Learning from leaders in
cloud-infrastructure adoption
A
crucial benefit of cloud adoption is a decrease in time to market for new
applications, which in turn can drive down costs and quickly improve product
quality.
Companies that have
taken the initiative to adopt cloud infrastructure rather
than rely on server technologies have found that the advantages are well worth
the investment of resources. In this episode of the McKinsey Podcast,
McKinsey partner Irina Starikova speaks with McKinsey Publishing’s Roberta
Fusaro about what laggards in the enterprise cloud-infrastructure space can
learn from leaders finding business uses for cloud technologies.
Learning from leaders in cloud-infrastructure adoption
Podcast
transcript
Hi, I’m Roberta Fusaro, an editor with
Digital McKinsey. On today’s McKinsey Podcast, we’re talking about
the cloud: the distributed servers that play host to our personal and business
information.
Irina Starikova, a McKinsey partner, has
been doing research on the cloud for many years now. She has examined business
uses for cloud technologies, patterns of adoption by some of the largest
players in the industry, and shifting attitudes toward the cloud.
Earlier this year, she and her co-authors
published an article on leaders and laggards in enterprise cloud-infrastructure adoption. Irina is speaking with me today
about some research findings and to offer some much-needed perspective to those
companies that are experimenting with cloud technologies. Irina, thanks for
joining us.
Irina Starikova: Thanks, Roberta.
Roberta Fusaro: Let’s start this discussion on the ground. What is
the cloud and what are some examples that we might run across in our day-to-day
lives?
Irina Starikova: Put very simply, the cloud is a network of
distributed servers that are hosted on the Internet, and those servers are
managed in a highly automated way. They’re also shared by many applications at
the same time, and that results in three kinds of outcomes.
First, you have much lower cost of hosting
applications and data. Second, you have much faster speed of putting new
applications on that infrastructure. Lastly, you have much better reliability
and security for your applications. Those servers can be either internal for
your enterprise—and we call this private cloud—or they can be owned or managed by a third party. In that
case, you would call them public cloud or managed private cloud. We use
applications and data that are hosted on cloud technology every single day. In
our personal lives, there are very few things that you do when you’re turning
on an application on your phone or you’re sharing data with someone that would
work without cloud technology in the back end.
The examples run the gamut of everything
you do in your daily life. You can be shopping on Amazon. You could be watching
Netflix, sharing pictures with your family, getting an Uber, ordering food on
DoorDash. Or you could be booking your SoulCycle session.
That all involves some sort of cloud
technology in the back end to make it work. Similarly, when you think about our
clients, most large companies today use cloud technology quite extensively.
That could be a private cloud that they’re managing in their own data center or they
could be using services by public cloud providers such as Amazon Web Services, Google Compute
Platform, Azure, or IBM.
Roberta Fusaro: How have cloud technologies and the market for cloud
solutions evolved over the past three to five years?
Irina Starikova: The overall market for those services has really
taken off. If you look at the latest reports by all leading market analysts,
everyone is putting it well above $200 billion.
There’s hardly any debate about this being
a huge thing happening. Secondly, when you look at enterprise adoption of
cloud, that also started to change dramatically, and it’s shifted a lot from
private cloud to public cloud.
To give you some numbers, through our surveys,
we found out that more than half of all enterprises of any size plan to shift
at least some applications completely to the public cloud in the next two to
three years. That’s the change that we started to see happening in the last two
years.
Those things have a huge impact on the
overall enterprise-technology ecosystem. If you think about several years back,
enterprises were direct buyers of 35 to 40 percent of all server and storage
technology. Now some analysts expect that that share will shrink to less than
20 percent, and that will happen as soon as the next two years. That has huge
implications, obviously, on all providers of server-storage networking
technology as well as service providers that exist in the ecosystem around
that.
Roberta Fusaro: How have companies’ discussions about the cloud
changed over the past three to five years?
Irina Starikova: In addition to this shift of enterprises to use
public cloud services a lot more, we also see that there’s a shift in
conversation to the scale of adoption. People are talking about what it’s like
to be using the cloud for a majority of applications in their portfolios.
Another big set of conversations that has changed significantly is related to
the security and compliance requirements of the public cloud. Let me take those
one by one. On scale of adoption, companies are no longer happy to be using the
cloud for just a small share of their overall data-center footprint or a small
share of their application portfolio. There’s a lot of focus on what it would
take to really adopt the cloud at scale and what it would take to adopt public
cloud services at scale.
On the security and compliance side, we’ve
gone away from talking about how that is the hugest barrier to using
public-cloud services. Now you have a lot more advanced conversation on what
the right controls and what are the right standards to protect information in
the public cloud.
