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It has been more than a decade since the first corporate experiments with external cloud platforms, and the verdict is long in on their business value. Companies that adopt the cloud well bring new capabilities to market more quickly, innovate more easily, and scale more efficiently while also reducing technology risk.
Unfortunately, the verdict is still out on what constitutes a successful cloud implementation to actually capture that value. Most CIOs and CTOs default to traditional implementation models that may have been successful in the past but that make it almost impossible to capture the real value from the cloud. Defining the cloud opportunity too narrowly with siloed business initiatives, such as next-generation application hosting or data platforms, almost guarantees failure. That’s because no design consideration is given to how the organization will need to operate holistically in the cloud, increasing the risk of disruption from nimbler attackers with modern technology platforms that enable business agility and innovation.
Companies that reap value from cloud platforms treat their adoption as a business-technology transformation by doing three things:
Focusing investments on business domains where cloud can enable increased revenues and improved margins
Selecting a technology and sourcing model that aligns with business strategy and risk constraints
Developing and implementing an operating model that is oriented around the cloud. CIOs and CTOs need to drive cloud adoption, but, given the scale and scope of change required to exploit this opportunity fully, they also need support and air cover from the rest of the management team.
Over the past 20 years, there have been multiple disruptions in the way large enterprises host applications from expensive proprietary processors to commodity x86 architectures, from proprietary operating systems to open-source Linux, and from servers dedicated to a single application to many virtual machines running on a single server. Together these changes have transformed the cost structure of application hosting. Twenty years ago a single small application might run on a $25,000 server. Today, a similar-size application might run on a $5,000 server shared with ten other applications.
Unlike past successful programs to adopt Linux, x86 processes, or server virtualization, implementing cloud is more challenging. First, the thousands of applications a large enterprise might have built over the past three decades need remediation or re-architecting to run efficiently, securely, and resiliently in the cloud. In some cases, companies have found existing applications cost more to run in the cloud before remediation.1 Required investments often result in an unexciting ROI for cloud migration, at least for companies that have already aggressively optimized their on-premises infrastructure environment. The cost economics of cloud adoption can be much more attractive for companies that can use it as a forcing mechanism to optimize their infrastructure environment or to avoid making a large data-center capital investment.
Second, the economics, skills, processes, and organizational changes required are too complex and span too many different parts of the business for infrastructure heads to manage on their own.
These realities have led an overwhelming majority of large institutions to experience one or more of the following failure modes:
Pilot stall: Companies have succeeded in implementing a few greenfield applications on public-cloud platforms, but the value derived from these programs has been limited. This makes further progress impossible because tech leaders cannot make a convincing business case to extend the use of the cloud platform into the heart of IT’s technology environment.
Cloud gridlock: Cloud initiatives become jammed up in long queues because IT cannot build out the automation or reference architectures required to use public-cloud-platform services in a secure, resilient, and compliant fashion.
No value from “lift and shift”: The migration of significant portions of the technology environment—largely by replacing on-premises virtual machines with off-premises ones without taking advantage of cloud-optimization levers—has failed to significantly reduce costs or increase flexibility. Support for cloud initiatives subsequently collapses.
Cloud chaos: Tech leadership does not have an aligned vision and does not provide the required guidance or management oversight, leaving developers largely to their own devices in configuring cloud services. This leads to very divergent approaches and tooling with significant security, resiliency, and compliance risks.
As a result, although cloud service providers (CSPs) are growing quickly, enterprise cloud adoption has consistently lagged predictions. Multiple surveys performed by McKinsey indicate that large companies host 10 to 15 percent of their applications in the cloud but continue to host the core of their technology environment in traditional data centers.
Only 14 percent of Companies launching digital transformations have seen sustained and material performance improvements. Why? Technology execution capabilities are often not up to the task. Outdated technology environments make change expensive. Quarterly release cycles make it hard to tune digital capabilities to changing market demands. Rigid and brittle infrastructures choke on the data required for sophisticated analytics.
Operating in the cloud can reduce or eliminate many of these issues. Exploiting cloud services and tooling, however, requires change across all of IT and many business functions as well in effect, a different business-technology model.
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