Cloud. Access. Data. Government. Innovation. Exploring the Cloud. Information. Digital economy. Storage. Efficiency. Cost savings. On-demand.

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1 GOVERNMENT Exploring the Cloud A Global Study of Governments Adoption of Cloud kpmg.com Citizens Cloud Information Network Collaboration Transformation Web-based On-demand Risk mitigation Innovation Storage Cost savings Efficiency Government Servers Services Access Data Security ApplicationsUsers Digital economy e-governmentpublic Sector

2 Cloud is here. And as the accompanying research reveals, its promise is becoming real.

3 Exploring the Cloud: A Global Study of Governments Adoption of Cloud 1 Foreword Cloud environments are already at work today reducing operating costs in some cases substantially. Such models are enabling optimization of asset utilization and flexibility in both the scale and scope of IT services and hardware. Less of a revolution, as the hype might suggest, and more of a long-anticipated next phase in the evolution of information technology (IT), nonetheless cloud s arrival carries profound implications for IT provision for governments. The era of cloud will likely offer an array of ancillary benefits. For example, cloud is proving to be an engine of innovation. Many government agencies around the world are exploring a host of new services for, and interactions with, other groups within government as well as citizens. Further, as cloud reduces the footprint of IT operations, agencies are free to focus more on the effectiveness of their programs, and less on the management of IT. Of course, there are challenges such as data security and governance. But, according to this research, the experience of those moving forward with cloud has shown that such risks can be adequately addressed. In fact, it seems more likely that cloud will actually enhance data security. Other challenges range from a lack of government-specific applications to a dearth of investment capital. But again, those who participated in this research say such issues can easily be addressed and given the payoffs, must be overcome. The opportunity awaits, and for many the exploration has begun. This report is the third in a series on cloud from KPMG International, and seeks to offer guidance and insight to help those in the public sector get ready to move forward. To view the other KPMG cloud reports, please visit KPMG.com. Thank you to the many government officials around the world who gave generously of their time and insight as part of the research that provided the foundation for this paper. John Herhalt Global Chair KPMG Government & Infrastructure KPMG International Ken Cochrane Partner KPMG in Canada

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5 Table of contents Executive summary 4 Introduction: the evolution of cloud-enabled government 5 Governing from cloud 8 How the public sector is taking advantage of cloud technology 8 Drivers of change 9 Ensuring security and building trust 16 Unique challenges for the public sector 18 A clear mandate: adopt cloud! 21 A world of progress 21 Cases in point 27 Adoption will come 29 The transformation agenda 31 Creating a cloud-infused government 31 Driving innovation 31 Getting there: six tips for creating traction 33 Conclusion 37 Insights and implications 38 About the survey 42 Additional reading 43

6 4 Exploring the Cloud: A Global Study of Governments Adoption of Cloud Executive summary How are governments planning for and adopting cloud? What are the challenges of cloud-enablement? How will the integration of cloud technologies disrupt the status quo of governance? More importantly, what are governments doing to ensure they get the most from their cloud investments? These are just some of the questions that KPMG International hopes to answer with this report. Working in conjunction with Forbes Insights, close to 430 public-sector government executives from 10 countries were surveyed to learn more about their cloud strategies and expectations. Key findings are as follows: Government adoption of cloud is happening slowly, but is poised to accelerate: When it comes to exploring the opportunities of cloud, not surprisingly the public sector is well behind the private sector. Survey results find that the progress of government entities significantly lags that of their for-profit counterparts by 9 to 13 percent. Only 12 percent of government executives say that over 10 percent of their agencies overall annual IT resources are allocated to cloud in By the end of 2012, this figure is anticipated to more than double to 28 percent. Countries leading the way in cloud adoption are Australia, Italy and Denmark. The public sector has modest expectations of cloud: Only 50 percent of government respondents expect to gain some cost advantages with cloud; only 28 percent expect it to fundamentally change their model for operations; and just 39 percent expect it to change interaction with constituents. Security remains the biggest concern, but certification would help: Concern with security was cited by almost half of all government respondents (47 percent) as their most significant concern, only exceeding the private sector slightly at 44 percent. Among the largest government entity respondents of the survey, the figure rises to 56 percent, the highest level of concern cited by any group. However, almost 80 percent said they would be more confident if cloud services were certified by a government body. This report examines the implications of these findings on governments, citizens, cloud service providers and IT leaders. Responses from the global business survey of 808 business executives are referenced to provide further context. Throughout, we combine the deep experience of KPMG member firms professionals with the results of a series of in-depth interviews that were conducted with government leaders from around the world. The results provide insight into the current state of government cloud and offer an important benchmark for public sector organizations globally.

