2011 - kpmg cloud clarity

Flexibility

Evaluate

Model

Governance

Risk mitigationCloudHybrid

Savings

Management

AgilityEffi ciencyCompetitive advantage

Servers

CRM

ServicesMigrate

Web-based

Strategy

Consumer

Transformation

Collaboration

Innovation

Tax

Enterprise

Public

Compliance

Applications

e-mailChange Management

ProvidersMarketplace

Third-partyPrivate Security

Speed-to-market

Organizational readiness

KPMG INTERNATIONAL

Clarity in the Cloud

A global study of the business adoption of Cloud

kpmg.com

© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.

Clarity in the Cloud: A Global study of the business adoption of Cloud | c

ContentsForeword 1

Executive summary 2

Introduction 5

Core challenges mean core opportunities 6

Outcome: business transformed 7

Cases in point 9

Where are we going and what are we spending? 12

Adopting cloud services 21

Has total cost of ownership been evaluated properly? 23

Functionality is essential; 26 it is a question of good enough vs. perfect.

Tax in the equation, a relevant variable 32

Who should lead cloud efforts? 33

Conclusion 36

Insights & implications 37

Interviewees 41

Additional reading 42


The impact, opportunity and risk of cloud.

It’s here.

It’s now.

Find out what your peers are doing today.


Foreword

Clarity in the Cloud: A Global study of the business adoption of Cloud | 1

The cloud rolls in, inexorably. Speak with any cloud enthusiast and the pitch is full of allusions to the associated transformative and cost-saving opportunities. But what is this cloud, really, and how should it be approached by businesses?

The term is overused. Essentially, whether it is implemented as a public, private, or hybrid environment, a true cloud solution is one where users can access a flexible volume of services as needed via the internet. And indeed, such an approach has the potential to deliver significant cost savings. Even more intriguing are the ways in which the cloud may lead to fundamental innovations and process breakthroughs.

But the path from concept to reality is by no means clearly marked. Challenges are everywhere. They begin with an essential recalibration of traditional needs including security, flexibility, accessibility, and scalability. Next, businesses and technology providers must strike new deals, developing pricing and service level agreements that more accurately reflect the shifting nature of service provision. Finally, navigating through the cloud will require large doses of change management, as businesses and providers revisit the distribution of the scope and scale of IT across their enterprises and indeed the value chain.

The potential for cost-saving, innovation, and business transformation is enormous. Not surprisingly, most businesses today are at least in the planning and testing stage of their initial cloud forays. Meanwhile, a fast-growing minority are well into full or partial implementation.

It is our belief that it is essential for businesses to get moving toward the cloud. But it is equally crucial that they take the care needed to improve the chances of getting it right. At whatever pace businesses progress toward the cloud – as they encounter obstacles and achieve early successes – they learn. The report that follows is one means by which we hope to access and share these lessons. We trust you will find its insights and guidance of value.


Steven Hill Vice Chair of Strategic Investments, KPMG LLP (US) and Global Cloud Executive Sponsor E: [email protected]

Executive summary

2 | Clarity in the Cloud: A Global study of the business adoption of Cloud

Transform your business with the cloud. This drumbeat has punctuated just about every technology and business conversation over the past few years. Fueled by hype, oversimplification and promotion, cloud provocateurs can carry on at length about what cloud is and how it can transform your business. Few can tell you what companies are actually doing to benefit from the cloud or how to create and deploy a cloud strategy that is truly transformative.

Not surprising. Cloud adoption is fraught with business and operational challenges surrounding technology, security, total cost of ownership, and the intersection with business strategy and operations. Most have very little experience with actual implementation. What’s more, few have addressed the full impact of cloud integration with other applications and data, organizational redesign and change management, compliance, taxes, and security.

To bring some clarity to the issue, KPMG International and Forbes Insight conducted a global survey in 2011. The survey was conducted among more than 900 individuals from 15 countries worldwide. Respondents were from both the client community of end-users, with input from both IT directors and executive management in companies with more than US$200m in revenues, and cloud vendors.

From all angles, the responses showed increased readiness to accept and exploit the benefits of cloud. And while the cloud continues to have many definitions, our report highlights where it is going, underscoring that this seemingly simple and flexible solution can create complexity if not managed properly.

The real transformative impact of the cloudCloud is transformative in that it is creating new business opportunities as companies harness its power to efficiently facilitate new revenue, services and businesses. It is breaking down barriers in the supply chain, creating more effective and timely interaction between clients and suppliers. It is

delivering speed, agility and cost reduction to IT and other functional areas within the enterprise. The transformative impact of cloud can readily be seen across the enterprise in areas such as HR, CRM, and IT infrastructure.

Many early adopters have implemented the cloud in areas that are self-contained, primarily in areas that are not rife with complexity and multiple applications, and that do not require integration with core enterprise applications or infrastructure. Others have pushed forward more broadly in new, start-up or evolving businesses, often with increased speed over their sister organizations burdened with legacy systems. And while there are notable ground-breakers pushing cloud to the edge, the majority has focused on controlled implementations to improve the odds of success.

Key findings include:The cloud is commonplace, but its scope varies widely. Over half of the businesses and government enterprises surveyed have already conducted either a full (24%) or partial (35%) cloud implementation of some functions. The vast majority has tested these new technologies and processes, and they are using them on a small scale. Some typical areas of cloud implementation are for email, sales management and other available Software as a Service (SaaS) offerings. The research notes that in 2011, 19% of the respondents indicated spending on cloud represents 10% or more of total IT expenditures with 65% citing 10% or less.

Early investment centers on Software as a Service (SaaS). Again, the majority of early adopters are getting their feet wet using basic, available tools in the cloud. Of the respondents, 46% of planned implementations are in a SaaS environment. However, significant numbers of end users are also exploring the use of Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) models.

81% of businesses are either planning their initial forays, are in early or advanced stages of experimentation or have full implementations.


Approximately 45% of the respondents are neither evaluating the tax implications of cloud nor do they know if these factors are being evaluated within their organization.


Executives believe that cloud environments have the potential to transform business and operating models. Eighty-seven percent say, at the very least, the coming change will be significant. This view is consistent among companies of all sizes and whether the respondents work within IT functions or business units. It is not a surprise that cloud providers believe that business and corporate IT executives underestimate the degree of change that could result from cloud adoption.

The vanguard already resides in the cloud. Right now, 81% of businesses are either planning their initial forays, are in early or advanced stages of experimentation or have full-on cloud implementations. While the scope may be controlled, and the approach measured, there is indeed activity. Remarkably, respondents at one in 10 businesses say they are already running their core IT services using cloud technology, although this number varies widely by geography.

Substantial cost savings are on their way. Both business and IT executives as well as providers believe cloud environments will deliver cost savings. The prevailing wisdom points to economies of scale, meaning the cost of each unit of computing value within a cloud environment will fall dramatically over time. As for business processes, executives believe innovation will lead to streamlining. But an intriguing finding is this: while providers promote up to 30% savings, most business executives would be happy with 10%–15% savings.

Opportunities exist to overcome barriers to success. Executives are particularly intrigued by potential gains in areas such as speed to solution and widespread accessibility as well as flexibility, scalability, security and advanced technology.

Buyers are concerned by risks of provider performance, downtime and data security. Recent headlines exposing compromised data and temporary shutdowns of various name-brand organizations and cloud providers remain front and center for many potential adopters. However, provider input suggests that such fears are overstated – and that in reality, the cloud will be a safer, more secure and more reliable IT environment than these customers have ever known.

Private clouds will dominate the most critical functions. Many factors drive the decision over public or private cloud. Industries with the strongest adoption of private clouds are financial services, healthcare and diversified industrials (averaging 45% of respondents), with financial services and healthcare facing heavy regulatory and compliance issues that are exacerbated, though not impossible in the cloud. Organizations’ custom-configured applications and infrastructure also contribute to the need for private cloud solutions versus the standardized solutions among public clouds.

