Shortlist: Tech for execs

Our best ideas, quick and curated | June 3, 2022

TECH FOR EXECS

Get your head in the cloud’s services: SaaS, PaaS, and IaaS

McKinsey experts serve up a periodic look at the technology concepts that leaders need to understand to help their organizations grow and thrive in the digital age.

What they are. Virtually every aspect of IT can now be leased as a service (aaS) via the internet from a host of providers. Cloud service providers, in particular, have expanded rapidly into the aaS world. Rather than having to buy, install, and manage an application, you can simply use it when you need it and let the provider handle the maintenance. These services change the face of IT costs, capabilities, speed, and responsiveness. Businesses can now access and begin using applications in as little as a few hours and avoid significant up-front investments in technology infrastructure that can quickly become obsolete.

But the space has become an alphabet soup. SaaS (software as a service), PaaS (platform as a service), and IaaS (infrastructure as a service) are at the forefront of aaS offerings, leaving business executives scratching their heads over the differences among them—and which would best enable businesses to achieve their goals. We’re here to help make sense of it all.

SaaS benefits. SaaS providers lease business software (for instance, customer-relationship-management systems like Salesforce, file managers like Box, and messaging systems like Slack) on a subscription basis, allowing for quick scaling and the flexibility to use the software only as long as needed. SaaS enables businesses to practically eliminate the costs of developing and maintaining applications on site. Quick and simple access to applications from any device can speed adoption and use and can increase worker productivity.

SaaS limitations. SaaS software can be customized to a certain degree. However, the ability to innovate at the speed of markets means that businesses will likely need to up their technology innovation game beyond what SaaS providers were designed to provide.

PaaS cloud service. Designed to support businesses’ need for in-house development capabilities without requiring reversion to significant IT infrastructure or new talent investments (such as SAP Cloud or Google App Engine), PaaS offers online access to servers, data centers, middleware, and software development and project management tools. Like with SaaS offerings, the pay-as-you-go structure allows companies to scale up or down almost instantly as markets or customer expectations change. PaaS can significantly accelerate a company’s time to market; businesses that have adopted it report bringing new capabilities to market around 20 to 40 percent faster than do companies that haven’t. Organizations can also lift and shift legacy applications to a PaaS so that they can retire server farms and reduce software license expenses.

IaaS access. IaaS has swooped in to offer virtual access to computing, storage, and networking resources (for example, Amazon Web Services and Microsoft Azure) so that businesses will not have to return to buying hardware to support all their new applications and tooling. IaaS providers enable businesses to increase or decrease capacity as needed, serving as a particularly valuable resource for data management and compute power, especially if the volume is soaring or unpredictable.

Minding the economic pitfalls. These aaS offerings are by no means plug and play. Shifting to the cloud requires executives to carefully consider how these services support strategy and mesh with each other and existing IT hardware. Some companies have made costly mistakes when dealing with the economics of cloud services, often because business leaders try to apply old-school, on-site computing economics to them. McKinsey’s cloud calculator is one tool that can help you determine the right strategy for aaS offerings.

What technology concepts would you like us to help explain next? Let us know.

— Edited by Barbara Tierney

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