Few companies are unaware of the potential benefits of cloud. Far fewer, however, have captured them at scale. For companies looking to increase their speed of innovation, the efficiency of their IT, and the business value their technology generates, finding the formula to unlock cloud’s value is paramount.
Boards have an important role to play in capturing these benefits by having a clear view of both the impact they as directors can provide and the most effective ways to support management.
Cloud can create tremendous value for businesses …
Cloud will help organizations to both reduce IT costs and support innovation through powerful emerging technologies. By democratizing access to computational power and infrastructure, organizations and industries that previously were not highly competitive from a digital-technology standpoint, or that faced high entry barriers and start-up costs, could wield the resources to reshape their product and competitive landscapes.
The existing and growing range of cloud services means that those companies—including new entrants—that do establish the right vision, governance, and operating model to leverage the cloud will compete on skill rather than scale.
With their experienced perspective and ability to shape the corporate strategy conversation, board directors can play a critical role in helping companies capture value from the cloud. A clear view of what is at stake and where board engagement can help will allow management teams and organizations to unlock cloud’s more than $1 trillion of benefits.
… but many boards aren’t treating it that way
Despite the high potential value of cloud and its enablement of industry-disrupting trends, the majority of boards today do not engage in discussions about cloud. While privately owned institutions discuss cloud the most, the level of engagement is still only around 27 percent. For many boards, not knowing how to have strategic conversations about cloud is the biggest barrier to their involvement.
Boards have clear areas where they can act
Across interviews with almost 40 different boards, we synthesized the four best ways that boards can actively engage in cloud: connect cloud to the overall strategic agenda discussion, oversee and communicate cloud’s financial impact both inside and outside the business, assess and plan for cloud-related risk and compliance issues, and push and support management in the development of cloud capabilities throughout the organization.
While directors will not get involved at the operational level of cloud, they can still provide guidance along these four topics and pose helpful questions to management.
1. Strategy: Drive toward the biggest value pools
While, historically, cloud has often been delegated to IT as an infrastructure decision, it is now becoming much more common and more impactful for organizations to view it as a company-wide business differentiator. Boards can help leadership think through the most effective ways that cloud can enable the business’s strategy and when and how to leverage its power. Management that is struggling to get new features to market quickly, for example, could benefit from a board’s nudge to investigate how cloud might enable quicker iterations and releases of new technology functionality.
Questions for the board to ask
— Do our discussions around corporate strategy incorporate digital aspirations and the role cloud could play?
— Should we think about cloud as a solution to our organization’s technological pain points and/or as a source of product innovations and new features?
— Do we understand how cloud can help us meet our business-optimization and -simplification goals?
— Does the current cloud transformation fit into the business’s overall digital transformation?
— How do we perform against our peers with regard to adopting the cloud?
2. Financial impact: Be clear on cloud economics and how to accelerate benefits
Having a clear understanding of cloud’s value potential and targeting the most relevant pools of value are important starting points. But it’s crucial for boards to drive management to develop a clear view of the business cases, the necessary investment, break-even points, and the sequencing of efforts to capture that value. Cloud economics are based on large up-front investment requirements and a shift from capital expenditures to operating expenditures. They are also complex and require a fundamental review of how finances are managed. Our surveys have found, in fact, that the business case for cloud is the largest barrier to overcome. When the board can provide guidance and oversight in this area in particular, it can be the key to unlocking “top of the house” business benefits through cloud.
The board can have a further direct influence on cloud’s financial impact by driving management to: 1) increase run-rate benefits of the cloud transformation (for example, by creating greater business value through a focus on services that are aligned to the organization’s strategy and future planning); 2) accelerate migration timelines (for example, by alignment with other major programs and full participation from the business); and 3) reduce investments (for example, by eliminating any siloes and tying investments and priorities to other “top of the house” goals).
Questions for the board to ask
— Do we understand the overall business case and the up-front investment in cloud that is needed?
— Does management have the financial resources available to meet cloud-adoption goals?
— Will cloud have an impact on our financials over time, and are we taking steps to adapt to that impact?
— How are we communicating our financial and strategic changes to our stakeholders?
3. Risk: Develop—and track—a holistic view of risk
Especially in organizations with less reliance on innovative digital technologies, boards and management teams often lack a common language to track progress against digital risk, and cloud’s benefits for broader corporate risk can remain unclear to board directors. During and after a transition to the cloud, boards should aim to develop comfort in approving cloud-based strategies backed by a well-developed risk-governance framework and—even more important—to assist management in discussing and examining plans for cloud-specific geopolitical risk, data security, and compliance.
Here are the four key areas of risk that boards need to master:
1. Through cyber governance, business continuity, and disaster-recovery plans, organizations with an expanded IT footprint will need to deal with a larger surface for cyberattacks. Security as code has proven an adept way to shift risk practices to support the faster pace of development enabled by cloud.
2. Regulatory issues surface when cloud is used across multiple jurisdictions. This can require adjustments to continuity and compliance plans that preserve the confidentiality and integrity of sensitive data.
3. Executing cloud transformations creates dependencies with other IT transitions and systems that support the business, creating costs and complexities that require diligent oversight.
4. When working with vendors and cloud service providers, boards need to help companies think through the costs and benefits of each relationship, evaluating the benefits of closer, partnerlike relationships with the potential risk of lock-in. Trade-off considerations include vendors’ commercial, political, and reputational risks.
Questions for the board to ask
— What challenges have we faced around cybersecurity, and will cloud enable us to meet them and increase overall security?
— What are the new types of cyberrisks to which cloud could expose the organization, and what steps are we taking to manage them?
— Within what regions will we be storing our sensitive data, and what steps are we taking to manage them?
4. Operating model: Move the business to a product-led way of working
A company’s operating model, which includes its cloud-talent strategy, will need to evolve during a transition to cloud to take advantage of cloud’s benefits of speed, elasticity, and flexibility. The legacy approach of focusing on projects tends to create barriers to realizing the full benefits of cloud investments, while compounding existing issues with customer and employee satisfaction and infrastructure reliability.
As the company transforms how it works, from project-based teams that hand off their work to product-based cross-functional teams that are accountable for initiatives from beginning to end, the board needs transparency and a reliable set of key performance indicators (KPIs), such as the frequency of product launches and value generated by each product, to understand if the change is happening and sticking. Boards also must ensure management tracks talent development as a competitive edge, while considering technical expertise and cloud proficiency in their succession planning for CEO and CIO positions.
Questions for the board to ask
— Do we have the right leadership in place to lead our cloud transformation, and do we have the right talent to execute it?
— Do we have the right change-management program, and how are we measuring success?
— Do we need to make changes to our overall governance model to accommodate the needs of our cloud and technical transformations?
— Does our CEO and CIO succession planning include considerations around both technical and cloud competency?