Business unit executives’ and CIOs’ views diverge when it comes to cloud leadership. IT executives see migration to the cloud as their initiative; and, consequently, they believe that it should be led by the Chief Information Officer. In the minds of business executives, however, the natural leader of cloud-based initiatives should be the CEO. Not surprisingly, post-implementation expectations are similar. Ultimately, responsibilities will likely be shared with relative influence depending on the services in question: businesses will tend to control ownership of applications; IT executives will tend to manage infrastructures. Unless this trend is managed properly, organizations will face new silos and integration challenges. Enter the Chief Integration Officer as the traditional CIO’s role expands to break down potential silos and integrate internal and external business needs, systems and partners.

Ignoring tax issues raises concern. Approximately 45% of the respondents are either not evaluating the tax implications of cloud or don’t know if these factors are being evaluated. Ignoring tax issues has never changed the responsibility of the payer, which makes taxation a critical issue for those wishing to evaluate all implications of the cloud environment.

If you are seeking to assess the potential implications of cloud for your business and IT organization, please refer to the ‘Issues and Implications’ section at the end of the study. It is intended to serve as an executive checklist to thoughtfully test the opportunities and challenges of cloud.


Introduction


Web-based beginningsThe most common and easily recognizable cloud examples are web-based services for email, Customer Relationship Management (CRM) and web hosting. Many are simple consumer applications, while businesses are considering far more sophisticated systems. For businesses, cloud services are often developed in one of two ways:

• Privateclouds,wheretheapplications,dataandnecessaryinfrastructurearededicated to a single party that retains direct management oversight; and

• Publicclouds,wheredataandapplicationsofnon-relatedpartiesmayresideonthe same servers and are more likely to be primarily managed by a third party.

Hybrid clouds, as the name suggests, are combinations of these two methods. Whether public, private or hybrid, the factor that most commonly signifies a cloud solution is a user’s ability to obtain as-needed services from the internet based on flexible volumes of resources.

The cloud marketplace has been evolving for years, as many traditional application services and infrastructure hosting providers migrate to a cloud model. This maturity is creating a viable market for enterprises looking at service delivery options. The flexibility and agility provided by the cloud is appealing, and it can be managed to deploy significant competitive advantage.

DefinitionsKPMG used the following definition of the cloud computing for the purposes of this survey.

• IaaS:(e.g.,infrastructuretraditionallyprovidedbyservers,desktopsandnetwork equipment instead delivered over the internet and can be scaled up or down as needed)

•PaaS:(e.g.,softwaredevelopment,storageandhostingareaccessedasaservice over the internet)

•SaaS:(e.g.,on-demandapplicationsprovidedthroughaninternetbrowser,eliminating the need to install, run and maintain programs on internal systems)

•BPaaS:(e.g.,businessprocessoutsourcing(BPO)isprovisionedusingacloud computing model; bundled with SaaS/PaaS/IaaS and delivered over the internet

Whether public, private or hybrid, the factor that most commonly signifies a cloud solution is a user’s ability to obtain as-needed services from the internet based on flexible volumes of resources.


Core challenges mean core opportunities


As enterprises first approach the cloud, their tendency is to perceive the work as primarily IT-centric. But in reality, understanding the cloud requires a much broader view. In many situations, the cloud is being driven by an ecosystem of participants. So it becomes vital to think of the evolution of cloud environments in terms of three broad sets of people and principals: service providers, business users and IT users.

Another challenge is that size matters. Smaller organizations, with less legacy IT infrastructure and fewer constituents, are able to more rapidly and aggressively invest in deploying cloud capabilities. Any cloud implementations require cooperation, agreement and compromise along with intensive focus and hard work. The challenge going forward will be to balance objectives, needs and wants against real capabilities and risks. As such, coordinating and harmonizing the advancement of the cloud represents a massive undertaking. But the rewards can be significant and transformative.

To the cloud: three constituencies

Geo

gra

phy

Geo

gra

phy

Industry

Company size

BusinessUsers

IT Users

Service Providers

CoreChallenges

The challenge going forward will be to balance objectives, needs and wants against real capabilities and risks.


Outcome: business transformed


Transformation – a distinct change in the way business solves problems and gears for growth – is coming. The survey of end-users shows that a significant number of companies believe fast-evolving cloud capabilities will heavily impact business models. While cloud-driven cost reductions may hold the most promise (half of survey participants expect as much), the impact on the business model could be much more extensive. Indeed, nearly a third of respondents, 32%, believe the arrival of cloud environments will drive nothing short of a fundamental change in their business models. And nearly four in 10 users (39%) expect cloud will change interactions with customers and suppliers. Only 12 percent of respondents felt cloud would have no impact on their business models. Consequently, 88% feel some kind of business model change will occur.

Cloud calls for executives to challenge their thinking, to look at old problems in a new light, and to create new opportunities. KPMG firms have observed several recent examples where organizations are converting historical business models into revenue opportunities through cloud. One example is a company selling goods and services that identifies additional need-based sales opportunities related to a key product. The company is developing a new business model to package and deliver this information to its clients via a new cloud-based model, thereby driving a new revenue stream. Similar examples are seen worldwide.

It will fundamentally changeour business model

It will change our interactionwith customers and suppliers

It will provide management withgreater transparency on transactions

It will reduce costs

It will accelerate time to market

No significant impact

Other

32%

39%

32%

50%

35%

12%

1%

Which of the following best describes the impact of cloud on your business model?

0 10 20 30 40 50 60

Multiple responses allowed.

Source: KPMG International, 2011, Clarity in the Cloud

Cloud calls for executives to challenge their thinking, to look at old problems in a new light, and to create new opportunities.


Cloud, more than any new technology since the internet, is seen as the harbinger of transformation. The findings are consistent regardless of company size (those with annual revenues above and below US$1 billion as well as between IT and non-IT executives). Even companies with a large installed base of software or other elements of enterprise IT anticipate a highly significant degree of change as a result of cloud adoption.

Regional differencesExecutives from Asia are significantly more likely to describe the changes stemming from cloud environments as driving a fundamental shift in their business models. For example, organizations in emerging markets or those that have not invested heavily in legacy infrastructure can leapfrog the competition technically by adopting the latest available systems and capabilities via the cloud model.

0 10 20 30 40 50 60

It will fundamentally changeour business model

It will change our interactionwith customers and suppliers

It will provide management with greater transparency on transactions

It will reduce costs

It will accelerate time to market

No significant impact

Other

Global average (medium)

50%49%

45%57%

39%40%

30%49%

32%33%

27%37%

Which of the following best describe the potential impact of cloud on your business model/operations?

32%

12%13%

15%6%

1%2%

<1%1%

28%30%

43%

Americas EMA ASPAC



44%

35%35%

29%

Organizations in emerging markets or those that have not invested heavily in legacy models can leapfrog the competition technically by adopting the latest available systems and capabilities via the cloud model.



Cases in point


More than the data alone, it is instructive to delve into the people and companies who are working with cloud today. In these cases, executives are seeing many benefits as they learn from their cloud implementations.

More options in ItalySilvio Sperzani, CIO of ENEL, Italy’s largest and Europe’s second largest electric utility, says that cloud environments are moving rapidly, “From buzzword to something real.” For now, his group is just beginning its analysis of the potential benefits of a cloud environment. Still, Sperzani is already convinced that cloud migration, “will lead to a more flexible IT service model and more options in business processes.”

Preparing new processes throughout EuropeA senior executive from one of Europe’s most geographically wide reaching banks believes that cloud environments will have a profound impact on business processes. “The cloud,” he explains, “will provide the means to speed up prototyping of new products or applications for customers.” Meanwhile, he sees cloud migration as a means to accelerate the adoption of new and more efficient and effective processes and technologies. “Though we realize we have much to do before we can take full advantage of these developments, we are starting to prepare now.”

