Cloud in the Enterprise – Economics 6 – Intangible Costs

Project 2012: Day 118

I think it was Einstein that said:

“Not everything that counts can be counted, and not everything that can be counted, counts.”

or something to that effect. The point is this, when we look at the business case for adopting cloud computing principles to deliver IT to the enterprise, there are a number of intangibles that many people neglect.

We’ve already discussed some of the tangibles that are often neglected:

  • Costs of transformation onto the cloud
  • Moving off the cloud
  • The real cost of elasticity and “pay-as-you-go” etc.

Here’s another thought, from Rose Clements, HR Director for Microsoft Australia.

“When you think about assets, and most companies do at least say that their ‘people are their greatest asset,’ and salaries are often the greatest cost to the business. The CFO looks at financial assets which mostly depreciate, whereas the HR Director is accountable for people assets, that always appreciate. This is a whole different way of accounting, and more strategic for the organisation.”

You can see where I’m headed here.

Intangible costs include your staff. And not just your IT staff. For every x number of IT staff you employ, there’s a finance person responsible for enforcing expenses & managing payroll; there’s a recruiter; HR manager; People manager. I call this the "halo” effect.

All of these employees represent a “fully loaded” cost, with facilities and resources. Then there’s the investment in training this staff, and more importantly the opportunity cost of losing the return from this training.

Of course, all I’ve done here is quantified something that may not have been considered when determining your cloud strategy. But there is a qualitative aspect to this as well:

  • What is the risk to the business of repurposing or retrenching IT staff (and the consequent “halo effect” staff)?
  • What tacit knowledge about your systems, processes, customers, suppliers, and culture could you lose?
  • What is the impact to the daily morale and environment?

I know I’ve spoken much about the risk here, as if I’m a cloud naysayer (I’m not). There are other issues to consider for the enterprise too:

There are a number of reasons for an organisation to grow:

  • Brand presence
  • Access to capital
  • Negotiating leverage (reduction of cost)
  • Specialist resources (e.g. marketing, finance, HR etc.)

These are why growth has been deemed the success metric for companies over the past 100 or so years.

However, the shifts in IT, cloud, big data, social, mobile, effectively remove the barriers to any of the benefits above. No longer do you need growth to compete. You can create virtual brands, scale presence massively and get access to capital (e.g. Instagram $1b in 17 months), and through technology offshore pretty much everything. This gives you as good leverage, and access to specialist resources that were previously only the privy of the enterprise.

So, whilst there are intangible costs to adopting cloud computing, there are intangible risks to not adopting cloud computing too.

When planning your strategy, consider all of the people, processes, and systems that are affected. Again we come to the concept of Core systems (& people & processes) vs Context systems.

It’s probably important that you have staff who intimately understand a customer transaction end-to-end, and the interdependencies within the enterprise. Probably less important that you have staff that understand the workings of email end-to-end. Although you may want to retain knowledge about the organisational eco-system reflected in your messaging and collaboration systems.

As you can see, despite all the rhetoric to the contrary, adopting cloud computing in the enterprise is not as simple as “laying down your AMEX card.” It is something that should be considered strategically together with the rest of the business.

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