Realizing Real Returns from On-Demand Service Investment in Latin America

Amy Larsen DeCarlo – Principal Analyst, Security and Data Center Services

As the global economy faces serious headwinds from a challenging geopolitical climate, enterprises are turning to technology as a tool to help navigate rocky competitive terrain. This is particularly true in regions like Latin America where economic instability has long been a problem. Serious economic challenges came into sharp relief in the region when nominal GDP declined 16.3% in 2020 from $5.2 trillion to $4.5 trillion.

As lockdowns eased and trading improved, the Latin American economy bounced back by 13.8%. However, ongoing global economic issues are likely to put the brakes on expansion. GlobalData forecasts growth in the region will slow to 2.2% this year in terms of real GDP. The Organization for Economic Cooperation and Development’s (OECD) July 2022 report forecasts Mexico’s economy will expand by 1.9% in 2022 and 2.2% in 2023.

In this environment, technology plays a critical role in enterprise success. Enterprises look to information technology (IT) to reduce cost and complexity, improve efficiency, and increase productivity. Cloud has become a foundational element of digital transformations that produce more efficient and productive operating environments. An effectively run IT estate can also help public and private sector organizations eliminate risk associated with legacy systems and manual operations and accelerate innovation.

To this end, organizations are increasing their technology spend. GlobalData’s 2022 research on information and communication technology (ICT) investment reveals that 80% of respondents surveyed in Latin America are expanding their IT budgets in 2022.

Within this macroeconomic scenario, deciding where to invest and allocate the IT budget has become crucial to businesses across the region. Cloud is becoming a foundational and strategic element to support a range of operations and technologies in Latin America. In 2021, the cloud computing market reached $5.8 billion – a 25% increase over 2020. GlobalData forecasts that the cloud computing market in Latin America will hit the $11 billion mark by 2025, a compound annual growth rate (CAGR) of 16.6%.

An Engine for Growth

In the earliest days of cloud, providers marketed the Infrastructure-as-a-Service (IaaS) model as a means of alleviating upfront capital investments and cutting operational expenses (OpEx). As cloud deployments became a mainstream method for consuming IT services, it became more apparent that cost savings wasn’t the biggest benefit. Organizations realized some of the largest dividends from cloud had more to do with increased agility and efficiency than savings.

The cloud can be a cornerstone for better and faster innovation; expedited time to market with new products and services and elevated customer service. Enterprises tap into on-demand compute and storage to support a range of functions and processes. The cloud is also a key resource for running advanced technologies including analytics and artificial intelligence.

In many cases, organizational cloud adoption took place on an ad hoc basis with individual lines of business (LoB) subscribing to an on-demand compute or storage service for discrete purposes such as test and dev or cyclical or temporary processing requirements. As cloud adoption has grown more pervasive, it has become apparent in many cases that deployments were not as efficient as they could be. This, combined with macroeconomic stresses, are pushing more organizations to implement enterprise-wide plans to assess and optimize their cloud deployments. It is also relevant to organizations in regions like Latin America where many enterprises are in earlier phases of migrating to the cloud.

The thing that makes the cloud so appealing – its support of variable consumption – requires continual evaluation of costs and resources. Financial cloud management, an emerging discipline for effective cost control and operations optimization spearheaded by the FinOps Foundation, offers a framework and best practices for organizations.

A successful FinOps effort requires a combination of human and technology resources.  From a cultural perspective, effective cloud financial management demands collaboration across operations, development, and financial teams. Several factors come into play including cost transparency. Organizations need to map the need for resources with the most cost-effective solution(s). Enterprises need to continuously assess utilization and cost options. This becomes even more evident in periods of political and economic headwinds – according to a survey with enterprises in Latin America, “revenue increase” is the number one business challenge influencing their enterprise’s IT investment strategy.

Optimization, by taking out gratuitous costs associated with overprovisioning and underutilization, is core to financial cloud management, and especially important in turbulent economic times. Automatically signaling users when they violate a procurement policy, or other processes including tracking utilization and cloud provider rate cards are also important to keeping costs in line.  In the end, FinOps is as much about cultural accountability as it is about shared cost responsibility across the enterprise.

FinOps resonates so well with organizations because there is an increasing awareness that an inefficient cloud implementation can be costly not just in terms of expenses but also in terms of operational performance. As organizations begin implementing enterprise-wide cloud strategies, they often found individual LoBs were already using on-demand compute and storage services to support shadow IT. This exposed cost and utilization inefficiencies.

The shift from traditional capital spending to an OpEx model requires an entirely different mindset with respect to cost management and reporting. Development and operations teams must work across their respective aisles to better understand solution choices, discounting, and utilization forecasting. Cloud providers also offer tools to help achieve optimal cloud cost management.

At its essence, an optimally run cloud environment requires consistent and continual measurement and accountability. Cost optimization needs to be a prime objective of every procurement decision. Planning and utilization projections need to happen on an ongoing basis. Effective financial management starts with policies that map to organization objectives.

A well-executed cloud strategy will not only help organizations keep costs in line but also streamline operations. Best practices centered on extracting the most value from the cloud by using it to drive business agility will introduce the kind of valuable self-disruption that will accelerate innovation. This will unlock new growth opportunities and intensify revenue velocity.

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