Strategic advantage in global advertisingAt advertising and communications agency JWT India, Sunil Mehta, CIO, believes that the whole point of investing in a cloud environment is to achieve strategic advantage. “We want to make certain that we are always in a position to take advantage of any next-generation applications,” says Mehta. “Achieving a state of continuous transition to the most efficient processes and technologies will be easier within the cloud,” he adds.

Cost reductions and strategic benefits for financial firmsAnil Jaggia, CIO of HDFC Bank, one of India’s largest financial services providers, says that cost reductions from the cloud will be significant. “However the strategic benefits are far and away more vital than the cost savings.” He adds, “Agility – being able to quickly and efficiently provision – or deprovision; being on the forefront of innovation and being able to transition quickly: these are the objectives worth attaining.”



Legacy systems tend to ossify, restricting established businesses and preventing them from pursuing that next new idea. – Pat Howard, IBM Partner and VP Global Services

Extremely important

Important

Neither important nor unimportant

Unimportant

Extremely unimportant

Enormous innovation for IBM and its clientsFrom a provider standpoint, IBM Partner and Vice President for Global Services Pat Howard believes that, if anything, business and IT executives are underestimating the likely strategic impact of cloud migration. Howard says these new technologies and processes are leading to a period of enormous innovation and competitive disruption. “All that’s coming opens up strategic possibilities that just were never there before,” notes Howard. “Legacy systems tend to ossify, restricting established businesses and preventing them from pursuing that next new idea.” However, within a cloud environment, Howard believes companies will be able to achieve greater agility – for example, by being better able to quickly organize to serve new customers, develop products or deliver services.

Overall, says Howard, “I don’t believe everyone yet fully realizes how much this stimulates innovation; how many opportunities will be presented; how many new challenges will need to be addressed; and how much change is coming.”

How important are strategic factors in driving your organization’s adoption of a cloud environment?*

Figures may not add up to 100% due to rounding.

*Strategic factors (e.g., business process transformation, linkage to business partners, speed to market, focus on core competencies)

33%

3%

2%

44%

19%

0 10 20 30 40 50


Demand driven supply chain – retail

A KPMG retail client is using cloud as a supplier network, reducing data latency between and among suppliers. In some cases, the client has reduced lead times on information exchange from 30 days to 1 day, and the suppliers are able to modify the exchange of material accordingly yielding significant benefit for all parties in the process. So as demand changes at the store, all parties can see and act upon the changes. Leveraging the cloud as a ‘community platform’ can significantly reduce information latency resulting in more product getting to the right place at the right time with less inventory through the supply chain.


Without legacy systems and processes, start-up firms and emerging businesses in mature firms can be ready for cloud-based applications and platforms.

Enabling innovation and investments – technology KPMG recently worked with a large client to support its emerging, or start-up, businesses. Innovation is one of the fundamental pillars of this company’s corporate strategy as it acquires and/or incubates companies that design, develop, and market next-generation products.

Historically, each new business worked autonomously to design its own operations processes and to source and deploy enabling technologies. The company found it was spending too much time and money on technology development and deployments when it should have been focused on its go-to-market strategies. Its goal was to design, develop, and implement a common set of operational business processes and an enabling IT architecture that a new business could ‘plug and play’. The process and IT architecture needed to be flexible and scalable, supporting various e-commerce business models with a high degree of re-use of its core processes and functionality. In addition, standardized reporting was needed to enable the corporate entity to understand the performance of each new business – its profitability, its growth potential, and its challenges or limitations.

The incubator model offers particular advantages for broad cloud deployment. Without legacy systems and processes, the greenfield is immediately ready for deployment of cloud-based applications and platforms. Ready-made applications and architecture will be available for businesses as they enter the market. The scope is broad – from the user access, to cross-enterprise applications (sales, marketing, customer services, order management, accounts receivable and payable, inventory management and purchasing), and to identity access. The need for supporting resources is reduced. At the same time, the larger business’ reporting, compliance and data needs will be met, and relevant information can be fed back into the core financial and operating systems.



Where are we going and what are we spending?


As we’ve seen, signs of growing comfort and familiarity with cloud environments are everywhere. Today, 40% of the businesses surveyed are currently evaluating the cloud (19%) or using/testing the technology (21%). KPMG firms have observed large organizations migrating email, CRM, components of HR, point of sale, hosting, and other applications to a cloud environment. Several are using the cloud to enable new business models to develop in and around existing businesses, resulting in additional revenue streams. More often than not, early migrations are targeted for areas of limited complexity. Another 13% of enterprises are beyond the testing stage and are now transitioning core business processes. Even more striking, one in ten enterprises are already running core IT functions in the cloud.

As highlighted in the Executive summary, 81% of businesses are either planning their initial forays (within the next year), are in early or advanced stages of experimentation, or have full cloud implementations in place. And companies with more than US $1 billion in revenues appear to be leading the way.

0 5 10 15 20 25 30

Evaluating

Using/testing aspects

Embraced/transitioning

Running all core IT services on the cloud

Plan to implement in next year

Plan to implement in next 2 years

Plan to implement in 2+ years

Not considering

Don’t know

What is the status of your organization’s current use of a cloud environment?

24%

25%

16%

12%

12%

11%13%

14%

7%

8%

8%

10%

13%

13%

3%

3%3%3%

5%

5%

10%

6%

4%4%

4%

13%13%

18%

8%11%

11%

11%

20%

21%21%

19%

Global Americas EMA ASPAC



Heavily regulated industries, such as financial services and healthcare, demonstrate a stronger likelihood of adopting a private cloud.



0 5 10 15 20 25 30

Evaluating

Using/testing aspects

Embraced/transitioning

Running all core IT services on the cloud

Plan to implement in next year

Plan to implement in next 2 years

Plan to implement in 2+ years

Not considering

Don’t know

What is the status of your organization’s current use of a cloud environment?

< US$1b

17%

15%11%

4%3%

6%8%

8%13%

2%4%

10%

8%

12%

14%

23%

22%22%

> US$1b




Other differences arise among varying geographies. For example, only 7% of companies from the Americas are already running all core applications in the cloud, compared to those 13% from Europe, Middle East and Africa (EMA) and 11% from Asia Pacific.

Companies today are starting out with the basics – the most fundamental, low risk and firmly established cloud capabilities. A good example is again, JWT India. According to CIO Sunil Mehta, “We have been in the cloud now for over one year.” The company began with the migration of email management to Microsoft Exchange. At first, says Mehta, “People were anxious,” and to no small degree frustrated, “as the shift required us to make many changes and adjustments.” And while operational challenges still remain, says Mehta, overall, “we are very pleased with the results and will continue to examine new opportunities in the cloud.”

Many companies have taken such initial steps and are likely poised for more involved phases of cloud adoption. Conditions are such that IBM’s Howard believes that in the coming year or two, “We’re going to see the adoption curve turn into a hockey stick – dramatic growth.”


0%

1–2%

3–5%

6–10%

11–20%

More than 20%

Don’t know

9%

13%

24%

11%

20%

13%

19%

6%

17%

16%

17%

24%

5%

6%

End 2011


This view is borne out by the survey’s statistics, which show that executives expect their budgets for cloud products and services to grow significantly as a percentage of annual IT expenditures. For example, 17% of enterprises will have more than 20% of their budgets dedicated to cloud-based services by the end of 2012, up from 6% in 2011. Such growth, says Howard, will be driven by many factors, not least of which is the numerous early success stories coming to light. “Companies,” says Howard, “know that their competitors are eyeing this – and they realize they cannot afford to get left behind.”

What is your estimated budget for cloud as a percentage of annual IT expenditures?

End 2012

0 5 10 15 20 25


In looking for further clarity on what these numbers mean by region, the following charts indicate that uptake is considered to be higher in Asia Pacific compared with Europe or the Americas. By 2012, Asia Pacific respondents expect to spend 22% of their total IT budgets on cloud, compared to 13% and 18% in Europe and the Americas, respectively. The greatest uncertainty about budget allocated to cloud is in the Americas and Europe, where about 18% of respondents share that uncertainty, compared with 11% in Asia Pacific.



