How Is Outsourced Infrastructure Impacting Cloud Spend?

Efficient IT infrastructure management is the cornerstone of business success. Outsourcing an IT infrastructure is a powerful strategy to achieve your efficiency goals. Partnering with third-party providers to handle tasks like data center operations, cloud infrastructure and cybersecurity allows companies to focus on their core objectives while optimizing costs and performance.

As IT infrastructure outsourcing grows in popularity, it is reshaping how businesses approach cloud spending, highlighting the need for detailed analysis and strategic planning to maximize your ROI.

What is Outsourced IT Infrastructure?

IT infrastructure outsourcing involves delegating the management and maintenance of an organization’s tech resources and services to third-party providers. The approach allows companies to focus on core business activities while leveraging external expertise for IT operations. Services commonly outsourced include data center operations, cloud infrastructure management, and disaster recovery services.

Today, 66% of businesses outsource at least one department. Outsourcing even part of an IT infrastructure helps companies cut costs and improve production efficiency. With the advent of cloud computing, businesses have many opportunities to adopt IT infrastructure outsourcing as a critical strategy impacting their success.

The Rise of Cloud Computing

Cloud computing has become integral to modern business operations, offering scalable resources and flexible pricing models. The global public cloud services market has experienced substantial growth, with spending projected to reach $1.35 trillion by 2027. The surge is driven by the need for agility, cost-efficiency and the ability to support remote work environments.

Impact of Outsourced Infrastructure on Cloud Spend

The trend toward outsourcing IT infrastructure directly impacts cloud spending in several ways:

• Cost optimization: By outsourcing, organizations can reduce the capital expenditures associated with maintaining on-premises infrastructure. A cloud shift transforms fixed costs into variable costs, aligning expenses with actual usage. A study by McKinsey & Company highlights that cloud cost-optimization strategies can unlock significant value, with IT cost optimization improvements accounting for $155 billion in EBITDA.
• Scalability and flexibility: Outsourcing IT infrastructure offers scalable solutions that adjusts to fluctuating demands, without adding capital costs. It also helps prevent over-provisioning and underutilization of critical IT resources. The elasticity of these outsourced providers ensures that organizations pay only for the resources they use, optimizing their average cloud spend.
• Access to advanced technologies: Third-party providers often have access to the latest technologies and expertise, enabling organizations to leverage advanced cloud services without significant upfront investments. Access to the latest digital tools and expertise leads to more efficient operations and potentially lower costs.
• Focus on core competencies: By outsourcing IT infrastructure, companies can concentrate on their core business functions, potentially leading to increased productivity and revenue. This strategic focus can offset cloud spending by driving business growth.

Challenges and Considerations

Utilization of third-party software as a service (SaaS) vendors increased 62% between 2020 and 2022—and it’s still growing.

However, while IT infrastructure outsourcing offers many benefits, it also presents challenges that can impact cloud spend:

• Vendor management: Relying on external providers requires effective vendor management to ensure service quality and cost-effectiveness. Poor management can lead to increased costs and inefficiencies. Organizations must establish clear SLAs with uptime, scalability, and cost predictability metrics. Organizations must also regularly assess vendor performance to ensure alignment with business objectives.
• Security and compliance: Outsourcing introduces data security and regulatory compliance concerns. Organizations must ensure that providers adhere to industry standards such as HIPAA and ISO 27001 to mitigate data breach risks.
• Hidden costs: Unanticipated expenses, such as data transfer fees or additional service charges, can affect the overall cloud spend. A comprehensive analysis of all potential costs helps companies avoid budget overruns. Consider implementing automated tools that identify underutilized or unused resources.
• Runaway cloud spend: With widespread cloud adoption roughly a decade into its life cycle, organizations may be finding themselves overextended into the cloud and spending too much on services they’re not consuming enough of. Identifying what is necessary and pulling back what’s not will be vital to getting costs under control. We are already seeing signs of this, with a trend towards reducing cloud spending while investing in Infrastructure as a Service (IaaS), streamlining hybrid and multi-cloud deployments.
• Performance/latency: IT infrastructure outsourcing may introduce latency or performance bottlenecks, depending on the provider’s location and service quality. The problem is particularly critical for businesses requiring real-time data processing or low-latency operations, such as e-commerce or financial services. Organizations must evaluate the provider’s network architecture to ensure it aligns with their operational demands. Consider proximity to data centers and the provider’s ability to meet your performance requirements.

Strategies for Effective Cloud Spend Management

To maximize the benefits of outsourced IT infrastructure while controlling cloud spend, organizations should consider the following strategies:

• Adopting FinOps: FinOps, a portmanteau of “Finance” and “DevOps,” isn’t just about saving money; it’s about maximizing business value from your cloud deployment by bringing together finance, business, and tech teams across the organization.A great cloud managed services provider can be invaluable in this regard by helping you conduct thorough assessments of all potential costs associated with outsourcing, including hidden fees and long-term expenses.
• Vendor selection and management: Choose providers with transparent pricing models and a proven track record of cost-efficiency. Establish clear contracts that outline service expectations and cost structures.
• Continuous monitoring and optimization: Implement tools and processes to continuously monitor cloud usage and spending. Regular audits can identify inefficiencies and opportunities for cost savings
• Aligning IT and business objectives: Ensure that IT strategies, including outsourcing decisions, align with overall business goals to support growth and profitability.

Perhaps most importantly, auditing your third-party IT vendor is important for data security. One study found that 98% of companies connect to at least one third-party vendor that suffered a data breach. And yet, shockingly, the Ponemon Institute reports 50% of companies do not monitor the third parties accessing their confidential data.

The point is to choose your IT outsourcing vendors carefully—but also invest in regular oversight to protect your organization from everything from cost overruns to cybersecurity vulnerabilities.

What’s Next for Your IT Infrastructure?

Organizations can effectively manage cloud spend by implementing strategic measures while leveraging the benefits of outsourced IT infrastructure. Consider hybrid or IaaS models that combine the flexibility of the cloud with the predictable fixed costs of on-site hardware for core functions. Collaborating with a trusted partner like Red River can help organizations navigate these complexities, ensuring security, compliance and cost efficiency.

Red River specializes in providing comprehensive cloud and managed services, assisting organizations in optimizing their IT infrastructure and controlling cloud expenditures. With expertise in cloud solutions, cybersecurity, and modern infrastructure services, Red River partners with businesses to navigate the complexities of IT outsourcing and achieve their strategic objectives. Contact us to find out how we can ensure the success of your IT outsourcing initiatives.