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Differences in Cloud Adoption Across Global Industries

The heaviest users of cloud applications are the companies that manufacture the technology hardware that enables cloud computing (computers/electronics/telecom equipment), while healthcare services providers are the lightest users (in terms of average number cloud apps per business function).


  • Industry comparisons in number of cloud applications/company
  • Industry comparisons in number of cloud applications/company by 2014
  • Industry leaders and laggards in benefits from shifting on-premises applications to the cloud
  • Industry leaders and laggards in benefits from launching new cloud applications
  • Case study: $5 billion consumer products company

We asked our survey respondents (who worked in a variety of business functions in addition to IT) to indicate the average number of cloud applications that their function had been using in 2011.  We then looked at their answers by industry in all four regions combined (in order to get larger industry samples). We had large enough industry samples to report on 16 major sectors.

The industries’ usage of cloud applications per function ranged from 8.54 at the high end (in computer/electronics/telecommunications equipment manufacturing) to 3.39 at the low end (healthcare services/providers). (See Exhibit VII-1.) For 2011, the industries with the greatest number of cloud applications per business function were:

  • Computer/electronics/telecom manufacturing (by far the largest number of cloud apps per function)
  • Financial services/banking/insurance
  • Industrial manufacturing
  • Telecommunications services (carriers)

Industries with the fewest number of cloud apps per function were healthcare services, chemicals, energy and utilities, metals and mining, and media/entertainment/sports.  The media industry’s relatively low adoption of cloud computing may reflect its reluctance to put its intellectual property in the cloud – particularly, public clouds – for fear of digital theft.

We also asked the survey respondents to project how many additional cloud applications they expected their business function to have by 2014 – applications not including those today. We thus were able to calculate their projections on the total number of cloud applications that they expected to see in their functional area. The range of those applications/function went from 9.25 to 19.4 – effectively a doubling of apps/function at the high end and a nearly tripling of apps/function at the low end.

Once again the industries expecting the largest number of cloud apps/function were the same four: computer/electronics/telecom equipment manufacturing, telecom services, financial services and industrial manufacturing.

However, the projections of the retail and transportation/logistics survey respondents would have them vaulting higher in the list by 2014  – over automotive, aerospace/defense and consumer products manufacturers.

Heavier Users of Cloud Applications Get Bigger Benefits

In addition to wanting to know which industries were heavier users of cloud applications than were other industries, we wanted to know which sectors were better users of the cloud. It turned out that the industries with higher numbers of cloud apps per function in 2011 were industries that were enjoying greater benefits from cloud applications – both those that were shifted from on-premises computers and those that were entirely new applications made possible by the cloud.

To better understand which industries were generating the most value from cloud applications, we analyzed our data by first rolling up the responses across all four regions of the world and then categorizing them by industry. That left us with 16 industry segments with at least 12 respondents per industry.  We then sorted these respondents out by understanding which ones finished in the upper or bottom quartile of results to date from cloud applications. That left us with “leaders” and “laggards” in each industry sector based on who had generated the greatest benefits from:

  • Cloud apps they have shifted from on-premises computers. The “leaders” here were companies that had generated the greatest improvements in such metrics as IT cost reductions, increases in standard apps and business processes, cycle-time reductions in ramping IT resources up or down and in application enhancements, reductions in system downtimes and application fixes, and increases in analytics reports.
  • Entirely new cloud apps for which they had no on-premises predecessors. These “leaders” finished in the upper quartile of aggregate benefits in percent increase in new business processes tested and launched, percentage increases in new products/services tested and launched, annual revenue increases from new offerings in existing markets, and cycle-time reductions to enter new markets.

Industry by industry, in each of the two areas above, we looked at which ones had a larger percentage of “leaders” than “laggards.” The findings revealed several surprises.