Americas Region: What do you estimate your organization will budget for cloud as a percentage of your annual IT expenditures in each of the next 2 years?

11%

13%

10%3%

7%

6%

21%

20%

21%

18%

18%

18%

22%

11%

Americas 2011


Americas 2012

0 5 10 15 20 25

Don't know

More than 20%

11-20%

6-10%

3-5%

1-2%

0%


EMA Region: What do you estimate your organization will budget for cloud as a percentage of your annual IT expenditures in each of the next 2 years?

7%

14%

11%26%

20%

19%

25%

13%

13%

17%

20%

3%

8%

4%

0 5 10 15 20 25 30

Don't know

More than 20%

11-20%

6-10%

3-5%

1-2%

0%

EMA 2011


EMA 2012




13%

24%

20%

13%19%

16%

5%

24%

6%

11%

17%

17%

8%5%

Global 2011

ASPAC region: What do you estimate your organization will budget for cloud as a percentage of your annual IT expenditures in each of the next 2 years?


Global (all respondents): What do you estimate your organization will budget for cloud asa percentage of your annual IT expenditures in each of the next 2 years?

Global 2012

0 5 10 15 20 25

Don't know

More than 20%

11-20%

6-10%

3-5%

1-2%

0%



As for deployment models, respondents currently plan to rely most often on a private cloud. This is particularly true of end-users from companies with revenues greater than US$1 billion, in which 47% plan to deploy a private cloud model. There are industry-specific differences in the adoption of private vs. public cloud. Not surprisingly, heavily regulated industries, such as financial services and healthcare, demonstrate a stronger likelihood of adopting a private cloud. Additionally, mature manufacturing firms and retailing firms are opting for private clouds in stronger numbers.

6%

14%

26%

21%24%

22%

11%12%

14%18%

7%

13%

3%

7%

ASPAC 2011


ASPAC 2012

0 5 10 15 20 25 30

Don't know

More than 20%

11-20%

6-10%

3-5%

1-2%

0%



Private

Public

Hybrid

Community

No cloud

Don’t know

IT vs. non-IT organizations: What type of cloud environment does your organization use/intend to use?

46%39%

30%30%

33%33%

17%15%

5%8%

8%15%

IT Non-IT

0 10 20 30 40 50



Private

Public

Hybrid

Community

No cloud

Don’t know

Companies by revenue size: What type of cloud environment does your organization use/intend to use?

All < US$1b > US$1b

41%

30%

33%34%

34%

16%15%

17%

7%5%

8%

13%11%

16%

31%30%

39%47%

0 10 20 30 40 50





All sectors: What type of cloud environment does your organization use/intend to use?

41%42%

42%42%

33%

30%42%

31%37%

25%29%

16%26%

18%26%

35%6%

16%17%

21%23%

11%11%

16%11%

4%13%

15%28%

7%7%

5%2%

7%12%

6%8%

9%3%

8%22%

14%5%

8%10%

19%21%

9%21%

24%24%

15%11%

37%44%

46%20%

22%30%

31%22%

34%31%

28%

45%45%

46%34%

46%31%

29%

11%

All Sectors



Technology Financial Services

Diversified Industrials/Manufacturing Retailers Government

Healthcare and Pharma Consumer Goods Manufacturers

Energy and Natural Resources

Food and Drink Manufacturers

AcademiaCommunications & Media

0 10 20 30 40 50

Don’t know

Cloud is not/will not be used by my organization

Community cloud (a rules-based environment shared by organizations with similar needs,

perspectives or requirements, such as geography, industry, supply chains, etc.)

Public cloud (a shared environment used by many organizations)

Hybrid cloud (a combinationof public and private cloud)

Private cloud (a closed environment for a single organization hosted by a third party)



Public clouds lag. For now.Fewer respondents consider either a public cloud or a community cloud – a rules-based environment shared by many organizations and groups.

However, this is something that could change over time as trust in public cloud models increases. Outsourced services like payroll and HR have been on a shared server for many years. Eventually, people may become less concerned with a public cloud as they are today.

While fewer companies may consider a public cloud, to make an informed choice they may nonetheless need to understand how a public model operates. Many important factors are financial. Buyers considering a private cloud need to ask whether they want to take ownership of the equipment or access the usage in the manner of a public cloud. Ultimately, many wonder what is really gained in deploying a private cloud. Economics are dependent on the individual situation, and pros and cons exist for both. Many will compromise into some form of both models, depending on the application.

Examples of how organizations are using the cloud to transform their businesses exist throughout the world. To better define practical usage of the cloud, we offer a few examples.

Private vs. public cloud – financial services One KPMG client in the financial services industry was facing significant market pressures, regulatory pressures and security issues. The IT organization was trying to help new products get to market quickly with agile processes while facing pressure to reduce costs. The environment was complex and highly heterogeneous, which led to high support and maintenance costs.

To evaluate and prepare for the cloud, the company began by determining what type of cloud would best suit their needs. They assessed their readiness for change by looking at governance, process, compliance and technical architecture. They looked at applications, and most importantly, they assessed the people, process and technology critical to operationalizing within the cloud.

Based on security and technical factors, they chose a private cloud, and the cost savings justified the move forward.


Outsource IT first, cloud next – energy Another KPMG client, a large energy company, had outsourced much of its IT function several years before. The size of that project and the scale of change it required led to a painful process that ultimately did not result in the savings expected. Nonetheless, having reviewed the lessons learned from this experience, company leadership decided it was ready for a large-scale cloud migration.

In some respects, this company sees the promise of cloud as being similar to that of outsourcing. Motivated by the ability to focus on its core competencies and on growing the business, this organization has found viable options in the market to handle the capacity of its thousands of servers.

The business intends to migrate more than 50% of its infrastructure assets to a cloud environment. The migration is targeting the most modern applications and infrastructure; legacy and old line applications continue to present challenges in a cloud environment. As with the adage: one rock moved tends to uncover an unanticipated issue or problem as the testing of the legacy applications continue. Successful migration of non-core applications to a cloud infrastructure should enable the company to reach its goal, control its costs and help it grow faster.




Adopting cloud services

About half of end-users (46%) say their most likely investments will be in cloud-delivered Software as a Service (SaaS). However, at 35% and 34% respectively, Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) also figure prominently in corporate cloud investment.

46%

35%

35%

34%

41%

32%

33%

9%

14%

10%

16%

9%

10%

48%

45%

Which of the following cloud environments will your organization most likely invest in?

0 10 20 30 40 50

SaaS

PaaS

My organization does not have plans to invest in a cloud environment

Don’t know

Total Users (n = 805) Users (IT) (n = 237) Users (Business) (n = 568)

IaaS

SaaS (Software as a Service): Software and applications to run various business operations over a network. Examples include: salesforce.com, Google Docs, mobile me, Microsoft Office Live

IaaS (Infrastructure as a Service): Renting shared computing infrastructure, such as servers, storage, processing capacity, database and other peripherals. Examples include: amazon.com, rackspace

PaaS (Platform as a Service): A platform that enables developers to write applications to run on the cloud. Examples include: force.com, Google App Engine, Windows Azure





46%

47%

38%

55%

44%

9%

10%

11%

7%

14%

16%

16%

9%

The chart below highlights regional differences in cloud service model investments. Underscoring Asia Pacific’s enthusiasm for the cloud, these results indicate a stronger than average anticipated investment in SaaS, IaaS and PaaS models than expected in the Americas or EMA.

Which of the following cloud environments will your organization most likely invest in?

