On average, about half of companies say they have yet to realize substantial value from their cloud investments, found a recent PwC study. Most enterprises are already well into cloud transformation initiatives, with some propelled more recently by the pandemic. Cloud computing is lauded as bringing benefits to innovation, cost-savings, networking, collaboration, and numerous other areas. But are organizations actually realizing these targets? If not, when will cloud investment strategies pay off?
A cloud transformation mentality isn’t about technology — it’s characterized by customer centricity, agility and reimagining everything
The US Cloud Business Survey conducted by PwC sought to discover executive attitudes toward their cloud transformation progress. The report exposed a significant gap between cloud transformation targets and actualized outcomes. It found conflicting views across executives regarding cloud value propositions and highlighted the top barriers to cloud success. Below, I’ll spotlight the critical insights from the survey and consider what moves executives can make to sow greater value from expensive cloud-based investments.
The Cloud ROI Gap
The cloud is consistently of C-suite interest; 74% of executives are involved in cloud strategy, found the report. Of these executives, 93% say the Chief Information Officer (CIO) leads company-wide strategy and defining business outcomes. The Chief Operations Officer (COO) is also emerging as a key cloud leader across all areas. These executives measure cloud value differently; some highlight innovation benefits, while others weigh cloud value by improved operational resilience, increased revenue, or cost savings. Yet, most business leaders state these targets have yet to be realized.
The report found an average value realization gap of 53% between companies seeking specific business outcomes and those realizing substantial value from their cloud investments. For example, 34% of respondents said improved resilience and agility was a target business outcome, yet only 18% reported realizing this goal. Similar gaps exist for cloud objectives such as product innovation, improving decision-making, creating better customer experiences, and increasing overall profits.
Why A Cloud Gap Persists
So, why does a cloud gap exist? Well, some companies are still in the early stages of cloud-based digital transformation. 68% of enterprises now consider themselves “intermediate” or “advanced” in terms of the use of cloud technology, found a Flexera study. While cloud intelligence shows incremental growth, cloud strategies may still require additional time to reach full maturity within some organizations.
A cloud gap may also persist simply because it’s tricky to track cloud proceeds. According to the report, 48% of CFOs say they lack confidence in effectively measuring the return on cloud investments. Conflicting visions of value across the C-suite could also complicate what constitutes cloud success. The report found that 39% of CIOs recognize innovation as a top value of the cloud, whereas 25% of CFOs and COOs prize resilience instead.
A skills gap could also hinder recouping cloud investment. 52% of executives say a lack of talent is a barrier to realizing cloud value. And, 47% are not confident in their ability to upskill existing employees to meet cloud demands. A cloud strategy is destined to fail without a trained labor force comfortable with and actively utilizing cloud-based tools. Without training and proper maintenance, hasty technological adoption can increase technical debt.
Other significant barriers to realizing cloud value include a lack of integration with existing systems — 52% of business leaders cited this as a barrier to cloud success. This barrier is followed by other challenges such as governance (50%), cybersecurity and privacy issues (50%), and an inability to attribute value (49%).
Reasons to Close the Gap
An incomplete cloud approach not only limits long-term financial returns but can introduce immediate risks to cybersecurity and compliances. With increased reliance on third-party services, the cloud brings new vulnerabilities. However, auditors are usually brought in pretty far into the technical discovery phase, hampering early risk assessment for new tools. 37% of enterprises address cybersecurity and compliance in the business requirements gathering phase, found the report. Earlier steps, such as the planning and technical requirements gathering phases, typically incorporate cybersecurity and compliance assessment far less often.
Another reason to refine your cloud approach earlier on is the environmental and social repercussions of wasteful technology. As it’s estimated that digital technology is responsible for 3.7% of total CO emissions, IT has a significant responsibility to optimize their cloud utilization and thus decrease emissions. Since 75% of employees are most likely to work for a company that shares their values, not meeting climate pledges could exacerbate an ongoing talent shortage. Thus, 70% of executives actively look at how the cloud can support their environmental, social, and governance (ESG) strategy.
4 Methods to Realize Cloud Targets
So, how can enterprises stimulate increased cloud returns? The report identities four main goals:
1. Coalesce upon a shared cloud value strategy. Come together on shared cloud value targets. Determine a method to track the progress of these metrics to follow the return rate of cloud investments. Creating a shared cloud value story and developing an investment thesis may require embracing new mental models, explains the report.
2. Actively cultivate new talents. Successfully leveraging cloud investments will require excellent talent and continuous training. For example, unforeseen application demands are beckoning some business units to upskill their workforce into citizen developers. Disseminate cloud knowledge to C-suite and board members as well, recommends the report.
3. Consider cybersecurity and compliance earlier on. As half of executives see security as a barrier to complete cloud success, development teams must loop in these concerns earlier on. Reevaluate the scope of security requirements when onboarding new toolsets with questions like: How will Protected Personal Information (PPI) be safeguarded? How will it meet SLAs? One way to enhance trust in new cloud dependencies is to enlist third-party reviews and certifications.
4. Invest in green cloud initiatives. Standardize reporting around how your company handles carbon emission data and strive to reach complete transparency. Seek to achieve net-zero greenhouse gas emissions by a specific date and seek out renewable energy sources. Partnering with Cloud Service Providers (CSPs) who share climate pledges can decrease the overall footprint as well.
It’s Payback Time, Cloud.
50% of enterprises spend more than $1.2 million on cloud services annually. And, this spending is forecasted to increase in the coming years — public cloud infrastructure is expected to grow by 35% in 2021, and estimates place the public cloud market at $623.3 billion by 2023 worldwide.
While it’s clear there is much hunger for cloud spending, what’s less clear are the metrics enterprises use to analyze their return on cloud investments. To estimate this, strategies must be set to calibrate costs and equate them to actual business outcomes. Realizing cloud returns may also involve a Cloud Financial Officer or cloud economist to make optimizations that balance the cloud checkbook.
We are still within the early stages of overall cloud transformation, noted Amazon Web Services CEO Andy Jassy in 2018. This is still quite true today. The PwC report findings should thus by no means be interpreted as an early death knell for cloud adoption.
Instead, I see it as a healthy reminder that holistic enterprise cloud adoption requires intention, ongoing training, increased cybersecurity focus, and a social commitment to truly reach that ‘payback’ moment.
“A cloud transformation mentality isn’t about technology — it’s characterized by customer centricity, agility and reimagining everything,” said the report.
PwC surveyed 524 US executives, including CIOs, CTOs, CISOs, and technology leaders, in May 2021 on their cloud business outcomes. Read the full results and link to other related PwC studies here.