With business models changing and competitive pressures increasing, financial market infrastructures (FMIs) are re-evaluating their business strategies and contemplating the role cloud will play when considering cloud technology’s ability to catalyze innovation, transform business models, and support strategic optionality. A new strategy requires a new approach to cloud adoption, but FMIs may be succumbing to status quo bias, which can hinder their growth trajectory.
Celent research found that C-suite and board-level support is needed to adopt a cloud operating model. Our primary research shows that in comparing on-premises and cloud costs, the traditional total cost of ownership (TCO) formula can sometimes fail to adequately address the unique needs of an FMI. A new FMI-specific TCO framework is needed to account for intangible costs and better capture opportunity costs.
Calculating and comparing the TCO of existing infrastructure to the cloud equivalent is a common approach taken by companies looking to build a business plan to garner executive support. However, FMIs are different than most companies; their technology estate includes a vast array of often highly specialized equipment well-tuned for specific business use cases. Sunk costs, regulatory oversight, risk, and security pressures are high. As such, for some FMI mission-critical workloads, the standard TCO equation may show little to no cost savings from moving to cloud.
More importantly, Celent’s research has found that the standard TCO equation does not adequately account for opportunity costs. Celent believes they must consider the impact of these costs on their ability to execute their strategy.
Celent proposes an augmented TCO formula and framework when considering cloud adoption, one that considers opportunity costs as part of the calculation. A new multiplier, “StrategicFriction,” represents the impact technology can have on business plan execution. The framework is designed to collect input from business owners which is then used to calculate this new multiplier, either increasing or decreasing TCO, and introduces a framwork to calcualte a new variable to the TCO equation: Strategic Friction.