Global Americas



EMA ASPAC

0 10 20 30 40 50 60

35%

34%

28%

27%

33%

33%

49%

SaaS

IaaS

PaaS

My organization does not have plans to invest in a cloud environment

Don’t know

SaaS (Software as a Service): Software and applications to run various business operations over a network. Examples include: salesforce.com, Google Docs, mobile me, Microsoft Office LiveIaaS (Infrastructure as a Service): Renting shared computing infrastructure, such as servers, storage, processing capacity, databases and other peripherals. Examples include: amazon.com, rackspacePaaS (Platform as a Service): A platform that enables developers to write applications to run on the cloud. Examples include: force.com, Google App Engine, Windows Azure


Has total cost of ownership been evaluated properly?


Three-quarters of respondents go on to say that cost savings/reductions are essential before they will take any significant steps toward the cloud.

Cost savings are generally a required outcome of cloud migration. Traditional thinking is that cloud has the potential to significantly reduce IT costs as companies are able to shift from large capital expenditures to ongoing operational outlays. Putting many infrastructure and development initiatives in the hands of third parties also has the potential to reduce staff costs.

In migrating to the cloud, three-quarters of respondents (77%) say that economic factors are important (40%) or extremely important (37%). That is, these companies will not migrate to a cloud environment without meaningful savings. Worth noting is that equal percentages of IT and non-IT executives, 75% in both instances, maintain this view regarding the importance of cost.

Key cloud cost drivers, many hiddenTotal cost of ownership is a critical aspect of migrating to the cloud. While cost savings, potentially significant, are typically advertised and assumed, extensive, well-documented evidence does not exist to verify that companies have realized such savings. It is critical that buyers closely scrutinize potential and claimed cloud computing savings across the lifecycle of a cloud deployment. In this process, it is imperative to consider factors that may drive cost and risk assessments, such as:

• Costsofintegrationintolegacysystems

• Customizationandconfiguration

• Ongoingusertrainingandretrainingand

• Supportcosts.

Extremely important

Important


Unimportant


37%

40%

19%

3%


Examples of economic factors include: cost savings, shifting capital expenditures to operational expenditures.

How important are economic factors in driving your organization’s adoption of a cloud environment?

2%

0 10 20 30 40 50




• Overheadandcomplexityofmanagingmultipleclouddeployments

• Serviceprovidermanagement/relations

• Security

• Controlsandassurance

• Organizationalprocesschangetoadapttocloudstandardization

• Supplyanddemandchallengesresultoverestimatingcomputingneeds

• Taximplications

Reduced costs are a prominent feature of a cloud-based approach. The total cost of ownership of hardware and software, including staffing costs, should be lower within a cloud environment. Such lower costs should in turn translate into lower IT overhead allocations for business units.

But other cost benefits are also evident. Consider a start-up or rapidly expanding enterprise: recruiting and maintaining IT staff takes time and effort and leads to higher ongoing costs. Companies often retain enough IT personnel to handle peak periods of effort, resulting in excessive staffing costs. Relative to the traditional approach to enterprise IT, companies could find the cloud to be a lower cost solution.

Voicing an even stronger message on economic benefits is IBM’s Howard. “Nothing happens if the economics aren’t there,” says Howard. But in this case, cloud environments are poised to deliver a step change. “Look at the potential improvements in asset utilization and shared services models and you recognize the price point for each unit of IT value delivered is about to plunge.” To Howard’s thinking, “I believe corporations’ [cost reduction] expectations should be right through the ceiling.”

Providers think the threshold needed for IT savings is significantly higher than users do.


Expectations gapAn intriguing finding of the parallel studies is the gap in expectations between end-users and providers of cloud services. Both end-users and providers were asked: what threshold of savings would be necessary to prompt the shift to a cloud-based environment? Looking at IT costs alone, 45% of end-users say they could be persuaded with savings of merely 1% to 10%. By comparison, providers tend to believe that end-users will demand much more. While only 10% of users say they would need savings of 25% or more, the figure rises to 19% for providers.

The realization: this question is about perception, not providers’ actual costs, and providers may actually be overestimating the degree of savings end-users may demand. Each party needs to take steps to understand pricing requirements and total costs.

What percentage reduction in IT or Non-IT costs do you generally believe would be needed?



IT Costs (n=565)

Providers

Users


Non-IT Costs (n=551)

IT Costs (n=91) Non-IT Costs (n=88)

45%42%

31%33%

34%28%

37%31%

10%15%

19%17%

12%14%

13%19%

0 10 20 30 40 50

1–10% reduction

11–25% reduction

More than 25% reduction

Don’t know

Perc

enta

ge r

edu

ctio

n in

IT

and

No

n-I

T c

ost

s


Functionality is essential; it is a question of good enough vs. perfect.


Executives meanwhile insist that cloud environments should score equally high marks on technical and functional capabilities. Eight of ten users (80%) maintain that functional factors – such as speed to solution and widespread accessibility – are either important (43%) or extremely important (37%). Similarly, 79% say that technical factors such as flexibility, scalability, security, and advanced technology are either important (42%) or extremely important (37%).

“For cloud-delivered products and services to take hold,” says Michael Sylvia, Distinguished Engineer & Director at IBM, “end-users have to see the value too.” IBM provides cloud-based services both internally and externally. With regard to other IBM business units, Sylvia says “cloud services are being very well received.”

Development and testingTake for example the provisioning of development testing environments for programmers. In the past, software developers would approach the IT team with highly detailed requests specifying a range of programs, releases and other variables. “Responding,” says Leslie Gordon, Vice President, Office of the CIO at IBM, “could take as long as a week – and it was labor intensive.” Today, however, IBM offers its software developers a cloud-delivered, self-service provisioning tool. “Developers don’t have as many options,” says Gordon, “but they can request something that’s close enough to what they need and have it in an hour.” This rapid level of deployment, however, assumes that contractual constructs are in place and that ideally the user organization is able to adequately manage this level of on-demand consumption.

In addition, developers can make their requests any time of the day or night. Moreover, they can pause their work, save their projects and remove them from the server, thereby reducing internal fee allocations and freeing up resources that can be used to support other developers.

Self-sourced environmentsInitially, Gordon and Sylvia believed that the existence of the new provisioning tool might reduce the number of requests for manually configured test environments by as much as 40% or 50%. But in practice, 80% – 90% of test environments are now self-sourced through the cloud. As Sylvia explains, “it turns out that developers are more interested in agility than they are in getting their environments perfect.” Adds Gordon, “they’re willing to settle for ‘good enough’ as opposed to perfect if they can get it fast – and that translates into efficiency all around.”

Functionality is also of critical importance to ENEL’s Sperzani. And it is for this reason, the executive maintains, that mission critical processes are not likely to be handed over to a cloud provider. “We have a few that are unique to our business and where we are very sophisticated in-house. We are already running these processes at a low cost,” explains Sperzani.

It turns out that developers are more interested in agility than they are in getting their environments perfect.


Still, the executive believes there will be ample opportunity to benefit from cloud service providers in specific niches. “There will be a layer within our processes where someone may be better than we are. This is particularly true of infrastructure.” Sperzani continues, “Basically, I see this as a possibility to buy infrastructure for varying volumes as a service... Infrastructure tends to be very rigid. I like the idea of something much more flexible.”

Leading edge technologiesFor some of our executives interviewed, access to such leading-edge technical/functional capabilities, is one of the most attractive aspects of the envisaged cloud environs. But for cloud providers, “IT is what we do.” As such, the very business model of cloud providers depends on the delivery of seamless, ultra-efficient, stable and flexible IT services. Moreover, providers can take advantage of scale to continuously invest in and refine their technologies and processes assuming they are profitable, of significant scale, and financially sound enough to withstand a dynamic marketplace – because not every cloud provider will survive in the longer term. So to the extent a greater share of IT operations is ceded to specialist providers, organizations can share in scale economies that would not otherwise be available.


The role of CIO needs to evolve from Chief Information Officer to Chief Integration Officer, to lead and integrate the business more tightly with enabling technologies and to ensure the interoperability of an increasingly disparate set of applications and infrastructure.



