FinOps, co-innovation could unlock cloud business benefits
Industry studies underscore businesses' continuing struggle to obtain cloud computing benefits. A greater focus on strategy, financial management and co-innovation could help.
While cloud adoption is now commonplace across enterprises, less so is the ability to get the most out of those investments.
The elusive nature of cloud business benefits isn't new. A 2018 Accenture study reported that only 35% of the companies it surveyed fully achieved the business outcomes they expected to find in the cloud. A follow-up report in 2020 found the needle of cloud satisfaction had barely moved. A report from consultancy SPR, also in 2020, cited poor communication between IT and business leaders among the barriers to cloud benefits.
What's different now? The rapid acceleration of cloud and digital transformation since the start of the COVID-19 pandemic has complicated matters, exacerbating earlier cloud strategy and cost management problems.
Consider the following:
A report published last week from consultancy PwC noted that 78% of the executives polled have widely adopted cloud in their business, but 53% said they have not realized the desired outcomes. PwC classified only 10% of the respondents as "cloud-powered companies," meaning that they have realized measurable value from the cloud.
An Accenture report issued last month revealed that 86% of companies increased the scope and volume of cloud initiatives over the past two years, but 42% said they have yet to achieve the full value. Nearly 70% deemed their cloud journey incomplete.
A Forrester Research study, also published last month, said the spike in cloud spending during the pandemic, much of which occurred outside centralized IT budgets, likely resulted in "chaos and overspending" for many businesses.
The upshot: Enterprises will be looking to optimize earlier digital investments this year, with the troubled economy providing an additional incentive to boost cloud value. IT services providers anticipate optimization as one of the key opportunities to unfold in 2023.
Optimization has emerged as a key cloud theme thus far in 2023.
Getting to cloud value
A first step toward achieving cloud value is having a solid strategy, said Cenk Ozdemir, PwC's cloud and digital leader. Cloud strategy, however, suffered as enterprises rushed to digitalize in the early months of COVID-19. The strategy step ideally paves the way for subsequent phases: migrating applications and data, modernization applications, using microservices, and developing cloud-native applications.
"That got out of sequence a little bit ... with cloud 1.0," Ozdemir said. "[Businesses] did the migration first, and they are now coming back to strategy."
Organizations neglected strategy in their enthusiasm for achieving infrastructure savings through cloud migration, he added.
The real unlocking of value is going to come from modernization and cloud-native development of the front office and the middle office.
Cenk OzdemirCloud and digital leader, PwC
"Migration is just a piece," Ozdemir said. "The real unlocking of value is going to come from modernization and cloud-native development of the front office and the middle office."
PwC's report is based on a survey of 1,010 U.S. business executives across six vertical markets: financial services; industrial products; consumer markets; health; energy, utilities and resources; and technology, media and telecommunications.
Accenture's study, meanwhile, acknowledged "a period of dramatically compressed transformation" during which cloud adoption became a matter of urgency. Now, the focus is shifting from getting there to getting value and, eventually, seizing business and innovation opportunities, the report noted.
"Today, companies find themselves at a new inflection point: much of the low-hanging fruit has been harvested and now they're reaching higher," Accenture said.
Accenture polled 800 C-suite, line-of-business and IT executives from 14 countries for its cloud report.
Searching for cost benefits
In addition to having a cohesive strategy, improved cost management plays a role in reaching cloud business benefits -- including the basic attraction of infrastructure cost savings.
About 40% of technology spend, including cloud, comes from business-budget holders, according to a Forrester survey of business and technology professionals. The wave of pandemic-era cloud spending calls for "the great decluttering," Forrester noted.
To get the tidying started, the market researcher recommended that companies identify an owner for cloud costs and pursue FinOps for cloud financial management.
"The cloud cost owner typically should be someone in IT infrastructure tasked with budget or a vendor management professional with some specialization in IT," said Lee Sustar, principal analyst at Forrester.
He noted cloud cost optimization efforts will require collaboration among stakeholders in IT operations, procurement, vendor management and the CFO's office.
In addition, coordinated purchasing can provide the basis for discounts larger than what business units could achieve through separate negotiations with vendors, Sustar said.
"The cloud providers may drag their heels on this, but large organizations should have leverage to insist on this, especially if they are in multi-cloud environments," he added.
Accenture's survey zeroed in on cost savings as the hardest-to-realize cloud advantage. Only 39% of the respondents said cloud cost savings fully met their expectations; higher percentages of respondents cited satisfaction with the cloud's speed, innovation, improved service levels and resilience.
Businesses need tighter financial management and deeper cloud adoption to wring greater value from cloud, the study suggested. The professional services firm pointed to FinOps methods and "a more cloud-native mindset" as ways to achieve cost benefits.
Accenture, UKG partner with healthcare system
Accenture and UKG, an HR technology company, collaborated with Ardent Health Services to deploy a cloud-based workforce management offering across 30 hospitals and 200 clinics.
The UKG Dimensions system manages scheduling, payroll and attendance across the Nashville, Tenn., company's healthcare facilities. Ardent previously used a combination of offerings including UKG Workforce Central -- a legacy Kronos product -- and API Healthcare, said Carolyn Schneider, chief HR officer at Ardent.
Shelley Simkins, Accenture's workforce management strategy and consulting lead, said the technology gives Ardent's front-line managers and staff the visibility and insight to build a more scalable and flexible workforce model, while also improving employee experience and patient care.
Working together
Companies in the cloud-powered category are more likely to collaborate with business leaders on transformation projects, according to PwC. The consulting firm's survey found tighter relationships between CIOs and other C-suite executives among the more successful companies. For instance, 85% of the respondents from the cloud-powered group reported strong relationships between the CIO and CEO, while 66% of the respondents outside that group reported such ties.
"When you transform yourself on the cloud, it's a team effort," Ozdemir said.
Environmental, social and governance (ESG) initiatives also influence greater collaboration. ESG will be embedded in all processes and systems in the future, a push that will require cooperation among an organization's business and technical functions, Ozdemir said.
The teamwork approach will extend beyond individual businesses and into the broader partner ecosystem.
Ozdemir said he expects to see consultancies, cloud providers, and one or more clients working together to build industry-specific clouds. Clients with the most complex requirements will pursue such co-innovation, he said. IT services executives generally view cooperation as crucial for customizing clouds for vertical markets. Industry clouds, they contend, can push customers to higher levels of business transformation.
More support for co-innovation comes from Gartner. The market researcher last week cited that practice as one of nine top trends for technology providers through 2025: "Businesses are actively using technology to differentiate and succeed, so they are increasingly co-innovating with tech providers," the company said.
Focusing on cloud controls
Cybersecurity challenges will expand as businesses build more sophisticated clouds to close the value gap.
Businesses planning to construct new cloud architectures while also maintaining legacy environments must focus on trust and controls from the onset, Ozdemir said.
"That new architecture brings a lot of risk," he said. "What we are seeing is that CIOs, CISOs and CTOs are stepping back and saying, 'If I will build this brand-new stack in the cloud and still have a legacy [environment], how do I secure the whole thing and make sure the controls are in place every step of the way?'"
The cloud-powered companies in PwC's survey are more likely to think about the potential cloud risks across the phases of a transformation project: 82% of such companies have assigned resources to cloud governance versus 33% outside of that group. And 78% of the cloud-powered companies adopted cloud controls, while 33% of their counterparts did the same.
