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Cloud computing emerges as a beacon of innovation and efficiency, promising to revolutionize how companies operate and deliver value. Yet, as we navigate the cloud’s vast possibilities, European companies face a complex journey, marked by high adoption rates but low returns on their investments. This scenario unfolds in a detailed analysis provided by McKinsey. It sheds the light on the state of cloud computing across Europe. It also offers a roadmap to harness its full potential.
The Dichotomy of Cloud Computing in Europe
With an impressive 95% of European companies embarking on the cloud journey, the initial picture seems promising. These companies are not just participating in the cloud revolution. They are determined to reshape their operations through its capabilities. They aspire to migrate over half of their workloads to the cloud.
However, this enthusiasm contrasts with the reality of value capture. Most companies find the benefits of their cloud endeavors confined to isolated pockets within their organizations. They often subscale and concentrated on IT enhancements rather than transformative business operations.
The critical issue at hand is not the technology itself but the approach to its adoption and integration. European firms lag behind their global counterparts. Especially when it comes to leveraging the cloud for higher-value uses in business operations.
This gap underscores a missed opportunity, given the cloud’s potential to generate up to $3 trillion for companies that push beyond mere adoption to innovate and pioneer new applications, particularly in conjunction with generative AI technologies.
Insights from the Field
A survey of 50 European cloud leaders reveals a complex picture. Cloud computing is undoubtedly a priority, discussed at the highest levels of corporate governance, yet less than one-third of these companies have achieved the milestone of hosting 50% of their workloads on the cloud. Moreover, the satisfaction with cloud investments does not always translate into significant value generation. Indeed, many companies recognize the limitations in capturing the full benefits across their operations.
The fundamental challenge lies in the focus of cloud strategies. European companies tend to prioritize IT operational improvements and cost savings. They overlook the broader impacts on non-IT business operations that could drive revenue growth and operational efficiency. This IT-centric approach hinders the realization of the cloud’s full economic benefits.
Strategic Priorities for European Companies
The path forward for European companies to unlock the true value of cloud computing involves a shift in strategy, mindset, and operations. Based on insights from McKinsey’s analysis, five strategic priorities emerge:
- Develop True Partnerships: Moving beyond traditional vendor-client relationships, European firms need to forge genuine partnerships with cloud service providers (CSPs) and system integrators (SIs). These partnerships should focus on shared business transformation goals, capability building, and co-creation of cloud-based solutions.
- Modernize Operational Models: Embracing cloud capabilities requires an overhaul of existing work processes, favoring agile, cross-functional teams that can quickly adapt and innovate. Integrating CSPs and SIs as part of this model is crucial for success.
- Implement FinOps for Cloud Spend Optimization: Learning from the experience of US companies, European firms must prioritize financial operations (FinOps) to manage and optimize cloud costs effectively. This involves embedding FinOps into the engineering best practices, not as an afterthought.
- Focus on ROI for Cloud Scaling: Decisions on scaling cloud capabilities should be guided by return on investment (ROI) considerations, recognizing that the greatest value lies in enhancing business operations. Companies need to find the sweet spot in workload migration that maximizes ROI without incurring unnecessary costs.
- Bridge Compliance Capabilities: With Europe’s complex regulatory environment, companies must integrate their compliance capabilities with those offered by CSPs and SIs. This is essential for navigating the evolving regulations on data security, cloud sovereignty, and critical national infrastructure protection.
The Regulatory Landscape
European companies must also contend with a rapidly changing regulatory landscape. It includes GDPR, the Schrems II decision, and various national and European certifications aimed at promoting data security and cloud sovereignty. Adapting to these regulations requires a proactive and collaborative approach, leveraging the expertise of CSPs and SIs to ensure compliance and secure operations.
Conclusion: A Cloud-Focused Future
As European companies navigate their cloud computing journeys, the potential for transformation and value creation is immense. By aligning their strategies with the outlined priorities, businesses can move beyond the constraints of IT-centric cloud adoption. They are then able to unlock new revenue streams, operational efficiencies, and competitive advantages.
The future of cloud computing in Europe is not just about adopting technology; it’s about reimagining business models, operational processes, and partnerships in the cloud era. With the right approach, European companies can lead the way in the global digital transformation, leveraging cloud computing as a catalyst for growth and innovation.