Extremely important

Important


Unimportant


37%

42%

16%

3%

1%

Examples of technical factors include: flexibility, scalability, simplicity, security, advanced technology


KPMG anticipates that the role of the CIO will change significantly as organizations struggle with the dynamic integration needs that cloud models present. A new, or evolved C-position, Chief Integration Officer, will be needed to integrate the business more tightly to technology and to ensure the interoperability of an increasingly disparate set of applications and infrastructure.

How important are technology factors in driving your organization's adoption of a cloud environment?

0 10 20 30 40 50

Extremely important

Important


Unimportant



How important are functional factors in driving your organization's adoption of a cloud environment?

37%

43%

16%

3%

1%

0 10 20 30 40 50

Examples of functional factors include: speed to solution, functional capabilities, everywhere accessibility




44%

29%

20%

18%

16%

15%

15%

14%

13%

13%

13%

12%

9%

8%

2%

0 10 20 30 40 50

Security and performance concerns

While cloud may promise significant benefits, it also has its risks. Depending on third-party providers raises the stakes for many users, particularly when they are accustomed to overseeing and managing critical issues such as security and performance. Importantly, security is a challenge inside and outside of the cloud. Breaches across the spectrum of providers, organizations and global corporations exist in and out of the cloud.

When asked about the top challenges/concerns they faced in adopting a cloud environment, 44% of end-user respondents cited security, and 29% expressed concern about overall cloud performance. One fifth of companies cited concerns over interoperability or integration. Arguably, the interoperability and integration issues will create more challenges over time as organizations look to better leverage internal and external data and information. Other key concerns include IT governance, loss of control over customer data and availability.

What do you believe are the top challenges or concerns your organization faces in adopting a cloud environment?

Other

Dissatisfaction withofferings/pricing by vendors

Lack of customization opportunities

Difficulty making a business case for adopting a cloud environment

Not sure the promise of a cloud environment can be realized

Lack of confidence in ability of cloudvendors to perform

Response time

Regulatory compliance

Measuring ROI

Availability

Loss of control over data with respectto customers

IT governance

Difficulty integrating cloud with existing systems

Performance

Security





Security in the cloud presents unique factors to consider ranging from external data storage, to multi-tenancy, use of the internet and the need to integrate back to internal applications. Can you encrypt your data sufficiently to be able to trust a third party managing this critical information? Will your data governance model allow for a cloud migration?

Some of the key risks and challenges in adopting cloud

Cloud adoption requires a careful examination of the potential operational risks and challenges in addition to the technology questions.

Financial Managementand Tax

• Movement from CapEx to OpEx model impacts existing budgeting, forecasting, and reporting processes• CapEx to OpEx model and changes in the character and source of service impacts tax considerations• Outdated tax laws and regulations create uncertainty when characterizing the various cloud transactions• Cloud ROI and cost/benefit analysis are complicated by need for knowledge of existing cost of delivery and future use of service.

Security and Privacy

• Data may be stored in cloud (1) without proper customer segregation allowing possible accidental or malicious disclosure to third parties and/or (2) in a legal jurisdiction where the rights of data subject are not protected• Loss of governance of critical areas, e.g., vulnerability management, infrastructure hardening, or physical security• Weak logical access controls due to cloud vendor’s IAM immaturity.

Operational• Cloud adoption introduces rapid change in the organization• Cloud sourcing may impact existing organizational roles and could require new skills or make others redundant• Business resiliency/disaster recovery needs and plans will change and require updating.

Data & Technology

• Risk of creating independent silos of information perpetuate the problem of data integrity, quality, and insight • Business can bypass the IT function to implement technology solutions, posing challenges for IT governance• Cloud delivery models dramatically change how IT delivers technology services to support business requirements• Cloud adoption opens the four Data Center walls to external IT Services providers, creating new risks.

Regulatory andCompliance

• Lack of visibility into the Cloud Service Providers (CSPs) operations inhibits analysis of its compliance with pertinent laws and regulations• Complexity of records management/records retention creates challenges• Lack of industry standards and certifications for cloud providers creates risks.

VendorManagement

• Lack of clarity of ownership responsibilities between cloud vendor and user company• No prevalent standards for vendor interoperability • Extensive reliance on CSPs.



Virtually all interviewees maintain that security is paramount. However, as HDFC Bank’s Jaggia explains, the real issue is whether data is held in a public or private cloud. “If we stay in a private cloud with standard security measures and firewalls, and no co-mingling of data, I do not see security as a key issue.” Moreover, as long as the cloud is private, “I do not believe it will be an issue for regulators,” who are otherwise aggressive in policing privacy and related issues in the banking industry. Performance issues – the importance of cloud providers avoiding downtime and maintaining agreed-to service levels – also figure prominently among both end-user and provider interviewees.

However, in the case of both security and performance, providers participating in survey interviews say that such concerns are in some ways overblown. Consider several recent episodes of prominent cloud-providers experiencing significant downtime. As one provider explained, “Any data center at any company can go down from time to time. And if it’s a server of a mid-market company, it won’t be in the newspapers – you will never hear about it. There’s risk in running your own servers.”

The provider argues, “the risk of a cloud provider failing materially for any extended period is substantially lower.”

Compliance isn’t that important, until it is

Responsibility for compliance remains with the customer, not the cloud vendor, so care and discretion are warranted. End-users will need to keep a close watch on the reliability and controls put in to place by the scores of would-be cloud service providers. This vigilance will be especially important for business executives who are accountable for managing the risks of potential security breaches and overall performance. As JWT’s Mehta explained, his company is Sarbanes-Oxley-compliant (SOX). “So if we are going to allow anyone to host our applications or data, we will need to know if they in turn are SOX-compliant. And our clients will want to know too.” So in truth, says Mehta, cloud-based services will need to be more firmly established as accepted, safe and reliable “before we proceed with anything of greater significance.”

As a result, reporting standards are changing. Statement on Accounting Standards 70 (SAS 70) reports do not review and account for the collocation of data, and as such, new Service Organization Control (SOC) reports, specifically SOC 1, SOC 2 and SOC 3 are now focusing on issues prevalent within the cloud, such as collocation. The SOC reports now include a test of security, not available before through SAS 70.

Interestingly, in a cloud environment, end-users attempting to audit their transactions and processes may find them co-mingled with others and unable to provide an audit of their transaction as before. Please see the ‘Issues and Implications’ section at the end of this report for suggestions of topics to cover during the review process of evaluating cloud.

Cloud-based services will need to be more firmly established as an accepted, safe and reliable set of business processes.

The risk of a cloud provider failing materially for any extended period is substantially lower (than in-house IT).


Tax in the equation, a relevant variable


Only respondents in the United States were asked their views on taxes with respect to the cloud. Interestingly, almost 45% of both providers and users either have not considered cloud-related tax issues or don’t know if their organizations have done so. KPMG firms’ experience shows that organizations operating in the cloud should address critical factors such as a migration from capital expenditures to operating expenditures, character and sourcing of income, implications of intercompany charges and the impact of using third parties for services rather than internal employees. These issues are manageable, but they should be addressed to reduce the risk of tax exposure. Importantly, organizations that proactively manage and plan for the tax issues associated with operating in the cloud may unlock significant value for their organization.

Yes, from a tax strategy perspective

Yes, in terms of compliance and reporting

Yes, in terms of strategy, compliance and reporting

No, we have not considered tax separate from other business decisions

Don’t know

24%

24%

20%

23%

23%

31%

18%21%

21%

10%

21%25%

26%

26%

17%

20%

17%22%

20%

21%

Have you considered the impact of cloud migration on your organization’s taxes?

Total Users U.S. Total Users U.S. Users (IT) U.S. Users (Business) U.S. Total Providers

0 5 10 15 20 25 30 35

16%14%

14%

8%16%

Figures may not add up to 100% due to rounding



Who should lead cloud efforts?


It is critical that IT, the business, audit, risk, compliance and tax teams are consulted when migrating to the cloud.

Traditionally, cloud is seen as an IT issue, but many organizations would like to see adoption driven by corporate strategy, not IT. The transformative impact of cloud will undoubtedly require leadership from the business.

