Geopolitical events and financial instability have placed intense pressure on enterprises worldwide to reassess their investments, to the extent that many organizations are questioning the efficacy of their information technology spending, with a particular focus on cloud.
In Latin America, businesses are contending with the combination of high inflation and interest rates, exchange rate issues, supply chain challenges, geopolitical risk, and skills gaps.
In 2022, inflation was off the charts in key countries in the region with Argentina spiking to an astonishing 94.8%. Other Latin American countries dealt with less severe but still extraordinary rates including Brazil (9.2%); Chile (11.7%); Colombia (10.1%) and Mexico (8%).
Concerns are high that the confluence of negative factors will result in a slowdown in revenue growth. The United Nations regional commission projects that growth across all subregions within Latin America will decline in 2023.The commission estimates South America will see 0.6% expansion this year compared to 3.8% in 2022. Central America and Mexico are expected to grow 2% versus last year’s 3.5%. The commission predicts the Caribbean (minus Guyana) will record 3.5% growth, down from 5.8% in 2022.
Cloud spending could rise
With these factors under consideration, Latin American organizations are reassessing their IT strategies and carefully scrutinizing budgets. Not only are they looking to cut costs, but enterprises also want to improve overall efficiency and productivity. To this end, GlobalData found that 55% of organizations in Brazil have increased their cloud spend significantly in 2022 by six percent or more over the previous year.
The cloud, and making sure costs and capacity is managed effectively, are crucial elements of enterprise investments. Long identified as a key to helping organizations eliminate capital expenditures and reduce operating costs, cloud computing is front and centre in keeping corporate IT spending in line during a time of significant economic challenges.
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Unfortunately, many organizations built out their cloud estates in an ad hoc fashion with individual lines of business and discrete projects driving a hodge podge of cloud deployments across multiple cloud environments. The result was often an inefficient and costly spend.
Business value is key
More enterprises in the region are aiming to discover how business value and cloud financial management intersect so they can derive the maximum benefit through all phases of a deployment from migration through production.
One of the biggest misconceptions about cloud benefits is that its primary payoff comes from lower cost of ownership of cloud versus traditional on-premises environments. While lower IT infrastructure costs are certainly part of the cloud value equation, TCO improvement represents only a fraction of the value to the business.
Many of the most significant returns come from the increased flexibility a cloud environment provides. Organizations get faster access to the latest technology updates, helping drive better productivity, risk mitigation, faster time to market and sustainability.
Cloud financial management starts with planning
Effective cloud financial management actually starts in advance of an implementation with pre-migration planning. Addressing the question of how to manage cost and usage starts before workloads are migrated to the cloud. Customers use cloud financial management toolkits including a pricing calculator and migration evaluator to determine the best deployment option. Having really good governance is an essential element.
There are different challenges at different phases. During the early discover phase, IT decision makers need to ask the fundamental questions of how and where the cloud can help their organization. What is the value each provider brings to the table? What support does the cloud provider offer through migration, post deployment and ongoing evolutionary processes? During the evaluation stage, IT personnel should look at multiple options and ask what differentiates one cloud provider from another. How do different pricing plans work? And how can the team create a cost-aware deployment to deliver business value?
After the organization selects and starts to use a cloud solution, it needs to find ways to accelerate value and maintain cost efficiencies. The final step in this process is expand and renew. In this phase, IT identifies new opportunities and assesses its strategies in managing its vendors. Beyond managing its cloud service providers, this work across teams enhances collaboration across IT, business, and finance so they can align on purpose and expansion targets.
At all phases and stages, IT needs the tools to demonstrate why cloud is a most effective investment. And IT also needs to understand the equation must include both the cost of the investment but also the value delivered to the business.
A cloud value framework is needed that the entire organization can continuously apply to their own specific situation to identify where and how a payoff is being realized from the cloud investment. This framework would consider a range of benefits from business agility to accelerated time to market. It would also look at factors like staff productivity, operational resilience, sustainability, and total cost savings.
Solid financial management is essential
For cloud financial management to be really successful an element that needs to be in place is strong co-operation between and among IT, procurement, supply chain, operations and C-level management.
While cloud environments often entirely replace the data center, they cannot be run in the siloed fashion of a traditional facility. Instead, the cloud environment needs to be administered with cost and benefit always firmly defined. Enterprises also need to understand this is journey which is not linear in nature but a continuous cycle. How can the organization reduce unit costs? Successful cloud financial ownership is really about partnership across the organization. How should costs be allocated? Does the organization have clear visibility into costs? And how are they optimizing operations with respect to costs?
Cloud Financial Management best practices require clear ownership of individual elements and leadership sponsorship. The team needs to measure key performance indicators in order to quantify cloud business value and to have a consolidated planning across the entire IT estate.
Organizations should also have distributed model of governance, and require user accountability to achieve continuous improvement. What is key to a successful cloud implementation, is always keeping in mind that the value to the business needs to be part of every phase of the deployment. Particularly in times of great economic turbulence, the cloud is the technology answer to supporting efficient and effective business operations. Solid cloud financial management is essential to maximize returns and support an ongoing collaborative across teams.