Why Private Cloud?

The burgeoning adoption of Cloud computing across both enterprises as well as small and medium-sized businesses is directed by multiple factors. By fostering business agility and delivering compelling economics, "the world of many clouds" provides certainty in uncertain times. Cloud computing can enable enterprise companies to conserve cash by encouraging a spending transition from capital expenditures (CapEx) to operating expenditures (OpEx). In addition, cloud technology facilitates new business and technology capabilities that are attractive to the emerging digital workforce and fit today's changing marketplace.

Your customers and workforce require a consistent experience across multiple environments: mobile, social, visual, and virtual. This unique and powerful Virtual Cloud Calculator goes beyond just total cost of ownership and provides you tools to understand the far reaching impact that updating to the world of the cloud can bring to you and your company.

Reducing IT capital and operating expenditures

Most IT manager considering a private cloud are aware that clouds offer better data center flexibility, resource utilization and operational efficiency. Cisco estimates that companies companies which use cloud computing can expect data center cost reductions of up to 54%. These cost reductions include:

Lower operating expenses. Cisco estimates that cloud-enabled automation can reduce management costs by 75% to 85% and maintenance costs by 50%.

Lower TCO for applications. At Cisco, cloud-based integration of infrastructure and applications has reduced TCO for collaboration applications by 23%.

Reduced risk of technological obsolesce by utilizing more standardized hardware and software components that can more easily be updated or replaced as firms' need grow.

Reduced hardware requirements ultimately reduce the need for replacement capital as machines age or need to be redeployed.

Faster Time To Market

With more standardized IT platforms and applications, automated installation and integration processes, private clouds reduce new capabilities development. Faster time to capabilities accelerates the onset of revenue flows. In this example, it would take 50 days to install or integrate a crucial, product-specific application versus taking only minutes with a private-cloud configuration, resulting in 50 days of incremental revenue

Additionally, improved time-to-market may allow a company to capture greater first-mover benefits. In this example, the sample company's market share improves by 0.5 percentage point from 20 to 20.5 percent. The market size is calculated from the company revenue and market share inputs. Benefits are calculated as incremental gross profits.

Source:Cisco analysis of private cloud business agility benefits.

Reduced customer acquisition and retention costs

For the "customers in scope" identified in the Company Profile page, the per-customer acquisition cost is assumed at $200. This includes advertising, product discounts, and sales and marketing activities. The net number of customer additions is calculated from the churn and new customer acquisition rates. The sample input assumes 1% of this $200 expense ($2 per customer) is saved with private cloud-supported processes.

The per-customer retention cost is assumed to be $20 per year. This includes product-renewal communications, discounts, or direct contact with customers. The sample input assumes 1% of this $20 expense ($0.20 per customer) is saved with private-cloud-supported processes.

Customer acquisition and retention activities may include:

Reduced advertising costs through better customer analytics and prospect analytics

Automated tools providing customers more pertinent information, tailored for each customer or broadly targeted, such as with digital signage

Improved sign-up processes that collect more accurate information at lower cost

Improved word-of-mouth achieved through gaining market share or top-of-mind consideration

Improved value and customer satisfaction that promote greater brand loyalty.

Source: IBSG analysis of select industries, 2012.

Improved customer acquisition and retention rates

For "customers in scope" identified in the Company Profile page, the churn rate (i.e., the share of customers who do not purchase or renew a product or service) is assumed to be 20%. Of the 2.5 million customers in the example, 20% or 500,000 customers would be lost annually (implying a life of about 5 years). In this example, the churn rate improves by 0.20 percentage point, from 20% to 19.80%.

For the acquisition rate benefit, the company acquires 25% of its customer base as new customers annually. (Note: this rate is above the company churn rate, denoting a net increase of the customer base of about 5% annually.) With 2.5 million customers, 25% or 625,000, of them would be new. This figure drives the total customer-acquisition costs and savings from the previous inputs. This example assumes that the acquisition rate improves by 0.25 percentage point, from 25% to 25.25%.

