Cloud’s trillion-dollar prize is up for grabs

Cloud has immense potential, but most companies are only scratching the surface. McKinsey’s recent research clarifies where the value lies – and how to capture it before competitors do

April 2021

A new report from McKinsey Digital, which looks at cloud cost-optimisation levers and value-oriented business use cases, foresees more than $1 trillion in run-rate EBITDA up for grabs across Fortune 500 companies in 2030, a number that will grow as cloud facilitates the adoption of emergent technologies such as augmented reality and blockchain.

And the companies that most aggressively pursue cloud opportunities could seize a sizeable share of that value, it adds.

 “This $1 trillion is less a prediction than an estimate of what should be possible, provided companies aggressively pursue the cloud opportunity – and a call to action, because early adopters will capture a disproportionate share of the total value,” McKinsey says.

Take Moderna, for instance – an American pharmaceutical and biotechnology company based in Cambridge, Massachusetts. Moderna built its mRNA research-and-development platform on public cloud to accelerate discovery and development. And when the Covid-19 pandemic hit, the company was well positioned to quickly design research experiments and to harness its automated laboratory and manufacturing processes and enhanced drug-discovery pipeline.

Thanks in part to cloud, Moderna was able to deliver its first clinical batch of its vaccine candidate (mRNA-1273) to the US National Institute of Health for phase one trials in just 42 days after the initial sequencing of the virus.

More companies are starting to see the real benefits of cloud, which has been long heralded as a catalyst for innovation and digital transformation, thanks to its ability to increase development speed and provide near-limitless scale.

While Moderna’s success illustrates the business opportunities that cloud makes possible, it only scratches the surface of the potential value at stake.


Value Pool

The emergence of this immense value pool comes at a time of increasing competitive pressure on companies. Fast-moving digital players are creating a fluid business landscape and accelerating the pace of change.

“For CEOs, cloud adoption is not just an engine for revenue growth and efficiency,” McKinsey notes. “Its speed, scale, innovation, and productivity benefits are essential to the pursuit of broader digital business opportunities, now and well into the future. Yet an overly narrow view of cloud-value economics and where value exists often keeps companies from achieving the desired outcomes.”

The good news is that many companies across a range of industries have successfully implemented public cloud to achieve impressive results. These companies follow three best practices. First, they execute a well-defined, value-oriented strategy across IT and businesses and install a cloud-ready operating model. Second, they develop firsthand experience with cloud and adopt a much more technology-forward mindset than their peers. And finally, they excel at developing a cloud-literate workforce.

McKinsey’s research identifies the pools of value for cloud adoption across three dimensions – rejuvenate, innovate, and pioneer – as well as the drivers of that value across the first two dimensions. It also highlights likely avenues for growth in the pioneer dimension.

“CEOs can begin their journey by working with their tech leadership to focus on four actions: set ambitious targets, pursue a hard-headed economic case, adopt cloud-native ways of working, and invest in standardised, automated cloud platforms,” it advises.


Dimensions of value

According to McKinsey, companies in every industry can capture substantial value from cloud but it isn’t distributed evenly. High tech, oil and gas, retail, healthcare systems and services, insurance, and banking are best positioned to generate the most value as measured by EBITDA impact in 2030, although almost all industries across the Fortune 500 show potential for an average rise in EBITDA of more than 20 percent (Exhibit 1).

In each of those fields, the cloud can unlock value via technology use cases, ranging from inventory optimisation at retailers to automated supply-and-demand forecasting for oil and gas companies to customer call optimisation for banks, directing distressed customers to more experienced representatives.

Achieving those gains will take more than simply transferring an operation or two to the cloud, though. Companies will need to learn how to utilise the technology’s full value and build their milestones around a life cycle, which will accelerate product development.

“Organisations that simply ‘lift and shift’ applications to cloud with no change to architecture miss out on key benefits, such as autoscaling and automated performance management,” the McKinsey report said.

McKinsey’s research also indicates that effective cloud usage can improve application development and maintenance productivity by 38 per cent and infrastructure cost efficiency by 29 per cent for migrated applications. As a result, increasing the share of Fortune 500 applications in the cloud from 10 per cent to 60 per cent would yield benefits of $56 billion in application development and maintenance and $12 billion in infrastructure expenditures.

The report further forecasts that by 2030, companies will lose roughly $650 billion as a result of system downtime and cybersecurity breaches. Through more resilient architecture, cloud could reduce downtime by about 57 per cent for migrated applications, resulting in a 26 per cent cost reduction for breaches. Cloud could improve platform integrity through automated, embedded security processes and controls (such as DevSecOps). These features reduce tech risks with a modernised, consistent tech stack across environments.


Core operations

Cloud accelerates and, in some instances, unlocks implementation of the latest technological and digitisation solutions in the back office, such as analytics-driven accounting and talent management.

McKinsey analysed 700 use cases to determine the impact of cloud in unlocking value. The value was allocated across a range from 100 per cent in select cases, 30 per cent in the bulk of cases, and null in a small number of cases (Exhibit 4).

Its third-party primary research on 705 users of public cloud indicated that companies with higher cloud maturity share a number of traits: they are early adopters of cutting-edge technology (71 per cent), aggressively innovate (72 per cent), and view technology as a competitive differentiator and key enabler for launching and building new businesses (79 per cent). By being the first ones to move, these organisations gain considerable experience on cloud, outstripping their peers in cloud outcomes (Exhibit 5).


Agile ways of working

The scope of the change needed to harness cloud requires companies to have real expertise: leaders, staff, and partners with deep experience in cloud and cloud transformations; expert practitioners; and a broad ecosystem. Further, successful cloud efforts are possible only when organisations transform their operations, Mc Kinsey notes.

The acceleration in digital engendered by Covid-19 is likely to continue far beyond the Covid crisis, and companies must be prepared to respond and adapt rapidly. “Cloud can not only help organisations move faster and reduce IT costs but can also support innovation and the integration of powerful, disruptive, emerging technologies. However, companies can capture their share of the trillion-dollar prize only when they develop a clear view of the value at stake and the business cases they need to prioritise,” the report concludes.  

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