Security is still very important and
compliance is still a nonnegotiable thing for many of our clients. But what is
happening now is that instead of saying, “OK, we’re just not even going to
discuss cloud because of those constraints.” People are saying, “OK, well,
those constraints are there. Let’s talk about specifically how they’re going to
be addressed when we use public-cloud services.” And frankly, even for clients
that are coming from highly regulated industries that have to worry about
highly sensitive patient information or customer information that is considered
highly personal. We already see many examples of those companies moving to
adopt public-cloud services at scale for a pretty large variety of different
applications.
Roberta Fusaro: McKinsey’s enterprise cloud infrastructure survey
sheds light on what’s really going on with cloud adoption. When was it conducted?
And who participated?
Irina Starikova: We started the survey in 2014. Over time, we’ve
collected information from more than 50 large enterprises that are based either
in North America or in Europe. We wanted to understand what cloud technology they
were adopting, how they were adopting it, and at what pace.
For a good majority of those enterprises,
we have multiple observations across this time period, so we can see how they
have evolved over time. We were able to include companies here from a variety
of different industries. So we have just as many companies from nonregulated as
well as regulated spaces as well as company sizes and different levels of cloud
adoption and sophistication.
Companies are still investing in pretty
complex private-cloud platforms. And those companies we believe first went down
this path because they thought that the public cloud was not secure enough or
not meeting compliance requirements they have. Some of them chose more
sophisticated platforms to build something that can meet the needs of many
different applications in their portfolio. They did that over choosing a more
practical and simpler approach that is going more aggressively after broader
adoption, and frankly, better impact from using simpler solutions, while some
companies are continuing to build those complex private-cloud platforms. We
sometimes talk about that as a big, hairy science project. There is clearly a
group of companies that are emerging as leaders in cloud adoption, and we are
calling them cloud savvy. They have achieved a lot higher adoption of cloud.
We measure that as a share of their
overall hosting environments that are based on cloud technology. The difference
between leaders and laggards here is pretty stark. We’re talking in some cases
about a gap of 40 to 50 percent. Some leaders in the same market and in the
same industry would have over 40 or 50 percent share of their environments on
cloud, whereas the laggards would have single-digit percentage share. What
leaders have done differently in those cases is that they focused a lot more on
building organizational capabilities rather than overinvesting on technology
engineering.
They were not striving to create a perfect
technology solution but were first of all focused on getting meaningful results.
So they tested and learned and adjusted their strategies along so that they
focused a lot more on getting results rather than science projects.
Roberta Fusaro: Clearly your research found leaders and laggards—a
lot of companies that have a way to go with their cloud programs. What lessons
can the laggards take from the leaders?
Irina Starikova: The benefits are quite significant and there were
multiple types. The number-one benefit that many leaders saw from adopting
cloud was in time to market. What that means is that they were able to deploy
new applications using cloud services a lot faster than they were able before.
Sometimes we were talking about the difference between weeks cut down to a few
hours and sometimes less than one hour.
The importance of that time to market is
that the business of those organizations was able to deploy changes to their
products a lot faster than they were ever able before or they could change some
of their internal processes that they were transforming a lot faster.
What comes clearly in the second and third
place in terms of benefits is cost reductions and quality improvements. What
that means simply is that the total cost of operating your hosting
infrastructure has gone down quite significantly because of the cloud. Similarly,
the quality, the reliability of that service has improved a lot in the same
time.
Roberta Fusaro: I noticed that one of the major themes that
emerged from the research was this notion around openness to the public cloud.
This point has been cited in a lot of external media. Can you talk a little bit
more about this point?
Irina Starikova: In part this has been happening because of some of
the cloud-service vendors have become a lot more aggressive. They have invested
a lot in their enterprise sales forces and have been beating on the doors of a
lot of them.
In parallel, the economics of public-cloud
services have changed a lot in the last three years and have become comparable
to what some of the most efficient private-cloud environments were able to
achieve.
So it has become a lot easier for our
enterprise clients to be able to see that they can save quite a bit by moving
to the public cloud. Of course, it also happened because the security standards started to emerge for the public cloud. As we already said, the
conversation around security and compliance has shifted from that being the
major barrier to it no longer being a major barrier. But instead being
something that needs careful understanding and analysis and engineering before
any applications can be shifted to the public cloud.
Roberta Fusaro: There’ve been wide reports of a number of security
breaches both in government agencies and companies and so forth. I’m wondering
if any of that has had any impact or could have any impact on the data points
that you cited.