7 Exploring the Cloud: A Global Study of Governments Adoption of Cloud 5 Introduction: the evolution of cloud-enabled government Cloud Hosted IT services delivered on a shared, internet-based platform. Government entities are starting to embrace cloud, but what does that mean for the public sector? Cloud technology constitutes a change in computing and knowledge management, with hosted IT services delivered on a shared, internet-based platform. The real value of this type of environment is the ability to use that platform to combine data access and exchange with access to low-cost computing and applications to provide efficiency and flexibility (see Figure 1). Research methodology The information in this report is based on the results of surveying 429 government executives and managers in 10 countries, as well as 808 executives in the private sector. The research was done in May 2011 by Forbes Insights in collaboration with KPMG International. Additionally, a series of one-on-one interviews, were conducted with government leaders from around the world. Respondents break-down as follows: Size of organization: All agencies and companies have annual budgets or revenues of at least US$200 million. Forty-six percent of government agencies surveyed have budgets of US$1 billion or more; 23 percent have budgets of US$10 billion or more. Forty-two percent of private-sector companies have revenues of US$1 billion or more; 20 percent have revenues of US$10 billion or more. Level of government and title: Fifty-three percent of respondents to the government survey work at the national level, 25 percent at the regional level, and 22 percent at the local level. Thirty-one percent of respondents to the government survey have C-level titles; 46 percent have C-level titles in the private-sector survey. Countries: Countries in the government research include Australia, Canada, Denmark, Italy, Netherlands, Singapore, South Africa, Spain, United Kingdom, and United States. Twenty-nine percent of government respondents are located in the Americas, 22 percent in Asia/Pacific, and 50 percent in Europe/Middle East/Africa. For the private-sector survey, the geographic distribution was 43 percent Americas, 32 percent Asia/Pacific, and 25 percent Europe/Middle East/Africa.

8 6 Exploring the Cloud: A Global Study of Governments Adoption of Cloud Definitions IaaS Infrastructure as a Service: Infrastructure traditionally provided by servers, desktops and network equipment is instead delivered over the internet and can be scaled up or down as needed. PaaS Platform as a Service: Software development, storage and hosting are accessed as a service over the internet. SaaS Software as a Service: On-demand applications provided through an internet browser, eliminating the need to install, run and maintain programs on internal systems. BPaaS Business Process as a Service: Business process outsourcing (BPO) is provisioned using a cloud computing model; bundled with SaaS/ PaaS/IaaS and delivered over the internet. Like other potentially transformative innovations, cloud will take some time for users to fully understand its full potential and get past its initial mystique, build and make it work, prove and develop its credibility, and operationalize and move it to broad adoption. There is still much work to be done. However, as results of this research suggest, momentum is building, but governments remain cautious. Figure 1: Cloud environment Cloud Environment = Internet-based data access and exchange + Internet-based access to low-cost computing and applications Virtualized Technology Virtualized Processes Opportunities to Leverage Commoditized Enterprise Applications and Economies of Scale Virtualized Organization Virtualized Business Models Speed to Market Improve Working Capital Reduce Invested Capital Reduce Cost of Goods Sold Reduce General and Administrative Costs (SG&A) Source: KPMG in the US 2011, Cloud environment

9 Exploring the Cloud: A Global Study of Governments Adoption of Cloud 7 The promise of cloud is that it can bring together practices, tools, and technologies that will better position a government department to operate in a significantly more efficient, predictable, flexible, and accountable manner. The benefits of the cloud for the CIO The advantages of adopting cloud can be profound for government IT departments, starting with the reduction or redirection of on-site IT staff as well as the ability to access IT resources and infrastructure as needed. For the CIO and the senior IT team, cloud can also deliver the added benefit of reducing the time needed to manage IT infrastructure, and therefore increase the IT function s ability to focus on developing stronger programs and services for citizens, businesses, and other stakeholders. CASE 1: Ontario, Canada examines the benefits Canada s Ron McKerlie Deputy Minister of Government Services, Associate Secretary of the Cabinet, and Secretary of the Management Board of the Cabinet is taking a hard look at cloud-enabled processes. And what he s keen to learn is whether or not there s a prize here, financial or otherwise. In practical terms, McKerlie is involved in a pilot project, testing the cloud-based wares of a major technology provider. We were actually very anxious to get some experience with private cloud technologies, McKerlie explains. So we were delighted when we were approached and so far it s been a great opportunity. The work-to-date centers on accessing and managing common shared services like and collaboration tools. And in McKerlie s opinion, so far, the project has been a success. Now, says McKerlie, we re better informed, and are now in a position where we can harvest some of the learning to see what potential exists for the cloud in the Ontario Public Service. Still, the approach remains cautious just one step at a time. We want to make certain not only of what we think we know, but of what we might not know. And there are other, more conscious concerns. If our private data is in the hands of a US supplier or provider, US legislation allows their government to obtain private data without notification. This, says McKerlie, is a big deal for us, particularly given the amount of personal information, such as health data, that we hold for the citizens of Ontario. Such concerns aside, McKerlie says the pilot project is likely just a first baby step. A possible next step could be a private cloud offering services such as to related government entities. We ve built a Tier 4 data center, and now we have several agencies interested in getting service. A government cloud, says McKerlie, could be set up to provide municipalities or broader publicsector entities or agencies with the services they need.

10 8 Exploring the Cloud: A Global Study of Governments Adoption of Cloud Governing from cloud Public vs. Private: Exploring cloud When it comes to exploring the opportunities of cloud, the public sector seems well behind the private sector. Survey results find that the progress of government entities significantly lags that of their for-profit counterparts by 9 to 13 percentage points. How the public sector is taking advantage of cloud technology The results of this survey find that a large number of government entities are already taking steps to better understand and potentially capitalize on the many advantages that cloud offers. For this research, three core elements were used to provide evidence of this shift: the development of a cloud strategy, the testing of a proof of concept, and the partial implementation of a cloud environment. Survey results show that approximately a quarter of governments around the world are moving forward with exploring the benefits of cloud (see Figure 2). Developing a strategy Figure 2: Evidence of a shift to cloud Which of the following activities has your organization undertaken as part of its move toward adopting/implementing a cloud environment? 29% 38% Testing of a proof of concept 24% 35% Partial Implementation 19% 32% 0% 5% 15% 20% 25% 30% 35% 40% Government/Public sector Source: KPMG International 2012, Government Cloud Survey KPMG International 2011, Clarity in the Cloud Private Sector

