Cloud spend is soaring – don’t fall into the value gap

Our increased dependence on cloud over the last 18 months cannot be disputed. With a majority of organizations having benefitted from the technology it is unsurprising that IDC’s latest figures forecast cloud infrastructure spending to grow 12.9 per cent to $74.6 billion for 2021. Yet estimates indicate that nearly a third of organizations' cloud investment is inefficient, meaning approximately $25 billion is not driving real value for the enterprise.

About the author

Adrian Bradley is Partner and Head of Cloud Transformation for KPMG UK.

As cloud spending increases this value gap is only going to grow.

The reasons for cloud waste generally fall into two camps: architecture waste and value waste.

Architecture and value waste

With architecture waste, this can include when an enterprise moves to the cloud without transforming. This results in approaches that mirror labor-intensive legacy infrastructure patterns. In addition, some organizations have implemented cloud patterns and designs which have not aged well – using dated instance types or failing to refactor as Platform as a Service (PaaS) and Function as a Service (FaaS) capabilities have emerged.

In terms of value waste, really understanding how your business gets value from cloud (for example, are you more focused on analytics, AI, scaling or cybersecurity?) should be addressed from the get-go. There is also the issue of regulatory compliance being implemented by committee rather than by design, the outcome being that appropriate compliance mechanisms are not embedded properly in cloud engineering which can result in unnecessary costs. Lastly, without effective and transparent cost consumption, enterprises struggle to govern spend against the value cloud is delivering their business.

Compounding these reasons are that companies are focusing their cloud migration on delivery timescales and budget, rather than on the business outcomes, resulting in a poor quality of transformation. For example, often there is a focus on spinning up environments and proving capabilities. Once the cloud migration has been established there is then a need to implement the correct controls, this becomes difficult to do after the event, however. Consequently, cloud environments need to be entirely rebuilt or scrapped at cost.

How to close the value gap

For CIOs looking to secure essential future investment for the cloud, could wastage turn into their Achilles heel? Furthermore, with growing pressure on CIOs to maintain their accelerated digital transformation – built on a cloud infrastructure – how do they get maximum value from every penny? Fortunately, there are a series of measures that organizations can take to get the most value from their cloud investments:

Be clear about your organization's strategic purpose in using cloud

Cloud can perform myriad functions for a business. Certain organizations may use all of them, while others only utilize a couple. That’s why businesses must pin-point what they are actually trying to achieve, so that the appropriate functions are used. The basic functionality is commodity infrastructure, which provides data storage and compute power. At an intermediate level, cloud can also be used for increased agility, scalability and speed of provisioning to accelerate speed to market of technology products. For the most innovative companies, cloud can be used for analytics and advanced technologies including AI and machine learning.

Create a ‘cloud value map’ to measure impact

Once the strategic purpose of using the cloud is crystalized, current usage should be mapped against it. As part of the mapping exercise, cloud functions must be split out into three pyramid tiers. At the top are business services that obviously effect customers and users; in the middle are enabler capabilities; and at the bottom are the core, foundational operational metrics. A cloud mapping assessment must incorporate scrutinizing operational usage – whether cloud is supporting the ability to execute higher up the stack; whether cloud is acting as an enabler for business processes and systems; and the extent to which it is actually impacting on processes and customer journeys. By undertaking this process, IT teams can be confident that they are running a cost-effective cloud infrastructure.

Switch from a simplistic cloud-first approach to a sophisticated cloud-appropriate strategy

Hybrid cloud allows businesses to pick the right infrastructure for the right job. One workload may benefit from a specific AI capability more prevalent in one cloud, whereas another workload may be purely commodity to be placed in the cheapest location, cloud or on-premise.

Work in partnership with the Risk functions and engineering teams

Agree a cloud controls framework to provide the Board and Regulators with confidence to move at pace. The framework manages the security, operational and resilience risks that come with migrating to, and operating on the cloud. And it helps to understand, mitigate and manage these risks, while complying with relevant regulation.

Cultivate collaboration

A lack of alignment between business and technology functions often means that cloud is implemented but misses the beneficial opportunities. By bringing IT and business teams together it cultivates an opportunity to review cloud usage, blockages and ways of kick-starting more rapid progress. CIOs may be the individuals spearheading cloud adoption, but they must work with other business areas to agree strategy and communicate the impact of decisions made about cloud use and how it will evolve through the organization.

A recent KPMG survey of business leaders shows that 67 per cent have accelerated their digital transformation strategy and 63 per cent have increased investment in their digital transformation strategies. The technologies that businesses are prioritizing for digital transformation are heavily cloud dependent. As companies lean on cloud technologies to recover and rebound from the pandemic, a considered approach to minimize waste is vital. So far, organizations have got away with this wasted spend, but how much longer will they avoid scrutiny from their shareholders and regulators? Only time will tell.