When evaluating new technologies, companies typically focus on the direct financial impact the purchase would have—specifically, return on investment (ROI) and total cost of ownership (TCO). But when it comes to the shift to cloud computing, these traditional calculations—while valuable—may not reveal the full impact of the transition.
According to a recent report by MIT Technology Review Insights, additional criteria such as competitiveness, productivity, and new revenue opportunities come into play. Though difficult to measure, these factors have a clear impact on revenue growth and profitability. Indeed, there are already demonstrable productivity growth gaps between companies using legacy systems compared with those using cloud-based emerging technologies, including artificial intelligence (AI), machine learning (ML), Internet of Things (IoT), and blockchain. Low-productivity industries such as healthcare, retail, and education typically wait longer to adopt new information technologies, while industries with high productivity growth—oil & gas extraction, media and communications, and agriculture—are continuously adopting new technologies for automation and product development, investing five times more than organizations in low-productivity industries. The takeaway: Future productivity gains depend on digital (read: cloud) capabilities.
Research by the McKinsey Global Institute estimates that 60 percent of productivity-boosting opportunities during the next decade will be digital, but that currently US and European companies are running at less than 20 percent of that potential. One CIO calls this gap a “technological debt” that will have to be paid sooner or later, either by playing catch-up with more technologically advanced peers or suffering competitive disadvantages. Here are a few reasons why organizations should focus at least as much on the revenue-enhancement capabilities of the cloud as on ROI or TCO.
In the past, organizations could keep up with technology advancements by making incremental updates to boost performance or add new functionality to their legacy on-premises systems. Now, however, the pace of change has quickened to the point where these strategies no longer suffice. The reason?
Cloud computing is a unique paradigm shift that provides:
Because cloud computing offers these advantages, adopters can bring innovation to market quickly, opening new revenue streams and efficiencies to drive sales and profitability. Their noncloud adopting competitors? Not so much. Digital technology laggards pay a huge price in missed opportunities. Buffeted by rapid-fire disruption, these companies risk obsolescence alongside their technology.
The decision to upgrade technology typically falls on the IT department, which must make the argument that it requires new hardware or functionality to support continued growth. Even among early cloud adopters, the decision to migrate typically relies less on these new opportunities than it does on more traditional “end of usefulness” criteria, including:
As we’ve seen, however, the calculus has changed with the growth of cloud technology. Financial decision-makers are not used to considering the business benefits of a cloud migration. In addition, cloud computing’s subscription model means that costs will shift from capital expenditure to operations, which can obscure overall savings. Other benefits such as improved productivity are hard to quantify.
Applying traditional evaluation criteria such as ROI and TCO to cloud migration is valuable, but it doesn’t provide the complete picture. In fact, companies that rely on these measurements exclusively to delay cloud migration may be risking a missed opportunity that could prove devastating in the face of rapid change. Companies in all industries must consider the significant business value that cloud migration confers in addition to the short- and medium-term financial impacts.
In my next post, I’ll look at ways in which organizations can consider the business advantages of cloud migration that, taken together, likely mean moving even before your current technology reaches its end of life.