11 Exploring the Cloud: A Global Study of Governments Adoption of Cloud 9 Public, private or hybrid cloud? Cloud services are often developed in one of two ways: (1) private clouds, where the services are dedicated to a single party that retains direct management oversight; and (2) public clouds, where non-related parties may reside on the same servers and are primarily managed by a third party. Hybrid clouds, as the name suggests, are combinations of these two methods. A number of governments are also exploring the concept of Community Clouds envisioned as a rules-based environment shared by organizations with similar needs, perspectives or requirements, such as geography, industry, or supply chains. Figure 3: Types of cloud environments What type of cloud environment does your organization use/intend to use? Private cloud 32% Public cloud 22% Hybrid cloud 26% Community cloud 13% No plans to adopt cloud 8% Don t know 23% 0% 5% 15% 20% 25% 30% 35% Source: KPMG International 2012, Government Cloud Survey Drivers of change The transition to a more cloud-centric model is under way. For government respondents, some of the most influential drivers appear to be potential cost savings, and the pursuit of increased efficiency and effectiveness -- if not wholesale process transformation. But expectations are modest. Only 50 percent expect potential cost savings from cloud (Figure 4).

12 10 Exploring the Cloud: A Global Study of Governments Adoption of Cloud Economic drivers Governments are seeing the potential for achieving cost reduction by migrating to a more virtual operating model through the adoption of cloud as critical. Some are already identifying potential cost savings, such as reduced invested capital by using less IT infrastructure and lower administrative costs by requiring fewer internal staff to perform processes. Figure 4: Expected impact of cloud Which of the following best describe the potential impact of cloud on your business model/operations? It will fundamentally change our business model 28% 32% It will change our interaction with customers (i.e., constituents/citizens) and suppliers It will provide management with greater transparency on transactions 32% 37% 39% 39% It will reduce costs 50% 50% It will accelerate time to market 24% 35% No significant impact 12% 18% Other (Please specify) 3% 1% 0% 20% 30% 40% 50% Government/Public sector Source: KPMG International 2012, Government Cloud Survey KPMG International 2011, Clarity in the Cloud Private sector Seventy-six percent of government respondents describe cost and related economic factors as either extremely important (41 percent) or important (35 percent) to their organization s decisions surrounding cloud adoption (see Figure 5). Budget deficits and austerity programs in so many nations provide a compelling reason for governments to take a closer look at the potential for savings. John Hermans KPMG in the Netherlands Figure 5: Importance of economic factors (e.g., cost savings, shift capital expenditures to operational expenditures) How important are the following factors in driving your organization s adoption of a cloud environment? Extremely important Important Neither important nor unimportant Unimportant Extremely unimportant 2% 3% 2% 2% 19% 19% 41% 37% 35% 40% 0% 20% 40% 60% 80% 100% Government/Public sector Private sector Source: KPMG International 2012, Government Cloud Survey KPMG International 2011, Clarity in the Cloud

13 Exploring the Cloud: A Global Study of Governments Adoption of Cloud 11 Public vs. Private: Impact of cloud The public sector and private sector are on par when it comes to the impact of cloud on business models and consumer/citizen interaction. But government is slightly more optimistic on the influence of cloud on transparency: 37 percent of publicsector respondents say cloud will make operations and performance more transparent to management, versus 32 percent in the private sector. Government respondents indicate that funding for cloud initiatives will only be forthcoming if significant cost savings can be achieved. Almost three quarters (73 percent) of government respondents say that cost reductions are necessary for their organizations to move to a cloud environment (Figure 6). Figure 6: Need for cost reductions Are cost reductions/savings necessary for your organization to move to a cloud environment? Yes No 27% 25% Government/Public sector 73% 75% 0% 20% 40% 60% 80% 100% Private sector Source: KPMG International 2012, Government Cloud Survey KPMG International 2011, Clarity in the Cloud To move to cloud, just how significant will those cost savings need to be? According to survey results, more than a quarter of respondents need to achieve savings of up to 10 percent, slightly less (21 percent) require savings of up to a quarter of their costs, and one in ten respondents say they would need cloud to deliver at least a 25 percent savings on current costs (see Figure 7). Figure 7: Required cost savings What percentage reduction in IT or non-it costs do you believe would be needed? More than 25% 11% 9% 11 25% 21% 32% 1 27% 43% Don t know 29% 0% 20% 30% 40% 50% Government/Public sector Private sector Source: KPMG International 2012, Government Cloud Survey KPMG International 2011, Clarity in the Cloud

14 12 Exploring the Cloud: A Global Study of Governments Adoption of Cloud Who will lead? In the planning and implementation phase, government respondents are most likely to view leadership as the responsibility of the CIO (29%), with a government equivalent of the CEO a close second (21%). Once under full implementation, the CIO remains the most frequently cited executive followed by the CTO and the COO. Figure 8: Leader of a cloud environment Who should be responsible for managing service level performance of external cloud providers after a cloud environment has been adopted? Chief Information Officer CIO 27% Chief Technology Officer CTO Chief Operations Officer COO Chief Executive Officer CEO/Minister/Secretary 14% 15% Chief Financial Officer CFO EVP/SVP/Deputy Minister/ Under Secretary/DG Other C-level executives Misc. Others (Senior Directors, Managers, Managing Directors, etc.) 5% 6% 6% 16% 0% 5% 15% 20% 25% 30% Source: KPMG International 2012, Government Cloud Survey

