This is part 2 in our series on calculating the ROI of a cloud migration.
In our previous post we shared insights on how to build the business case for a cloud migration project that will get the green light from executive management.
We talked about identifying the hidden costs of on-prem as well as the intangible value of cloud to more fully express the ROI.
This time we’d like to share how you can quantify some of the non-monetary, strategic benefits of various cloud features. These may not seem to be easy to quantify at first glance. But in fact, you will find that with a little ingenuity and a lot of domain expertise you can quantify almost any benefit from the cloud. And this must be done if you are to communicate most effectively the full strategic value of the cloud migration.
Let’s take a look.
Calculating the value of elasticity
Last time we talked about how cloud-based elasticity enables service providers to handle unexpected peaks in demand, such as on Mother’s Day.
So, how can the benefit of elasticity be calculated? There are several ways to approach this. Here are just two. The first is to estimate the value of the revenues that you could generate during peak events to represent the potential business you are losing by not being on cloud.
The second is to estimate the cost of procuring the extra resources needed to handle peaks, as well as the cost of supporting them all year long, even if they are not being utilized during most of the year. These additional expenses represent the cost you would incur if you want to benefit from peak day(s). The calculation can become even more involved as there are several peak days over the year, but – regardless – the basic principle is the same.
Calculating the value of time to market
A similar case can be made with time to market.
Here, you can first estimate the direct cost of losing business to the competition, which is the result of consistently arriving late to market and always playing catch-up with competitors’ offerings rather than innovating and leading yourself.
You can also add to that a number that quantifies the long-term impact on brand value and the correlating market share loss that would result from being much less agile and competitive than players who are in the cloud, and therefore much faster.
Calculating the value of customer engagement
Let’s dig a little deeper here. Ours is the Netflix and Amazon generation. This is not a generation that is demarcated by year of birth. Rather, it is one that is characterized by very high expectations for immediate, effective, and supremely convenient service.
If service providers cannot meet these expectations they will become irrelevant, and their frustrated and disappointed customers will go elsewhere, with 92% of consumers reporting that they will leave a service provider after just three poor experiences with a brand.
And in the industry of media and communications services, customers do go to the competition at very high rates. In fact, the churn rate can be as much as 32% per year, with the cost of acquiring a new customer coming in as much as 50 times higher than that of retaining an existing one.
So, how can the cloud help you stay as close to the low end of the churn spectrum as possible? How can service providers avoid the high cost of acquiring new customers? An engaging, value-driven, timely, and consistent customer experience is a big part of that.
This requires enabling customers to reach the service provider, anywhere, anytime, and on any device. Whereas, to lose these same customers, all they need to do is to make them wait too long, or not be available on the right device or channel at the right moment.
Being available anytime, anywhere leads to increased customer engagement which leads to increased loyalty and NPS, as well as to reduced churn.
And even more than that, it also increases the usage of additional services including media content and commerce, among others.
Quantifying the customer engagement benefit
Let’s see now how you can quantify this cloud value. Namely, if by moving to cloud you can improve customer engagement and the customer experience, this can help reduce churn by X%, where the X depends on your baseline assessment and well-researched deductive reasoning.
Then you can calculate the monetary value of the churn reduction. The resulting number is the loss that would be incurred with the on-prem model, but which can be avoided with the cloud model.
Similarly, if the cloud can help increase consumption of content and services, then plug the added revenues into your calculation.
Calculating the value of a remote workforce
As a result of the pandemic, millions have been mobilized overnight to set up shop from home.
Telecommunications organizations that were already advanced in their cloud programs e.g. those that had in place a cloud-based data center and contact centers, were far less impacted by the pandemic, as they could rapidly pivot to operate from a predominantly remote model.
Those telecoms that were still predominantly on-premise, paid a much higher price, and likely suffered an increase in churn.
Quantifying remote workforce enablement
So, when it comes to the migration ROI, we can incorporate the quantitative implications of this phenomenon from two angles. On the one hand, the cloud-enabled remote work model can drive significant savings, such as a reduction in real estate overheads, vehicle and travel costs.
More importantly, enabling the remote workforce is not just a matter of savings. It’s about survival.
Without a work-from-home model, companies could very well shut down. Many already have. In the US alone, more than 170 companies declared bankruptcy this year following their inability to adapt to the new demands of a remote Covid-19 reality, including several media and communications service providers.
To summarize, we have looked at a few important examples of intangible benefits of the cloud and how they can be quantified. With a deep understanding of the industry and its challenges and a thorough analysis of your own business and operations, you will be able to find many more such intangibles and calculate their value.
So, what’s next for our cloud migration ROI? In our next post we’ll be putting it all together and discussing how to build a value-driven cloud migration ROI presentation. So, stay tuned!
In the meantime, we invite you to learn more in our whitepaper, "Evaluating the ROI of Cloud Migration".