European companies are hampering their own cloud computing ambitions due to a misguided focus on IT improvements rather than an overhaul of business operations, new research suggests.
Though 95% of European companies describe themselves as capturing value from the cloud, a study from McKinsey found few firms are unlocking marked financial benefits from migrations.
“Scratch below the surface, and the story is a little less rosy,” the consultancy said.
The large majority of the value captured through shifting to the cloud according to McKinsey, remains in “isolated pockets and at subscale”.
Out of the C-level executives and cloud leaders surveyed in the report, 82% recognized that the beneficial impacts of their cloud programs are either limited to specific areas, only partially realized, or still in the early stages.
Part of the reason for this can be attributed to the way European companies measure cloud impact.
The majority (71%) measure impact in IT improvements, while 66% measure based on IT cost savings and 63% based on the number of applications in the cloud.
By comparison, only about a third of European companies monitor “non-IT outcomes”, with 37% measuring by their cost savings outside IT and 32% measuring based on new revenue generation.
Around five-times more European companies are still pursuing an “IT-led” cloud migration compared to US counterparts, the study found, with a focus still being placed on the movement of workloads rather than revenue generation.
McKinsey noted that around two-thirds of potential cloud value comes from revenue uplift and cost savings in business operations, meaning Europe needs to rethink its priorities to start growing financially.
Moving forward, McKinsey said European firms should shift their focus toward “higher-value cloud use-cases” when embarking on a migration or transformation project.
European cloud journeys stall
The pace of European cloud journeys was also concerning, with the study indicating that less than a third of enterprises have 50% of their workloads on the cloud.
McKinsey noted, however, that “aspirations are increasing” in this regard.
In-depth assessment of supply chain management processes providers
Half of respondents said they were undertaking large-scale migrations or building new applications for the cloud, though around two-thirds of companies with cloud adoption exceeding 50% still keep more than 20% of their activity on-premises.
The McKinsey report did highlight some positives for Europe, with 90% of the surveyed companies ranking their cloud programs as a priority and over a third regularly discussing cloud progress at the executive level.
Satisfaction with cloud investment was reported by 55% compared to just 13% describing returns as insufficient, and 95% of all surveyed described themselves as having captured a level of operational improvement.
How can Europe improve its cloud game?
McKinsey’s report suggests the need for companies to focus on “three mutually reinforcing elements” for effective cloud operations - business value, utilizing small cross-functional teams, and building sufficient foundations.
Companies also need to appreciate the importance of working with cloud service providers (CSPs) and system integrators (SIs), according to the report. In doing this, organizations can build a clear view of their capabilities in areas of regulatory compliance or code migration.
AI will have a role to play in the successful harnessing of the cloud in Europe, according to McKinsey.
The consultancy said enterprises “must explore” the prospect of generative AI adoption in some capacity. The use of the technology could aid firms in cloud adoption with the potential to multiply a company's return on investment (ROI) by seven.
Research by Gartner from last year, however, suggested that generative AI was yet to have a “material impact” on IT spending at large, so it’s difficult to say how great an explosion of it will take place in Europe’s cloud sector.