15 Exploring the Cloud: A Global Study of Governments Adoption of Cloud 13 If achievable, this would represent a critical benefit for government, where it is important to be flexible. There are often policy changes, amendments to regulations or laws that can result in a need to ramp up fast. Ann Steward Australian Government Chief Information Officer and Deputy Secretary, Department of Finance and Deregulation However, many are not yet convinced the cost savings of cloud are real, accessible, or even sustainable. As Ron McKerlie 1 of the Ontario Ministry of Public Services explains, We ve heard the claims that there are some cost savings to be had. Certainly, we are interested in those if they can be realized, but it remains to be seen whether they really are or aren t there. While Dave McClure, Associate Administrator of the Office of Citizen Services and Innovative Technologies at the US General Services Administration (GSA), says that his group s early experiences are showing real benefits so far, including greater agility, solution support simplification, and lower costs. Still, he wonders, what will happen in the long run are the gains sustainable? Technical change drivers Government also seems eager to gain a clearer picture of the potential enterprisewide benefits of cloud environments, especially flexibility, scalability, simplicity, security, and advanced technology. Seventy-nine percent of government respondents cite technical change drivers as either extremely important (39 percent) or important (40 percent) to cloud adoption (Figure 9). Figure 9: Importance of technical change drivers How important are the following factors in driving your organization s adoption of a cloud environment? Technical factors (e.g., flexibility, scalability, simplicity, security, advanced technology) Extremely important Important 39% 37% 40% 42% Neither important nor unimportant 18% 16% Unimportant Extremely unimportant 1% 3% 2% 1% 0% 20% 30% 40% 50% Government/Public sector Private sector Source: KPMG International 2012, Government Cloud Survey KPMG International 2011, Clarity in the Cloud 1 Mr. McKerlie s full title: Deputy Minister of Government Services, Associate Secretary, of the Cabinet and Secretary of Management Board of the Cabinet.

16 14 Exploring the Cloud: A Global Study of Governments Adoption of Cloud Strategic factors As Pat Howard, an IBM partner and VP for global services, maintains, This opens up strategic avenues that weren t there before. Among agencies and public sector initiatives, there will be a level of optimization, market responsiveness, and agility that governments just couldn t achieve in the past. Interestingly, larger government entities (those with 1,000 or more employees) are significantly more likely to find strategic drivers to be extremely important than are smaller entities (those with under 1,000 employees). Forty-two percent of larger government entities describe strategic benefits as extremely important versus only 27 percent of smaller entities (Figure 11). Figure 10: Importance of strategic factors How important are the following factors in driving your organization s adoption of a cloud environment? Strategic factors (e.g., process transformation, linkage to business/ organization partners, speed to market/implementation, focus on core competencies) Extremely important 30% 33% Important 40% 44% Neither important nor unimportant 19% 23% Unimportant Extremely unimportant 5% 3% 2% 2% 0% 20% 30% 40% 50% Government/Public sector Private Sector Source: KPMG International 2012, Government Cloud Survey KPMG International 2011, Clarity in the Cloud

17 Exploring the Cloud: A Global Study of Governments Adoption of Cloud 15 Figure 11: Importance of strategic factors by size of government organization How important are the following factors in driving your organization s adoption of a cloud environment? Strategic factors (e.g., business process transformation, linkage to business partners, speed to market, focus on core competencies) Extremely important Important Neither important nor unimportant Unimportant Extremely unimportant 0% 2% 2% 2% 3% 2% 5% 3% 16% 21% 21% 27% 28% 30% 35% 33% 37% 42% 44% 47% 0% 20% 30% 40% 50% Public sector with less than 1,000 employees Public sector with 1,000 or more employees Private sector with less than 1,000 employees Private sector with 1,000 or more employees Source: KPMG International 2012, Government Cloud Survey Tracking ROI What metrics will governments be tracking as they adopt cloud technologies? According to our survey, key performance indicators will include those relating to cost, productivity, and revenue. Figure 12: Key performance indicators Which of the following key performance indicators (KPIs) or metrics are/will be used by your organization to measure the return on investment (ROI) of a cloud environment? Productivity 49% Cost 57% Revenue 28% Access to markets 22% Other (please specify) 2% Cloud ROI not measured 6% Don t know 20% 0% 20% 30% 40% 50% 60% Source: KPMG International 2012, Government Cloud Survey

