How to calculate cloud adoption ROI?
This is the question that, when I hear it during a workshop, I am always torn about. A part of me wants to jump to the answer and show how to find a number, and another part of me screams "Danger! Danger!".
Alarms in my head go off because the question is rarely a request for information. I am deeply convinced that people in the room already tried to calculate the ROI, and if they could do it, they would not have needed me to look at their cloud adoption strategy. The person that asks that question knows exactly there is no easy answer for it. Despite having access to all the necessary data, the organisation could not find the answer, so how can a workshop facilitator know it? They can't. The question usually has a hidden intent - to discredit the entire initiative once and for good, with everything associated with it (including Wardley Mapping).
The good news is that once cloud critics identify themselves, there is a very nice trick to provide an accurate answer to their question, maintain their dignity and focus their attention on the right matters. People who are against the cloud usually have their reasons, and it is good to surface them before moving on. Here is how I do it:
ROI should not be at the center of the discussion.
First of all, it is necessary to recall the table of Evolution related characteristics (see Figure 1) and point out the row 'Focus on value'. Cloud is in the Commodity stage, so the focus is on being "an essential component of something more complex". In other words, it is a cost of running business, something that is a good move by default, unless proven otherwise.
ROI cannot be calculated upfront
Participants usually counter the cloud being merely a cost with a statement that if their business works currently well, they do not have to migrate to the cloud. I like this line as it is partially true and it tells a lot about the environment people are exposed to. I will get back to this later, because at this point it is important to highlight that cloud is not to give you immediate ROI - it is to increase your agility, shorten development cycles and enable you to faster capture more opportunities. The risk of missing uknown opportunities is actually what should drive the cloud adoption. Let me emphasise it - the opportunities may not be known at the moment of cloud adoption. In fact, I believe skills necessary to recognise them come with the cloud agility.
I hope I do not take this parallel to far, but this is how I see it: You would not have asked what the ROI on learning how to read is. You would rather point out all the things you will not be able to do if you cannot read. The same principle applies to the cloud and all components in the commodity phase.
There is one indicator that promises changes and future opportunities - and it is volatility. The bigger the company's exposure to volatility, the higher the number of expected changes and the higher should be pressure on introducing changes. Look at Figure 2 below - components A and B are expected to change. More, component A is very unlikely to exist as a single initiative, but it will be rather a part of a bigger experimentation programme.
Components C & D create perhaps biggest inertias to cloud adoption. They may be rarely changing, and at a given point in time, there may exist absolutely no value in manipulating the value chain. However, volatility is also related to time and can exist as a separate entity.
Solutions that are expected to last long time will have to change no matter what or they will become toxic liability. There is no pressure to migrate now, it may, however, appear at some point in the future. Again, the question is what will you miss if that happens?
Volatility showing as fluctuations of demand is perhaps the only situation when you can calculate how much cheaper will be cloud solution, but this is rather a notable exception than should never be taken as the ROI for the entire cloud.
What might not require migrating to the cloud?
Apps that are:
about to be decommissioned
And even so stable apps can live longer than expected or be a subject to policy/regulatory-induced changes. By allowing them to stay in the de facto unmaintained mode, you are taking advantage of the fact that future maintenance costs are not visible on company balance sheets ;-).
With this lengthy discussion process, participants usually get to the proper work involving Wardley Mapping their organisation, and they figure out where is the value for them in cloud adoption. And even if it turns out they do not see the value in embracing the cloud right now, they get something called 'Cloud Adoption Strategy'.
There are three takeaways for you
ROI for the cloud cannot be calculated. It's not about ROI, but about being able to capture future, often unknown opportunities.
You don't decide 'if'. You decide 'when' and 'what'. Migration to the cloud is inevitable. It should be already considered money spent. How your company can get biggest value out of it? Should you start it right now or maybe postpone it a couple of years?
he process of cloud adoption starts with understanding what you are trying to migrate and where the value is for you. And it is very unlikely it will be financial.
Happy Holidays, everyone!