McKinsey Quarterly

Cloud’s trillion-dollar prize is up for grabs

Cloud has immense potential, but most companies are only scratching the surface. Recent research clarifies where the value lies—and how to capture it before competitors do.

Moderna CEO Stéphane Bancel made the decision to build his mRNA research-and-development platform on public cloud to create what he calls “software for life.” 1 He used the cloud as a means to accelerate therapeutic discovery and development. When the COVID-19 pandemic hit, this strategy proved prescient. The company was well positioned to quickly design research experiments and to harness its automated laboratory and manufacturing processes and enhanced drug-discovery pipeline.

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Moderna runs its Drug Design Studio, a proprietary web application, on cloud and leverages cloud’s scalable compute and storage infrastructure to analyze and quickly design mRNA sequences for protein targets. Scientists and engineers also use fully managed cloud data-warehousing services to integrate insights from multiple experiments running in parallel and quickly refine the design and production cycle. 2 Moreover, the adoption of cloud principles, such as infrastructure as code (IaC) and security as code, helped to automate good-practice (GxP) compliance processes so the organization can move quickly while staying secure and compliant. 3 Thanks in part to cloud, Moderna was able to deliver the first clinical batch of its vaccine candidate (mRNA-1273) to the US National Institute of Health for phase one trials just 42 days after the initial sequencing of the virus, 4 “because you don’t have to reinvent everything, you just fly,” Bancel said. 5

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More companies are starting to see the real benefits of cloud, 6 which has been long heralded as a catalyst for innovation and digital transformation, thanks to its ability to increase development speed and provide near-limitless scale. While Moderna’s success illustrates the business opportunities that cloud makes possible, it only scratches the surface of the potential value at stake. A detailed review of cloud cost-optimization levers and value-oriented business use cases foresees more than $1 trillion in run-rate EBITDA across Fortune 500 companies as up for grabs in 2030 (see sidebar, “About the research”), a number that will grow as cloud facilitates the adoption of emergent technologies such as augmented reality and blockchain. This $1 trillion is less a prediction than an estimate of what should be possible, provided companies aggressively pursue the cloud opportunity—and a call to action, because early adopters will capture a disproportionate share of the total value.

The emergence of this immense value pool comes at a time of increasing competitive pressure on companies. Fast-moving digital players are creating a fluid business landscape and accelerating the pace of change. For CEOs, cloud adoption is not just an engine for revenue growth and efficiency. Its speed, scale, innovation, and productivity benefits are essential to the pursuit of broader digital business opportunities, now and well into the future. Yet an overly narrow view of cloud-value economics and where value exists often keeps companies from achieving the desired outcomes.

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

Our research identifies the pools of value for cloud adoption across three dimensions—rejuvenate, innovate, and pioneer—as well as the drivers of that value across the first two dimensions. It also highlights likely avenues for growth in the pioneer dimension. CEOs can begin their journey by working with their tech leadership to focus on four actions: set ambitious targets, pursue a hard-headed economic case, adopt cloud-native ways of working, and invest in standardized, automated cloud platforms.

Dimensions of value

We have sized the value for rejuvenate and innovate only, since many of the use cases in pioneer are still evolving, and their 2030 impact is difficult to quantify with any precision. They do, however, present the next stage of value evolution in cloud, so leaders should start experimenting in earnest now to harness these technologies in the near future.

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

Capture of the economic value is expected to differ by industry.
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This value distribution is likely to change as the impact of cloud evolves. Democratized access to computational power and infrastructure could reshape the landscape in industries that have historically not been highly competitive. Like several previous technology disruptions, cloud shifts barriers to entry in many markets from scale to skill, enabling smaller companies with the right skills to scale businesses on the latest infrastructure without worrying about up-front costs—thus creating a threat to slower-moving incumbents.

Use cases also differ by industry. Solutions that unlock the value of cloud include inventory optimization in retail, automated forecasting in oil and gas, chatbot support for high tech, and customer-call-center optimization in banking (Exhibit 2).

Cloud can unlock substantial value for technology use cases.
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Capturing value: Seven value drivers underpin the three dimensions

As companies assess the opportunities enabled by cloud, a detailed review of the sources of value can pinpoint where they need to focus their attention, people, and resources. Across the three dimensions, seven drivers of value can collectively generate more than $1 trillion in value (Exhibit 3).

Seven value drivers could enable cloud to deliver more than $1 trillion in 2030 EBITDA value across the Fortune 500 by 2030.
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Rejuvenate

Rejuvenation describes a break from traditional legacy approaches by using cloud to lower costs and risk across IT and core operations.