18 16 Exploring the Cloud: A Global Study of Governments Adoption of Cloud Ensuring security and building trust Public vs. Private: Security Government concerns over security only slightly exceed those of the private sector (47% vs. 44% respectively). But among the largest government entity respondents of the survey, the figure rises to 56%, the highest level of concern cited by any group. Security and privacy concerns are the most significant barriers to public sector cloud adoption (see Figure 13). As Geoffrey Weber, partner with KPMG in the US, explains, Data security is probably the number one concern for most government agencies contemplating cloud. Already relatively more risk averse than privatesector companies, government agencies are meanwhile often privy to some of the most sensitive data available. This includes not only citizens personal information, but also data relating to national security interests in agencies like the Department of Homeland Security or the Department of Defense. Thus, these government executives heightened concerns, says Weber, aren t unreasonable. Figure 13: Top challenges of adopting a cloud environment What do you believe are the top challenges or concerns your organization faces in adopting a cloud environment? Security Regulatory compliance IT governance 14% 18% 24% 24% 44% 47% 0% 20% 30% 40% 50% Government/Public sector Private sector Source: KPMG International 2012, Government Cloud Survey KPMG International 2011, Clarity in the Cloud Not only is personal data held by government often quite sensitive, but governments are also a favorite target for hackers. We are regularly under attack, says McKerlie of the Ontario Ministry of Government Services. It s just amazing the number of threats that come at us in the course of a day. Consequently, he says, we have to make certain that whatever we implement in security terms is incredibly robust. Data security is also a primary concern for the United State General Services Administration (GSA). In December 2010, the GSA became the first federal government agency in the US to move its entire function to a cloud model. McClure maintains that at least in the case of his agency s cloud provider, security is a strong competency. Most government CIOs know their own security program s strengths and weaknesses, he explains. But if they evaluate a cloud services provider and go through a solid baseline check for certification and accreditation and examine continuous monitoring capabilities they may walk away very impressed. In general, says McClure, the commitment to security and the level of controls tend to be stronger for cloud services because these providers are being continually challenged. Overall, says McClure, if security is set up and managed correctly, there can be security advantages to working in a cloud environment. Figure 14: Security concern by size of organization Less than 24% 33% 1,000 employees 43% 1,000 or more employees 24% 45% 56% 0% 20% 30% 40% 50% 60% Government/Public sector Private sector Source: KPMG International 2012, Government Cloud Survey KPMG International 2011, Clarity in the Cloud

19 Exploring the Cloud: A Global Study of Governments Adoption of Cloud 17 The value of certifications Survey participants indicate that they would feel more comfortable moving forward with cloud if there is a means of certification: a stamp of approval on issues such as appropriateness, effectiveness, and security. This certification appears to be of greater perceived benefit to smaller government entities. Figure 15: Easing of concern with certification by different entities If there were a certification of cloud services by the following entities, would it ease any of the concerns you have about adopting a cloud environment for your organization? Certification by government body No 90% Yes 40% No 60% Yes 21% No 79% Yes Under 1,000 Employees Over 1,000 Employees All Public Sector Respondents Certification by independent, non-profit body 37% No 63% Yes 72% No 28% Yes 53% No 47% Yes Under 1,000 Employees Over 1,000 Employees All Public Sector Respondents Certification by independent, for-profit body 70% No 30% Yes 72% No 28% Yes 62% No 38% Yes Under 1,000 Employees Over 1,000 Employees All Public Sector Respondents Source: KPMG International 2012, Government Cloud Survey

20 18 Exploring the Cloud: A Global Study of Governments Adoption of Cloud Many government decision-makers are still somewhat skeptical of outsourcing their data security to cloud. Executives want assurances that systems will be up-andrunning when needed, explains Geoffrey Weber. And they also want to be certain that data will be secure and privacy is protected. But given the nature of cloud, there s not a long track record and this causes some concern amongst government IT leaders and executives. Dr. Bernd Welz, Senior Vice President at enterprise software-focused SAP, says that as time passes, executives will come to recognize that cloud-based processes represent an advancement in both up-time and security. Any data center at any company can go down from time to time. So there s already risk in running your own servers, says Welz. But by comparison, the risk of a cloud provider failing materially for any extended period is substantially lower. The difference in the overall risk-profile is significant. Unique challenges for the public sector While there are strong lessons to be shared between the two sectors, government decision-makers face a number of challenges that are unique to the public sector. Embracing risk Governments face a very different risk/reward environment in comparison to the private sector. Government enterprises have less incentive to take on the risks of new and arguably untested technologies. Businesses get rewarded for taking on and successfully managing risk; do that well and earn a profit, notes Iain Gravestock, partner with KPMG in the UK. In the public sector, if you take a risk and succeed, you might get a pat on the back but not much more; but if you fail if your pensioners don t get their checks, or if you botch privacy protection you will be in a world of trouble. Managing complexity When it comes to size and scope of operations, government enterprises can vary substantially from the typical private sector corporation. As KPMG in Canada partner Ken Cochrane explains, Governments are generally very large, very complex, and run literally hundreds of different programs, each equivalent to business lines in the private sector. By comparison, most corporations are smaller and less widely dispersed. For example, in Ontario, Canada, there are some 1.2 million people working in the broader public sector, says McKerlie. Meanwhile, this massive workforce is distributed across more than 2,000 locations, focusing on a wide array of often unrelated tasks. Overall, says Cochrane, the sheer size and scope of governments can make it a greater challenge to develop a broad ranging, government-wide cloud strategy, which is likely why governments, on balance, are moving a bit slower than corporations.

