1 Cloud Enabled Business Transformation Carl Rönnerstam March 14 th 2012
2 Carl Rönnerstam Head of IT Strategy & Transformation KPMG Advisory Sweden Management Consulting Telephone
3 Cloud: A Game Changer Looking for Business Leadership Cloud virtualizes IT but it transforms business. The Cloud conversation usually starts with IT. The problem is, it often ends there, too. It s easy to focus on how moving to the Cloud helps a business cut costs, but it also creates opportunities. Cloud is in fact one of the most disruptive forces in business in 20 years. The question is, how can you transform your business to take advantage of this fundamental disruption?
4 Not Just Cheaper, Better, Faster Cloud Enables Innovation The Cloud has already changed how you work and with whom you compete. By virtualizing processes, the Cloud creates new opportunities and business models. By shattering barriers to entry, the Cloud creates new competition. It gives twoguys-in-a-garage the scalability and infrastructure access of an established player. Being in the Cloud is quickly shifting from a competitive advantage to an operational necessity.
5 Too Late to Wait Leaders are using the Cloud to improve business performance and increase shareholder value, not just cut costs. How can Cloud help solve business issues? Where should you start your journey towards Cloud? Which Cloud models have the greatest potential for improving your business? How do I transform my IT organization to effectively support Cloud enabled business models?
6 Cloud Impact on Business Cloud Environment = Internet-based data access & exchange + Internet-based access to low cost computing & applications Virtualized Technology Virtualized Processes Opportunities to Leverage Commoditized Enterprise Applications and Economies of Scale Virtualized Organization Virtualized Business Models to drive Increased Agility Greater Flexibility Faster Results Reduced Cost
7 Business Benefits of Cloud Cloud provides businesses increased agility and greater flexibility, yielding faster results at a reduced cost. Increased Agility Rapidly respond to changing market conditions or needs Greater Flexibility More options in combining people, process, and technology to deliver economic value Faster Results Faster time-to-value in achieving results that support more iterative solution design and delivery strategies Reduced Cost Lower total cost to deploy new solutions or to achieve new capability levels
8 Increased Agility Cloud provides a business with increased agility to rapidly respond to changing market conditions or needs. Business Responsiveness Respond faster to gaps or deficiencies in capabilities Increase speed in rolling out new offerings internally Speed business innovation to the marketplace IT Resource Availability Reduce dependence on IT function to deliver new capabilities Rapidly provision computer & engineering resources Scale to support the needs of business innovation
9 Greater Flexibility Cloud provides unprecedented flexibility and more options in combining people, process, and technology to delivery economic value. People Makes virtual resources available internally and externally Offers ability to combine best-in-class service providers (logistics, payroll, engineering, etc.) Process Technology Provides access to providers of leading practice process and service Allows companies to leverage the process improvements of a larger user community Technology People Unprecedented Flexibility to Fill Gaps Process Enables organization to source an array of IT capabilities (SaaS, IaaS, PaaS) Offers IT resources on demand
10 Faster Results Our experience demonstrates that Cloud provides faster time-to-value, supporting more iterative solution deployments Allows organizations to be more experimental in delivering new capabilities without significant investment of time and money Allows technology deployments to be more iterative, delivering incremental value to the organization faster Traditional Solution Deployment 18 to 36 Months Scope Design Test Accept Cloud Enabled Solution Deployment ROI Go Live Often eliminates technology provisioning all together and significantly reduces time to configure ROI ROI ROI 4 to 6 Months 4 to 6 Months 4 to 6 Months
11 Reduced Cost In many instances, Cloud provides a lower total cost to deploy new solutions and to achieve new capability levels Software Hardware Hosting Operations Support Traditional Deployment Possible 40% - 60% Reduction in TCO Cloud Model Public Cloud Enabled Deployment Lower upfront cost May allow switch from fixed cost to variable cost May reduce total cost of ownership Limits capital outlay to activate a service Provides ability to scale usage and related costs as warranted
12 Understanding the Cloud Environment Cloud Environment = Internet-based data access & exchange + Internet-based access to low cost computing & applications Cloud Environment Characteristics: On-Demand Self-Service Internet Accessibility Pooled Resources Elastic Capacity Usage- Based Billing Cloud Service Models Cloud Deployment Models Software as a Service Business operations over a network Platform as a Service Deploy customercreated applications to a cloud Infrastructure as a Service SaaS PaaS IaaS Rent storage, processing, network and other computing resources Private Public Community Operated for a single organization Available to the general public or large industry group, owned by an organization selling cloud services Shared by several organizations, supporting a specific community
13 Cloud Can Be Implemented in Multiple Ways Cloud can be delivered through a variety of service and deployment models In reality it is often provided through a hybrid of these options. Public Cloud Private Cloud Community Cloud
14 Where Do Most Organizations Begin? Most organizations are investing in Software as a Service in both Public and Community deployment models as well as investing in Private Clouds. Software as a Service in the Public Cloud is a model for delivering cloud technologies to support specific business services over the Internet Community Cloud brings together Community private networks with external partners to Cloud enhance the entire value chain across businesses, Public suppliers, and customers Private Cloud Cloud Community Cloud brings together private networks with external partners to enhance the entire value chain across businesses, suppliers, and customers Private Cloud extends existing internal efforts to virtualize IT by enabling the delivery of IT as a Service, going further in reducing long-term operational costs than just traditional virtualization. Infrastructure as a Service models are often core aspects of a private cloud.
