The Cost Benefits of the Cloud are More About Real Estate Than IT

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1 y The Cst Benefits f the Clud are Mre Abut Real Estate Than IT #$#%&'()*( An Osterman Research Executive Brief Published December 2010 "#$#%&'()*( Osterman Research, Inc. P.O. Bx 1058 Black Diamnd, Washingtn Tel: Fax:

2 The Cst Benefits f the Clud are Mre Abut Real Estate Than IT Why the Clud Really Is Mre f a Business Decisin than an IT Decisin While many cnsider wrking frm hme t be nly fr sle prprietrs r budding entrepreneurs, a grwing number f mid-sized and large rganizatins are allwing sme f their emplyees t wrk frm hme r therwise wrk remtely at least part f the time. Fr example: Frty percent f IBM s emplyees wrk frm either a client site r frm hme 1. Thusands f Being emplyees wrk frm hme as part f the cmpany s Virtual Office Prgram 2. Mst f the teachers at the 600-emplyee Pennsylvania Cyber Charter Schl wrk frm hme 3. In Massachusetts, rughly 200 Cmcast custmer service emplyees ut f the 4,000 emplyees in the state wrk frm hme 4. In 2008, 102,900 US Federal gvernment emplyees wrked remtely 5. THE ADVANTAGES OF TELEWORK Allwing emplyees t wrk frm hme r directly at a client site prvides a number f imprtant advantages t bth emplyees and their emplyers: Emplyees Cmmute times in urban areas are substantial, ranging frm 26.8 minutes each way in Dallas t 43.4 minutes in New Yrk 6. If we assume that an emplyee wrks frm hme nly tw days per week and has a 30-minute cmmute each way, wrking frm hme will save an emplyee abut 100 hurs each year. Further, emplyees wh wrk remtely tend t have higher mrale and experience greater jb satisfactin accrding t a meta-analysis f 46 different telecmmuting studies cnducted by the American Psychlgical Assciatin 7. Emplyers The advantages t emplyers f allwing at least sme f their emplyees t wrk frm hme are als significant. These include reduced real estate csts by allwing cmpanies t lease r purchase less ffice space; reduced prperty taxes; and reduced pwer csts fr lighting, cmputers, heating and air cnditining. Further, prductivity can be substantially higher when emplyees wrk frm hme. Fr example, if just 40% f the cmmute time in the example abve was devted t wrk, an emplyee with a fully burdened annual salary f $80,000 wuld generate mre than $1,500 in additinal prductivity each year fr his r her emplyer Osterman Research, Inc. 1

3 The Cst Benefits f the Clud are Mre Abut Real Estate Than IT THE DISADVANTAGES OF TELEWORK That said, there are tw fundamental prblems that rganizatins can experience when they allw emplyees t wrk frm hme: Allwing emplyees t wrk frm hme requires a different style f managing peple. Instead f evaluating emplyees based n hw much time they spend at their desk r hw well they schmze at the water cler, managers need t fcus much mre n a task-riented apprach t managing peple. Emplyees wh wrk frm hme need t be evaluated based n largely bjective criteria assciated with the quality and vlume f their wrk, and less by subjective factrs like the amunt f time they spend physically in an ffice r when they arrive each mrning. Frm an IT perspective, telewrk can be a nightmare if cmpanies rely n traditinal means f prviding , cllabratin tls and ther services. Fr example, instead f IT wrrying abut what cmes in r ges ut thrugh the crprate firewall, IT must nw deal with cntent passing thrugh hundreds r thusands f individual firewalls n individual s hme cmputers r thrugh emplyees persnal Internet cnnectins. They must deal with archiving and cmpliance fr data that is stred n pssibly thusands f hme cmputers, crprate laptps and smartphnes. They must manage anti-virus and anti-malware systems n hme cmputers and crprate laptps distributed ver hundreds f square miles r wrldwide. They must respnd t e-discvery requests by accessing cntent frm many mre surces than wuld be required if all f the emplyees, their cmputers and their data assets were in ne physical lcatin. And, they must d all f this with an IT budget that, in many cases, is smaller than it was tw years ag. In shrt, the prblems assciated with managing telewrkers cmplicates the IT management prblem dramatically, while at the same time making prblems f security, cmpliance and verall data management much wrse. THE CLOUD AS AN ENABLER FOR TELEWORK While many are tuting the advantages f the clud because f the ptentially greater cst savings that it can prvide relative t n-premise infrastructure (which is true in mst cases), we believe that the clud will ultimately find its true value in tw key areas: The clud recentralizes IT cntrl If we assume that an rganizatin prvides its emplyees with clud-based services fr , security, archiving, encryptin, file services, etc., this will make IT s jb easier in several ways cmpared t managing traditinal, n-premise systems: management will be easier because f the eliminatin f.pst files and ther individual repsitries scattered acrss bth the cmpany and individuals hme systems. Archiving f cntent will be dramatically simplified because all users cntent is lcated in a single data center and/r with a single prvider Osterman Research, Inc. 2

