Businesses have been experimenting with external cloud platforms for over a decade now, and it's clear that the right adoption can bring significant benefits. Companies that adopt the cloud well can quickly bring new capabilities to market, scale more efficiently, and reduce technology risks while also fostering innovation.
Despite this, many CIOs and CTOs still rely on traditional implementation models that may have been successful in the past but do not effectively capture the value of the cloud. This is because there is no consideration for how the organization will operate holistically in the cloud, increasing the risk of disruption from competitors with modern technology platforms that enable business agility and innovation.
Businesses that successfully capture value from cloud platforms treat adoption as a business-technology transformation and focus on three things: investing in business domains where the cloud can increase revenues and margins, selecting a technology and sourcing model that aligns with business strategy and risk constraints, and implementing an operating model that is oriented around the cloud.
While CIOs and CTOs play a critical role in driving cloud adoption, it's important that they receive support from the rest of the management team due to the scale and scope of change required to fully exploit the cloud benefits.
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Using cloud to enable digital transformation
The adoption of cloud platforms can enable digital transformation, but only a small percentage of companies have seen sustained and meaningful improvements in performance. Outdated technology environments can make change expensive, and rigid infrastructures struggle to process the data required for advanced analytics. Using cloud services can help companies to alleviate these issues, but it requires a significant shift in business models.
To successfully implement cloud services and tools, CIOs and tech leaders must undertake three critical actions. First, they must recognize that cloud adoption is a business-technology transformation that requires investment in areas where the cloud can enable increased revenues and improved margins. Second, they must align the chosen technology and sourcing model with their business strategy and risk constraints. Finally, they must develop and implement an operating model that is oriented around the cloud.
However, the challenges of implementing cloud solutions are more complex than those of adopting past technologies such as Linux or server virtualization. Large enterprises have built thousands of applications over the past three decades, which may require remediation or re-architecting to run efficiently, securely, and resiliently in the cloud. In some cases, existing applications may cost more to run in the cloud, resulting in an unexciting ROI for cloud migration.
Furthermore, the economics, skills, processes, and organizational changes required to implement cloud solutions are too complex and widespread for infrastructure leaders to manage on their own. As a result, many large institutions experience one or more failure modes, such as pilot stalls, cloud gridlock, no value from cloud migrations, or misconfiguration which poses significant risks in security, resiliency, and compliance.
Despite the rapid growth of cloud service providers, enterprise cloud adoption has consistently lagged behind predictions. McKinsey surveys have shown that large companies still host the core of their technology environment in traditional data centers, while only 10 to 15 percent of their applications are hosted in the cloud. Therefore, CIOs and tech leaders must have support from the rest of the management team to drive cloud adoption and achieve successful digital transformation.
1. Cloud investments should prioritize business domains that can boost revenues and margins
To achieve the most value from cloud adoption, focus on embedding reusability and composability across the organization, promoting agility, innovation, and resilience. This approach targets the areas where cloud benefits matter most, rather than considering individual applications for cost savings (Exhibits 1 and 2).
Exhibit 1: Cloud benefits vary by consumption models (Source: McKinsey)
Exhibit 2: Cloud investment priorities vary by domain (Source: McKinsey)
- Faster time to market: Cloud-native companies release code into production hundreds or thousands of times per day using automation. Traditional enterprises can also release new capabilities daily with automated cloud platforms, launching them to the market about 20-40% faster.
- Ability to create innovative business offerings: Cloud service providers offer numerous native and third-party services, ranging from basic infrastructure to advanced features like facial recognition, natural-language processing, quantum computing, and data aggregation, enabling companies to create many innovative business offerings.
- Reduce risk: Cloud solutions reduce risk by eliminating operational overhead and providing a cyber-first design that embeds standardized security measures such as authentication, hardening infrastructure and data-center availability zones.
- Efficient scalability: Cloud allows companies to quickly add capacity to meet demand and scale out new services in seconds, rather than taking weeks to procure on-premises servers. This was especially important during the COVID-19 pandemic, when there were sudden and unprecedented peaks in demand due to the shift to digital channels.
