Half of cloud transformations ‘abject failures’

Published on the 14/11/2023 | Written by Heather Wright

Half of cloud transformations ‘abject failures’

Capturing business value requires more clarity…

American author Don Marquis’ comment that ‘every cloud has its sliver lining, but it is sometimes a little difficult to get it to the mint’ is ringing true for many senior executives with few organisations realising their cloud ambitions and executives reporting growing disillusionment with the technology’s business outcomes. 

An HFS report in collaboration with EY says while 65 percent of organisations have made strategic investments in cloud, only 32 percent are achieving their ambitions, and senior management’s satisfaction with progress is even lower.

“Very few organisations are successfully creating a net-new business model using the cloud.”

More than 500 senior executives from Global 2000 companies were surveyed for the report which found that organisations are struggling to deal with the costs of their cloud migrations and, ultimately, with capturing business value from their investments. 

“Half of cloud-native transformations are abject failures,” Matt Barrington, EY Americas emerging technology leader, is quoted in the report as saying. Other stakeholders say the failure rate is even higher. 

Gartner has forecast Australian organisations to spend AU$23.2 billion on public cloud services next year, up 19.3 percent on 2023’s figures, with New Zealand organisations forecast to increase their spend by 22.3 percent to almost NZ$4 billion.

But Gartner VP analyst Michael Warrilow warns that most Australian and New Zealand organisations remain immature in how they manage the cost of cloud.

“In 2024, CFOs are going to put much greater scrutiny on continuing rapid growth in cloud spend,” he says.

The HFS report suggests many companies remain stuck in a technology-modernisation mindset, rather than looking to leverage cloud to drive functional transformation, such as finance or supply chain, or end-to-end business transformation. 

“Top of mind are efficiency gains, such as decentralised working and ubiquitous access to information.

“Conversely for very few, it means a change in operating model. Yet how do you get to business models or a product-centric mindset without changing the way you operate? This exemplifies a central point of the cloud discussions: How can organisations justify the every-increasing consumption of cloud resources with its quickly rising prices, when the value of those investments is primarily confined to efficiency gains, not value. 

Business stakeholders and senior-level and c-level management were least likely to feel their business was meeting its cloud priorities – at 79 percent and 77 percent, respectively.

Most optimistic were IT stakeholders, but even there a whopping 63 percent say they haven’t achieved, or have only partially achieved priorities. 

The challenge in capturing value from cloud-native technology (CNT), HFS says, lies not in execution, but in strategy, specifically aligning technology and business priorities, cited by 32 percent as a ‘critical’ challenge.

“So far, very few organisations are successfully creating a net-new business model using the cloud,” says Ragu Rajaram, EY global cloud consulting leader. “It is happening in small pockets – typically not at large clients, but at small- to mid-size clients looking to to eat large clients’ lunch.”

For large organisations, technology and process debt are an issue, with some rearchitecting for the cloud first, and some creating a parallel cloud-native organisation next to the brick-and-mortar heritage operations. 

The report also notes a ‘fundamental disconnect’ in how the industry discusses organisations moving toward the cloud.

“Hyperscalers’ revenues and marketing’s noise levels appear to suggest the market is growing and cloud migrations are largely successful. At the same time, the supply side is evangelising containerisation technology and capabilities with Kubernetes as the marketing noise focal point.

“Conversely, the buy side is struggling to capture value from their cloud investments; few clients have a well-defined organisational-level cloud transformation strategy, which can lead to siloed transformations.”

There were some encouraging signs, however, with companies making progress on their cloud journey. Two years ago, most respondents were in the process of formulating a company-wide strategy and looking at cloud as a cost play. The latest results show emphasis has moved to cross-functional workflows and establishing a cloud-first strategy. 

But despite that, just 15 percent of respondents mentioned new business models.

Phil Fersht, HFS CEO and chief analyst, says the study highlights the importance of clear data-centric strategies, a product focused mindset and connecting technology directly to business priorities when implementing CNT.

HFS says companies need to move beyond focusing on decentralised work and efficiency gains by elevating data-centric strategies and making data the centrepiece of discussions by focusing on business outcomes. Shifting from a project focus to a product focus will support data-centric outcomes, with companies also urged to encourage and manage continuous goals to deal with the new operational complexity.

Driving talent transformation, enabling velocity to access relevant data assets and enable high data throughput through automation, and turbo-charging time to value to provide tangible outcomes in narrowly defined time windows are also required, the report says. 

“Organisations need more clarity on the transformational outcomes and the future state they are meant to land on. Inherently, cloud is about enabling transformation, but it isn’t a means to an end. Without a specific cloud target operating model designed by aligning technology and business objectives, organisations will struggle to justify cloud’s costs and capture value from their often-steep investments.”

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