4 The Cst Benefits f the Clud are Mre Abut Real Estate Than IT Cntent filtering and security are much easier t manage because data is being prcessed thrugh a single firewall instead f hundreds r thusands f them. Other tasks and prcesses, such as e-discvery, encryptin and backups are easier and mre efficient because all crprate data is centralized. With respect t e-discvery cnsideratins, there have been a number f cases in which emplyees hme cmputers have been included in a discvery rder the clud eliminates r significantly reduces the likelihd f that ccurring..but the greater cst benefit is reductin in real estate csts As imprtant as the cst benefits f recentralized IT are, the clud will prvide an even greater return-n-investment thrugh its enabling a reductin in real estate and related csts. Fr example, cnsider the fllwing, fairly cnservative, example in which clud-based and ther services are deplyed in a 500-persn cmpany, enabling emplyees t wrk frm hme and be fully prductive: Emplyees average ne day per week wrking at hme. Real estate csts are $20 per square ft per year. An ffice requires an average f 150 square feet per emplyee fr their wrk and cmmn areas. Based n these assumptins, a 500-persn rganizatin wuld save $300,000 per year n real estate csts alne: (500 emplyees x 20% wrking frm hme x $20/year x 150 square feet/emplyee) That means that clud infrastructure will save this rganizatin an average f $600 per emplyee per year, r $50 per emplyee per mnth, simply as a result f reduced real estate csts. Pwer savings, reduced taxes and ther savings will make the return even mre substantial. This means that even if clud-based services were mre expensive than n-premise systems (which is typically nt the case), an rganizatin that deplyed clud services wuld still end up realizing significant hard cst savings. Summary Clud services can clearly make IT mre efficient by allwing the recentralizatin f IT services in distributed wrk envirnments, and can make cmpliance, e-discvery and ther prcesses much mre efficient. Hwever, while clud-based and ther services are ften (but nt always) less expensive than n-premise infrastructure, the primary benefit that rganizatins will realize frm use f the clud is as an enabler fr emplyees wrking frm hme sme r all f the time. Telewrk that is enabled by clud services, while requiring a different management style and crprate culture than exists in many rganizatins tday, can dramatically reduce an rganizatin s verall cst f ding business Osterman Research, Inc. 3

5 The Cst Benefits f the Clud are Mre Abut Real Estate Than IT 2010 Osterman Research, Inc. All rights reserved. N part f this dcument may be reprduced in any frm by any means, nr may it be distributed withut the permissin f Osterman Research, Inc., nr may it be resld r distributed by any entity ther than Osterman Research, Inc., withut prir written authrizatin f Osterman Research, Inc. Osterman Research, Inc. des nt prvide legal advice. Nthing in this dcument cnstitutes legal advice, nr shall this dcument r any sftware prduct r ther ffering referenced herein serve as a substitute fr the reader s cmpliance with any laws (including but nt limited t any act, statue, regulatin, rule, directive, administrative rder, executive rder, etc. (cllectively, Laws )) referenced in this dcument. If necessary, the reader shuld cnsult with cmpetent legal cunsel regarding any Laws referenced herein. Osterman Research, Inc. makes n representatin r warranty regarding the cmpleteness r accuracy f the infrmatin cntained in this dcument. THIS DOCUMENT IS PROVIDED AS IS WITHOUT WARRANTY OF ANY KIND. ALL EXPRESS OR IMPLIED REPRESENTATIONS, CONDITIONS AND WARRANTIES, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, ARE DISCLAIMED, EXCEPT TO THE EXTENT THAT SUCH DISCLAIMERS ARE DETERMINED TO BE ILLEGAL Surce: Status f Telewrk in the Federal Gvernment, August Osterman Research, Inc. 4

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