21 Exploring the Cloud: A Global Study of Governments Adoption of Cloud 19 Centralized vs. regional strategies While government agencies often strive to maintain a wide geographic presence and employment across their jurisdiction, cloud environments tend to pull resources out of dispersed operations and into a more concentrated model. Of course, cloud also enables disperse locations and mobile employees to achieve greater connectivity to the organizational IT infrastructure, which may further enable a geographically-distributed workforce. CASE 2: The bleeding edge the UK s Essex County Council David Wilde is the CIO for the Essex County Council in the UK. This organization is responsible for many aspects of public sector service delivery, including schools, adult social care, environment and waste management, as well as the payment of certain types of benefits and the collection of various revenues. According to Wilde, Cloud is no longer a promise it s a reality and those in government can no longer afford to wait on the sidelines. Wilde s ideal IT environment consists of the following elements: It begins with a model for service delivery that s based on cost per user, per annum, and scales as needed. From there, Wilde wants an infrastructure that is available whenever and wherever office, home, or out and about; interoperates across all of its subsystems rather than being restricted within any silos; completely converges voice, data, and video on a single stack; and finally, enables integration with the full range of social media. It sounds like a tall order. But according to Wilde, its achievement is not as hard as people believe. One of the biggest challenges is changing out legacy systems, both of the end-user and among providers. The migration can be expensive. But according to Wilde, the lower ongoing costs and superior flexibility of cloud-based models make for an irresistible investment case. Operating in a cloud environment, says Wilde, is reducing his group s operating spending by 26 percent. In certain areas, the savings are even more compelling. For example, You can save 40 percent or more by integrating voice, data, and video. Another challenge, says Wilde, is sorting out the data security issues. Here, many government groups say cloud isn t yet secure enough for their needs. According to Wilde, however, with a little hard work and common sense, the security issues can be reconciled. In particular, says Wilde, people should stop thinking of this as a technology issue the technologies can deliver all the security you have now and more. The real challenge, says Wilde, is legal: Which nations will protect your data and which will not? To Wilde, fears about legislation like the US PATRIOT Act are misplaced. Any government could step in and demand access to information on its shores, says Wilde. But what s refreshing about the PATRIOT Act is that here s a government finally admitting what the rest of us already know. What government agencies should do, says Wilde, is make certain their data resides in nations with sufficient legal frameworks to ensure fair treatment, due process and damages when and if applicable. Such attributes will tend to rule out any capricious data breaches. Of course, this rules out most of the developing world. I will allow data to reside in Poland; I will not put it out to some developing countries not until they have suitable legal frameworks, which is likely a long way off. But that s okay, says Wilde, because owing to energy costs, you would want your data in more temperate climates anyway. Wilde says that the Essex County Council is on track to achieve his vision of the ideal IT platform by Nonetheless, he insists, most of his group s activities are by no means on the cutting edge. Rather, says Wilde, all we re really doing is following the private sector. Most of what we want to achieve, they re already doing by routine. Where Wilde s group is breaking new ground is in its pursuit of government sector-specific solutions. As Wilde explains, you can t buy a package to meet our needs in social care, for example. So, we have to be the guinea pigs, driving the development. But there can be advantages to leading. Because we re the first to do something, we re in close collaboration with providers and that means we have a big say in how it will be designed and what it can deliver. Are there dangers in moving so far and so fast? Wilde says he acknowledges the risks, but finds them to be well understood and eminently manageable. If we were to get it wrong that could be a problem. The answer, according to Wilde: We ll just have to make absolutely sure we don t get it wrong.

22 20 Exploring the Cloud: A Global Study of Governments Adoption of Cloud UK Government G-Cloud Strategy In March 2011, the UK Government published a Government Cloud (G-Cloud) Strategy, a sub-strategy of the UK government s ICT strategy. The vision is to have the government use multi-tenanted services, shared and managed by multiple organizations across the UK public sector. Shared resources, infrastructure, software and information will be provided to a range of end user devices, on a pay by use basis, via a network connection in many cases the internet. It will be dynamically scalable, agile, and easy to move in and out of the service. G-Cloud is not a single entity, but an ongoing and iterative program of work to enable the use of a range of cloud services throughout the public sector. By adopting cloud computing, the government will be able to more easily exploit and share commodity ICT products and services. This enables the move from high-cost customized ICT applications and solutions to low cost, standard, interchangeable services where quality and cost is driven by the market. The objective is for government to adopt a public cloud solution first policy where possible. It has been recognized that simply buying cloud technology will not, in itself, save money. The greatest value will be gained by the government changing the way that it buys and operates ICT. One of the key elements of the Cloud Strategy will be the Government Application Store. This will take the form of an online portal, and will provide an open marketplace displaying services that can be procured, used, reviewed and reused across the public sector.

23 Exploring the Cloud: A Global Study of Governments Adoption of Cloud 21 A clear mandate: adopt cloud! A world of progress While the public sector may face a number of realities that complicate cloud adoption, the factor that is becoming a powerful force for accelerating adoption is the growing number of national governments that have already implemented or are in the process of implementing policies that drive a shift toward cloud-based processes. The survey results from this research highlight that countries are moving ahead with cloud exploration and adoption at different rates. Leading the way are Australia, Italy, and Denmark, with almost one third of respondents in each nation saying their organizations are moving to full implementation. Singapore looks to be readying itself to follow them closely, with slightly more than one in three of respondents citing moves toward partial implementation, 46 percent citing testing of a proof of concept, and 40 percent developing a strategy (Figure 16). Governments expect to experience a range of challenges in adopting cloud environments. Respondents in Canada (64 percent), the United States (57 percent), and the United Kingdom (56 percent) are the most concerned about security. Canadians (23 percent) are the most skeptical about whether the promise of cloud can be realized, while approximately a third of respondents from South Africa, Denmark, Australia, and Canada cited concern about IT governance (Figure 17). When it comes to governments supporting the use of cloud for their constituents, data security and privacy issues tend to be a priority concern, but some countries seem to show heightened concern in this area. Almost two-thirds of respondents in Singapore, Canada, the United Kingdom, South Africa, and the United States cited security and privacy as a challenge, versus just 31 percent in the Netherlands (Figure 18). South Africa appears to be the most concerned about challenges across the board: security and privacy tied with lack of resources/skills to assess or implement a cloud environment (59 percent), closely followed by lack of funding, and potential fraud and corruption (both 56 percent).

