Large enterprises expect to have around 60% of their environment in the cloud by 2025. As big as the ambition is for enterprises to adopt cloud, technology and business executives want to find answers to how they can make sure their company gets more than its fair share of value from cloud adoption and how quickly will the value be captured.
In order to address these concerns, McKinsey assessed over 700 digital use cases to determine the potential value at stake. It also explored how cloud value will evolve between now and 2030 and what organizations must do to capture maximum cloud value.
Cloud value can be captured across three dimensions: rejuvenate, innovate, and pioneer
Companies that maximize cloud value, approach it across three dimensions: rejuvenate, innovate, and pioneer.
For the first dimension, rejuvenate, potential value is calculated from IT cost efficiencies across application development, IT maintenance, and infrastructure spending. It also takes into consideration the organization’s business resilience and digitization of core operations.
The second dimension, innovate, assesses revenue uplift and cost savings from business operations.
The third dimension, pioneer, involves exploring business models by experimenting with emerging technologies, like blockchain, quantum computing, augmented and virtual reality, and 3-D printing.
By 2030, cloud adoption can generate $3 trillion in EBITDA
McKinsey analyzed the value at stake from cloud adoption for Forbes Global 2000 companies and found that there is $3 trillion of EBITDA value up for grabs by 2030.
Cloud enables large value in enterprise technology, but its impact varies
Cloud is an important and attractive opportunity for almost all sectors even as the percentage of EBITDA lift varies greatly.
Healthcare systems and services have had relatively low margins historically. However, this sector could gain a lot of value from public-cloud adoption to business-enablement use cases, like cloud-supported medical testing and AI/ML-enabled diagnoses.
Industries like pharmaceuticals and medical products can expect significant absolute EBITDA gains on already high margins. Accelerated product development and hyperscalability of computing power, which are part of the ‘innovate’ value segment, are the biggest value drivers.
In the case of banking, the biggest portion of the cloud value potential is from improvements in IT resiliency, which is part of the ‘rejuvenate’ value segment. Cloud adoption in both pharmaceuticals and banking is relatively low which leaves room for even greater cloud impact.
Although industries with traditionally lower margins will see smaller absolute EBITDA gains from the cloud, the gains will be significant in percentage terms.
Industries that enjoy high margins might make it harder to extract value from the cloud due to their market dynamics. For example, the electric power and natural gas industry is highly regulated, with well-defined geographic areas and limits on consumer pricing. This makes it more challenging for this sector to rapidly extract cloud value.
Cloud value by region
Asia will have the highest cloud value potential of about $1.3 trillion by 2030. As cloud service providers (CSPs) continue to expand their footprint in Asia, large companies will be able to achieve greater value by adopting the cloud.
American organizations have about $1.1 trillion in available cloud value. North America will capture nearly $162 billion in EBITDA gains due to cloud by 2030 from retail, which is more than thrice the value potential for retail in the European Union and Asia. Industries in the Americas may cross the early stages of their cloud journeys by 2030 and capture incremental value through more advanced use cases.
Cloud potential in Europe and Africa is valued at $797 billion. A lot of the top companies in our area are in sectors where the cloud is important, like cars and assembly or pharmaceuticals. But a lot of them haven’t adopted the cloud yet, so there’s still room for them to grow. Data sovereignty laws and regulatory pressures tend to slow the migration and use of data that enable cloud adoption. However, those who can navigate these forces can capture significant incremental value.
What must companies do to capture maximum value from the cloud?
To capture the maximum cloud value, organizations must build a platform that prioritizes impact, scalability, and agility.
- Discover the full value of cloud
Cloud technology is different than other technologies, like LINUX or virtualization. Cloud affects all business functions, both back- and front-office. Enterprises can get value from the cloud not just by reducing costs and risks but also by making it easier to do business. So even though the cloud helps reduce the costs of owning and running data centers, that should not be the only reason for using it.
Partner with business leaders to identify and execute the high-impact use cases.
2. Solve critical technical problems
To get the most value from using cloud technology, it is important to solve complex technological challenges. This includes building foundational services for cloud providers; figuring out the best way to migrate applications; developing resiliency patterns; and implementing security-as-code protocols as part of code development.
Invest in a scalable cloud platform supporting foundational services, resiliency patterns, and security-as-code.
3. Deliver organizational change
To be successful on the cloud, you need to change your operating model so that it is product-oriented and agile. To keep cloud costs under control and track spending efficiently, it’s important to invest in financial operations capabilities.
Reorganize the technology organization and if required, the entire business, along with an agile product operating model.
Source: McKinsey & Company
