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 1. Cloud
 2. Cloud Computing


MCKINSEY: BUSINESSES ARE TOO FOCUSED ON IT UPGRADES WHEN TRYING TO MAKE CLOUD
WORK

News
By George Fitzmaurice
published April 9, 2024

The European cloud story is “a little less rosy” than it seems, according to
McKinsey, with firms viewing cloud migrations as merely a basic IT optimization
tactic

 * 
 * 
 * 


(Image credit: Getty Images)


European companies are hampering their own cloud computing ambitions due to a
misguided focus on IT improvements rather than an overhaul of business
operations, new research suggests. 



Though 95% of European companies describe themselves as capturing value from the
cloud, a study from McKinsey found few firms are unlocking marked financial
benefits from migrations. 



“Scratch below the surface, and the story is a little less rosy,” the
consultancy said. 

The large majority of the value captured through shifting to the cloud according
to McKinsey, remains in “isolated pockets and at subscale”.

LATEST VIDEOS FROM itproCloud Pro



Out of the C-level executives and cloud leaders surveyed in the report, 82%
recognized that the beneficial impacts of their cloud programs are either
limited to specific areas, only partially realized, or still in the early
stages.



Part of the reason for this can be attributed to the way European companies
measure cloud impact. 

The majority (71%) measure impact in IT improvements, while 66% measure based on
IT cost savings and 63% based on the number of applications in the cloud.


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Policy and are aged 16 or over.

By comparison, only about a third of European companies monitor “non-IT
outcomes”, with 37% measuring by their cost savings outside IT and 32% measuring
based on new revenue generation. 

Around five-times more European companies are still pursuing an “IT-led” cloud
migration compared to US counterparts, the study found, with a focus still being
placed on the movement of workloads rather than revenue generation.

McKinsey noted that around two-thirds of potential cloud value comes from
revenue uplift and cost savings in business operations, meaning Europe needs to
rethink its priorities to start growing financially. 

Moving forward, McKinsey said European firms should shift their focus toward
“higher-value cloud use-cases” when embarking on a migration or transformation
project. 


EUROPEAN CLOUD JOURNEYS STALL

The pace of European cloud journeys was also concerning, with the study
indicating that less than a third of enterprises have 50% of their workloads on
the cloud. 

McKinsey noted, however, that “aspirations are increasing” in this regard.

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(Image credit: Shutterstock)

In-depth assessment of supply chain management processes providers 

Half of respondents said they were undertaking large-scale migrations or
building new applications for the cloud, though around two-thirds of companies
with cloud adoption exceeding 50% still keep more than 20% of their activity
on-premises. 

The McKinsey report did highlight some positives for Europe, with 90% of the
surveyed companies ranking their cloud programs as a priority and over a third
regularly discussing cloud progress at the executive level.  

Satisfaction with cloud investment was reported by 55% compared to just 13%
describing returns as insufficient, and 95% of all surveyed described themselves
as having captured a level of operational improvement.


HOW CAN EUROPE IMPROVE ITS CLOUD GAME? 

McKinsey’s report suggests the need for companies to focus on “three mutually
reinforcing elements” for effective cloud operations - business value, utilizing
small cross-functional teams, and building sufficient foundations. 

Companies also need to appreciate the importance of working with cloud service
providers (CSPs) and system integrators (SIs), according to the report. In doing
this, organizations can build a clear view of their capabilities in areas of
regulatory compliance or code migration. 

AI will have a role to play in the successful harnessing of the cloud in Europe,
according to McKinsey.

The consultancy said enterprises “must explore” the prospect of generative AI
adoption in some capacity. The use of the technology could aid firms in cloud
adoption with the potential to multiply a company's return on investment (ROI)
by seven.

Research by Gartner from last year, however, suggested that generative AI was
yet to have a “material impact” on IT spending at large, so it’s difficult to
say how great an explosion of it will take place in Europe’s cloud sector.  

George Fitzmaurice
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Staff Writer

George Fitzmaurice is a staff writer at ITPro, ChannelPro, and CloudPro, with a
particular interest in AI regulation, data legislation, and market development.
After graduating from the University of Oxford with a degree in English Language
and Literature, he undertook an internship at the New Statesman before starting
at ITPro. Outside of the office, George is both an aspiring musician and an avid
reader.

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