In real life, a financial service provider found that moving customer-facing apps to the cloud allows for faster and cheaper market responses. For instance, hosting apps in the cloud reduces the cost of setting up operations in new countries by millions of dollars. Or a health-insurance provider identified billions in potential revenue by moving systems to the cloud, because cloud applications can assist a new startup onboarding quickly.
2. Choose a cloud strategy that fits economic and risk limits
Choose a technology, sourcing, and migration model that aligns with economic and risk constraints. CIOs and CTOs must consider business strategy, cost, investment, and risk when making decisions about cloud architecture and sourcing.
There are various 'as-a-service' options available, such as SaaS, IaaS, and PaaS, and CIOs should work with senior business leaders to determine which domains require bespoke software and which can be supported by SaaS offerings. There are also multiple architectural models for running bespoke needs in the cloud, each with benefits and drawbacks.
Thus, CIOs and CISOs must address the loss of the traditional physical-security perimeter when migrating to the cloud and choose from three options: route traffic through proprietary data centers, rebuild the security perimeter in the cloud, or build "zero-trust models”.
- CSP Engagement Strategy: Choosing a CSP can be tricky for businesses - too many options can raise costs, while choosing a single CSP may limit access to innovation. Smaller companies often opt for one CSP, while larger ones prefer multiple vendors.
- Migrating Existing Applications: Companies can either fix security and compliance issues first and then optimize systems or optimize as they go. Migration and later optimization can help overcome gridlock but may cost more initially.
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3. Change operating models to capture cloud value
To fully capture the value of migrating to the cloud, IT organizations must adopt a new operating model that aligns with cloud-native practices. This requires a fundamental shift in how IT works and how it collaborates with the business. Here are some key principles for building a business operating model on cloud:
- Make everything a product: IT leaders need to shift from "IT projects" to "products" that are technology-enabled offerings used by customers and employees. This approach focuses on delivering a finished working product rather than isolated elements of the product.
- Focus on developer experience: CIOs must redesign technology delivery processes using cloud-native practices to create a "delightful" developer experience. Applying modern tooling and developer journeys to workflows drives organic adoption and sustainable velocity.
- Integrate with the business: Achieving speed and agility in the cloud requires frequent interaction with business leaders. Companies need to appoint knowledgeable decision makers as product owners for business-oriented products.
- Ensure cloud is fully software-defined: To ensure sustainability and consistency, everything in the cloud should be defined as software or "as code" using abstraction and automation. This includes cloud scale-out, continuous integration/continuous delivery (CI/CD), repeatable patterns, and security guardrails.
- Secure cloud by design: CISOs must redesign cyber programs, update policies, and modernize controls to build security seamlessly into cloud. Infrastructure and security teams should eliminate human "middleware" and prevent risk before deployment.
- Be agile everywhere: Traditional infrastructure, networking, and security teams must adopt iterative ways of working and codification, utilizing modern development practices of continuous integration and delivery (CI/CD).
- Drive cloud skill sets across development teams: Many CIOs invest in delivery designs that embed mandatory self-service and co-creation approaches. They utilize abstracted, unified ways of working and advanced training programs to embed cloud knowledge in each agile team.
- Build technology skills and culture: Everyone involved in the cloud operating model must be software engineers who can deliver effective integrative solutions.
- Take a risk-based approach: CIOs and CISOs must develop a clear-eyed view on risk management, and align decisions about their technology environment with their risk appetite.
An effective cloud-optimized operating model requires unifying a software-defined approach to cloud with Infrastructure as Code (IaC) to embed reusability and composability with end-to-end automation. This enables developers to provision workloads on cloud with dedicated as-a-service business platforms securely and resiliently, resulting in faster release of new capabilities with limited risk and technical costs.
To reap the full benefits of cloud technology, CIOs and CTOs must collaborate with leadership in key areas. This includes establishing stable funding models, encouraging business-technology collaboration, attracting top engineering talent, and conducting rational risk assessments. These efforts are necessary for companies to overcome digital transformation obstacles, such as outdated funding mechanisms, lack of knowledgeable product owners, or hiring restrictions. CIOs and CTOs can guide leaders in understanding cloud-related risks and finding ways to mitigate them.