Into the clouds
Cloud technology is one of the most significant changes to the global business model in decades and the majority of large organisations are in the process of implementing some elements of the cloud.
Cloud services range from discrete functional projects to enterprisewide adoption and implementing them effectively can take several years. Issues such as cost implementation and complexity of integration with existing systems, as well as regulatory and security concerns, are top of mind for companies implementing cloud today.
Being unprepared to respond to these challenges can result in a company’s failure to fully realise the business and IT benefits of the cloud.
In late 2012 KPMG, in partnership with Forbes Insight, conducted a web-based survey of 674 senior executives at organisations using cloud across 16 countries to assess the status and impact of cloud adoption around the world. The survey resulted in KPMG’s second global cloud survey report, aptly called The Cloud takes shape. The report has some interesting insights that are very relevant to Bermuda’s reinsurance industry.
Business and IT leaders across the globe are finding cloud adoption to be more complicated than many had originally anticipated, with a third of all executives surveyed saying that cloud implementation costs had been higher than they expected. A similar percentage has said that integrating cloud services with their existing IT infrastructure had been particularly difficult.
Overall, the consensus was that the benefits of cloud adoption significantly outweighed pains experienced during its implementation, with more than half of all organisations already working in the cloud and 70 percent of those with existing cloud experience saying that the cloud had delivered significant efficiencies and cost savings.
Business process redesign key to the implementation challenge
As the market for the cloud matures, enterprises are now starting to come to terms with the hard practicalities of cloud enablement. There is evidence that organisations are placing greater focus on getting the business process redesign right, facilitating appropriate change processes and making business model improvements.
One of the most important lessons uncovered by this research is that business process redesign needs to be done in tandem with cloud adoption if organisations hope to achieve the full potential of their cloud investments. Executives have found that simultaneous process redesign is central to addressing the complexities that often arise in the implementation and operational phases of cloud adoption.
Reaping the transformational value from cloud
Despite these emerging complexities, executives still believe that the benefits of cloud adoption far outweigh any growing pains they experience through implementation. In part, this is because organisations are shifting their focus away from pure cost reduction objectives to focus instead on achieving the transformational benefits of cloud.
As the cloud begins to become more mainstream within the business environment, we are seeing organisations move from the ‘when’ and ‘why’ of the cloud adoption process, to focus instead on the ‘how’.
While cost reduction is still the primary reason for cloud adoption, according to nearly half of respondents, a large number said that the speed at which they are able to migrate to cloud is important, as is the cloud’s ability to enable faster entry into new markets and business process transformation.
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 longer-term outcomes such as more efficient processes and more flexible operating models.
As the cloud moves further up the ranking as a strategic tool of the business, we will begin to see the chief investment officer’s role becoming ever more important as the business integration broker on commercial, process and technical levels.
Cloud’s new and emerging challenges
Businesses are starting to understand more clearly some of the other aspects of cloud that can either significantly enhance or impair their organisation’s ability to reap the rewards of cloud adoption.
Security: Business executives are recognising that cloud adoption should improve security, not lessen it, but nevertheless a large number of respondents still see security as a key challenge. The report indicates that business executives know that the only way to address this concern is to work more closely with IT to develop a joint approach on cloud security to ensure cloud providers’ solutions and services are reliable and protected.
Many businesses are displaying their growing confidence in the security of cloud, with more than a third of respondents saying they will migrate core operations concerning sourcing and procurement, supply chain and logistics to the cloud within the next 18 months.
Security, data loss, and privacy are still significant concerns for business and IT leaders but many are quickly gaining more confidence in their service providers. Functions that, until just recently, were considered too sensitive or complex are now being put on the table.
Regulation: Only 18 percent of respondents see regulation as a challenge but that may be due to complacency, the report’s authors suggest, because organisations may be just beginning to prepare for the complexities that will arise with increased regulatory compliance.
It will not be long before regulators start to enforce new rules that will have an impact on the way global organisations use the cloud. A large number of respondents say they are looking at private cloud environments as a way to address regulatory challenges.
"Security, data loss, and privacy are still significant concerns for business and IT leaders but many are quickly gaining more confidence in their service providers."
Tax: Cloud computing has created a new borderless business environment in which tax authorities are doing their best to keep up with changes in technology. The global fluidity of cloud results in tax compliance risks in terms of evaluating the location of cloud business and its customers and assessing intra-group cloud transactions in accordance with the arm’s length principle. However, it also provides opportunities for multinational groups providing cloud services, either internally or externally, to consider a tax-efficient structure and strategy for the provision of such services.
According to the survey, when asked how significant the role of tax was to making decisions to migrate to the cloud, nearly 75 percent of respondents globally viewed the role of tax as either very significant or significant. This indicates recognition that tax structures may change as a result of migrating to the cloud.
KPMG’s cloud readiness assessment
Most cloud consulting firms are focused on technology. At KPMG, we have always seen the cloud as a business issue that emphasises the business transformation opportunities and their implications. We take a cross-functional, business-centric view of the cloud.
KPMG has developed an online Cloud Readiness Assessment which, together with our consulting insights, enables our clients to assess the impact of the cloud on the IT function in the context of key business imperatives.
The assessment itself is cloud-based. It is a short, sharp diagnostic assessment, which uses a KPMG framework to allow us to identify gaps, challenges and opportunities across a whole spectrum of the cloud, ranging from business appetite and technical expertise within the organisation, to regulatory constraints that may affect a business’s ability to move to a cloud platform.
Examples may include:
• Information architecture—how is data currently managed and stored within your organisation, and is your IT function agile enough to manage data across platforms?
• Vendor management—how is your function organised to manage and monitor several disparate cloud providers to ensure they deliver services to the business need, while maintaining security and regulatory compliance?
• Tax practices—implementing cloud services may have serious tax implications especially as cloud, by its nature, sits across tax jurisdictions. How confident are you that your tax processes adhere to the correct tax rules and regulations?
If you would like us to conduct a Cloud Readiness Assessment, or would like a fuller explanation of how the assessment can help your business prepare for a successful future in the cloud, please contact KPMG.
Fred Oberholzer is senior manager, IT advisory at KPMG. He can be contacted at: email@example.com