Industry Leaders and Laggards in Shifting On-Premises Apps to the Cloud

The industries with a much higher percentage of “leaders” than “laggards” were:

  • Automotive (31% of whom were “leaders” and 19% were laggards)
  • Computer/electronics/telecom equipment (29% vs. 17%)
  • Aerospace & defense (29% vs. 19%), and
  • Banking/financial services/insurance (29% vs. 19%).

In contrast, the industries with much higher percentages of laggards than leaders were:

  • Pharmaceuticals (15% were “leaders” vs. 40% that were “laggards”)
  • Media/entertainment/sports (17% to 33%), and
  • Energy & utilities (21% to 33%)

Industries Leaders and Laggards in Putting New Applications in the Cloud

We did a similar analysis of leaders and laggards by industry around the data on benefits achieved to date from launching entirely new applications in the cloud. A different set of industries emerged as leaders and laggards here – including leaders that had been laggards in benefits from shifting existing apps to the cloud, and laggards that had been leaders.

The industries on this metric with the highest ratios of leaders to laggards were:

  • Computer hardware/electronics/telecom equipment (46% were leaders and 33% were laggards)
  • Media/entertainment/sports (42% to 33%)
  • Telecommunications services (33% to 24%)
  • Transportation/logistics (35% to 26%)

Technology-enabled innovations in products and services are critical to all four of the above industries, and perhaps that’s why they have more leaders than laggards in launching new cloud applications.  In the computer industry, Dell Inc. is one of a number of companies that are tapping cloud services to market products and services to both enterprise and consumer customers. (See case study on Dell) In the media industry, educational publishing and testing companies like CTB/McGraw-Hill have become highly dependent on scalable technologies that enable them to shift the delivery of their content from print to online. CTB/McGraw-Hill is looking at cloud-based models as a highly cost-effective way to host its public and private school student assessment exams. (See case study on CTB/McGraw-Hill)

In contrast, five industries had a much greater number of laggards than leaders in generating benefits from entirely new applications they put in the cloud:

  • Pharmaceuticals (25% were leaders vs. 55% that were laggards)
  • Healthcare services (22% vs. 50%)
  • Computer software (8% vs. 33%)
  • Automotive (19% vs. 39%)
  • Chemicals (20% vs. 38%)

How the Cloud Has Helped a Consumer Products Company Scale Up Consumer Interactions Cost-Efficiently

A $5 billion privately held consumer products company has found a cloud-based application to be critical in handling tens of thousands of contacts from consumers annually.  “It is a completely [software as a service]-based model for consumer affairs,” says an IT executive in the firm, which wanted to remain anonymous. “It’s allowed us to handle huge growth in consumer contacts. It’s established cloud an acceptable option that works, not a technology fad that will go away.”

The company’s three biggest applications of cloud have been in consumer affairs (responding to the consumers who purchase its products at retailers), human resources, and travel & entertainment. “Cloud enables us to bring in a new application without needing the $10 million and 18 months to build it,” says the IT director. “And while it doesn’t solve all of our problems, it’s still a viable option.”

The company has long sold its product through retailers, which usually have the first and most personal interactions with consumers. But the cloud has given the company a highly cost-effective way to get to know its customers better. “Consumer affairs is one of those areas that most companies don’t fully appreciate,” says the IT director we spoke with. “The first thing you learn in a marketing class is that getting a new customer is five times more expensive than keeping an existing one. The amount of information you can gather from your consumers from their interactions with you is truly astounding.”

Today the cloud is helping the company understand far more about what’s on the consumer’s mind – before, during and after the time of purchase – a 360-degree view of the consumer.” The company’s head of consumer affairs is a big proponent of cloud applications as well. The cloud application lets a customer service agent review consumers’ comments and determine what teams within the company should be notified: what country unit and what business function (e.g., packaging issues go to operations, product complaints go to R&D, etc.). At the same time the agent can choose a predesigned response letter, customize it, and automatically correct it for spelling mistakes. The agent can then easily notify the relevant employee of a problem that needs to be resolved.

