Netsuite survey details
NetSuite asked 13 respondents with an annual revenue between $40 million and $2.5 billion to survey their industries and cloud portfolios.
By comparing their high-level IT spending metrics against standard industry benchmarks, NetSuite found that organizations which fully or largely migrated to the cloud saved an average of more than 20% in IT spending as a percentage of revenue. Savings measured on a per-user basis were 16%. These savings came not only from a reduction in data center spending, but also from lower IT personnel costs.
On average, cloud users spend 21% less on IT as a percentage of revenue and 16% less on IT on a per-user basis than other organizations in their sectors.
To better understand the savings, NetSuite compared the line-item mix of IT spending for cloud users against a mix of industry benchmarks including:
- Data center spending
- More efficient IT personnel
- Fewer customizations
How much was data center spending reduced for cloud users?
Cloud users showed a significant reduction in data center spending. The industry average shows 11.7% of the IT budget was allocated to data center spending, while cloud users only spend 7% of their IT budget on data center infrastructure.
Cloud providers can deliver these services less expensively because they pool computing resources for many customers and realize economies of scale that few organizations can attain on their own.
Do cloud users experience increases in efficiencies for IT personnel?
Cloud users also achieved significant savings in IT personnel expenses.
IT staff compensation was the largest line item in the IT budget at 42.3%, but cloud users only allocate 30.9% of their IT spending to personnel. These savings come primarily from reduction or elimination of data center staff and improved productivity of application personnel who can work with more productive application platforms.
SaaS also minimizes the burden of version upgrades; application personnel are more productive and able to focus on higher-value activities — for example, implementing new functionality and business process improvement.
Did cloud users need fewer customizations?
Cloud applications may lead to lower overall IT spending because organizations tend to customize cloud systems less often than they do traditional licensed software.
NetSuite found that for the median cloud respondent, custom software comprised 13% of the application portfolio, while the industry median for this metric is typically 20%.
Modern cloud applications generally provide capabilities for the customer or implementation partner to tailor the software to specific customer needs. In some cases, customers can build extensions or entire custom applications using the vendor’s platform-as-a-service (PaaS) capabilities.
These customizations or extensions generally carry forward with new versions of the system. They don’t drive the same level of support requirements as modifications to traditional on-premise software.
Why is it important to invest in cloud innovation?
Cloud users spend a greater percentage of their IT budgets on new initiatives and less on ongoing support of existing systems.
NetSuite found organizations across all industries currently spend about 80% of their IT budget on ongoing support leaving only about 20% for new initiatives. Cloud users, on the other hand, only allocate about 69% of their IT budget for ongoing support, leaving about 31% for deploying new systems and capabilities.
Not only do cloud users spend less on IT overall, but the amount they spend is more heavily weighted toward innovation.
The implications of this finding shouldn’t be underestimated. Few organizations can provide their IT department with a blank check. Yet, user demand for new systems and IT capabilities continues to increase. In addition, business leaders demand new systems, better analytics, mobile deployment and a host of capabilities to make the organization more competitive.
If IT budgets are limited, where can IT leaders find resources to satisfy these demands? The IT department can become more efficient in how they support existing systems with cloud computing.
Are there cloud benefits beyond cost savings?
There are significant cost savings when an organization moves to the cloud, but there are also strategic advantages.
We’ve outlined four of the strategic benefits of SaaS beyond the obvious reduction of IT infrastructure:
- Speed of implementation
- Scalability
- Ease of upgrades
- Agility and customization
Speed of implementation
SaaS eliminates all upfront activities for installing hardware and software, and allows customers to begin configuring and to focus on business process design immediately.
In addition, the vendor assumes all responsibility for applying required patches and fixes during the course of the implementation.
Scalability
Resource pooling and rapid elasticity are essential characteristics of cloud computing. These allow cloud applications to scale instantly to meet both short-term and long-term increases in transaction volume, storage requirements, and network bandwidth.
Few internal IT organizations can afford to maintain excess computing capacity to accommodate variability in demand, or as a contingency, for future needs. Cloud computing ensures that, from the standpoint of computing resources, the customer will never outgrow the system.
Ease of upgrades
With on-premise software, many problems arise from customers using different versions of operating systems, databases, and middleware. In some cases, customers have modified source code which can lead to further complications. When fixing bugs, vendors need to re-create and solve problems for each customer’s specific configuration.
The best-designed SaaS applications have only one version eliminating those problems. Many SaaS providers give customers access to new features without forcing them to go through periodic version upgrades. The minimization or elimination of version upgrades makes IT personnel more productive and allows them to focus on activities that have more value to the business.
The best SaaS providers push out new functionality to customers on a more frequent basis, allowing faster consumption, with little or no action required on the customer’s part.
