In this episode of the Future of Asia Podcast series, senior partner and leader Anand Swaminathan puts these questions and more to three experts on the subject. He talks to Garrett Ilg, president of Oracle in Japan and Asia Pacific; Paul Macpherson, chief information officer of Consumer, Private, and Business Banking at Standard Chartered Bank; and Brant Carson, a partner in McKinsey’s Sydney office and leader of McKinsey’s technology and cloud practices across Asia. An edited version of their conversation follows. For more conversations on the Future of Asia, subscribe to our podcast.
This episode was originally recorded and released in July 2021.
Oliver Tonby: Hello. I am Oliver Tonby, chairman of McKinsey in Asia. Welcome to the Future of Asia Podcast series. The Asian century has begun. Asia is the world’s largest regional economy. It’s at the center of the technology revolution; it’s at the center of consumption growth, and the consumers of the future. It’s at the center of climate risk and what we need to do to mitigate. As our economies evolve further, Asia has the potential to fuel and shape the next normal. In each episode, we are going to feature conversations with leaders from across the region to discuss what Asia’s rise means for businesses everywhere.
Anand Swaminathan: Welcome to the Future of Asia Podcast series. I am Anand Swaminathan and I’m a senior partner in the McKinsey Singapore office where I lead McKinsey Digital across Asia. In this podcast, we look at cloud technology in Asia. Our region’s initial response to the COVID-19 pandemic in 2020 was partly enabled by technological foundations that had been developed long before the crisis. We now are seeing an increase in the adoption of the cloud in response to rapid digital transformation. Governments and organizations of any magnitude and size are realizing the growing importance of cloud technology. So questions arise: What opportunities does cloud technology offer? Will we continue to witness the rise in adoption rates across Asia, particularly in businesses? And what’s really spurring this adoption rate increase? Sharing their perspectives today are three guests who keep close tabs on cloud technology in Asia: Garrett Ilg, president of Oracle in Japan and Asia Pacific; Paul Macpherson, chief information officer of Consumer, Private, and Business Banking at Standard Chartered Bank; and Brant Carson, a partner in the McKinsey Sydney office, who leads McKinsey’s technology and cloud practices across Asia.
Anand Swaminathan: The speed of cloud adoption in Asia is fascinating—every business, organization, and leader we speak to talks about it. Garrett, what do you think is driving the uptake?
Garrett Ilg: Companies have focused on three pillars that have driven this movement to the cloud. The first is innovation—converging database capabilities and focusing on building low-code applications that run faster and leaner inside their infrastructure. This includes building data strategies around warehousing and analytics, as well as looking at the usage of the data—a goldmine for many companies. The second pillar is transformation, moving companies into a cloud environment where they can focus on their business, not on the maintenance of the objects that help drive their business. Lastly, and probably most important, is the protection pillar. That’s about security; not just encryption, but also access, key management, and protecting customers’ data.
Anand Swaminathan: Paul, are there other factors you’re seeing in the banking world?
Paul Macpherson: The three drivers that Garrett speaks about are apt within financial services, and then I would add two more. The first is that customer interactions and digital adoption have gone through the roof here—cloud has enabled this. The second driver is technology efficiency. We’re having to reprioritize investments as pressures grow within financial services and banking around the economics of serving our customers in our mass markets (and some in the affluent space). Enabling cloud technology allows us to optimize on the cost side as well, which has let us invest in other customer-facing and customer-interaction technologies.
Anand Swaminathan: Brant, what are your thoughts around this? What’s happening between the acceleration of the cloud and customer?
Brant Carson: We see cloud technology as being a way to drive agility and velocity—it gives companies the ability to deliver new services into production environments in such a way that customers can interact with new features and functionality on a much more regular basis. We see this growing customer focus across multiple industries, which is really exciting.
Anand Swaminathan: I wonder if another reason that adoption is increasing is that the costs of compute and storage are dropping. Garrett, do you think that the cost factor could contribute to cloud adoption?
Garrett Ilg: There are two important factors that need to be balanced here. The first is the engagement cloud. Upfront, it’s typically more expensive because you have to tear down a legacy and build up innovation—in parallel. In the second phase, you have the run rate that is dramatically less expensive, primarily because the costs of storage and compute have reduced. If you’re an individual enterprise, though, you may struggle to create the efficiencies that a hyper scaler can because they can spread the costs across so much infrastructure.