“The agent can use the same customer record to send what we call a ‘task’ to another one of our users,” explains the consumer affairs executive. “For example, we might alert someone in a factory’s quality assurance department to a consumer who called with [a product problem]. The agent creates a task to the quality director in charge of investigations for that product. With the use of special coding, the task will also send an email to the quality control person announcing [a replacement product] is coming in the mail.”

The head of consumer affairs uses the cloud system to send monthly reports on consumer complaints to company’s marketing, packaging, quality and other departments. The system lets the director’s team send out quick online surveys to consumers who have used the contact system.

“It’s all about building credibility in the brand,” says the consumer affairs executive. With a cloud-based system, the team has the tools to do it on a global basis.

Staying Technologically Advanced Without All the Costs

Along with providing deeper knowledge about consumers, the cloud has also dramatically increased efficiency. The IT director told us the firm can now use applications far less expensively and launch them far more quickly than they could in the past.  “We’re not in the IT business, or the server farm business, or the application business,” the IT director says. “There are people out there that do that better than us.”

Using cloud technology also freed up money previously spent on corporate IT, helping the firm focus its investments on new products (through acquisitions and launches), and manufacturing and marketing them. Part of the company’s expansion strategy has been to keep a tight grip on costs, including IT. The company’s IT budget is less than half its industry average.

The company uses cloud applications hosted at a third-party data center (which has multiple tenants, and thus is a public cloud). And although the IT director says that a public cloud can limit how a company configures an application (since other companies may share it), the cloud vendor customized it for the company.

Security in a Public Cloud Seen as a Red Herring

The IT director hears many IT executives outside the firm worrying about the security of public cloud services providers. However, he says such concerns are unfounded. “It continues to surprise me that security is a big issue with cloud. I can guarantee that security of certain cloud vendors is better than what you can do in-house. Some of these cloud vendors do a better job security-wise than we do, because they do it for so many people, and they know that they’re going to get hit on that.”

He says the bigger issue is about the legal and regulatory implications of where data is housed. Nonetheless, these concerns haven’t stopped the company from aggressively adopting public cloud applications in its business.

 


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Why Companies are Using Cloud Applications

The biggest driver of cloud applications is not to cut IT costs. IT cost reduction is an important factor, but not the most important. Rather, standardizing software applications and business processes across a company (in the U.S. and Asia-Pacific) and ramping systems up or down faster (in Europe and Latin America) are the most highly rated drivers for shifting on-premises applications to the cloud. And the factors driving companies to launch entirely new applications in the cloud are quite different – to institute new business processes and launch new technology-dependent products and services. The case of assessment testing company CTB/McGraw-Hill shows why cloud computing will become a key tool for delivering pioneering IT-enabled offerings.


 

  • Factors driving companies to shift on-premises applications to the cloud
  • Factors driving companies to launch whole new applications in the cloud
  • Case study: CTB/McGraw-Hill

We asked companies to rate on a scale of importance (1 to 5) what had driven them to implement two kinds of cloud applications:

  • Cloud applications that had previously been installed on on-premises computers
  • Entirely new cloud-based applications for which there had been no on-premises versions before

How they rated a set of drivers that we offered provides insights into the motivations for adopting cloud applications. We’ll start with the factors that pushed companies to shift on-premises apps to the cloud.

 

Shifting On-Premises Apps to the Cloud: IT Cost-Cutting Isn’t the Leading Driver

Among U.S. and Asia-Pacific companies, the most important driver of shifting on-premises applications to the cloud is not what many think it would be – to reduce technology costs (although that is a key driver). Ahead of that is something that is not as well understood by the press, analysts and others covering cloud trends: standardizing applications and the business operations that those applications support.

