How can rethinking your cloud strategy help you reshape your business?

The investment in cloud has yielded mixed results. Most firms (74%) continue to work partly in the cloud and partly on-premises while only 26% are fully in the cloud.

The move to cloud is often also hampered by issues in migration, with 36% agreeing in principle that cloud would have been useful to drive business model change but struggling to implement migrations properly in practice. In our experience, migration alone doesn’t bring about transformational change. A senior application lead in the consumer industry recently asked, “we’ve now migrated to someone else’s warehouse [cloud], what next?” This example highlights that there is still a significant gap for many businesses to address cloud migration and using cloud as a transformative technology of the business model.

The survey results suggest that inadequate planning is partly to blame. Poor financial planning was flagged by 42% as a reason for failed migration, while 41% called out insufficient technology-related planning. For the companies involved, the learning curve is steep, but investment in planning pays off in better post-migration returns.

A cloud transformation can – and should – deliver fundamental transformation in what the business does and in how it goes about achieving it. We found that cloud investment is too often viewed as an effort to update the technology strategy to augment the ways in which organizations currently operate. While 50% of IT executives stated that their cloud strategy was part of their technology transformation efforts, only 27% said the aim was business transformation. Similarly, only 16% of companies were working with cloud to evaluate new business models, underlining how cloud is not yet used as an opportunity to transform or future-proof the organization in a holistic way.

All too often organizations stop after migrating workloads to the cloud in the misconception that the transformation is complete. However, they fail to invest time in becoming a transformed organization.

Changing the operating model was a priority in cloud-native transformation for just 2% of IT executives, while only 1% say having a continuous process of transformation is a key part of their cloud strategy. This lack of strategic commitment emerges as a major stumbling block on the cloud journey, limiting the potential ROI of any investments.

Business leaders need to understand that becoming cloud-native is not just about using the technology but about enabling and creating business transformation underpinned by technology. To do so demands visioning and strategic thinking; it’s about reimagining the organization in its future state, embracing new business models and identifying a new future for the business architecture in and with the cloud.

In today’s modern consumer and technology markets, less nimble operational models inhibit organizations’ ability to take advantage of the agility and capabilities of cloud, at the speed of the market. Organizations need to transform their business operations to unleash the untapped potential of cloud-native services and applications. True transformation can only come about by going cloud-native – in terms of tools, mindset and skillset.

To understand why many organizations struggle to move from operation to transformation, we asked survey participants for their views and experiences of being cloud-native. Although the advantages were well recognized, we noted gaps in certain areas where benefits were undervalued.

The technology benefits of cloud are seen across a wide variety of drivers, such as cost saving and sustainability. For example, 81% of respondents were able to identify new carbon-reduction methods, and 41% reported improved monitoring of emissions thanks to cloud-native applications.

Over one-third (35%) of organizations identified innovation as a key advantage of cloud-native application development. By lowering the barriers to entry for deploying new apps and automation, employees at various levels can contribute ideas that transform the business model through bottom-up innovation. Another important aspect of innovation for businesses today is artificial intelligence (AI) and machine learning (ML). 

To close, our study has produced a set of actions that can be used as guidelines to leverage the cloud as a catalyst for further organizational transformation:

• Key for a cloud-native transformation, organizations must understand the desired business model transformation. What are the use cases for top-line growth, bottom-line savings, or innovative business services? In consequence, cloud transformation cannot be an initiative that is primarily being driven by IT management – it requires sponsorship, ownership, and input from the business.
• While transformations traditionally aim for business process changes, firms should keep the data angle in mind and build a well-thought-out cloud platform, providing them with an edge in many regards, especially with a view toward integrating GenAI.
• Organizations need to transform their business technology operating model. Additional research EY teams conducted with the Saïd Business School, at the University of Oxford, on where transformation programs go wrong and what organizations could do to get them right, indicates that organizations, which move beyond traditional operating models to agile-product business technology operating models and toward a higher degree of experimentation, achieved 2.6 times more success in their transformations. Central to these findings is the fundamental method of putting humans at the center of the transformation program; applying 6 drivers of human behavior is instrumental in driving transformation success: to lead, to inspire, to care, to build, to empower and to collaborate.
• Hand-in-hand with an operating model transformation, firms need to attract and/or upskill their talent base. They need to define critical capabilities, associated roles and skills and combine this with a robust capacity planning.
• (Co-)sourcing of talent can be a fast means to overcome time constraints. Executing a cloud transformation requires the development of cross-functional teams, both internally and externally, which will require a significant shift in behaviors and mindset from everyone involved.

We are at a pivotal moment of transition, and it is ripe for action. The organizations that will truly lead in the cloud era are those that graduate from a cloud-first strategy to a cloud-smart one. They will go beyond a one-size-fits-all approach and customize their cloud adoption, which in turn, opens up new paths to drive value and innovation. It's about aligning cloud strategies with specific business objectives, leveraging the full potential of cloud capabilities, and exploring new ways to drive growth and competitive differentiation.