Value driver 1: IT cost optimization

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The traditional on-premise model for managing applications and infrastructure is inherently inefficient. It is highly manual and typically uses expensive technology equipment at less than full capacity.

The economics of cloud computing is both controversial and complicated. On the one hand, cloud provides access to automated capabilities that enterprises could never afford to develop on-premise, and cloud service providers (CSPs) leverage inverse correlation of workload usage patterns to run their assets at much higher utilization. On the other hand, CSPs charge based on consumption, and companies must remediate existing applications for them to run efficiently in the cloud.

Similarly, “lift and shift” migrations of existing on-premise applications to cloud can actually increase cost if they are not optimized or remediated correctly. In contrast, companies that have built new systems in the cloud or remediated existing applications to leverage cloud attributes are seeing dramatic efficiency improvements. Cloud also enables greater development productivity through new ways of working, such as agile and DevSecOps, and efficiency improvements through API-based or self-service-based workflows and automation—for example, automated patching. Early research indicates that developers spend measurably less time on infrastructure and production support and more on business requirements and development when companies move to public cloud.

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

Value driver 2: Improved resilience and lower downtime costs

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By 2030, companies will lose roughly $650 billion as a result of system downtime and cybersecurity breaches. Through more resilient architecture, cloud could reduce downtime by about 57 percent for migrated applications, resulting in a 26 percent cost reduction for breaches. 7 Cloud could improve platform integrity through automated, embedded security processes and controls (such as DevSecOps). These features reduce tech risks with a modernized, consistent tech stack across environments.

Value driver 3: Core operations

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Cloud accelerates and, in some instances, unlocks implementation of the latest technological and digitization solutions in the back office, such as analytics-driven accounting and talent management. Organizations that shift to public cloud unlock additional value by repurposing and reskilling their workforce to focus on higher-value tasks, such as developing products and services that address customer demands. Cloud can allow a reduction in manual effort through API-based models, standardization, and automation (for example, IaC).

Innovate

The next dimension involves harnessing cloud to accelerate or enable innovation using technologies such as advanced analytics, IoT, and automation at scale. These provide companies with ways to pursue innovation-driven growth and optimize costs for business operations. The range of potential value is large and reflects the fact that not all organizations have the cloud maturity to achieve a similar degree of innovation. We analyzed 700 use cases to determine the impact of cloud in unlocking value. The value was allocated across a range from 100 percent in select cases, 30 percent in the bulk of cases, and null in a small number of cases (Exhibit 4).

Cloud can accelerate or fully unlock value of implementing innovative technologies for select use cases.
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Value driver 4: Growth from new and enhanced use cases

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A “fail fast” mentality is a hallmark of the most innovative companies, and cloud facilitates it by providing access on demand to nearly unlimited infrastructure capacity and computational power. Cloud enables companies to experiment with applications and new business models at lower cost and greater speed. Executives who embrace cloud avoid large up-front capital outlays when they launch or expand businesses. To support this shift, organizations need new operating models focused on, among other things, managing consumption, gaining visibility into future demands, and forming integrated financial operations (FinOps) teams to maintain fiscal control.

Value driver 5: Accelerated product development

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Companies have adopted cloud to enhance their operating-model agility, which accelerates the implementation of use cases while lowering R&D investment. Companies can more easily configure solutions on cloud than they can on-premise, enabling them to keep pace with the speed of business change and creating a flywheel for responsiveness. In addition, migrating to the public cloud provides organizations with access to innovative tools and capabilities offered by CSPs, such as containers, microservices, DevOps functions, continuous integration and continuous delivery (CI/CD), and advanced serverless architecture. This enhances product development from the outset and dramatically speeds design, build, and ramp-up, helping companies to dramatically reduce time to market.

Value driver 6: Rapid scaling

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The infrastructure and global presence of cloud providers can be harnessed to scale products almost instantaneously to a broader set of customer segments, geographies, and channels. In addition, organizations are able to gain access to instant on-demand elasticity in compute and storage capacity—critical elements in launching and building new businesses.

Pioneer

As its name suggests, pioneer, the third dimension of cloud adoption, is where an enterprise can extend cloud’s value once it has reached a certain level of cloud maturity. At this stage, companies can harness cloud to experiment with new technologies, such as blockchain, quantum computing, augmented and virtual reality, and 3-D printing.

