McKinsey: How to make cloud migration pay
Has your investment in cloud migration paid off? McKinsey & Company has created a report which focuses on how industrial companies can make the cloud pay by simplifying the IT landscape and avoiding hidden costs.
“The cloud’s real value goes far beyond IT: it can help industrial companies reinvent how they develop, deliver, sell and service their products,” highlights the consultation survey.
“The cloud, digital channels and data and analytics can improve everything industrial companies do,” commented McKinsey & Company.
“Our experience with clients suggests that cloud-enabled operations can unlock more than $1 trillion in shareholder value for industrial companies—half from revenue growth and half from margin expansion.”
According to the report, Making the cloud pay: How industrial companies can accelerate impact from the cloud, there is now an intensified need for the cloud due to the repercussions of the COVID-19 pandemic.
“COVID-19 has intensified the need for the cloud as an enabler of increasingly critical e-commerce, remote sales and flexible cost structures. During the lockdowns, 10 years of e-commerce growth took place in three months.”
McKinsey & Company comment that using the cloud is not always easy and offer advice on how to embrace this technology. Many cloud migrations fail because organisations did not initially simplify the IT landscape and establish data governance.
“Rather than increasing budgets for cloud initiatives, industrial companies can ‘bend the curve’ to make the cloud pay over the short term,” says the report.
How to bend the curve
- Be strategic and sequenced
Carefully select which applications you migrate to the public cloud and then manage cloud consumption. Cloud operations can be adopted in multiple environments, not just the public cloud.
- Make early changes to the IT operating model
This will drive a step-change in pace and productivity, especially in DevSecOps and infrastructure management. Use the software-engineering paradigm to enhance the productivity of IT people.
- Balance migration against cloud-enabled business redesign
The redesign may include Industry tools, new analytics and business models. Emphasise business-process improvements, often enabled by analytics, where investment is lower and impact is faster.
- Embrace cloud flexibility
Drive ongoing business innovation with the fast introduction of new products, more partnerships and new ecosystem plays.
The report points out the cloud can improve processes for R&D, procurement, supply chain, manufacturing, marketing and sales, aftermarket, and business support. “The increased efficiency it promotes can significantly improve margins and productivity.”
“It provides access to innovations, such as new Artificial Intelligence (AI) and machine-learning engines, from cloud partners. Secondly, the cloud facilitates experimentation with new products and features, since the cost to set up a “sandbox” environment is nearly zero.”
According to McKinsey & Company, companies average 23% over budget on cloud spending – but 30% of this investment is wasted - and the problem looks set to grow unless they can reset their cloud program. Extra costs, such as add-on services and double-bubble costs, are also an issue for organisations.
“These extra costs and growing complexity in the legacy landscape, have led to an increasingly difficult business case for the cloud. In 2015, only 7% of executives had difficulty making a compelling business case for cloud adoption. In 2019, that number more than tripled, to 23%.
“Many companies have stalled cloud programs whose benefits cannot offset spending commitments with cloud providers,” commented McKinsey & Company.
Chief information officers (CIOs) see additional challenges too with 58% of the respondents to the McKinsey Cloud Survey indicating that since talent gaps make cloud projects more difficult, they are the top concern.
Managing a cloud transformation requires strong governance. Critical activities include the following:
- Quantifying business benefits
- Planning and executing an end-to-end transformation by business domain
- Preparing the legacy application and data landscape ahead of the transformation
- Integrating application rationalisation and retirement into the transformation governance
- Training the entire relevant organisation by domain, not just IT
- Ensuring adoption of operational improvements by investing in change management from the start
“Now is a good time for industrial companies to review and reset their cloud programmes, but they must first understand the current and future IT state and operating model, as well as any digitally enabled business opportunities,” concludes the report.
Intelliwave SiteSense boosts APTIM material tracking
“We’ve been engaged with the APTIM team since early 2019 providing SiteSense, our mobile construction SaaS solution, for their maintenance and construction projects, allowing them to track materials and equipment, and manage inventory.
We have been working with the APTIM team to standardize material tracking processes and procedures, ultimately with the goal of reducing the amount of time spent looking for materials. Industry studies show that better management of materials can lead to a 16% increase in craft labour productivity.
Everyone knows construction is one of the oldest industries but it’s one of the least tech driven comparatively. About 95% of Engineering and Construction data captured goes unused, 13% of working hours are spent looking for data and around 30% of companies have applications that don’t integrate.
With APTIM, we’re looking at early risk detection, through predictive analysis and forecasting of material constraints, integrating with the ecosystem of software platforms and reporting on real-time data with a ‘field-first’ focus – through initiatives like the Digital Foreman. The APTIM team has seen great wins in the field, utilising bar-code technology, to check in thousands of material items quickly compared to manual methods.
There are three key areas when it comes to successful Materials Management in the software sector – culture, technology, and vendor engagement.
Given the state of world affairs, access to data needs to be off site via the cloud to support remote working conditions, providing a ‘single source of truth’ accessed by many parties; the tech sector is always growing, so companies need faster and more reliable access to this cloud data; digital supply chain initiatives engage vendors a lot earlier in the process to drive collaboration and to engage with their clients, which gives more assurance as there is more emphasis on automating data capture.
It’s been a challenging period with the pandemic, particularly for the supply chain. Look what happened in the Suez Canal – things can suddenly impact material costs and availability, and you really have to be more efficient to survive and succeed. Virtual system access can solve some issues and you need to look at data access in a wider net.
Solving problems comes down to better visibility, and proactively solving issues with vendors and enabling construction teams to execute their work. The biggest cause of delays is not being able to provide teams with what they need.
On average 2% of materials are lost or re-ordered, which only factors in the material cost, what is not captured is the duplicated effort of procurement, vendor and shipping costs, all of which have an environmental impact.
As things start to stabilise, APTIM continues to utilize SiteSense to boost efficiencies and solve productivity issues proactively. Integrating with 3D/4D modelling is just the precipice of what we can do. Access to data can help you firm up bids to win work, to make better cost estimates, and AI and ML are the next phase, providing an eco-system of tools.
A key focus for Intelliwave and APTIM is to increase the availability of data, whether it’s creating a data warehouse for visualisations or increasing integrations to provide additional value. We want to move to a more of an enterprise usage phase – up to now it’s been project based – so more people can access data in real time.