As rising energy prices and interest rates now work their way through the supply side of the economy, consumer demand is beginning to fall as prices go up. Consequently, in January Meta, Amazon, Apple, Google and Microsoft all announced large numbers of redundancies citing economic uncertainty. But, there is a sense of inconsistency in the message. For example, just days after Microsoft announced 10,000 layoffs, it was reported that the company was also investing $10 billion into OpenAI, the firm behind ChatGPT.
There is no denying the economic pressures that organisations are trying to solve, but for most companies there could be more practical solutions to taking unnecessary cost out of the business. This is particularly the case for companies that underwent rapid digital transformation paths during the pandemic. Flexibility of the cloud is perhaps being underutilised by some of the biggest adopters and advocates of the technology, and through better use, organisations could find efficiencies that relieve pressure to make cuts.
The tech-layoffs were a hangover from the pandemic
There have been many reasons proposed that explain the wide-scale tech layoffs recently seen, some of them contradictory. Most obviously, the firms misjudged demand during the pandemic and overstaffed as a result. With a limited talent pool, as some companies began aggressively looking for new hires, other companies began to hire defensively, and the market turned into a sort of feeding frenzy. An alternative view is proposed by Financial Times correspondent Rob Armstrong, who suggests that the layoffs could be driven by the volatility in the stock market and are driven by activist investors within these big tech firms.
But for most firms in the technology industry, or which rely heavily on technology, slashing the workforce to drive costs down is not a rational option. Luckily there are other ways to drive down costs, that are easy enough to implement.
What has cloud optimisation got to do with saving money?
Anticipating future demand and sizing an organisation accordingly – especially when there are external factors to consider, is an incredibly complex task. However, whilst salaries make up a significant proposition of costs, compute costs can also be vast and tend to increase over time, especially as companies go through a rapid growth period. When growth occurs quickly, services can be thrown together with hastily coded applications running on infrastructure that makes poor use of the resources, ultimately adding additional and unnecessary costs to a company’s overheads. Ad hoc services created or updated in this manner may serve little purpose to justify their cost, and, even worse, they are unlikely to scale optimally. Even small changes to the efficiency of those resources can provide some buffer against needing to make substantial layoffs when there is a squeeze on the bottom line.
A healthy, efficient cloud environment should cost less to manage, maintain and scale than an inefficient sub-optimal cloud. This is true both in terms of the cost of the hardware but also the time (and therefore people) required to manage it.
Organisations often think they are powerless to manipulate the productivity of their cloud platform – but it’s absolutely possible to drive those assets harder. The cloud is designed to be flexible, and it’s one of the many reasons it’s been such a game changer to businesses as a whole. Optimising an existing cloud service is also an obvious way of dealing with uncertain market conditions. For example, when companies plan ahead, they can smoothen demand for staff through better automation of processes.
In order to deploy cloud optimisation as an approach to reduce costs, organisations need to be developing a mindset of cloud elasticity. This means being prepared to flex your platform, and understanding exactly how to do it as the business priorities change. There are multiple reasons why organisations struggle with this, chief among them being a lack of in-house skills.
Face your fears to fund your future
So why aren’t we seeing more organisations seize the cloud as tool for financial security? In my experience, the root cause is fear and misunderstanding. The biggest savings in cloud optimisation are driven by application design, which many organisations see as a black box. However, in some of our most successful engagements, the code is exactly where the problems were. A great example was a software company where we discovered that an authentication call was executed as part of every transaction, adding up to millions of unnecessary code executions, each consuming cloud resources. Embracing the application as a source of optimisation is a necessary step of the journey.
Secondly, organisations are fearful of making changes to platforms, due to the risk of introducing instability Of course, making changes to a production platform is a risk and that must be mitigated, but fortunately the cloud is designed to be flexible. We are no longer shackled to our data centres and we can spin up environments almost instantaneously to try out code or configuration tweaks. This is a fantastic technological advancement and we need take advantage of it.
Finally, cloud optimisation is overlooked due to the misconception that as revenue grows, cloud cost has to grow at the same rate. It is just accepted as the status quo. However, true cost optimisation occurs when you influence the shape of the cost trajectory, breaking down the link between cost and revenue and achieving economies of scale.
These are not complex obstacles to solve, and once solved properly, enterprises unlock an engine that can protect against future cost pressure. Another common misconception is the use of forward commits in isolation. We are seeing these being increasingly used as a mitigation against inflation and rising costs. This is because cost optimisation is often seen as a purely financial tactic – getting the same compute for less money. However, true optimisation, which is up to four times more effective, is about engineering and efficiency. Without technical efficiency, forward commits are just a commitment to be more wasteful.
Optimising the cloud is easy, but it does require the right mindset
Cloud optimisation doesn’t need to be difficult, especially since there has been such a trend recently in observability and monitoring tools. It is ultimately a data driven activity, and most organisations are already collecting this data. In our experience, true, consistent optimisation is a cultural issue. Organisations have to have a mindset of creativity, where they appreciate that making small changes and measuring the result leads to the delivery of foundational savings.
Companies typically fall in a spectrum in terms of how they manage their optimisation. Companies at the higher end of the spectrum put in place a culture of efficiency, which means that all technology changes are assessed against efficiency metrics, and this is used to flex the platform in relation to the business demand drivers.
Particularly for companies that jumped into the cloud headfirst, taking the time to optimise existing processes is a remarkable way to reduce infrastructure costs and free up OPEX for delivering business value. In this way, cloud optimisation holds the keys to not only unlocking capital, but also using the workforce in ways that directly drive business goals.
Sameena Hassam is the Chief Executive Officer atCapacitas