24 22 Exploring the Cloud: A Global Study of Governments Adoption of Cloud Figure 16: Country adoption comparison Which of the following activities has your organization undertaken as part of its move towards adopting/implementing a cloud environment? Assessing and exploring the value proposition of the cloud 15% 22% 24% 26% 24% 41% 44% 47% 46% 56% Developing a strategy 13% 17% 21% 26% 36% 35% 35% 40% 40% 39% Testing of a proof of concept 7% 14% 16% 23% 26% 26% 29% 39% 46% Partial implementation 6% 8% 12% 12% 15% 18% 19% 31% 33% 35% 0% 20% 30% 40% 50% 60%

25 Exploring the Cloud: A Global Study of Governments Adoption of Cloud 23 Full implementation 2% 5% 7% 12% 14% 18% 31% 29% 30% None of the above 0% 2% 9% 6% 8% 11% 13% 17% Don't know 0% 6% 12% 16% 21% 21% 31% 42% 42% 0% 20% 30% 40% 50% 60% Canada US Australia Singapore Denmark Italy Netherlands Spain UK South Africa Source: KPMG International 2012, Government Cloud Survey Note: Country-specific responses are not statistically significant and should be used for directional purposes only.

26 24 Exploring the Cloud: A Global Study of Governments Adoption of Cloud Figure 17: Country challenges with adoption What do you believe are the top challenges or concerns your organization faces in adopting a cloud environment? Response time 5% 4% 13% 19% 18% 19% 24% 27% 29% Security 33% 32% 37% 39% 40% 48% 47% 57% 56% 64% Difficulty integrating cloud with existing systems 8% 17% 25% 22% 23% 23% 23% 22% 35% 35% Loss of control over data with respect to customers 8% 16% 14% 21% 19% 18% 16% 15% 32% Availability 0% 6% 5% 7% 12% 12% 15% 16% 15% 21% Performance 12% 16% 19% 18% 17% 27% 27% 27% 33% 32% IT governance 15% 15% 19% 20% 19% 23% 31% 33% 35% 37% Regulatory compliance (i.e. privacy, data retention, software licensing, etc.) 12% 22% 21% 21% 18% 18% 22% 27% 33% 40% 0% 20% 30% 40% 50% 60% 70% 80%

27 Exploring the Cloud: A Global Study of Governments Adoption of Cloud 25 Canada US Australia Singapore Denmark Italy Netherlands Spain UK South Africa Lack of confidence in ability of cloud vendors to perform 0% 0% 5% 5% 12% 13% 13% 17% Dissatisfaction with offerings/ pricing by vendors 0% 3% 3% 5% 6% 6% 7% 8% Lack of customization opportunities 0% 2% 6% 6% 7% 7% 8% 8% 12% 12% Measuring ROI 5% 7% 7% 8% 9% 13% 13% 16% 18% Not sure the promise of a cloud environment can be realized 5% 7% 8% 19% 18% 23% Difficulty making a business case for adopting a cloud environment 3% 5% 5% 5% 6% 7% 9% 17% Lack of clarity/detail related to billing 0% 2% 3% 4% 5% 7% 8% 12% Other (please specify) 0% 0% 0% 0% 2% 3% 3% 3% 4% 7% 0% 5% 15% 20% 25% Source: KPMG International 2012, Government Cloud Survey

28 26 Exploring the Cloud: A Global Study of Governments Adoption of Cloud Figure 18: Country challenges with supporting citizen use What would be the main challenges to your government supporting the use of the cloud environment for everyone in your country? 13% Lack of necessary technical infrastructure 22% 26% 24% 13% 14% 25% 40% 40% 44% Data security and privacy issues 31% 44% 47% 40% 41% 57% 61% 60% 59% 62% Defining appropriate policies and regulations for the service 18% 23% 29% 30% 27% 31% 33% 40% 40% 44% Assurance on meeting regulatory compliance 15% 21% 23% 28% 29% 33% 33% 35% 37% 41% Lack of resources/skills to assess or implement a cloud environment 8% 5% 12% 13% 20% 19% 21% 25% 33% 59% Lack of funding 19% 18% 29% 31% 33% 32% 41% 44% 47% 56% 19% 21% 25% Fraud and corruption 25% 29% 20% 21% 30% 27% 56% 16% 17% 23% Lack of leadership support 0% 12% 13% 8% 8% 34% Lack of government-wide agreement on specific direction 26% 25% 23% 22% 33% 35% 33% 41% 46% 16% 21% Don t know 0% 2% 8% 13% 14% 18% 26% 31% Note: Country-specific responses are not statistically significant and should be used for directional purposes only. 0% 20% 30% 40% 50% 60% 70% 80% Canada US Australia Singapore Denmark Italy Netherlands Spain UK South Africa Source: KPMG International 2012, Government Cloud Survey

