Coveting Cloud Cost Savings: Don’t Sell Yourself Short

Stan Lepeak, Global Research Director, KPMG LLP Advisory
Rick Wright, Global & US Cloud Enablement Program Leader, KPMG LLP

KPMG recently released the 2013 edition of its annual cloud market research study. The first in a series of blogs examining key findings from this market study highlighted some of the hidden or at least unexpected costs and complexities organizations adopting cloud are experiencing. Another set of findings highlights that while cloud adopters can potentially save money and reduce costs compared to legacy IT environments, just focusing on the cost reduction potential of cloud misses out on its greater potential benefits.

Cost savings is the clear objective for most organizations adopting cloud (see below figure). It is encouraging to see that cost reduction and speed to adoption remain high on the list of objectives for executives. These benefits have always been central to the cloud value proposition, and bring obvious and meaningful business benefit. The fact that so many enterprises continue to see them as key objectives shows that experience in cloud environments has not seemed to dull these anticipated gains.

The research findings also show that the business side of organizations is beginning to recognize that cloud is much more than just another IT cost reduction lever. This is illustrated in the gap between how IT and business leaders view the cloud. Fifty-one percent of IT execs cited cost reduction as the top cloud objective compared to just 41 percent of business execs.

Essentially, the IT function sees cloud as a strategy to run their business more efficiently by reducing costs and enhancing agility, two of the biggest challenges for most IT leaders. The business is less focused on these objectives, which indicates that they see these challenges as being the purview of the technology function and—correctly or incorrectly—assume that IT is taking every opportunity to achieve these operational objectives already.

These results suggest that business executives are starting to more fully appreciate the potential transformative value that cloud can bring to the enterprise. And, having experienced some of the immediate benefits of the cloud, many are now starting to look deeper into their operating models to see how these advantages can be extended into the wider enterprise. To achieve these benefits, however, it will be imperative that strong emphasis is placed on understanding cloud’s strategic potential and incorporating that into not only the overall business strategies, but also the cloud investment plans and technology architecture road maps.

Ultimately, executives of all stripes will need to remember that cloud is not a short-term fix for the business, and that some of the benefits will only start to have a significant impact a couple of years down the road. Indeed, gaining real cost savings from the cloud is about more than simply moving from fixed costs to operating costs; the greatest cost savings—and, more importantly, the transformational business benefits—will come from the longer-term outcomes such as more efficient processes, more flexible operating models and faster entry into new markets and geographies.

While process transformation via the cloud is key to achieving real and lasting benefits, getting there will not be simple. It will require business leaders to work with IT to develop innovative strategies and plans to redefine and overhaul operating models and processes in order to take advantage of cloud capabilities. Otherwise, these transformational benefits will remain vague and aspirational, as has been the case with many early cloud adoption efforts.

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