How businesses can realize the benefits of the cloud

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Ani Majumder, Partner, New York office, McKinsey & Company & Chhavi Arora, Associate Partner, Seattle office, McKinsey & Company & Stavroula Papadopoulou, Solution Leader, Zurich office, McKinsey & Company& Venky Anant, Partner, Silicon Valley office, McKinsey & Company

• Businesses are increasingly leveraging cloud technologies to increase scalability, security and efficiency.
• But progress has been lacking at achieving impact at scale.
• Cloud transformation requires deep expertise and operating model change.

More than 90% of businesses are leveraging cloud technologies and have started migrating applications to leverage the scalability, security and efficiency that the cloud provides. But most have not established cloud-native capabilities or achieved business impact at scale.

Some companies, for example, Moderna, are using the cloud to fundamentally transform their business model. Moderna runs its Drug Design Studio, a proprietary web application, on the cloud so it can take advantage of its scalable compute and storage infrastructure. That allows the business to analyze and quickly design mRNA sequences for protein targets, integrate learnings from multiple experiments running in parallel, and quickly refine the design and production cycle. Thanks in part to cloud, Moderna was able to deliver the first clinical batch of its vaccine candidate (mRNA-1273) to the US National Institute of Health for phase one trials just 42 days after the initial sequencing of the virus.

Such examples are likely to increase as business and technology leaders appreciate how much the cloud can accelerate their digital transformations and unlock massive sources of new value.

Reduction in technology and operations spend by leveraging the cloud is attractive. But it’s a small fraction of the value available by using the cloud to accelerate innovation or build completely new business models

Our research indicates seven drivers of value from the cloud that collectively can account for more than $1 trillion EBIDTA (Earnings Before Interest, Taxes, Depreciation, and Amortization) by 2030. Effective cloud utilization can help rejuvenate IT by improving application development and maintenance productivity, as well as reducing infrastructure costs by 20-30% for migrated applications. Leveraging cloud security and resilience aspects can also reduce costs of downtime and breaches.

The greatest value from the cloud, however, comes from its ability to accelerate or enable innovation, and help businesses reinvent how to develop, deliver and sell products and services. Retailers are using advanced analytics capabilities available through cloud service providers to do real-time sentiment analysis, trend modeling and social listening to predict products likely to succeed. Some companies are entering into strategic partnerships with cloud providers to take advantage of the increasingly rich set of services they offer to reinvent their business model.

However, getting the cloud right is not easy for most companies. We have seen the most success come when companies set an ambitious business agenda, transform the operating model, iterate solutions quickly and scale at pace

First and foremost, business and IT leaders need to set the bar high and define clear use cases grounded on real economics that account for both cost savings and business innovation. Because the value to the business is so great, cloud transformation programs require a true partnership between IT and the business. This means IT leaders need to have a clear understanding of the value at stake for the business while business leaders need to be cloud literate and understand the true potential of this technology. Too often “cloud” becomes a catchphrase for “modernization,” and many of the benefits traditionally attributed to a cloud can be captured on-premises with a modernization investment.

Second, investing in a leading edge architecture that is integrated, secure and resilient will be critical. This is especially important if the business operates in an “hybrid cloud state”– wherein part of the IT infrastructure exists on-premise and partly on cloud – a likely scenario for most large organizations in the foreseeable future.

Finally, cloud transformation requires deep expertise and operating model change. Our research indicates talent and culture as the biggest roadblocks to successful execution. Key shifts in talent (e.g., from project to product managers, analysts to data scientists, developers to full stack engineers), as well as the operating model (e.g. from waterfall-based development to an agile, test and learn culture), will be required.

Realizing the promise of the cloud is not easy, and for most companies, it’s still early days. But the $1 trillion prize is more than worth the journey.