Never before have financial institutions had to face such a slew of competitors, many of which aren’t even banks: Google, Apple, PayPal, and so on. And the problem is that consumers are increasingly valuing what these digital, ‘non-bank banks’ have to offer.
In a bid to remain relevant, many financial institutions are turning to the cloud; using it as a tool to innovate, digitalise and fend off competitors.
According to a report by CBI and PWC, UK financial services companies are expected to spend 75 per cent more on technology in 2015. Specifically looking at cloud spend, our own Cloud Reality Check research found that FS organisations plan to increase their budget by seven per cent over the next three years (23 per cent to 30 per cent); accounting for nearly a third of their corporate IT budgets by 2018.
And it is easy to understand why. The benefits of the cloud seem undeniable; scalability, reduced capital expenditure, ubiquity and outsourced management of cloud services all promise to make it possible for IT to meet the digital demands of the business. Applications can move from the sandbox to global production in a matter of days, rather than weeks or months.
However, despite this, we found that 34 per cent of finance IT decision makers agree that cloud technology in their organisation is failing to live up to its potential. We’ve also seen it slip into the ‘Trough of Disillusionment’, based on Gartner’s latest Emerging Technologies Hype Cycle. Security, compliance and governance are all known issues which can block finance companies adopting cloud. However, although it’s not voiced as a big barrier to cloud, complexity is actually causing IT departments significant frustrations as well.
Is too much choice adding to cloud complexity?
Our research found that on average, finance respondents are running approximately 195 business applications, which is almost double the average of all industries questioned (103).
They’re also running four separate cloud platforms across their organisations. And to add further confusion, there isn’t consensus as to which apps are ‘cloud ready’ and which are ‘data centre bound’. For example, finance companies’ most important applications are office productivity and document management (22 per cent) and while 41 per cent of them do choose to run the application on private IaaS, the rest are divided between managed hosting (15 per cent), SaaS (18 per cent) and public IaaS (14 per cent).
This is only the tip of the iceberg for cloud confusion. The significant choice faced by finance organisations extends to the number of cloud vendors themselves that are available and even then, some of these vendors aren’t doing enough to help with the move to the cloud. Almost half (45 per cent) of finance sector respondents find managing cloud vendors confusing and challenging, with 43 per cent also stating they find migration more trouble than it is worth.
Bimodal can be challenging
With so much hype around the cloud, FS organisations need to act with caution and remember that not all apps belong in the cloud. There is clearly still a place for non-cloud apps, with our research showing that 24 per cent of FS respondents don’t plan to migrate their most important apps to the cloud ever, citing security, governance and compliance as the main reasons (71 per cent). This is not surprising given that most, if not all organisations in this sector, are governed by strict regulations.
Consequently, IT departments have to invest a significant amount of time maintaining the current performance of both cloud and corporate data centre applications, while trying to innovate at the same time. And as a result, over half (55 per cent) of finance respondents believe they’re spending more time managing performance than developing functionality.
As Gartner sees it, Bimodal IT refers to having two modes of IT in operation at once. Mode 1 describes traditional IT systems, focused on maintenance, stability and efficiency. Mode 2 is more non-sequential; it’s an experimental and agile operation that moves at great speed.
This bimodal operating model can be challenging for IT departments, as they grapple with running two speeds of IT. However, all is not lost. Many service providers are helping resolve this problem by better aligning the two models. They’re helping to modernise legacy systems and design IT infrastructures, for example, meaning that businesses can focus more of their attention on innovation. This helps companies improve their time to market with the latest IT offerings and provide satisfying customer interactions resulting in profitable, long-term relationships.
It’s time for a cloud reality check
Both ours and the CBI and PWC research show that financial organisations are aware of the huge transformative potential of every type of cloud platform and want to invest more in it – but they are also conscious of the challenges that lie ahead.
In order for cloud to live up to its potential, vendors must help overcome bimodal IT challenges and make the migration to cloud smoother. They also need to make organisations realise that cloud is not an ‘out-the-box’ solution – there are deeply entrenched, highly complex technological, budgetary and organisational challenges.
However, it is also up to finance organisations to approach the planning of their IT strategies differently. By taking the time to use a smaller proof of concept project to map out what their IT landscape will look like rather than diving straight into a big transformation, organisations can make much more informed decisions on the appropriate environments for certain apps and also avoid integration challenges.
These factors should also be communicated to internal stakeholders in order to manage expectations. Understanding that the benefits of cloud accrued over time can help organisations find the patience and tact needed to deal with the complexities of moving to cloud. This realistic approach should also extend to the choice of vendors and cloud solutions. Organisations must scrutinise providers and not be hesitant to opt for a solution that spans different types of cloud and in-house infrastructure, if it meets the needs of the business.
What finance organisations need to do is to stop seeing cloud as a ‘quick fix’ to IT headaches but see it as a powerful tool for digital transformation. In other words, it should not be about cutting costs, or finding a new way to consume services, but about transforming the customer experience.
To that end, cloud’s biggest role is to help organisations disrupt themselves from within and build their digital DNA - develop a culture of speed, agility, and innovation that ultimately changes the customer experience.
Len Padilla, Vice President Product Strategy, NTT Communications in Europe
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