Numerous large companies – especially those with multiple business units/divisions – are saddled with huge duplications in technologies: commercial application software packages, hardware and data centers that are serve individual business units (and sometimes even just a single compute-intensive business function such as R&D or manufacturing in a division). By giving companies the ability to take such applications out of departmental or business unit data centers and put them in a centrally accessible location – a private or public data center that hosts the applications – cloud computing creates the prospect of standardizing applications across a big business.

The major telco that we spoke with said offering standardized cloud applications will help its business units reduce their IT costs and the need for so many data centers (which today are in the hundreds). Having dozens of financial, HR, customer management and other applications today – each devoted to a narrow slice of its business – has resulted in huge IT costs (software, hardware and data centers). In fact, the company believes that its shift to cloud applications will help it reduce its number of data centers by 80%, which would produce an estimated annual cost savings of $100 million to $200 million.

Another highly rated driver of cloud applications in both the U.S. and Asia-Pacific companies was increasing applications or systems “flexibility.” In both regions, this was the third most important driver of shifting on-premises applications to the cloud. What does this mean? It refers to the ability to scale an application up or down.

The need to process “big data” – huge volumes of transactional and other digitized data (video, social media chatter, and other) — appears to be a big driver of cloud applications. Nearly two-thirds (65%) of the U.S. survey respondents they were driven to the cloud to improve the way they gathered and analyzed data (rated as an important or very important factor). A similar number of Asia-Pacific companies said this was an important or very important driver of their shift to the cloud. Less than half (47%) of the European companies said it was an important or very important factor in using cloud. However, 80% of the Latin American companies said this was an important or very important factor. One of the biggest differences that we found between the companies that had generated the largest benefits from the cloud and the ones that had generated the least benefits was, in fact, their interest in using the cloud to manage “big data.”

Big Data and the Push for Cloud

Our U.S. data shows that savvier uses of cloud applications are distinct in many ways – one of which is their interest in using the cloud to process and analyze volumes of digital data.

We compared the answers of the companies in the top quartile of benefits achieved from shifting on-premises apps to the cloud (the “leaders”) to those in the bottom quartile (“laggards”). Some 74% of the leaders said using the cloud to process and analyze data for trend identification was important or very important. But a much lower percentage of laggards (55%) said that was a key driver.

We found a similar set of drivers in the Asia-Pacific companies that we polled. The three most important drivers in this region – just like in the U.S. – were 1) standardizing applications and business processes, 2) reducing IT costs, and 3) increasing application flexibility.

The biggest factor driving Commonwealth Bank of Australia to shift on-premises applications to its private cloud was to use the savings in IT costs to providing more bank services through mobile applications and social media. “For us, cloud is not just about on-demand, selective scalability and automation,” says Rajasingham. “It’s also about self-funding IT, removing cost from running the business – and reallocating that into delivering more value-added services.”

In both Europe and Latin America, the most important driver of shifting to cloud applications was the need to increase “system flexibility” – the ability to launch or shut down applications quickly.


In Latin America, standardizing applications and business processes ranked below four other drivers, which were led by increasing application flexibility. IT cost-cutting was rated the lowest of the seven options we provided. Perhaps Latin American companies look at cloud less as giving them more efficient ways to deploy computing applications and more as a tool giving them a greater ability to adopt strategic applications of technology.

Why Companies are Launching Entirely New Applications in the Cloud: They Want to be Quicker to the Punch with New Business Processes

We also surveyed companies about any new applications that they launched in the cloud – applications for which they had no previous versions installed on their on-premises computers. In three of the four regions (all except for Europe), the factor rated as the most important was the need to institute new business processes to generate revenue and increase customer loyalty.This was not a surprise to us. Increasingly, companies are doing business with customers online, and cloud computing can give those businesses a faster route to changing the way they do business on the Web. The Web has become a critical place for many customers to find out about a company’s products and services, place orders, check on shipment status, and (post-delivery) get answers to questions about how to use the product or otherwise get support.