Asked which executive should lead efforts toward cloud adoption, about four-in-10 end-user survey respondents cited either the Chief Information Officer (25%) or Chief Technology Officer (14%). Similar percentages chose strategic and operational C-suite executives, including the CEO (23%), COO (11%), and CFO (7%).

As might be expected, a respondent’s opinion on who should lead cloud adoption may depend on the person’s current responsibilities. Those involved in technology are more likely to turn to the CIO; those in operations and strategy point to the CEO. This survey did not ask about everyone who should contribute to the cloud conversation. While it inquired about the leaders, it is critical that IT, the business, audit, risk, compliance and tax teams are consulted when migrating to the cloud.

It is also important to differentiate between different forms of leadership. A CEO, for example, along with a board of directors and an audit committee, might lead in setting the overall cloud agenda and defining levels of investments, but the CEO should not lead operationally. Clarity around the transformative nature of cloud can

In your opinion, who in your organization should lead the process of cloud adoption?

23%

7%

11%

25%

14%

1%

1%

13%

5%

0 5 10 15 20 25

Other

General counsel

Line of business heads

Other C-level executive

CTO

CIO

COO

CFO

CEO




In your opinion, who in your organization should lead the process of cloud adoption?

14%

26%

5%8%

12%

9%

33%22%

17%

13%

0%1%

1%

1%

15%

12%

5%

4%

0 5 10 15 20 25 30 35

Other

General counsel



CTO

CIO

COO

CFO

CEO

IT Non-IT




come from across the C-suite. Business unit executives may take charge of defining business requirements and benefits, with IT executives defining and managing the technical architecture and leading cloud offerings’ technical vetting efforts.

Executive management, IT, and line-of-business executives all need to be involved to ensure successful implementation of the cloud environment.

In practice, on-demand point solutions tend to be purchased by the lines of business themselves. But in other instances, they are approached first by the CIO. Cloud-based point solutions may be the path to the first meaningful implementation at any given company, “But all customers quickly learn that integration across the enterprise is vital.” Added IBM’s Howard, “It doesn’t really matter who makes the first move – in the end, I don’t believe anything of a significant nature is going to happen without CIO sponsorship.”


13%

8%

14%

26%

17%

1%

2%

15%

5%


CIOs always in the mixPost implementation, the CIO and CTO remain the top choices for managing the service level performance of cloud providers. Again, non-IT executives tend to vote significantly more heavily for the CEO than do IT executives (who more heavily favor the CIO and CTO).

As for how businesses will evaluate the ongoing performance of their cloud-based environments, the most frequently cited means, at 59%, is cost. However, managers in nearly equal numbers (56%) say they will also look at productivity. As Anand Sankararaman, Senior Vice President – IT of HDFC Bank explained, “The overall performance – efficiency, effectiveness, cycle time, reductions in turnaround time – is what will also matter.” Business managers will also evaluate their implementations based on the revenues they are able to generate through cloud-based channels as well the scope of geographic access.

And according to IBM’s Michael Sylvia, “You will also likely see usage becoming a more important metric. I know in our case that’s something we’re tracking carefully, the degree to which others are actually using the cloud services we’re providing.”

Who should be responsible for managing service level performance of external cloud providers aftera cloud environment has been adopted?

0 5 10 15 20 25 30

Other

General counsel



CTO

CIO

COO

CFO

CEO



Conclusion


The era of the cloud is a significant evolution in the provision of IT services and business, opening the door to transform business and drive innovation inside and outside organizations. Undoubtedly, the full story will unfold at different rates at different companies and sectors, as some move cautiously and others make a bold dash. Nonetheless, acquirers of cloud technology and services will likely experience significant transformation of business processes alongside a reduced total cost of ownership across their organization – if, and only if, managed properly. As more organizations look to take cloud into their business and IT organization, it is important to weigh the cost savings and other appealing aspects such as flexibility and agility against the critical issues such as risk, compliance, tax and other issues that may have implications for adopting firms. For insight into more of these critical issues, please see the “Issues and Implications” section, an executive guide on how to evaluate and think through the implications of cloud.


Insights & implications

Many cloud studies and research reports exist, providing a view into cloud trends and deployments. This research study took input from over 900 executives. KPMG has gained insights not only from this survey, but from our member firms’ clients who are actually experiencing transformation enabled by cloud. Based on that knowledge, we offer below a ‘What’s Next?’ guide for executives to help them appropriately measure the opportunities, set against the challenges, of the cloud.

For all executives evaluating cloud solutions:• Identifygapsinyourbusiness–performance,competitive,geographic,etc.–and

determine if the cloud can help fill those gaps.

• Evaluatecollaborationandinformationexchangeneedswithprovidersandclients. Are there elements of your business where information is exchanged that could be migrated to a cloud environment? Could these be converted to new business opportunities and ways to expand revenue? Will the cloud create new efficiencies?




• Assesstheeconomicsofaprivatevs.publiccloud.Theeconomicdifferencescanbe significant, based on individual requirements, while the risks, such as security, need to be actively managed.

• Measurerisksvs.rewardsasyouassesscloudproviders’claimsandcapabilities.

• Understandwherethecloudprovider–internalorexternal –willforceorganizational process changes, and assess the change management implications and plan. Are there any organizational redesign factors to consider? Does your current operating model support the cloud migration plan? If not, have you properly designed your target operating model?

• Focusondecipheringandvalidatingcloudcomputingcostsavingsclaims.Testthese claims against total cost of ownership calculations that include compliance, tax and change management implications. As these are unique by organization? (They are often inaccurate when provided by a vendor.)

• Testthecustomizationneedsofyourbusiness.Themorecustomizationneeded,the less likelihood of cloud success. Is the desired customization critical?

• Definebusinessintegrationissues,withspecificemphasisondatathatmaynowbe scattered across the enterprise. Understand how the data architecture must evolve to address the cloud and inter-cloud and inter-enterprise operability.

• Assessinternalstaff,currentrolesandchangesneededandhowwellcurrentskills map to the cloud model being designed or implemented.

• Considerifacloudprojectdoesnotenterthetypicalcapitalbudgetingandapproval process, will it exist outside corporate governance models? What mechanisms are in place to ensure corporate governance is maintained?

• Howwillbusinesscontinuityanddisasterrecoveryfactorintoyourcloudmigration strategy?

• Understandthecontractingprocess.Asofferingsbecomemorestandardized,so goes the contract. Make sure your organization can flex to the provider’s requirements and you understand what is negotiable. Understand the optimum contract length such that your project provides the flexibility needed to move as the market evolves.

• RemembertoconsiderServiceLevelAgreementsandhowtheywillbemanaged. Are the right mechanisms in place with your current vendor management strategy to effectively manage cloud projects?

• Assessyourvendormanagementriskstrategywithacloudlens.Vendorsarealsogoing through a their own transformation to cloud delivery models, delivering significant financial and operational impact. Ensure that your management strategy properly measures the vendor’s financial ability to restructure its business model.

• Determinetheassurancereportingneedsforyourcloudvendor.Requirementsthat worked for outsourcing, such as the historic SAS 70, may not provide the assurance you need in a cloud environment. Assess the shift of testing an entire process vs. a transaction and whether this is sufficient.

• Don’tforgetinternalaudit,globalsecurityandregulatoryimplicationsofdata–privacy, storage, co-location, tax nexus, etc. How do you audit the co-mingled world of cloud? How do you determine that all regulatory requirements are met? Will you give your data encryption key to your vendor? Is your vendor required to disclose a data breach?



For IT professionals• Workcloselywithbusinessunitleaderstodevelopacomprehensivecloud

strategy and plan of action. Create the enterprise vision and roadmap for cloud. Identify proof of concept opportunities to leverage.

• Areyourtechnologyplatformsanacceleratororinhibitortoyourcorporatestrategy?

• Educatebusinessunitleadersonthecloud’srealisticcapabilitiesandpotentialfrom an IT perspective.