Irina Starikova: Absolutely. There will always be concerns. All of
the cybersecurity questions and unfortunate incidents recently have brought it
back to the top of mind for everyone. There’s a much better understanding of
how security in the public cloud works, how it is different than what companies
have been able to build internally in their own data centers within their own
walls, and understanding where the public cloud could be better, stronger than
what folks are able to do today. You start to understand a lot better what the
weaknesses are and what are the available tools for you to address those
weaknesses. At the same time, what’s been interesting to see is what other
concerns have become the top barriers on the top of mind of enterprises for
adopting public cloud, much more practical question such as what is the cost?
What is the complexity to move away from what the enterprises have accumulated
in their own data centers?
Another one that often comes up in
conversation is related to vendor lock in. Many enterprises are concerned about
the concentration that is happening in the provider space. Increasingly the top
four players are gaining bigger and bigger market share away from all of the
other players.
Roberta Fusaro: Looking at those two particular concerns, this
notion of moving away from legacy systems and avoiding vendor lock in. Did your
research turn up any best practices or any advice for avoiding those traps? Or
mitigating those traps?
Irina Starikova: A number of companies are starting to ask for
better standards or interoperability commitments from the biggest vendors, so
that it becomes easier for enterprises to shift between those players and avoid
the vendor lock in, avoid being attached to one single one.
Roberta Fusaro: Notwithstanding the very legitimate issues that
were surfaced in the survey, do you think everything is going to end up in the
cloud? Storage, computing, everything?
Irina Starikova: I love this question. Let me explain what I mean
by that. By year 2020, which is not that far away, I can see that up to 80
percent of enterprise applications can be in the public cloud. Whereas the
remaining 20 percent would be in their own data center in the private cloud
because of legacy, cost, or security reasons. What I also believe is that that
20 percent might be even a smaller figure for some companies in nonregulated
industries. What I am also fascinated by is learning stories about digital-born
companies, so those companies that have existed for ten years or less. When you
ask about how they’re doing their infrastructure and what they’re doing with
cloud, you almost never hear that they’re building their data centers. They
have all embraced the public cloud as just the right thing to do.
They frankly are saying, “This is not our
competency. Why would we build our own electrical power station? No one does
that anymore.” Similarly, we see those companies completely move away from the
concept of building infrastructure by themselves. They have clearly stated that
they will not own their own data centers.
Roberta Fusaro: For the companies that do own their own data
centers, what lessons can they take from digital-born companies and other
leaders that have kind of gone in another direction?
Irina Starikova: The four big lessons that we’ve learned from the
leaders in cloud adoption from our survey are all about building organizational
capabilities rather than technology. The first one is focus on the migration
road map and focus on getting meaningful migration results, basically executing
on your plan. The second one is to look for ways to improve the experience for
application-development teams, iterating on that as you go because you will
never get it right the first time. The third lesson is around being very clear
on the business case and understanding as you go with the migration, how that
business case is realized and what kind of incremental decisions are changing
that business case or helping you to realize the benefits you went after from
the get-go.
The final lesson learned is around
understanding the operating-model implications of using the cloud services at
scale. There are really huge implications on what kind of skill sets are
required. How different teams within your IT department would operate with each
other and with the business units. The cloud leaders in our research have
embraced and have done a lot against all of those four areas.
Roberta Fusaro: I had one last question about supporting a cloud
operating model. I’m just wondering how hard or how easy is it for companies to
make that wholesale change? And what are some key questions that executives
need to ask themselves if they’re thinking about making this journey?
Irina Starikova: That’s a great question, Roberta. This is frankly
one area where we’ve heard from a lot of companies we’ve been working with that
operating model is the hardest thing to get done right when migrating to the
cloud at scale.
Even companies that anticipated that that
would be hard were surprised by how much harder it was than they initially
thought. What we are talking about here is that you not only change the skill
sets quite fundamentally, you are rescaling a big portion of your
infrastructure teams. You’re also changing some of the processes: what those
folks are working on day to day and how they interact. As well as how they are
working with other teams inside IT.
Roberta Fusaro: That’s interesting because you think of the term
cloud as being very ethereal, right? But the actual work on the ground, there’s
a lot of nuts-and-bolts tactics that executives need to be involved with in
order to adopt enterprise cloud and be successful with it.
Irina Starikova: Yes. None of those changes happen in a short
period of time, either.
Roberta Fusaro: Very interesting stuff, but I’m afraid we’re out
of time. Thanks, Irina, for speaking with us today.
Irina Starikova: You’re welcome, Roberta.
http://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/learning-from-leaders-in-cloud-infrastructure-adoption?cid=podcast-eml-alt-mip-mck-oth-1707&hlkid=28fcd2a5d181446b95adc96cbacf90f8&hctky=1627601&hdpid=dd36ebf2-dc54-4c05-b8a0-fe1b0a73eff7
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