We find that customers get hit by the realization that cloud technology isn’t cheap, and that cloud adoption is a bigger step than they anticipated. They have to look at a mid-term horizon, not a long-term one; one- or two-year plans, not five- to ten-year. If they do this correctly, then everything begins to flow. The cloud can be the answer to efficient communication, too. Whatever type of company or organization you are, we all typically engage in kilobyte-measured emails or short messaging. Now we’ve gone into things like live audio and more pictorial communication, which push up the megabits. Your storage for just one customer is going to amplify a thousand times. How do you manage that infrastructure? You have to look to the cloud as the answer.
Brant Carson: I think one of the common fallacies about the cloud is the immediate thought that it’s going to yield huge cost savings. In fact, cost is only a small fraction of why companies go to the cloud. It’s important to realize that the benefits are holistic. When we did our cloud opportunity sizing, less than 10 percent of it was around cost. The transition to the cloud, in many ways, ends up being more expensive than anticipated, especially in the short term. Companies need to make sure they are moving to the cloud for the right reasons.
Paul Macpherson: I think it’s clear, however, that there are cost advantages compared to traditional hosting, around labor save costs and the efficiency of people within an organization. Let’s take a tech organization within financial services, for example, where we see many benefits not only of a reduction in the non-labor costs for the cloud, but also the benefits on the labor side. Yes, through automation, there are fewer employees over time, which is a cost. Yet the biggest factor we’ve seen is in the efficiency of our developers. With the cloud, we have enabled them to get code and feature functionality to the customer faster, of a higher quality, with levels of automation and built-in security and resiliency controls—this leads to a happy mix of the income line going up and cost coming down from a labor and non-labor point of view.
Anand Swaminathan: Paul, why do you think companies should integrate cloud technology into their businesses?
Paul Macpherson: I’ll talk specifically within banking and financial services and around the mass personal space segment. The cloud is seen as an enabler of the adjacency, partnership, and ecosystem play. Banks are realizing that, if they’re going to scale and serve customers, they need to tap into the partner ecosystem. The cloud allows us to do that with the relevant people, at pace and with innovation. We are using it to shape and enable different business models within financial services, particularly banking. How have we gone about it? We have used a three-pronged approach: first, we put a cloud-first strategy in place. Any new platform that we build to enable a customer journey is cloud first. Second, we have also put in a migration strategy, and we’ve taken our core bank to the cloud. And, third, we’ve gone one step further by moving our digital business or new business models to cloud native platforms.
Oliver Tonby: Asia’s standing in the world has changed. And it’s clear that where the focus once was on how quickly the region would rise, the reality is now all about how Asia will lead. Keep listening to the Future of Asia Podcast.
Anand Swaminathan: Garrett, how do you unlock the potential of the cloud for your customers and help them to make decisions?
Garrett Ilg: There are a couple of things that you have to include in the conversation with customers. The first is very simple, but sometimes hard to do—tell them simply to get into the cloud. My advice to a CEO is, “Harness your team and build unity.” Once you’ve made the decision to move to the cloud, you need the whole team to come across with you. If you have some people sitting on the “don’t go to the cloud side” and the others sitting on the other, you create an inhibitor to success right there and then.
The second point customers need to consider to figure out is how they are going to handle data. The whole objective of cloud technology and the value that comes from it is taking a company’s disparate data infrastructure and bringing it together to improve business process, workflow, and activation. To some extent, standardization is important, but you don’t have to do so on every single source. Multi-cloud strategies are becoming common because data can move through various infrastructures. The next point that customers have to consider is to define where they are going with their business process, what they are doing with their analytics, and what their warehousing needs are—and then set up their infrastructure to optimize the technology to better their business and customer delivery. Then automation is really important. I believe that in the second half of this decade, particularly in software, everything is going to be about artificial intelligence (AI) and machine learning (ML). Without data, those things don’t exist. And without the cloud, quite frankly, companies won’t scale. Embedded ML and AI deliver efficiency, but also the ability to activate with focus.
Anand Swaminathan: Brant, what do you tell your clients when they ask you, “Why should we get started with the cloud?”
