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.
Although 95% of European companies describe themselves as capturing value from the cloud, a McKinsey study found that few companies are realizing notable financial benefits from migrations.
“If we scratch the surface, the story is a little less rosy,” said the consultant.
The vast majority of value captured through the shift to the cloud, according to McKinsey, remains in “isolated pockets and subscale.”
Of the C-level executives and cloud leaders surveyed in the report, 82% acknowledged that the beneficial impacts of their cloud programs are limited to specific areas, have only been partially realized, or are still in the early stages.
Part of the reason for this can be attributed to the way European companies measure the impact of the cloud.
The majority (71%) measure impact on IT improvements, while 66% measure based on IT cost savings and 63% based on the number of cloud applications.
In comparison, only around a third of European companies monitor “non-IT results”, with 37% measuring their cost savings outside of IT and 32% measuring against new revenue generation.
Around five times as many European companies are still pursuing an “IT-led” cloud migration compared to their US counterparts, according to the study, still focusing on moving workloads rather than generating revenue.
McKinsey noted that around two-thirds of the cloud's potential value comes from increased revenue and cost savings in business operations, meaning Europe needs to rethink its priorities to start growing financially.
Going forward, McKinsey said European companies should shift their focus toward “higher-value cloud use cases” when embarking on a migration or transformation project.
European cloud travel stalls
The pace of cloud travel in Europe was also worrying: the study indicates that less than a third of companies have 50% of their workloads in the cloud.
McKinsey noted, however, that “aspirations are rising” in this regard.
Half of respondents said they were undertaking large-scale migrations or creating new applications for the cloud, although about two-thirds of companies with cloud adoption greater than 50% still maintain more than 20% of their business in the cloud. facilities.
The McKinsey report highlighted some positives for Europe: 90% of companies surveyed ranked their cloud programs as a priority and more than a third regularly discussed cloud progress at executive level.
55% reported being satisfied with their cloud investment, compared to only 13% who described returns as insufficient, and 95% of all respondents described that they had achieved a level of operational improvement.
How can Europe up its cloud game?
The McKinsey 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.
According to the report, companies should also appreciate the importance of working with cloud service providers (CSPs) and systems integrators (SIs). By doing this, organizations can create a clear view of their capabilities in areas of regulatory compliance or code migration.
According to McKinsey, AI will have a role to play in successfully leveraging the cloud in Europe.
The consulting firm said companies “must explore” the prospect of adopting generative AI in some way. Using the technology could help businesses adopt the cloud with the potential to increase a company's return on investment (ROI) sevenfold.
However, research by Gartner last year suggested that Generative AI had not yet had a “material impact” on IT spending overall, so it's hard to say how big their explosion in Europe's cloud sector will be.