• Deploycompetentspecialiststostudythecloudmarket,itscapabilities,offerings and providers.

• Evaluatetheinteroperabilityofcloudsolutionsagainstcurrentapplications,platforms and infrastructure. Assess their readiness for cloud migration. Ensure the assessment is objective.

• Re-definetheroleoftheCIOasitevolvesfromITprovidertoChiefIntegrationOfficer, who has the opportunity to drive business models and innovation.

• Developvariousscenarioplansforcloudadoptionanddeploymentacrosseachcloud layer and across different IT and business operating areas.

• Interpretcloudservicesandcapabilitiesinthecontextofhavingtocontractthemwith third party providers (e.g., ramping capacity up and down may be easier technically than the provider contract allows).

• Design,developanddeployoperatinggovernanceandriskmanagementprograms from the IT perspective of cloud computing services.

For business professionals• WorkcloselywithITleadershiptodevelopacomprehensivecloudstrategyand

plan of action to ensure critical integration points are managed and to ensure all opportunities for efficiencies and effectiveness are leveraged.

• Focusonthebusinessvalueandpotentialofcloudoveritstechnicalcapabilitiesor merits. At the same time, work with the IT organization to avoid pockets of capabilities that will create disparate data sets to manage.

• Understandtherisksofcloudservicesdeploymentwithouttheinputandsupportof the IT group and in context of the prevailing IT architectures (including data and other technical architecture).

• Assesstheimplicationsofdeployingmorestandardizedandlesscustomizable‘applications’ now that your business process is enabled by a service.

• Developvariousscenariosforcloudadoptionanddeploymentacrossdifferentbusiness operating areas.

• Understandifcloudisamechanismtoreplaceand/ormodernizeback-officeapplications.



For cloud service and technology providers • Underpromiseandoverdeliver:successstorieswilladdfueltoanalreadyfast-

growing marketplace whereas failures will prove costly.

• Berealisticoncostsavingsclaims;backupexampleswithproof.

• Educatecustomersandprospectsonthebenefitsofcloudbeyondtheeconomics. Optimization and new agility to respond to market opportunities are not widely understood and require a long term strategy including the business and IT.

• Assessandbeproactiveaboutthechallengesclientswillfacefromrapidandmultiple cloud investments and deployments.

– Assist in developing an integration roadmap with existing infrastructure and other cloud offers.

– Plan to continuously address ongoing integration cloud to cloud/cloud to enterprise requirements.

– Address security and data ownership concerns.

• AssistclientsindevelopingnewKPI’stomeasuretheirinvestment.Measurements may include increased efficiency, reduced cost, improved productivity and higher adoption rates.

• Ensure,asacloudprovider,youhaveoptimizedyourbusinessmodelinkeyareassuch as customer management, risk & compliance, revenue recognition and tax structures especially as you grow your international business.

For risk professionals, internal auditors, tax and audit committees• Ensureadequatelyskilledprofessionalsareinplacetoassessandmonitorthe

risk and controls management aspects of cloud.

• Embedriskandcontrolsconsiderationincloudselectionprocesses.

• UnderstandthattraditionalITcontrolsmaybenon-existentinacloudserviceprovider. Funding, development, and the implementation lifecycle now may all require a new governance model.

• Understandthatusershaveaccesstopubliccloudservices,andthatpoliciesneed to be developed to protect your enterprise. It is unrealistic to think your employees are not accessing these public tools.

• Involverisk,auditandauditcommitteegroupsincloudservicesplanningandselection processes. Require regular reporting on risk and controls management monitoring in deployed cloud services.

• Evaluatehowinformationwillbesecuredandconfidentialitywillbemaintained.

• Determinehowcloudcomputingadoptionwillaffectregulatoryandcompliancerequirements.

• Establishaformalizedassuranceprogram,whetherthroughInternalAuditorindependent assurance reporting (SOC reports).

• Understandtheglobal,regionalandlocaltaximplicationsofthecloudenvironment.


Interviewees


We would like to thank to the following interviewees for their valuable contributions:

Cloud users

Leslie Gordon, Vice President, Office of the CIO, Application & Infrastructure Service Management, IBM

Anil Jaggia, CIO, HDFC Bank

Sunil Mehta, CIO, JWT India

Anand Sankararaman, Senior Vice President - IT of HDFC Bank

Silvio Sperzani, CIO, ENEL

Michael Sylvia, Distinguished Engineer & Director, IT Architecture, Application & Infrastructure Services Management, IBM

Cloud providers

Pat Howard, Vice President and GBS Global Cloud Leader, IBM


About the surveyThe KPMG survey was conducted in 15 countries from February to April 2011, and canvassed 806 senior executives – nearly 50 percent of them from the C-level – in companies that use or plan to use Cloud, as well as 123 executives from Cloud service providers. Countries included in this survey were: US, Canada, Mexico, France, Germany, Ireland, Italy, Netherlands, Sweden, Switzerland, UK, Australia, China, India and Japan.


Additional readingKPMG firms have written of the transformative impact of the cloud in several prior publications, of note: The Cloud Changing the Current Business Ecosystem

http://www.kpmg.com/IN/en/IssuesAndInsights/ThoughtLeadership/The_Cloud_Changing_the_Business_Ecosystem.pdf

The Cloud Transforms Business http://www.kpmginstitutes.com/financial-reporting-network/insights/2010/business-implications-of-cloud-mark-goodburn-dec10.aspx

From Hype to Future: KPMG’s 2010 Cloud Computing Survey http://www.kpmg.com/ES/es/ActualidadyNovedades/ArticulosyPublicaciones/Documents/2010-Cloud-Computing-Survey.pdf




http://www.kpmginstitutes.com/financial-reporting-network/insights/2010/business-implications-of-cloud-mark-goodburn-dec10.aspx

http://www.kpmginstitutes.com/financial-reporting-network/insights/2010/business-implications-of-cloud-mark-goodburn-dec10.aspx

http://www.kpmg.com/ES/es/ActualidadyNovedades/ArticulosyPublicaciones/Documents/2010-Cloud-Computing-Survey.pdf

http://www.kpmg.com/ES/es/ActualidadyNovedades/ArticulosyPublicaciones/Documents/2010-Cloud-Computing-Survey.pdf

HybridData Consumer

Compliance

InfrastructureOrganizational readiness

KPMG INTERNATIONAL

Clarity in the Cloud

A global study of the business adoption of Cloud

kpmg.com

Contact us

For further information on this study, and how KPMG firms can help your business with the transition to Cloud, please contact:

Global Cloud Enablement Team:

Steven Hill Global Cloud Executive SponsorT: +1 214 840 4455E: [email protected]

Rick Wright Global Cloud Enablement Program LeaderT: +1 617 988 1163 E: [email protected]

Samantha Malackey Global Cloud Enablement Program DirectorT: +1 212 872 6673 E: [email protected]

Regional Cloud Enablement Team: Americas:Stephen Lis Americas Region Cloud LeaderT: +1 267 256 3260 E: [email protected]

Steve Fortier Americas Region Tax Cloud LeaderT: +1 312 665 1416E: [email protected]

Kris Trent Americas Region Audit Cloud LeaderT: +1 214 840 2407E: [email protected]

ASPAC:Robert Stoneley ASPAC Region Cloud LeaderT: +852 21402850 E: [email protected]

Graeme Reid ASPAC Region Tax Cloud LeaderT: +65 6213 3300E: [email protected]

Neil MacNair ASPAC Region Audit Cloud LeaderT: +61 7 3233 9465E: [email protected]

EMA:Bryan Cruickshank EMA Region Cloud LeaderT: +44 131 527 6640E: [email protected]

Mike CamburnEMA Region Tax Cloud Leader T: +44 20 7694 8686E: [email protected]

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2011 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

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Publication name: Clarity in the Cloud: A global study of the business adoption of CloudPublication number: 111028Publication date: November 2011

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