Brant Carson: The situation with the cloud reminds me of “agile” about five years ago, where everyone was talking about being agile. In truth, there was only a handful of companies that had really gone agile. In most cases, there was a lot of experimentation. The same thing is happening now with the cloud. Everybody’s talking about it, though there are only a handful who really understand it and are making effective use of it. Most companies are either in the early experimentation stage, or they’re in the middle and struggling to see the value—it can be tough. So, I say to clients, “The cloud is just a tool, it’s not a destination unto itself.” They need to consider what their business objectives are and which cloud tools could be effective enablers of their business.
Anand Swaminathan: The question now becomes, “How do I do it?” Garrett, where and how can companies begin this journey?
Garrett Ilg: The most important point that a company can think about is that the journey into the cloud is not just a technology initiative—it’s a leadership agenda and a C-level decision. And then it must be worked from the C-suite straight through the organization. As with any important transformation, if you don’t have all the team on board, you have potential failure. The cloud journey involves a lot of technology, but it also involves business process and the ability to bring a culture of commitment to change into the company. Companies that have that C-suite continuity through the organization transform faster and much more effectively. They are more innovative, within their business and with their customers.
Paul Macpherson: I believe you need to get into the hearts and minds of people. So, set your ambitions high and get your stakeholders on board, such as risk and compliance, as the cloud comes with a different risk profile. Understanding that risk profile and putting mitigation in place has helped us accelerate.
Brant Carson: I have noticed that new players tend to be in the cloud. It’s really the legacy organizations that have to make a bigger call and a much greater transition. We saw through the pandemic that business continuity and resilience were some of the massive benefits of being in the cloud. I think that now companies are really looking at how the cloud can help in the acceleration of the business and in obtaining real value. This helps them become increasingly competitive.
Paul Macpherson: Another point I would like to make is that it’s great to have ambition and all the relevant people at the table to execute and transform at velocity. But really, the most important factor is to have the right talent—we are starting to see companies focus on the availability, attraction, and retention of relevant talent.
Anand Swaminathan: How, then, did you go about getting the talent that you needed?
Paul Macpherson: We first of all leaned on our cloud providers. Then we deliberately went into the global market to look for talent with specific skills. And lastly, we did a lot of internal training and coaching, and used our cloud providers to provide cloud certification to hundreds of our people. This has helped these people to be included in the cloud journey.
Garrett Ilg: We have found there is also a demand at the vendor level for a transformation. We have software sales teams and implementation teams, and they are typically systems integration and implement encoders. When going through our cloud transformation, we thought, “There’s got to be something in the middle.” So we created a role called cloud engineering—this is where we deploy resources into the customer on a project-specific basis. We engage and work with the customer to do the shift and lift their business to the cloud. This is not a consulting engagement and there is no fee for it. In Japan and Asia Pacific, my cloud engineering team is approaching the same size as my consulting headcount within one year of initiation. I expect it to keep increasing—we need to be able to deploy resources into the customers to help them not just transform and implement, but to carry them through into the run environment of the cloud. This is a transformational support engine.
Brant Carson: We find that there are three issues for our clients: One, how do you find the talent? And two, how do you pick the skill sets from your existing organization to be able to build their capabilities? This also involves educating people from outside of technology to start to appreciate and understand next-generation technologies. Third, how do you retain talent? Good engineers want to work in highly modern environments; they don’t want to program in COBOL. This is not just about a comfortable environment, perks, and flexibility; they want to work on next-generation tools and projects.
Paul Macpherson: That’s a good point. We did a cloud talent marketplace two weeks ago, and the number one question that we had from potential joiners was, “Talk me through your toolset.” They didn’t talk about compensation or the office environment; they wanted to know the tools that they were going to be using and the innovation that we had within the organization.
Anand Swaminathan: I think talent is the nut to crack as we go out there. It was wonderful to hear the perspectives on why cloud adoption is rising at the rate that it is; thank you all for your time today. We have come to an end of this episode of the McKinsey Future of Asia Podcasts. If you enjoyed it, keep a lookout for more to come.
Oliver Tonby: You have been listening to the Future of Asia Podcast by McKinsey & Company. To learn more about McKinsey, our people, our latest thinking, visit us at mckinsey.com/futureofasia or find us on LinkedIn, Twitter, and Facebook.