15 Community Cloud Extended Organization: Supports processes and solutions that span multiple business partners including suppliers, providers, and customers. Community Cloud Brings together private networks with external partners Enhances the entire value chain across businesses, suppliers, and customers Common Standards: Allows related companies to share common IT capabilities such as data services, security services, and testing services. Flexibility: Offers shared investment and setup costs and the ability to work with trusted suppliers who are part of the community. Faster Time-to-Market: Speeds innovation as all organizations benefit from advances made by others in the cloud. Collaboration: Allows organizations to leverage and access services used by other participating organizations creating unprecedented synergies. Community clouds allow businesses with common interests to leverage shared services to support new business models offering the greatest potential for transformational impact.
16 Community Cloud (continued) As an example, Community Clouds allow companies to synchronize business processes across multiple tiers of business partners Order Management Forecast-based Replenishment New Product Introduction Collaborative Forecasting Buy / Sell Procurement Vendor Managed Inventory Transportation Management Procure to Pay Processes Point of Sale Based Replenishment Collaborative Design Community Cloud Platform Suggested Orders Replenishment Plans Order Commits Inventory Positions Shipping Information Load Information Replenishment Plans Replenishment Orders Order Commits Inventory Positions Receipts Replenishment Schedule Replenishment Plans Shipping Information Load Information Inventory Positions Receipts POS Information Inventory Positions Receipts Replenishment Schedule Supplier Manufacturer Distributor Retailer
17 Software as a Service (SaaS) Scalability and Elasticity: Allows access to IT solutions from best-in-class providers quickly and as needed Software as a Service Delivery of specific business services over a network, most commonly the Internet The applications are accessible from various client devices through web browsers. Time and Cost Savings: Saves time and costs compared with traditional client server model that deploys software on internal infrastructure Flexibility: Enables faster change management cycles and access to technology advances made by the solution provider. Faster and Better: Offers security and functionality at lower costs and with faster results Best Practices: Offers opportunity to leverage best practice processes and technologies in use across the organization s industry. SaaS speeds up the realization of business benefit of IT solutions at lower up-front costs.
18 Private Cloud Minimum Risk: Provides the benefits of accessing IT as a service while minimizing the risks associated with using public cloud solutions Private Cloud Extends existing internal efforts to virtualize IT by enabling the delivery of IT as a Service, Enables reduction in long-term operational costs Control: Provides those with data sensitivity concerns with the most control and least risk of any of the cloud options Expensive: Requires high initial set-up investments, but long term operational costs may be less. Infrastructure as a Service: IaaS tends to be the primarily service model used in private deployment models (over PaaS and SaaS) because it is a natural evolution of virtualization of IT infrastructure Convenience: Offers a way to deliver internal applications through a thin customer web interface providing an internal Software as a Service capability Private clouds reduce operational costs through virtualization and delivery of IT as a service. They are currently popular due to regulatory, data security/privacy, and performance concerns.
19 Managing the Impact of Cloud Since different cloud models have different impacts on IT capabilities, the approach should be based on the selected cloud model and the current maturity of IT capabilities. IT Capabilities Cloud Suitability Assessment Determine appropriate cloud model(s) for the organization (service and deployment model) Determine where and how to adopt cloud model(s) within the IT landscape Enterprise Readiness for Cloud Adoption Determine the capability areas impacted based on the cloud model(s) Understand the current state of the impacted capability areas Assess the readiness of key IT capabilities for operating in the cloud Transformation to an IT Service Integrator Operating Model Modify and adapt key IT processes for cloud operations Establish cloud governance and organization change management Identify cloud risks and establish controls framework to mange those risks Define technology and integration architecture Establish service catalog and funding model for cloud services Note: most organizations will use a hybrid of various cloud models.
