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Predicted to become the bulk of IT spend by 2016 [1], the speed with which cloud technologies are being embraced across the enterprise is nothing short of remarkable. Right around the world, those at the very top of leading organisations are increasingly coming to see the economic sense of the SaaS model. What’s even more remarkable is that it is the HR function at the forefront of this wave. 

For the more philosophical HR professional the reasons for this are varied. Industry stalwarts talk of the rise of Facebook as a game changer, demonstrating a general willingness to place personal data online. As the HCM software packages of leading on premise vendors began to age, the relative simplicity of HR processes has aided rapid software development. Both the major players and minnows alike have invested massively in their product suites, all with the shared aim of carving out their own slice of this seemingly ever expanding pie.

Against this context, it would be easy to assume that the business case for a cloud investment is clear cut. If we are to listen to the promise of vendors, this certainly seems the case. Hyperbolic claims of massive scale and significantly reduced total costs of ownership appear to offer a type of cloud panacea, justifying major investments in decommissioning legacy systems that irritate employees across the world, but continue to churn along. Yet can the business case for the move to cloud really be that compelling? What’s the likely return on investment and can the move be justified on the grounds of cost savings alone?

If we are to examine some of the subtleties behind developing a business case for a cloud investment, we realise that in pure accounting terms, the nature of the cloud model helps make the case an easier sell to the executive. With the data centre owned and managed by the provider, and no ongoing costs of maintenance or depreciating value for the customer, a cloud investment is more akin to an operational, rather than capital expenditure. Leasing a cloud service offers the chance to reduce capital investment by transforming the spend into an expense incurred on an ongoing basis. Whilst hybrid delivery models and the existence of private cloud infrastructures mean it is not quite as simple as ‘cap ex = on-premise’ vs ‘op ex = cloud’, the principles of a standard yearly billing arrangement based on a fixed contract period are a reality and a useful element of stability for forward planning.

Typically one of the most important factors in driving the business case for cloud HR investments is the FTE equivalent that can be saved by enabling the line manager population to more effectively manage people issues through intuitive user interfaces. The cost savings associated with future proofing systems by enabling continual upgrades (with little to no enterprise disruption), and the chance to remove maintenance costs of legacy systems make up the foundations upon which the business case for cloud frequently rests.

Yet surprisingly, when put through a rigorous analysis many cloud platforms will actually fail a return on investment business case based on pure cost savings alone. Transition costs and hidden on-going costs can often circumvent any near terms savings associated with making the switch. Unless an enterprise chooses to move its entire application footprint to the cloud, costs will still be incurred when interfacing to existing on premise solutions that are likely to be significant in larger organisations given the scope of their typical technology landscape.

Can it be then that what truly makes the case for cloud compelling is something far more intangible, and far harder to quantify on the spreadsheets of analysts than initially envisaged? The real case for investment in cloud surely lies in having faster access to data, a system that continually improves and extends, and a modern consumer like user interface that enables much higher levels of technology adoption. The improvements to productivity this can enable are so diverse as to make them virtually impossible to quantify, and with a value that many deem to be priceless.

Simon Schoon0017SIZED Simon Schoon
Simon is an Analyst in Deloitte’s HR Advisory practice with experience working across major cloud technology led transformation programmes.

 

 

[1] Gartner, ‘Gartner says cloud computing will become the bulk of new IT spend by 2016’, https://www.gartner.com/newsroom/id/2613015

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