Examples that drive this improvement include:

Automated tools that provide customers with more pertinent information from better analysis of their habits and usage profiles

Deeper customer relationships that promote brand loyalty

Faster and better sign-up processes or streamlined customer-acquisition features, such as a media-rich customer interfaces

Greater network effects that also stem from greater market share (i.e., greater product "buzz").

Source: IBSG analysis of selected industries, 2012.

Improved employee productivity from better application availability

Private clouds can also make a company's information workers more efficient by providing them with better collaboration tools. Applications that identify an employee's presence (physical and device-specific) and link this presence to collaboration tools and subject matter databases can improve employee efficiency and time management. In this example, 50% of employees are information workers who save 2 hours per week (or 5% of a 40-hour week). Examples include:

Content-rich databases containing best-practice examples or the locations of subject-matter experts

Dynamic meeting and conference room scheduling systems

Video collaboration

"Bring your own device" and anywhere/anytime availability that allows for additional remote working and telecommuting

Source: Internal Cisco analysis on collaboration benefits, 2012.

Reduced administrative costs

Private clouds can reduce the costs of many different hiring processes. This sample firm spends $2,000 per employee on HR support including recruitment, employee management, training, benefits management, retention or redeployment, and maintaining employee information.

With better, cloud-enabled HR processes in place applications delivered from an internal private cloud), this sample firm can reduce its per-employee costs by 5%, or $100 per employee. Examples include:

Creating a common database of employee data and avoiding duplicating information capture efforts

Streamlining the employee hire and evaluation processes, and minimizing the number of non-automated "touches" required

Giving employees greater control over their personal data and benefits

Reducing employee turnover with better HR processes.

Sources: Cisco analysis of AHQC benchmarking data, 2012.

Improved employee satisfaction and reduced employee turnover

In this example, 1,000 key employees are impacted by this company's improved retention efforts (out of 10,000 total employees) and 20% of them leave the company voluntarily each year (average tenure of five years). Improved employee satisfaction can reduce this attrition rate by 1 percentage point to 19%. Resulting benefits include reduced hiring and training costs (5 months' salary, valued at $50/hour, or $100,000/year).

Private-cloud efforts that improve employee satisfaction and retention include:

Providing state-of-the-art IT tools for employees, enabling "bring your own device," working anytime and anywhere, with more stable applications.

Improved business processes and removing IT and device impediments to getting the job done.

Supporting better collaboration tools and other job-enablers for managers and knowledge workers.

Sources: Cisco analysis of BLS data on information workers, and internal Cisco data, 2012.

Improved Innovation Processes, Including Faster Time to Market (TTM

This model takes the proportion of company revenues attributable to new products (10 percent in this example) and calculate the gross profit attained from each new product. The total benefit will be the increase in the number of new products times this per-product gross profit. Examples of initiatives that can improve R&D efficiency include:

- Expedited access to IT resources dedicated to new product development

- Better access to richer databases that contain a best-practices library or the names of company experts in certain fields

- Improved collaboration tools that make meetings easier to schedule and more productive

- Better process-control tools to ensure that standard operating procedures and compliance guidelines are adhered to

Source:Cisco analysis of customer R&D processes.

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Reduced customer acquisition and retention costs

Improved customer churn and acquisition rates

Greater revenues from increased data center uptime

Benefit Graph

Reduced customer acquisition and retention costs

Improved customer churn and acquisition rates

Greater revenues from increased data center uptime

Improved R&D Efficiency

TTM Benefits from Accelerated Revenue Flows

TTM Benefits from First Mover Market Share Gains

Benefit Graph

Improved R&D Efficiency

TTM Benefits from Accelerated Revenue Flows

TTM Benefits from First Mover Market Share Gainsy

Benefit Graph

Reduced administrative costs

Improved employee satisfaction and reduced employee turnover

Benefit Graph

Reduced administrative costs

Improved employee satisfaction and reduced employee turnover

Benefit Graph

Improved availability of end-user applications

Improved employee productivity from better application availability

Benefit Graph

Improved availability of end-user applications

Improved employee productivity from better application availability

Private Cloud Benefits Calculator

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