There’s a storm brewing in cloud computing–and most firms aren’t prepared for it – Fortune


Like so many other internet-era staples, cloud computing has evolved a great deal from its beginnings more than a quarter-century ago. What started as a way to centralize server capacity has grown to encompass thousands of services from providers big and small.

Yet for many firms, an understanding of the cloud and its associated costs remains primitive. PwC’s Cloud Business Survey found that more than half (53%) of companies have yet to realize substantial value from their cloud investments.

With economic uncertainty growing by the month, pushing cloud-related decisions down the road could prove costly. We’ve reached a critical juncture for business leaders to change how they approach the cloud, and the urgency is greater than you might think.

Firms that prepare today can recast the cloud as a driver of new business models, not just an outsourcing tool. They can minimize service creep, find value in what they’ve paid for, and form partnerships to maximize return. By contrast, firms that wait could be forced into a more transactional view. They might treat the cloud like an on-or-off mechanism, cut from stacks they don’t fully understand, and neglect to leverage the capabilities that remain.

The hard part is not deciding which organization you want to be in. The hard part is making the right investments to bring that vision to life.

You’re buying agility, not capacity

To varying extents, most companies are undergoing some sort of digital transformation. They expect technology to form more of their business operations, and they want digital leverage to get there faster.

From their early days, cloud platforms have offered some fundamental tools to help. They replaced physical infrastructure with a virtual environment and solutions that required no physical footprint or hands-on management. But firms that still view cloud computing as just that, or even mostly that, are selling themselves short. Yes, storage and processing capacity are an important part of the cloud. But what you’re really buying is agility: the speed to operate, scale, and change your enterprise. What once took two or three years to build in a physical environment can happen overnight.

That unlocks huge potential–and budgetary creep. Computing costs are here to stay, and overall technology costs will continue to rise with the main driver being increasing energy prices and consumption. They can equate to nearly 10% of revenue for some companies, with cloud services comprising a significant chunk of that. Already, the bill for cloud services can top $100 million per year for some firms. Leaders who see the cloud as a transition to a cheaper operating model might be in for a rude awakening. Instead, they should leverage the agility of the cloud and keep costs under control using a new approach that combines discipline and smart investments.

Companies should seek to reduce costs and capture returns.

Managing the creep and extracting value

It’s easy to spin up cloud services at a moment’s notice–and it’s hard to manage the growth of infrastructure you can’t see. Firms need the operating discipline to ask themselves whether they really need specific computing power or storage capability.

In the age of data centers, shutting down an application meant reallocating server space to another capability. Today, you’d just acquire more cloud capacity to gain that new capability before shuttering the old. Even with watchful eyes at the top, it’s easy to end up with inefficient infrastructure usage.

It’s vital to align the growth of cloud infrastructure with the growth of the larger business and manage the two similarly. What does that look like? Leaders need to embrace new mental models, expand digital upskilling for relevant employees, and invest in the headcount to engage the services they’ve bought. Firms need to innovate faster, deploy low-code/no-code solutions, and leverage the cloud to create better experiences for their employees and customers.

That creates value in cloud services, which tightening market conditions will make even more critical. Efficient cloud usage can make the difference in retaining the very jobs responsible for managing that usage.

Of course, businesses should absolutely manage their cloud services just as they do other variable utilities and put processes in place to ensure they turn off what’s not being used, even if it served a past purpose. Just like you wouldn’t blast the HVAC at home while you were on vacation, unused cloud capacity is running up a bill.

Building human networks

The cloud still needs people. Recasting the cloud, remaining disciplined on spending, and extracting value from the services you retain requires a wholesale change of thinking.

Internally, leaders need to build transparency with partners who are less technologically oriented to explain how deriving value from the cloud means investing in the right talent to leverage its capabilities. In return, those same partners can feed business acumen back into cloud management. The cloud offers opportunities for efficiency for all parts of an organization, so everyone in the C-suite has a stake in it–and should align on strategy. Having a unified executive team on these converging and complex business issues will remind you of businesswide priorities and help enhance the return on your cloud investment.

The best organizations have a harmonious relationship with their cloud provider so they can be in lockstep to develop new services as business environments change. They should align on the goals, pathways, and budgets of their business. Absent those conversations, the relationships become transactional: Clients derive less and less value, and thin budgets risk indiscriminate cloud cuts.

That gets back to the original point: Maximizing cloud potential, especially in uncertain economic times, requires new mentalities, more discipline, and some level of strategic investment. Firms that wait until the balance sheet forces their hand won’t have the time or space to develop the best strategy. It’s time for a completely new approach to managing the cloud.

Joe Atkinson is Chief Products & Technology Officer at PwC.

The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not reflect the opinions and beliefs of Fortune.

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