Take the case of Dell Inc., the multibillion-dollar supplier of innovative technology and technology services. One of the Round Rock, Texas-based company’s online marketing groups caters to large corporate and government customers (the Public and Large Enterprise business unit). It has put cloud applications at the center of the marketing tool strategy that it uses, according to Rishi Dave executive director of online marketing. Many vendors of online marketing tools – for example, those that assess social media influencers – provide their products via the cloud, he explained. Using cloud vendors’ applications enables Dell’s online marketing function to execute online marketing, social and community programs without having to “touch our internal infrastructure,” Dave explains.

The cloud helped Dell introduce gamification to customers and prospects at the 2011 Dell World conference. In the four months prior to Dell’s first Dell World client conference (which ran from Oct. 12-14, 2011 in Austin, Texas), Dell’s online marketing group decided to provide gamification to motivate customers to download Dell marketing content, visit physical locations at the conference, and network with each other. By using the cloud-based gamification services of one vendor, Dell was able to plan and execute the project in less than four months.

CTB/McGraw-Hill: Looking to the Cloud to Set the Pace in Online Student Testing

CTB/McGraw-Hill is one of the three largest suppliers of assessment tests for public and private schools in the U.S. and other countries. Million of students in all 50 states take CTB’s tests. They help school districts and states rate the quality of the teaching delivered in their classrooms, as well as determine how to improve it.

The company, based in Monterey, Calif., believes cloud computing will be essential for competing in a highly price-sensitive market (U.S. public schools). CTB/McGraw-Hill also feels that cloud will be critical to shifting its testing services from a paper-and-pencil process to an online experience – one with great potential to improve teachers’ ability to address students’ learning deficiencies. The company believes cloud computing will be a crucial channel for delivering its products and services to school districts in the future.

But given the nature of CTB’s business – delivering tests to hundreds of thousands of K-12 students over two weeks each year – that creates enormous demand for the ability to scale computing resources up or down to administer online tests, which it believes will be the wave of the future. “Given that we have high spikes in capacity, we must be able to increase it and lower it quickly,” says CTB’s chief technology officer, Jayaram “Bala” Balachander. “We can’t do that today. That’s where cloud will be critical.”

In 2011, CTB delivered online assessment testing to 180,000 U.S. K-12 students over a two-week period. With each student taking as many as five tests, this meant the company had to score 800,000 online tests concurrently. “This lends itself very much to the cloud because we can go up or down depending on the activity in our business.” In 2012, the numbers are expected to more than double, creating an increasing need for ramping up and down infrastructure resources. As a result, CTB is experimenting with cloud-based solutions.

Balachander predicts that about a million U.S. students will take their assessment tests online (including CTB’s tests) in 2012. Moreover, with U.S. schools wanting 100% of their assessment testing to be online at some point, that would require CTB to have the computing resources to serve the online assessment needs of millions of American children in K-12 grades at once, a number he believes could be reached as early as 2015.

Even if that turns out to be a smaller number in three years – say 75% of the 55 million U.S. students take online assessment tests — if CTB commanded a 20% share of that market, it would need computing resources to support the delivery and scoring of more than 40 million tests in a short period of time. “It would be very difficult for us to do that without the cloud – to invest in the infrastructure from a capital expenditure standpoint, and then make the ongoing technology investments,” Balachander explains.

By this August, CTB intends to shift six to eight on-premises applications to the cloud, one of which is the online testing. The firm’s website and extranet are also being evaluated as potential candidates to put in the cloud.

Balachander believes all new CTB applications should be cloud applications. “With new applications, we are saying that by default we should put them in the cloud.”

“At the end of the day, CTB needs IT services that can adapt to varying scalability demands,” Balachander says. “We clearly don’t want to invest in fixed infrastructure costs to handle our spikes in volume and scalability. The current set of cloud services and ongoing advances in technology in this area give us an ability to approach our infrastructure needs in a whole different way.”

 


TCS Cloud Study – 10 Key Findings
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