60% of all corporate data found its home in the cloud as of 2022, which marks a substantial increase from the 30% recorded in 2015. Statista’s data reflect a trend where organizations increasingly trust the cloud for storing their critical data. This trust stems from improvements in cloud technology, which now offers improved security, reliability, and accessibility compared to traditional on-premises solutions. Corporate leaders recognize that making use of cloud storage can lead to better data management and more strategic data utilization.

Organizations initially hesitated to adopt cloud solutions due to concerns over security risks, loss of control over data, challenges in integrating cloud with existing systems, and the scarcity of skilled professionals to manage cloud environments. Today, the scalability and utility of cloud environments dispel these fears. Companies appreciate the ability to scale their operations up or down quickly based on business needs without significant upfront investments. The operational flexibility offered by cloud services, coupled with comprehensive security measures, makes the cloud a compelling choice for dynamic business operations.

As the volume of data that organizations generate and need to process continues to grow, so too does the need for robust cloud architectures. These architectures must expand consistently to accommodate the surge in data, requiring ongoing investment and strategic planning. Leaders face the challenge of ensuring that their cloud infrastructures can scale effectively without leading to wasteful expenditure. Proactive planning and continuous optimization of cloud resources are essential to meet this need while controlling costs.

Benefits of cloud migration

  • Lower infrastructure, hardware, and labor costs: 

Migrating to the cloud reduces the need for physical infrastructure, lowers hardware investment, and decreases the labor costs associated with maintaining on-premises data centers. Organizations benefit from the cloud providers’ economies of scale, which reduce the per-unit cost of storage and processing power.

  • Scalability for business growth or downsizing: 

Cloud services offer the ability to scale resources up or down based on demand. This flexibility means that organizations pay only for what they use and can adjust their resources quickly in response to market conditions or operational needs.

  • Greater efficiencies for remote workforces and consumers: 

The cloud supports high availability and reliable performance across geographic locations, making it ideal for remote workforces. Consumers also benefit from better service availability and faster application performance, which enhance their overall experience.

“60% of all corporate data found its home in the cloud as of 2022, which marks a substantial increase from the 30% recorded in 2015.”

  • 10-50x cost savings from reduced energy usage: 

Data centers are energy-intensive, but cloud providers optimize their data centers for energy efficiency much more effectively than most individual organizations can. This optimization leads to significant reductions in energy costs — anywhere from 10 to 50 times — which translates into lower operating costs and supports corporate sustainability goals.

  • Fewer maintenance costs: 

Cloud providers take responsibility for maintaining the cloud infrastructure, including regular updates and patch management. This transfer of maintenance responsibilities reduces the costs for clients and frees up their IT staff to focus on more strategic tasks.

  • Less downtime with updates, maintenance, or malfunctioning hardware: 

Cloud services improve operational reliability. Downtime due to maintenance, updates, or hardware malfunctions decreases significantly. Cloud providers typically offer service level agreements that guarantee high uptime percentages, further minimizing operational disruptions.

  • Access to innovative technologies

Adopting cloud solutions provides easier access to AI, machine learning (ML), and automation technologies. These technologies require substantial computational power and data storage capacity, which cloud environments readily provide. Organizations use cloud-based AI and ML to process large datasets, gain insights, automate routine tasks, and develop new services and products. The cloud’s scalability supports experimenting with and deploying these technologies without the upfront capital investment that on-premises solutions would necessitate.

Costs of cloud environment

Research from McKinsey indicates that the average company now allocates 80% of its IT-hosting budget to cloud environments. Such a high percentage reflects the strategic priority that businesses place on cloud computing. Executives understand that investing in the cloud is not just a trend but a necessary evolution to stay competitive and responsive to market demands. Despite the high spend, the return on investment often justifies the expense due to the cloud’s contribution to operational efficiency, scalability, and innovation.

Managing the costs associated with the constant expansion of cloud environments presents a major challenge. Many Chief Information Officers (CIOs) find their budgets strained as they try to keep pace with the growing needs for cloud services. With cloud allocations increasing to support operational demands, budgets often fall into the red, reflecting a misalignment between cloud spending and budgeting practices. Companies must adopt a more strategic approach to cloud investment, focusing on cost optimization and ensuring that every dollar spent on the cloud delivers maximum value to the organization.

In these strategic discussions, executives must remember that managing cloud costs requires a balance between investment and value realization. Adopting strategic approaches like hybrid cloud models, investing in cloud management tools, and prioritizing efficient data management can transform a strained budget into a strategic asset that supports sustained business growth.

Turning cloud budgets into assets

Avoiding cloud migration is counterintuitive from a cost perspective because leaders who hesitate miss out on up to $1 trillion in business value. This substantial figure comes from comprehensive improvements across various operational dimensions that cloud computing facilitates. Organizations that move their data and applications to the cloud typically experience not just cost savings but also significant gains in agility and market responsiveness. Such migration supports business scaling with minimal disruption and paves the way for tapping into advanced analytics and customer insights that are crucial for strategic decision-making.

“Research from McKinsey indicates that the average company now allocates 80% of its IT-hosting budget to cloud environments.”

Strategies to control and scale cloud spending

Organizations no longer need to choose an “all or nothing” approach when it comes to cloud computing. A combination of public and private clouds offers a more balanced, strategic approach that can lead to substantial cost reductions. In a multi-cloud strategy, businesses use services from multiple cloud providers, which prevents vendor lock-in — a situation where a customer becomes overly dependent on a single cloud provider’s technologies and services, which can lead to increased costs and reduced flexibility.

A multi-cloud approach provides significant negotiation leverage with cloud service providers, as businesses are not tied to one vendor and can choose the best services at the most competitive prices. This strategy also supports a more resilient system by diversifying the risk of downtime and data loss, as data and applications are spread across various cloud environments.

