5 Steps to Finding Value in the Cloud

5 Steps to Finding Value in the Cloud


What do companies with successful cloud strategies know that their competitors don’t? Where to look for the added value. […]

New technologies are always associated with start–up difficulties – the cloud is no exception. Many companies made large investments, but were disappointed with the results. However, giving up is not an option: according to a study by McKinsey, the cloud could generate up to $ 1 trillion in value for Fortune 500 companies in the next ten years alone [Disclaimer: Die Autoren sind bei McKinsey beschäftigt]. It is urgent to make the right decision.

Moreover, this is not just a matter of potential. Companies that have been successful with their cloud strategies know something that their competitors don’t: where the added value really lies and what is needed to achieve it.

Here are 5 actions taken by the companies that understood the value equation correctly:

Invest to increase business value, and not just to reduce IT costs. Research by McKinsey has shown that about 90 percent of the value that can be obtained in the cloud results from faster time-to-market, innovation, improved reliability and cost savings in business operations. For example, when a large brokerage company used the cloud to develop a new application portfolio, it was able to increase the development speed by five times and at the same time reduce operating costs by 90 percent. The key is to find out which tasks can benefit from the speed, agility and rapid scalability of the cloud, and then invest enough in teams and skills to take advantage of these advantages. Customer service has great potential, accounts receivable accounting not so much.

Plan the restructuring of the operating model around products. Many companies are trying to use the cloud with a traditional way of working, for example, with frequent handovers, time-consuming checks and manual tests. This is like getting a powerful car and using it only for shopping. Instead, turn everything into a product – think ecommerce product ads, purchase confirmations, and personalized emails – that can then be used by small teams across the enterprise to develop things that customers want. With this approach, a team is responsible for delivering a finished, working product and not just parts of the product.

To support this product orientation, companies should try to automate every part of the development and release process, including server deployment and infrastructure code generation. Successful implementations of product-oriented operating models can lead to productivity improvements in development and release of 20 to 25 percent, based on McKinsey’s experience with our customers.

Optimize profitability. The work of value-oriented cloud management is never done. This is due to the fact that cloud service providers (CSPs) are constantly introducing new features and that usage is driving up costs. The cloud is so easy to use that companies often use more of it than expected, which leads to high bills.

Companies need to know how much their applications will consume, when and for how long. The right implementation of optimization techniques such as real-time usage tracking, accurate demand forecasts and process automation can usually save 20 to 30 percent of cloud costs, sometimes even much more, as our own experience in working with customers shows. An entertainment company reviews all applications and systems in the cloud every month. Engineers focus on the applications that cost the most and work on optimizing them, for example, by developing serverless services to reduce costs. The result: savings of $ 3 million per year per engineer.

Do not neglect the basic functions. Companies are often so eager to use the cloud that they rush to build or migrate applications without investing in important basic functions such as automation or reference architectures. This has a number of value-destroying effects, including long delays when cloud initiatives falter, technical debt, and a lack of security and resiliency. IT resiliency accounts for almost 15 percent of the total value at stake in the cloud.

For example, with a more resilient architecture, the cloud can reduce downtime for migrated applications by almost 60 percent. For example, when a payment company migrated its data centers to the cloud, availability almost doubled, while transaction times decreased from 12 to five seconds.

The automation features offered by CSPs can also enable companies to better implement “security as code”. With this approach, cybersecurity policies and standards are implemented programmatically so that they can be automatically referenced in the configuration scripts for the deployment of cloud systems.

Focus on migrating complete services. Companies tend to focus their cloud efforts on application migration, often with great urgency. This is theatre, not strategy. The result is often a disjointed set of applications in the cloud that do not improve performance.

Let’s take the purchase process of a customer: if the application for user authentication runs in the cloud, but the payment processing is still done with legacy systems, the advantages of the cloud disappear. The answer is the migration of a complete service or function, for example, mortgage lending, from start to finish. In this way, the company can build up the critical mass of mutually supporting applications to generate the full value. A bank, for example, is converting its retail payment traffic to real-time, and therefore is rebuilding everything in this area, including collaboration systems, integration and ecosystem levels, transaction processing, customer databases, fraud analysis, regulatory compliance and service.

The last word

The cloud can be used well or badly. Both are the case nowadays. By understanding what it takes to add value, rather than simply moving to the cloud, you can ensure that big investments also bring big returns.

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