Value driver 7: Adoption of emerging technologies

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With agile operating models, organizations can set up nimble “swat teams” to develop proofs of concept. This advanced level of cloud maturity has the additional benefit of attracting and retaining top talent to work on emerging technologies. This is critical as companies seek to incorporate transformative technologies that have not yet achieved mass adoption. While the impact of nascent technologies is difficult to calculate, leaders need to account for potential applications and commit to understanding their potential value. Cloud can accelerate this process.

Quantum computing is expected to provide significant performance improvement and thus potentially disrupt existing business models. By moving infrastructure to cloud and adapting the operating model, companies will be better positioned to benefit from cloud-based quantum computing when relevant use cases emerge. CSPs already offer these computing services, which allow organizations to run hybrid quantum and classical algorithms.

Other emerging technologies, such as augmented and virtual reality and 3-D printing, also have immense promise. For example, the health-tech company Axial3D provides clinicians with patient-specific 3-D anatomical models, using a cloud-native integrated development environment for machine learning.

What mature cloud adopters get right

Cloud offers tremendous value, but the benefits don’t appear magically. Cloud requires a well-defined, value-oriented strategy and a coordinated execution by IT and businesses to realize full value. For example, organizations that simply “lift and shift” applications to cloud with no change to architecture miss out on key benefits, such as autoscaling and automated performance management. Moreover, success requires a cloud-ready business-technology operating model built around a product life cycle, which improves developer productivity, thereby accelerating product development.

Experience matters, and companies with high cloud maturity exhibit different adoption mindsets compared with their peers. Third-party primary research on 705 users of public cloud indicates that companies with higher cloud maturity share a number of traits: they are early adopters of cutting-edge technology (71 percent), aggressively innovate (72 percent), and view technology as a competitive differentiator and key enabler for launching and building new businesses (79 percent). By being the first ones to move, these organizations gain considerable experience on cloud, outstripping their peers in cloud outcomes (Exhibit 5).

Mature cloud adopters reap larger benefits than average cloud-embracing companies.
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Building capabilities yields tangible results. Highly mature cloud companies pursue excellence in knowledge and skill sets, which translates into a cloud-literate workforce. To build capabilities within the workforce, these companies create tracks for role and career progression specifically for cloud experts, and they build tailored learning programs to develop cloud-specific skills and competencies. They also ensure that all workers across the enterprise receive on-the-job training about relevant cloud capabilities.

Four key actions to get started

One of the most common mistakes that companies make when integrating cloud is to develop a portfolio of use cases. Individually, these use cases can generate some benefits, but collectively they lack the scale to generate the full potential value. In our experience, the best companies take four steps to create a clear path to cloud-driven performance improvements. 8

Set an ambitious and urgent business aspiration

Many leaders know that cloud frees companies from the limitations of traditional technologies, but they remain stuck in outdated models of what they can achieve and set the bar too low. Business and IT leaders should clearly and urgently articulate a high-value ambition—a moon shot achievable when they work closely together on cloud.

Pursue a hard-headed economic case

A business case for cloud should be grounded in a clear understanding of cloud economics across cost savings (rejuvenate) and business acceleration (innovate). It should be adjusted to transformation risks and prioritized by business domain, and it should include the required resource allocations and sequencing of tasks. One effective approach in developing business-innovation cases is to analyze and articulate the value that can be unlocked or accelerated by cloud. For example, the business-innovation case for an insurer that can refresh its analytical underwriting models twice as fast on public cloud as on a traditional, on-premise infrastructure should calculate both the improvements in return on investment and the value of freeing up capacity for additional innovation. Although the details will vary by organization, we find a holistic, hard-headed business case can help companies gain consensus across functions and build organizational momentum to hit targets within two years.

Adopt agile, cloud-native ways of working

The scope of the change needed to harness cloud requires companies to have real expertise: leaders, staff, and partners with deep experience in cloud and cloud transformations; expert practitioners; and a broad ecosystem. Further, successful cloud efforts are possible only when organizations transform their operations. That includes, for example, a DevSecFinOps approach with small cross-functional teams working within a well-defined architecture to deliver business cases (rather than applications) in rapid iterative cycles, policies that embed security into development, and end-to-end process automation.

Build a standardized, automated cloud platform

Invest in creating a standardized, automated cloud platform that improves productivity and delivers a great self-service experience for developers, who are among the primary consumers of cloud. Developers could use automated, API-based services to provision workloads securely and resiliently on cloud platforms. A higher level of automation also reduces the time needed to prototype new business ideas, which helps businesses innovate and scale rapidly.


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

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