29 Exploring the Cloud: A Global Study of Governments Adoption of Cloud 27 Cases in point Singapore: The government of Singapore began its journey to cloud as early as 2005 with the implementation of a whole-of-government shared infrastructure which provides computing resources to government agencies on an as a service subscription model. James Kang, Assistant Chief Executive from the Infocomm Development Authority of Singapore (IDA), says that, from here, it is the role of IDA to conceptualize, define, and implement a central government cloud to facilitate government agencies adoption of cloud computing. This central government cloud, called G-Cloud, says Kang, will become the core of the next whole-ofgovernment infrastructure. United Kingdom: In the UK, the country published its Digital Britain report in 2009, a document outlining that nation s roadmap for assuming and maintaining a leadership role in an increasingly digital global environment. Where the investment is going Thirty-eight percent of government respondents say their investments will skew toward Software as a Service (SaaS). While less frequent, investments in Platform as a Service (PaaS) and Infrastructure as a Service (IaaS) were cited by more than a quarter of government respondents. Figure 19: Preferred type of cloud environment Which of the following cloud environments will your organization most likely invest in? Software as a Service (SaaS) 38% Platform as a Service (PaaS) 28% Infrastructure as a Service (IaaS) 26% No plans to invest 9% Don t know 28% 0% 5% 15% 20% 25% 30% 35% 40% Source: KPMG International 2012, Government Cloud Survey

30 28 Exploring the Cloud: A Global Study of Governments Adoption of Cloud Canada: Shared Services Canada is a government agency focusing on identifying and realizing savings and efficiencies across the Canadian Federal Government. Announced in August 2011, the initiative aims to cut the total number of government data centers from over 300 to 20, while paring down the number of services from 100 to only one. Cloud-based processes and technologies, says KPMG s Cochrane, will necessarily play a prime role. United States: In July 2011, the US Office of Management and Budget added considerable substance, accountability, and transparency to its November 2010 Cloud First policy announcement, which requires agencies to give priority to web-based applications and services. In a speech given by OMB s Chief Performance Officer, it was officially announced that as of budget year 2012, all new federal government IT deployments must adopt cloud technologies wherever a secure, reliable, cost-effective cloud option exists. 2 South Africa: While the country faces a huge challenge in that the state of readiness of its computing infrastructure, of its citizens, and its government, isn t quite cloud-ready, says Isaac Mophatlane, Chief Executive at systems integrator Business Connexion Group LTD, the executive does believe that state agencies are now moving on developing standards that will help catalyze change. Consumer adoption and telecoms infrastructure will also play a part. South Africa is one of the fastest-growing markets for BlackBerry and for Apple, notes Mophatlane. As citizen demand for mobile technologies increases, infrastructure will tend to grow in lockstep. So conditions for cloud in government are improving. The rise of the Digital Economy Governments around the world are seeking to digitize their economies to connect all members of society through access to and the sharing of digital content via the internet from anyplace at anytime to work, play, consume and learn. Cloud is a platform that, when combined with the internet and a growing access to powerful personal devices, will make the Digital Economy truly possible. And while government executives will need to pay close attention to the security of information and services as well as the privacy of personal data, the increasing demand for cloud services will also drive rapid evolution of security and privacy capabilities. Ultimately, we expect to see the development of powerful identity management solutions that will prove more effective than any single organization could achieve on its own. Ken Cochrane KPMG in Canada 2 Speech by Jeff Zients, chief performance officer and deputy director for management, the US Office of Management and Budget, at the Northern Technology Council, Vienna, Va., July 2011.

31 Exploring the Cloud: A Global Study of Governments Adoption of Cloud 29 Public vs. Private: Cloud adoption According to respondents, publicsector adoption rates are expected to continue to lag those of the private sector through But what about over the longer term? Government s sheer size, says KPMG s Cochrane, means in the early stages of adoption, they will tend to plan carefully and move a little slower than the private sector. Adoption will come Cloud adoption rates are poised to accelerate within government in some cases dramatically. For example, only 12 percent of government executives say that over 10 percent of their agencies overall IT expenditures will be on cloud in of However, by the end of 2012, this figure is anticipated to more than double to 28 percent (Figure 20). Interestingly, many of the same forces that are hindering cloud adoption rates in government today could lead to exponential growth in both scale and scope in the years ahead. Some of the preliminary tasks currently slowing government adoption rates (such as developing standards, modules, and even approved vendor lists) will arguably accelerate deployment of future cloud-based infrastructures, applications and services. At the US GSA, for example, we ve set up an Infrastructure as a Service (IaaS) procurement vehicle, says McClure. It states how other groups can order what they need very fast and very simply. For needs like storage, hosting or virtualization, the offering is well developed, the vendors pre-vetted with a security accreditation, and the pricing is volume-based, and transparent. Greater adoption of standardization and vendor interoperability will help to accelerate cloud evolution. As SAP s Welz explains, the value of a solution is much greater if it s an integral part of the whole. Point solutions may be the most frequent path towards cloud today, but what customers soon learn is that further integration is vital. By some measures, government adoption could soon overtake the private sector. John Hermans, KPMG in the Netherlands 0% 1-2% 3-5% 6- Figure 20: Cloud budgets 2011 versus 2012 What do you estimate your organization will budget for cloud as a percentage of your annual IT expenditures in each of the next 2 years? 5% 7% 8% 14% 14% 16% 14% 18% 11-20% 8% 17% > 20% 4% 11% Don t know 31% 32% 0% 0 5% 5 15% 20% 25% 30% 35% Source: KPMG International 2012, Government Cloud Survey KPMG International 2011, Clarity in the Cloud