam, Chief Executive Officer, Capacitas

Carrying out cost cutting measures is naturally high-up on the agenda of most companies in the current climate. Within the technology sector in particular, reducing overheads is evidenced in the large wave of layoffs undertaken this year by Meta, Amazon, Apple, Google and Microsoft, citing economic uncertainty as the primary cause.

But reducing employee count may not be the panacea for every firm with a large or complex tech infrastructure, particularly for those without the same stock market profile as the tech titans from California and Seattle. In fact, despite the public statements made by these companies, a plausible alternative view has been proposed by Financial Times correspondent Rob Armstrong, who suggests that the layoffs could be driven by activist investors in order to push up stock prices.

There is no doubt that the technology companies reacted very quickly to the pandemic by increasing staffing levels. However, it’s possible to find deeper and more sustainable cost cutting measures by unlocking value within existing cloud infrastructure.

How can cloud optimisation drive business costs down?

Computer and storage cost tend to be vast and increase over time, in particular when services are thrown together quickly, or when hastily coded applications are launched to meet business critical demands. In business growth periods, the result, rather than the process is prioritised. Engineers may not have the time or resource to refactor their previous work, especially if the production version meets the minimum threshold of stability and functionality. Efficiency often comes in a poor third place during growth periods.

But inefficient applications incur additional costs that add up over time. Services pulled together to satisfy growth objectives may no longer serve their initial purpose over time and are unlikely to scale sustainably with usage.

Even making small changes and adjustments that impact the efficiency of applications in the cloud can yield substantial savings, and could provide a buffer against making redundancies in other parts of the business.

Companies need to adopt an approach to cloud costs that is elastic as the cloud itself. This means being prepared to flex the platform and understand how and where to do this as business priorities change.

The big wins in cloud optimisation

So why don’t more business leaders make the decision to cut fat from the cloud bill and seize the opportunity to secure more financial freedom? To begin with, fear plays a major factor. The biggest savings are to be found in application design, which some see as a black box that should never be opened. But there are frequently cases where rogue applications fire off thousands, sometimes millions, of surplus code executions consuming cloud resources. Embracing the application as a source of optimisation is a key part of the optimisation process.

Secondly, business leaders fear making changes to platforms, due to the risk of introducing instability. Of course, making changes within the production environment requires planning and adequate risk mitigation measures to be put in place, but the cloud is the ideal place to do this due to its inherent flexibility. Being able to instantaneously spin up new instances to trial code or configuration tweaks, then close them down just as quickly is one of the cloud’s most important benefits, and this ability should not be overlooked in the optimisation process.

Thirdly, there is a widespread misconception that cloud spending should rise in line with revenue. For example, as revenue grows 10%, then it’s simply not the case that infrastructure and application spending have to grow at the same rate. True cloud optimisation implies influencing the shape of the cost trajectory and decoupling cloud costs from revenue growth.

None of these obstacles are difficult to remedy, but once solved, they provide a mechanism for sustainable growth that prevents cloud costs from spiralling in the future. Another common misconception is the idea of using forward commits as a cloud optimisation lever in isolation, which companies are increasingly doing to combat inflation and rising costs. But this is a financial tactic to get the same compute for less money. True optimisation is about engineering and efficiency and delivers 4x more benefits. Without technical efficiency, forward commits are just a commitment to be more wasteful.

The optimisation mindset for delivering benefits

While business leaders in the pursuit of cost reducing measures may well be looking at payroll as a primary option for reducing OpEx, this will almost certainly impact the quality or quantity of products or services that the company offers. Consequently, it will have a negative impact on the end user or client base as product delivery schedules and customer-impacting improvements are delayed further into the future.

The C-suite can take an alternative approach to saving costs by reducing extraneous and inefficient services at the heart of the company’s cloud infrastructure. This smart way to reduce infrastructure costs and free up OpEx for delivering business value also has specific advantage. Namely, it improves the quality of technical services delivered by the business and can improve the performance for end-users and customers. But to achieve this, a cultural shift must be gained first, from fear to flexibility and from maintenance to experimentation.

Further information


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