20 Impact of Cloud on Business Operations Adopting cloud has a big impact on IT, but it doesn t stop there. Critical business operations are also affected. Organizations need an enterprisewide approach that takes in the cross-functional effects of cloud Your approach may vary, depending on your cloud service model, your deployment model, and the maturity of existing business and IT processes Lessons learned from outsourcing apply in the cloud As Cloud Service Providers (CSPs) practices evolve and mature, enterprise processes need to keep pace with the changing landscape. Business Operations Financial Management and Tax Security and Privacy Operational Data & Technology Regulatory and Compliance Vendor Management
21 Key Risks & Challenges in Adopting Cloud Cloud adoption requires a careful examination of the potential operational risks and challenges in addition to the technology questions. Financial Management and Tax Movement from CapEx to OpEx model impacts existing budgeting, forecasting, and reporting processes Fixed to variable cost model and changes in the character and source of service impacts tax considerations Outdated tax laws and regulations create uncertainty when characterizing the various cloud transactions Cloud ROI and cost/benefit analysis are complicated by need for knowledge of existing cost of delivery and future use of service Security and Privacy Data may be stored in cloud (1) without proper customer segregation allowing possible accidental or malicious disclosure to third parties and/or (2) in a legal jurisdiction where the rights of data subject are not protected Loss of governance of critical areas, e.g., vulnerability management, infrastructure hardening, or physical security Weak logical access controls due to cloud vendor s Identity Access Management immaturity Operational Cloud adoption introduces rapid change in the organization Cloud sourcing may impact existing organizational roles and could require new skills or make others redundant Business resiliency/disaster recovery needs and plans will change and require updating Data & Technology Risk of creating independent silos of information perpetuate the problem of data integrity, quality, and insight Business can bypass the IT function to implement technology solutions, posing challenges for IT governance Cloud delivery models dramatically change how IT delivers technology services to support business requirements Cloud adoption opens the four Data Center walls to external IT Services providers, creating new risks Regulatory and Compliance Vendor Management Lack of visibility into the Client Service Provider s (CSP) operations inhibits analysis of its compliance with pertinent laws and regulations Complexity of records management/records retention creates challenges Lack of industry standards and certifications for cloud providers creates risks Lack of clarity of ownership responsibilities between cloud vendor and user company No prevalent standards for vendor interoperability Extensive reliance on the CSP
22 Recommendations to Mitigate Risk Once an organization has identified the specific risks it could face in a Cloud environment, it must take steps to mitigate them. Some high-level steps include: Establish a Cloud Strategy Design Reference/ Target Architecture Establish a Governance Model Define VDD Model Establish RM, IT Controls, Continuity Planning Establish a Cloud strategy: Business and IT leaders need to work closely together to choose the appropriate options (private vs. public Cloud, IT strategy, core vs. non-core functions, etc.) Design reference/ target architecture: Taking a long-term view of technology architecture principles and standards will help ensure interoperability, data integration, security, and controls across internal and external providers. Establish a governance model that focuses on key risks: New governance models and compliance strategies that include vendor executives are needed to enable visibility into the organization s risk exposure and drive effective decision making. Define vendor due diligence model/ guidelines/approach: Address issues including contract terms, service level agreements, and controls that will help prevent business units from circumventing IT and setting up their own Cloud services. Establish ongoing risk management, IT controls, continuity planning: Consider how cloud affects the organization s risk profile, changes its IT processes and IT controls, and impacts the components of disaster recovery planning.
23 Benefits Can Outweigh Risks While Cloud introduces new risks and challenges it also provides benefits that can mitigate several traditional technology risks: Cloud properly aligns vendor incentives with overall customer success in an unprecedented way. Cloud vendors are often (and should be) held to a higher level Service Level Agreement (SLA) and set of security constraints than those to which companies hold themselves. Cloud enables faster deployment times, allowing for an increasingly iterative process design with less risk of time loss and run-away costs. BENEFITS RISKS
24 Key Take-Aways Think Strategically Remember that cloud is a business decision and an opportunity to improve capability levels. Be Experimental Try different options to find the competitive edge cloud can offer your particular business. Be prepared to conduct more due diligence than is required with traditional technology sourcing and selection. Be Flexible & Take a Guide Remember that the space is evolving and changing rapidly. New vendors emerge every day. Partner with an advisor that can guide you through the latest trends and developments.
25 Key Take-Aways Cloud computing is a business discussion, not just an IT discussion. Any IT strategy to leverage cloud must include business stakeholders and be based on business requirements. Evolving IT to a service integrator model is critical IT organization must evolve to a service integrator model and adapt its key capabilities to successfully maintain their position in cloud enable enterprises. The cloud market is evolving. IT organizations and businesses need to monitor how changes in the vendor environment and in service offerings could affect their IT service delivery.
26 Qualified Glocal Research
27 KPMG Management Consulting Worldwide Core Propositions Value creation and minimization of risk from M&A, integration and separation. KPMG can help companies enhance revenue and implement sustainable cost reductions. KPMG can help improve the effectiveness and efficiency of the finance function and generate real insights to deliver additional value to the business. TRANSACTIONS & RESTRUCTURING Providing support to ensure availability, efficiency and confidentiality in information systems by translating operational knowledge into IT knowledge. Guidance on the most appropriate strategies for: Creating and implementing Shared Service Centers Outsourcing/offshoring of IT services Ensuring implementation of effective controls RISK & COMPLIANCE Forensic KPMG can support companies in adapting to and addressing the consequences of new regulatory standards, including FAT CA IFRS Optimization of operational activities by identifying improvement opportunities and contributing with experience on implementation. Improvement of business performance management and utilization of technology to support governance and control.
28 Carl Rönnerstam Head of IT Strategy & Transformation KPMG Advisory Sweden Management Consulting Telephone