The growth of cloud adoption amongst enterprises of all sizes has been well-documented in the past few years. However, the pandemic will hasten this trend exponentially, as demand for cloud services has surged already and will continue to do so.
With budgets hit hard, global IT spend is predicted to be 2.7 per cent down this year as companies endeavour to cut costs, and those caught unprepared are focusing on contingency plans. In the current climate, to make the most of the cloud and gain maximum return on investment, businesses need to get the fundamentals of their cloud strategy right from the start.
Grow out of outdated attitudes
Business leaders’ understanding of – and approach to – cloud adoption is maturing. Typically, organisations would shift non-core Software-as-a-Service (SaaS) applications to the cloud first, focused on electronic file storage (68 per cent), CRM (29 per cent) and resource planning. Only now are we starting to see enterprises, particularly in the financial domain, moving core business applications closer to the cloud. Overcoming the old mind-set of cloud as an IT issue means viewing it as an enabler of more meaningful and comprehensive business transformation.
Based on my team’s first-hand experience on how the enterprise cloud framework has evolved, the initial iterations were all about cost. They were based on a basic ‘lift and shift’ method of existing applications and resulted in significant inefficiencies from not really availing the power of the cloud. As enterprises then started to refactor and build cloud-native applications, they started realising the real benefits of revenue acceleration based on delivering faster and personalised experiences, using real time data and predictive analytics. Now at the next stage of development we see the rising importance of ‘function as a service’ – where businesses can leverage ‘big compute’, really transform value chains, create new use cases for disruptive tech and bolster the top line through deeper specialisation. Most enterprises are somewhere in this journey continuum.
Let’s take financial services as our prime example, not least because capital flow is at the forefront of the world’s agenda during times of crisis. Banking has been quickest to integrate cloud solutions (when compared with other financial services segments like insurance) but the UK has not reached peak cloud adoption yet. The momentum we have seen comes from several major, international players who are calling on the cloud to facilitate the all-important liquidity and improve the customer journey. Barring neo, digital-only competitors such as Monzo and Starling, HSBC is leading the more traditional space with its cloud-first strategy. It’s investing in new use cases made possible by the cloud, such as blockchain, and has moved crucial applications, including global liquidity reporting, to the cloud to streamline performance.
By migrating core processes and data to the cloud, businesses can unlock the full spectrum of AI and machine learning functionality that can help businesses deliver intuitive personalised experiences and help differentiate. In the past, most AI projects faced constraints such as limited availability of data science teams and AI experts. Now, cloud-based AI and machine learning accelerators such as Amazon’s Comprehend, which uses advanced natural language processing, and Cortana Intelligence from Microsoft Azure, are empowering developers. They can write code, roll out cloud-native applications and industry solutions fast and capitalise on market opportunities as they crop up.
Set the right foundations
For companies setting out their cloud strategies, there are three pillars of cloud adoption to bear in mind which, implemented in the right order, deliver considerable long-term value. The first pillar is Infrastructure-as-a-Service (IaaS), and we are yet to see large scale adoption of this in European banking. As revealed by a Bank of England survey, the use of SaaS outweighs IaaS for both banks and insurers, as they have tended to view cloud outsourcing in terms of extra processing capacity.
The second pillar is Platform-as-a-Service (PaaS), a multifunctional layer for software innovation increasingly provided by Pivotal Cloud Foundry (now VMWare Tanzu) and IBM Openshift amongst others, and now also by cloud mega-vendors (AWS, Google and Microsoft). It serves as a language translator for applications, rendering them platform-agnostic and bringing a superior level of interoperability. This is an imperative step, as once established in a cloud environment, it becomes prohibitively complex and expensive to move ‘sticky’ applications back on-premise or to another cloud provider. Unlocking the value from PaaS, by untethering infrastructure, combined with cloud native design patterns of development, can bring tremendous business agility for large enterprises.
With PaaS, companies are not locked into just one cloud environment. This is especially pertinent now (and when we emerge on the other side of the pandemic) as it allows the necessary nimbleness to move business lines to other providers or scale up or down depending on the need of the moment. SaaS is the third layer, completing the picture by giving businesses a wide-ranging choice of functionalities and the ability to automate manual tasks. Together, the three layers remove the need for time and cost heavy annual software updates, management and licences, transitioning to a dynamic pay-as-you-go model instead.
Regulatory clarity will hasten multi-cloud adoption
For European banks, security and exit strategies are the most important factors when considering the cloud. Regulators, including the FCA, have advised businesses to take a multi-cloud approach for core applications to mitigate the risk of sole source dependency. In a report published last year, the Bank of England weighed up the risks – cloud services are dominated by a few firms and it is difficult to switch between them – and the business advantages – the opportunity to reduce technology infrastructure spend by 30-50 per cent.
To lessen the risk and reap the rewards, major enterprises such as Deutsche Bank are entering a multi-cloud strategy from the beginning; they simply choose different providers based on a department, data location or business need.
The regulatory landscape in continental Europe has been more advanced so far than the UK – we saw the EEA’s GDPR obligations and the European Banking Authority releasing guidelines on outsourcing to cloud providers for financial organisations as early as 2017. This gave European banks a firmer ground to play on and innovate. However, the UK has made positive strides recently, with the launch of the BBA’s Cloud Computing Working Group. The group’s purpose is to identify the typical regulatory roadblocks that have until now stood in the way of more widespread cloud adoption and innovation by UK banks. Second – and marking a significant step change for the industry – the Bank of England addressed the subject of cloud and tendered for a new technology partner earlier this year to host certain key resources on cloud and reduce legacy.
When it comes to cloud adoption, despite Europe being an early adopter of data centres and cloud services, the UK and much of Europe currently lag one to three years behind the U.S. In the near and medium term, I believe there will be greater clarity from regulators, which will leave the UK better placed to catch up and accelerate large-scale transformation through cloud adoption.
The agility, speed, scalability and cost benefits of cloud and multi-cloud adoption are vital to business continuity and to mitigating the economic fallout of the current macro crisis. Cloud is here to stay, and it will absolutely form the crux of forward-thinking digital transformation strategies. As we emerge from the pandemic, those companies who are well equipped and have taken this time to reposition their models will speed out of the gates on the front foot.
Yesh Subramanian – Senior Vice President & Head of Digital, Mphasis