In a hybrid cloud approach, sensitive data remains on-premises in a private cloud setup, where it benefits from the organization’s direct control and established security measures. Less critical data and applications can move to the public cloud, where they benefit from cost efficiencies and scalability. This method allows organizations to protect their most sensitive information while still enjoying the cloud’s flexibility and cost benefits for other parts of their operations.

Organizations no longer need to choose an “all or nothing” approach when it comes to cloud computing. 

Prioritize data hygiene

Data hygiene plays a massive role in managing and scaling cloud spending effectively. Before migrating to the cloud, leaders need to focus on cleansing and organizing their systems by eliminating redundant, obsolete, or trivial (ROT) data. This step is needed as every terabyte of data that is stored and managed in the cloud incurs costs.

Studies show that 33% of all organizational data is ROT, and an additional 52% of data is “dark” or otherwise unknown in its value. This data incurs unnecessary storage costs and complicates data management and analysis, leading to inefficiencies. By purging ROT data and shedding light on dark data before migration, organizations can significantly reduce the volume of data they transfer to and store in the cloud, thereby lowering costs.

Maintaining data hygiene is an ongoing task that requires regular reviews and updates to data management practices to ensure that only useful, necessary data consumes valuable and costly cloud storage space.

Invest in a cloud management partner or tool

Working with cloud management partners or utilizing cloud management tools can lead to more optimized cloud usage and reduced spending. Managed Service Providers (MSPs) specialize in assessing an organization’s cloud environment to identify inefficiencies and areas where costs can be cut without compromising service quality.

These partners or tools help in automating the scaling process so that businesses pay only for the cloud resources they need and use. For example, if a cloud management tool detects that certain resources are consistently under-used based on usage patterns, it can recommend downsizing those resources or automating scaling to adjust quickly to actual needs.

Regular reviews and optimizations help right-size the cloud environment, which can prevent overspending on unused or underutilized resources and improve operational efficiency.

Security and compliance costs

Costs associated with cloud computing can rise due to the need to contract with stringent cloud partners or to adopt multi-cloud strategies as part of a 3-2-1 backup data strategy. As organizations store more data in the cloud, security and compliance with regulations becomes more challenging and critical. Adopting a multi-cloud approach allows organizations to diversify their risk and improve their data resilience by not relying on a single provider. Yet, managing multiple cloud services increases complexity and can raise costs related to integration, security configuration, and compliance auditing. Companies often invest in additional security measures to protect their data across different environments, further increasing their cloud expenditure.

Adopt AI, ML, and/or automation

Artificial Intelligence (AI) and Machine Learning (ML) are changing how organizations interact with their cloud environments. When analyzing cloud usage patterns and other operational data, AI and ML algorithms can make precise adjustments to resource allocation, leading to optimal performance without waste.

For instance, these algorithms can predict usage spikes based on historical data and automatically adjust the infrastructure to handle the increase, thereby avoiding service disruptions. Similarly, AI and ML can identify patterns that suggest potential savings by reducing resources during periods of low demand.

Automation extends these benefits by taking over routine tasks such as backup creation, software updates, and maintenance activities. These processes often require significant manual effort and oversight, but when automated, they reduce the need for constant human intervention, allowing staff to focus on more strategic activities. Automation reduces labor costs while  minimizing the risk of human error and increasing the overall security and reliability of cloud operations.

“Global data storage is set to reach 180 zettabytes by 2025”

Why revisiting cloud budgets is invaluable

Increase in digital interactions

Post-pandemic, organizations have made heavy investments in cloud infrastructure due to increased remote work and online shopping. Data indicates that 65% of IT leaders report their annual cloud budget increased due to COVID-19. This uptick in cloud spending is a direct response to the need for scalable digital platforms that can support the surge in online activities. As businesses adapt to more digital and remote workflows, the demand for cloud services continues to grow, reflecting the need to support a distributed workforce and a global customer base effectively.

Data generation and storage

Global data storage is set to reach 180 zettabytes by 2025, a figure that is more than double the amount of data stored in 2020. This exponential growth in data demands comprehensive cloud storage solutions that can scale accordingly. As organizations collect and analyze more data to drive business decisions, the capacity and capabilities of cloud storage need to keep pace. The increase in data not only drives the need for more storage but also for more computational power to process and analyze this data, leading to higher cloud costs.

In navigating these challenges, executives need to strategize carefully to maintain the balance between leveraging cloud benefits and managing rising costs. Adopting a disciplined approach to cloud investment, focusing on data management, and using cloud cost optimization strategies can help align cloud expenditures with business objectives.

Key takeaways for making cloud strategies and budgets compatible

Leaders who adopt a hybrid or multi-cloud approach, invest in cloud management tools or MSPs, and use automation technologies will significantly reduce their cloud costs. These strategies let organizations maintain the flexibility and scalability benefits of cloud computing while keeping spending under control.

Focusing on efficient data practices — such as maintaining data hygiene — further supports cost reduction efforts. By making sure that only necessary and useful data is stored and managed in the cloud, leaders can optimize their cloud expenditures and avoid wasteful spending on data that doesn’t drive business value.

With the correct strategic approach, the relationship between a company’s cloud strategy and its budget management practices does not have to be contentious. Instead, these two aspects can integrate in the most simple way possible. This integration creates a smooth, efficient operation that supports business growth and innovation without causing financial strain.

Through careful planning, regular optimization, and the strategic use of technology, leaders can turn their cloud budget from a potential liability into a powerful asset that supports sustained organizational success.

Alexander Procter

May 15, 2024

11 Min